My Money Blog Portfolio Asset Allocation, March 2018

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Here is a First Quarter 2018 update for my primary investment portfolio. These are my real-world holdings, not a recommendation. It includes tax-deferred 401k/403b/IRAs and taxable brokerage accounts and excludes our primary home, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our regular household expenses. As of 2018, we have started the phase of “early retirement” where we are spending some of the dividends and interest from this portfolio.

Actual Asset Allocation and Holdings


I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (free, my review) automatically logs into my accounts, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my custom Rebalancing Spreadsheet (free, instructions) because it tells me where and how much I need to direct new money to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

1803_pc1b

1803_pc2b

Here is my more specific asset allocation, according to my custom spreadsheet:

1803_spread1

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I personally believe that US Small Value and Emerging Market will have higher future long-term returns (along with some higher volatility) than US Large/Total and International Large/Total, although I could be wrong. I don’t hold commodities futures or gold (or bitcoin) as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. I also try to imagine each asset class doing poorly for a long time, and only hold the ones where I think I can maintain faith.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio is 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and rebalance. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and income taxes.

Real-world asset allocation details. For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

I’m still a bit underweight in TIPS and REITs mostly due to limited tax-deferred space as I don’t want to hold them in a taxable account. My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I have been seriously thinking of going back to US Treasuries due to changes in relative interest rates and our marginal income tax rate.

My stock/bond split is currently at 69% stocks/31% bonds. I continue to invest new money on a monthly basis in order to maintain the target ratios. Once a quarter, I also reinvest any accumulated dividends and interest that we did not spend. I don’t use automatic dividend reinvestment. First of all, we spend some of our dividends now. In addition, I can usually avoid creating any taxable transactions unless markets are really volatile.

Performance and commentary. According to Personal Capital, my portfolio has basically broken even so far in 2018 (-0.70% YTD). I see that during the same period the S&P 500 has lost 0.63% (excludes dividends) and the US Aggregate bond index has actually lost 1.55%.

An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund (VASGX) and 50% Vanguard LifeStrategy Moderate Growth Fund (VSMGX), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of -0.98% YTD (as of 4/9/18).

In a separate post, I’ll share about more about the income aspect.



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Comments

  1. Jonathan, Thank you for the update. It may sound like a trivial question, but how is the fees different from investing in a Target retirement funds vs. investing in individual mutual funds like you do at Vanguard. Are the expense ratios for Target retirement funds typically higher than mutual funds? Please help understand this better. Would be great if you can detail it in a blog post.

    • The fees for a Vanguard Target Retirement fund are simply the weighted fees of the underlying funds. You do not pay an extra layer of fees for the “we put this stuff together and will rebalance for you” part. However, some other companies with Target Retirement funds will charge you an extra layer of fees.

      However, I believe the expense ratios are for the Investor shares. You may do better if you DIY but you’ll need enough money to buy Admiral Shares of all the funds, which would require roughly $40,000 in assets. In contrast, the Vanguard Target funds have only a $1,000 minimum. You could also shave off some expenses by not buying the international bond fund (which I don’t own), but that is an asset allocation decision.

  2. The expense ratios of admiral share class of VTSAX are 0.04 % and for a Target Retirement 2045 Retirement fund Investor fund are 0.15 % (via institutional investors i.e., your company 401k it is much cheaper and might be closer to 0.04%).

    Personally, I am in target retirement funds at Vanguard via IRA accounts and prefer it as it automatically re-balances and I do not need to keep track of it. Might move into individual MFs such as VTSAX, etc. at a later date.

  3. Sakthivel Nachimuthu says:

    Jonathan –

    I have a question. Do Personal Capital charge for using their product? When do they start charging? any idea?

    • Please read my Personal Capital review:

      http://www.mymoneyblog.com/personal-capital-review.html

      The financial tracking app is free. There is no trial, they don’t ask for credit card info, and they have never indicated that they plan to start charging.

      They make the app free and use it as an introductory tool for their portfolio management services, which do cost money. They will call you on the phone if you give them a number, but if you say “No” they will not bother you anymore. If you don’t answer, they will call again periodically. Again, just politely say no and that you just want the free app if that is the case. They were not pushy at all, at least they weren’t for me.

  4. The “early retirement” aside is intriguing. Have either of you “fully” retired? Last I recall, both of you were working roughly half time. If so, I’m very happy for you 🙂

  5. I think that overlooking gold, silver and Bitcoin is a mistake especially if there is a serious financial crisis. I am not saying “go all in” but I think it would be wise to allocate some of your investment portfolio as a hedge and for additional diversification. It is well documented that JP Morgan has been loading up on silver for years, and that China and Russia have been stockpiling gold reserves. Bitcoin is by its nature deflationary, and I suspect that it will go much higher once the big money institutions and public come to embrace it as a legitimate store of value.

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