MMB Portfolio Dividend & Interest Income – 2025 Q1 Update

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Here’s my 2025 Q1 income update as a companion post to my 2025 Q1 asset allocation & performance update. Even though I don’t focus on high-dividend stocks, income-focused ETFs or high-yield bonds – I still track the income from my portfolio as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. Here’s a related quote from Jack Bogle (source):

The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated after 2024 Q4 (via Yardeni Research):

Why I like tracking dividends in general. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. They have explicitly decided that they don’t need this money to improve their business, and that it would be better to distribute it to shareholders. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. Companies do buybacks as well, often because they are easier to discontinue. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total US Stock ETF (VTI) via StockAnalysis.com.

European corporate culture tends to encourage paying out a higher (sometimes even fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

The dividend yield (dividends divided by price) also serve as a rough valuation metric. When stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

In the case of REITs, they are legally required to distribute at least 90 percent of their taxable income to shareholders as dividends. Historically, about half of the total return from REITs is from this dividend income.

Finally, the last component comes from interest from bonds and cash. This will obviously vary with the prevailing interest rates, the real rates on TIPS, and the current rate of inflation. In 2025, we are finally back to getting paid a certain amount more than inflation on our cash.

Dividend and interest income from my specific asset allocation. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 4/1/24), which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed (usually zero for index funds) over the same period. My TTM portfolio yield is now roughly 2.69%.

In dividend investing circles, there is a metric called yield on cost, which is calculated by dividing the current dividend by the original purchase price. In other words, while my portfolio yield today is 2.69%, the yield-on-cost based on say 10 years ago, may be on the order of 5% or so. 2.69% may not seem like a lot percentage-wise, but I expect it to grow and in total terms it’s a lot more than 10 years ago when I started tracking it.

What about the 4% rule? For big-picture purposes, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). Too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens! You will always have time to adjust later.

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving your skillset, networking, and/or looking for asymmetrical entrepreneurial opportunities where you have an ownership interest.

Our dividends and interest income are not automatically reinvested. They are simply another “paycheck”. As with our other variable paychecks, we can choose to either spend it or invest it again to compound things more quickly. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on. You don’t have to wait until you hit a magic number. FIRE is Life!

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MMB Portfolio Asset Allocation & Performance – 2025 Q1 Update

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I try to limit checking my portfolio to once a quarter, and this is my 2025 Q1 update that includes our combined 401k/403b/IRAs and taxable brokerage accounts but excluding our house and side portfolio of self-directed investments. Following the concept of skin in the game, the following is not a recommendation, but a sharing of our actual, imperfect DIY portfolio.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have in their portfolio.” – Nassim Taleb

How I Track My Portfolio
Here’s how I track my portfolio across multiple brokers and account types:

  • The Empower Personal Dashboard real-time portfolio tracking tools (free) automatically logs into my different accounts, adds up my various balances, tracks my performance, and calculates my overall asset allocation daily. Formerly known as Personal Capital.
  • Once a quarter, I also update my manual Google Spreadsheet (free to copy, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation. I also create a new tab each quarter, so I have a personal archive of my net worth dating back many years.

2025 Q1 Asset Allocation and YTD Performance
Here are updated performance and asset allocation charts, per the “Holdings” and “Allocation” tabs of my Empower Personal Dashboard.

The major components of my portfolio are broad index ETFs. I do mix it up a bit around the edges, but not very much. Here is a breakdown of my target asset allocation along with my primary ETF holding for each asset class.

  • 35% US Total Market (VTI)
  • 5% US Small-Cap Value (VBR/AVUV)
  • 20% International Total Market (VXUS)
  • 5% International Small-Cap Value (AVDV)
  • 5% US Real Estate (REIT) (VNQ)
  • 20% US “Regular” Treasury Bonds or FDIC-insured deposits
  • 10% US Treasury Inflation-Protected Bonds

Big picture, it is 70% businesses and 30% very safe bonds/cash:

By paying minimal costs including management fees, transaction spreads, and tax drag, I am trying to essentially guarantee myself above-average net performance over time.

I do not spend a lot of time backtesting various model portfolios, as I don’t think picking through the details of the recent past will necessarily create superior future returns. You’ll usually find that whatever model portfolio is popular at the moment just happens to hold the asset class that has been the hottest recently as well.

The portfolio that you can hold onto through the tough times is the best one for you. Every asset class will eventually have a low period, and you must have strong faith during these periods to earn those historically high returns. You have to keep owning and buying more stocks through the stock market crashes. You have to maintain and even buy more rental properties during a housing crunch, etc. A good sign is that if prices drop, you’ll want to buy more of that asset instead of less. I don’t have strong faith in the long-term results of commodities, gold, or bitcoin – so I don’t own them.

Performance details. According to Empower, the S&P 500 went down about 5% the first quarter of 2025, while foreign stocks went up around 7%. I don’t remember that happening for a while, and apparently it hasn’t happened since 2009 (see below;source). Overall, my portfolio was flat.

Over the last quarter, here’s a Growth of $10,000 chart courtesy of Testfolio for some of the major ETFs that shows the difference in performance in the broad indexes:

I always like to remember the big picture. Here’s an updated Morningstar Growth of $10,000 Chart for the Vanguard LifeStrategy Growth Fund (VASGX) which holds a static 80% stocks and 20% bonds and most closely mimics my portfolio since 2005, which is when I started investing more seriously and started this blog.

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

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Best Asset Location for TIPS Ladder: Taxable, Tax-Deferred, or Roth?

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If you are a DIY investor (or professional financial planner) that is looking to geek out on the intricacies of the tax treatment for holding Treasury Inflation-Protected Securities (TIPS), check out the new paper Best Asset Location for a TIPS Ladder by Edward F. McQuarrie. I’ve been building a ladder of individual TIPS for many years, and have been extending it and filling in gaps during the recent period when long-term real rates went up to ~2.6%. Here is a chart of historical 30-year real rates (TIPS pay this much above inflation):

The paper focuses specifically on TIPS ladders, where you hold individual TIPS with staggered maturities such that when one matures each year, it creates a level, inflation-adjusted stream of annual income. The primary unique feature of this ladder is that it is guaranteed to adjust for inflation (as measured by CPI), even if it is higher than expected. Regular, nominal bonds don’t provide this protection. Of course, if inflation is lower than expected, then those nominal bonds will outperform TIPS.

The paper itself is very detailed and took a few readings to fully comprehend it all, but I definitely learned some new wrinkles. However, the overall conclusions are still useful to keep in mind if you hold TIPS. The question is, where is the preferred place to locate TIPS? In a regular taxable brokerage account? In a tax-deferred account like a pre-tax IRA or 401(k)? In a Roth IRA or 401k(k)?

Here are my takeaways, in my own words:

Individual, longer-term TIPS should be avoided if possible in a regular taxable brokerage account. This is primary due to the unique taxation of TIPS and the “phantom income” they make you pay upfront if there is inflation. You can look up “TIPS phantom income” for more details elsewhere, but the bottom line is that it’s hurts you upfront and you don’t catch up. Things only get worse at higher income tax rates, and higher inflation rates. It’s also just an extra annoyance at tax filing time.

The overall preferred location for TIPS is a Tax-Deferred Account (TDA). In other words, a pre-tax 401(K) or a Traditional pre-tax IRA where the tax is deferred but you pay taxes at ordinary income rates upon withdrawal.

It’s better to put stocks and REITs in a Roth account, so also not TIPS ideally. Roth accounts are great overall, but it’s best to take advantage of them by putting stocks and REITs inside as there is not as much added benefit for TIPS (or bonds in general).

The paper also discusses the wrinkles from state income tax and RMDs, but they don’t change the overall recommendation.

Here is a direct quote from the paper:

It follows that if the client has a more aggressive asset allocation, perhaps 2:1 stocks versus fixed income, with three accounts of roughly equal size, then stocks should first fill the Roth and then fill taxable. A TDA is always the best location among the three account types for a bond ladder, especially TIPS. Distributions are required from TDAs, and bond ladders produce distributions. Bond income is taxed as ordinary income, and distribution from TDAs are taxed as ordinary income. Characteristics of the bond asset and the TDA account are aligned.

The paper also states “The paper does not consider the best location for TIPS bonds or bond funds during the accumulation phase.” I would then add myself that if you do really want to own TIPS in a taxable account, you should consider a low-cost index ETF which is really sort of a ladder of TIPS than replenishes on its own with a roughly constant average maturity. For short-term TIPS, there is the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) with an average maturity of ~2.5 years. For a longer-term, there is the Schwab U.S. TIPS ETF (SCHP) with an average maturity of ~7 years. TIPS ETFs don’t expose you to the phantom income effect.

Again, this paper offered some additional insight for those so inclined. I hold all my individual direct TIPS in a pre-tax Solo 401(k), so I am following the advice. I am not building a strict ladder, so if I ran out of room in tax-deferred accounts, I would hold a TIPS ETF in a taxable account.

Photo by Nick Page on Unsplash

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BlackRock/iShares Target Allocation 60/40 Model ETF Portfolio (Meant for Advisors)

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As a companion to my post on Fidelity Model ETF Portfolios, I also found Blackrock’s version of their 60/40 Model ETF portfolio.

The was prompted by the fact that Blackrock recently announced that it was adding a 1-2% allocation to Bitcoin in their model ETF portfolios.

The world’s biggest asset manager is finally allowing Bitcoin into its $150 billion model-portfolio universe.

BlackRock Inc. is adding a 1% to 2% allocation to the $48 billion iShares Bitcoin Trust ETF (ticker IBIT) in its target allocation portfolios that allow for alternatives, according to an investment outlook viewed by Bloomberg.

Of course, this coincided with the fact that last year they finally launched their own Bitcoin ETF, the iShares Bitcoin Trust ETF (ticker IBIT). That made me wonder, what exactly does Blackrock put into these model portfolio that are meant for advisors? The model portfolio below does not have the Bitcoin ETF added yet:

As with the Fidelity model portfolio, and probably all model portfolios meant for advisors, there is the appearance of technical complexity, with a lot of tiny allocations to ETFs to bump the total number involved to 18 different ETFs and cash (and possibly the new Bitcoin ETF as well). 1% to the iShares US Infrastructure ETF? 1% to iShares J.P. Morgan USD Emerging Markets Bond ETF? 1% to iShares Gold Trust?

However, what surprised me the most was hidden in their performance stats at the bottom. With a relatively low net weighted expense ratio of 0.16%, their gross overall performance (before all fees) was pretty good and hugged the benchmark indexes very closely. However, they had to disclose that their NET historical performance (what clients actually got) was a lot lower… why was it so much lower? Because their managed portfolio apparently comes with a 3% annual fee, charged quarterly!!!

Tucked deep at the bottom:

Net composite returns reflect the deduction of an annual fee of 3.00% typically deducted quarterly. Due to the compounding effect of these fees, annual net composite returns may be lower than stated gross returns less stated annual fee.

So you put your Managed Portfolio clients in a low-cost ETF portfolio, and then add a 3% annual fee on top. Wow, that’s… wow. I have trouble even believing it. I must be reading this wrong.

Another interesting note is that Vanguard’s new CEO, Salim Ramji, was the former global head of iShares and index investments at BlackRock and thus very involved in their push into model ETF portfolios and probably had a big hand in designing them. Will he adjust Vanguard’s suggested portfolios in a similar manner?

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Canadian Pension Plan Fund: High-Fee Active Structure Lags Passive Index Benchmark Over Last 5 Years

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The Canada Pension Plan Fund (CPP) is one of the two major components of Canada’s public retirement income system, along with Old Age Security (OAS). The CPP mandates that all employed Canadians age 18+ to contribute a certain percentage of their earnings (with an match contributed by their employer) to the CPP, managed by a group called CPPI. (Source: Wikipedia.)

I learned all of this because the CPP has become an interesting example where we can compare an investment manager that has chosen to switch to the high-cost, “we can do better because we are smarter” philosophy: lots of highly-paid employees, lots of highly-compensated hedge fund and private equity managers, lots of fees paid, all in search of higher returns. Luckily, we can see if they succeed because they have to publish their results for all to see.

My sources are two interesting articles and the CPP 2024 Annual Report:

In their fiscal 2024, the CPP paid C$3.5 billion in fees to external investment managers. (The fees paid in 2006 were just C$36 million. As in only C$0.036 billion, 100 times less!) The pension fund itself has grown to over 2,000 employees (up from only 100 employees in 2006), and after adding all operating expenses and transaction costs, the fund’s total expenses now exceed C$5.5 billion annually.

The total assets are roughly C$630 billion. C$5.5 billion of costs on C$630 billion of assets means the fund’s annual expenses eat up 0.87% of the total assets every year. That is creeping very close to 1% of assets annually.

What have those costs bought? Not much so far. In fact, the 5-year performance lag in returns as compared to a passive benchmark portfolio is actually higher than that. The CPP chooses its own Reference Portfolio to match up with their mix of hedge funds and private investments, and it has shifted over the years going from 65% Global Equities/35% Bonds in 2015 to 85% Global Equities/15% Bonds in 2024. (Specifically, 85% MCSI World Index and 15% Canadian government bonds.)

After many pages in the CPP Annual Report explaining their very fancy system and why they believe they will outperform… here’s the one chart that shows their actual value-added. This is their own chart and language.

The CPPI says that we should be okay with this lag, partially because they are so “resilient” during market downturns. This is an often-cited reason for underperformance, but I question it on two levels.

First, with many of these illiquid investments, the values are essentially self-reported. Private REITs always have lower volatility than publicly-traded REITs because they get to report their own net asset value. What’s the value of a building or business that hasn’t actually sold on the open market? Who really knows? Sure, the numbers have to be within reason, but otherwise they are easily fudged. Second, you could have gotten lower volatility by simply holding a little less stocks and a little more bonds. That would have also been more resilient.

I’ve also read the follow-up defense pieces, but I wasn’t really swayed. It’s all the same old stuff. The benchmark wasn’t really a good benchmark (in retrospect), even though they picked the benchmark themselves. Our performance beat our arbitrarily-set target (’cause everything went up), even if it lagged the benchmark. You have to pay up for smart helpers! Don’t you understand?! “I have people skills!”

(Counterpoint: It’s not common, but it can be done with less bloat and lower fees. The Public Employees’ Retirement System of Nevada (NVPERS) is an example of a pension fund that uses low-cost index funds for all of their publicly-traded asset classes. They have two employees. Their overall fees are 0.13%, mostly because they do hold about 12% in private assets. Their trailing 1-year performance as of 9/30/24? 20% annualized. Source.)

Right now, the alarms are not ringing for the CPP because the markets are up a lot and they are generating solidly positive returns even if they lag the market by 1% or 2% annually. I will be on the lookout for future updates on the CPP to see if they can justify their high cost structure over the long run. In the meantime, perhaps Canadian taxpayers should re-read Warren Buffett’s parable warning us about expensive Helpers.

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Vanguard ETF & Mutual Fund Expense Ratio Drops (February 2025)

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It’s been a while since Vanguard announced a big round of expense ratio cuts, and just in time for their upcoming 50th anniversary, they announced what they call the largest fee cut in Vanguard history spanning 87 funds and projected to save fundholders $350 million this year (effective 2/1/25). In this regard, I am not worried about Vanguard. They know that low costs are core to their identity.

At Vanguard, we believe our funds’ impressive long-term performance owes much to their low costs. For the 10 years ended December 31, 2024, 84% of our funds outpaced the average results of competing funds. The performance of our actively managed fixed income funds has been especially strong: 91% of our active bond funds and 100% of our money market funds have outpaced their peers’ average results.

In fact, I worry that they focus on low costs too much. Cuts are nice, but these expense ratio cuts mean probably 0.01% for the average investor, or $1 a year per $10,000 invested. I’d much rather Vanguard keep the 0.01% and spend it on maintaining a highly-trained, long-tenured staff. There is a palpable difference when talking with a typical Fidelity employee vs. Vanguard employee. I think Vanguard is heading in the right direction, but their staffing still feels much less experienced.

Here are the largest funds and ETFs with expense ratio drops:

I would point out that the ETF version of some of the mutual funds are still slightly cheaper. For example, BND is at 0.03% while VBTLX went from 0.05% to 0.04%. Again, small margins, but you can hold Vanguard ETFs easily at any brokerage and I like that optionality.

Here are a limited sample of funds that I have held in the past that were affected:

  • Vanguard Total International Stock Market (VXUS) lowered to 0.05%.
  • Vanguard Treasury Money Market Fund (VUSXX) lowered to 0.07%.
  • Vanguard California Municipal Money Market Fund (VCTXX) lowered to 0.12%.
  • Vanguard Intermediate-Term Treasury ETF (VGIT) lowered to 0.03%.
  • Vanguard FTSE Emerging Markets ETF (VWO) lowered to 0.07%.
  • Vanguard FTSE All-World ex-US ETF (VEU) lowered to 0.04%.

Here are the current expense ratios on the four broadest ETFs + their classic S&P 500 ETF:

  • Vanguard Total US Stock Market (VTI) at 0.03%.
  • Vanguard Total International Stock Market (VXUS) at 0.05%.
  • Vanguard Total US Bond Market (BND) at 0.03%.
  • Vanguard Total International Bond (BNDX) at 0.07%.
  • Vanguard 500 Index (VOO) at 0.03%.

I find it interesting that one of the last places where the “Vanguard Effect” hasn’t shown up is in money market funds. They still have consistently the best and cheapest default cash sweep money market funds, Treasury money market funds, and Municipal money market funds. They also have some of the best muni funds in general. They are expanding their bond ETFs, but for now access to these alone is a strong reason to stay with Vanguard as a brokerage if you are DIY investor.

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Vanguard 10-Year Stock Market Forecasts 2025-2035 (+Retrospective)

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Vanguard recently released their most recent annual 10-year forecast as of mid-November 2024 (effectively the beginning of 2025). The beginning of the year is the time for forecasts, and that also makes it a good time to remind ourselves how badly they can be wrong and how you shouldn’t really use them for anything.

Let’s look back at how those same forecasts performed from 2011-2021, with confidence ranges within the 25th and 75th percentiles. I have some old images saved from when Vanguard gave us an update in 2021.

For US Stocks between 2011-2021, their forecast in 2011 was roughly between 6% and 12% annually for US stocks, for a median around 9%. That a wide band! The actual return? 13.4%. As of early 2025, we are still outside their confidence bands.

For Global ex-US Stocks between 2011-2021, their forecast in 2011 was roughly between 6% and 11% annually for US stocks, for a median around 8.5%. The actual return? 4.0%. As of early 2025, we are still outside their confidence bands here as well.

I’m not trying to pick on Vanguard here, but they do release these things with a certain degree of seriousness and brand authority. But honestly, I wish they wouldn’t. I mean, sooner or later they’ll be correct, but how could you possibly attribute that to skill and not luck?

I’m going to include a copy of their late 2024 10-year forecasts (close to the start of 2025) here because they usually delete the post after a couple of years. This way, we can look back again in the future. For this chart, the ranges are their median forecast with a fixed 2% range of confidence for stocks and 1% range for bonds.

Notably, the 10-year median return forecast is 3.8% for US stocks, 7.9% for Global ex-US stocks, and 4.8% for US total bond. This table includes their percentile confidence ranges.

This all reminds of me of the old joke: How can you tell economists have a sense of humor? They use decimal points.

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Vanguard Thoughts: After 23 Years, Should I Stay or Switch to Fidelity/Schwab?

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I’ve been a Vanguard customer (ahem, owner) for 23 years now. As such, I’ve also been one of those long-time customers that has been disappointed to see their struggles with customer service for their individual retail brokerage clients. One of my big decisions in 2024 was if I would move the majority of my assets to Fidelity or Schwab. Here’s another long-winded post about my thoughts about Vanguard.

Jack Bogle made a powerful decision when he created the Vanguard ownership structure. Each of the mutual funds was its own entity, and the shareholders own the funds. In turn, the member funds own the umbrella Vanguard Group. The member funds each pay their own expenses for research, management, etc. Everything is “at-cost”. There are no outside shareholders that may call for profits to put aside or dividends to be paid out to them. In theory, this means that the goals of each individual retail investor are aligned with the Vanguard executives.

However, in practice, we are entirely passive shareholders in that we have no vote over who is CEO, who is on the Board of Director, how much each of those folks gets paid (we don’t even get to see the actual number), whether the company should prioritize customer service or growth of assets or employee benefits. As with many large non-profits, the executives at Vanguard get very large compensation packages and the target is almost always growth, growth, growth. Bigger is better; more assets means the executives can justify a larger paycheck.

When I started with Vanguard, they were much smaller and there was more “fat” in the system. Their expense ratio for the flagship S&P 500 index fund something like 0.20% annually ($20 a year for every $10,000 invested). ETFs did not exist, and mutual funds usually charged users a transaction fee unless they were on a “mutual fund supermarket” with a pay-to-play structure. In turn, this made mutual funds more expensive because they passed the costs onto the customer. Vanguard refused to pay kickbacks because that would increase the costs to shareholders, so us retail investors had to go “direct” to Vanguard to get access with no transaction fees. The cheapest option was to go direct with Vanguard, and they had a “cheap and cheerful” reputation. They weren’t the best in customer service, but phone calls were answered promptly.

Then came the exchange-traded fund (ETF). ETFs were cheaper to maintain for Vanguard (and everyone else). This drove costs even lower. ETFs could be bought and sold at any brokerage with the same transaction costs as a stock. ETFs also had inherent tax-advantages that made it much easier to avoid creating capital gains distributions. I believe a big break happened when Vanguard stopped holding the mutual fund and ETF expense ratios at the exact same level. Everyone was incentivized further to hold the ETF version.

Today, the expense ratio for the flagship S&P 500 index mutual fund is only 0.04% annually ($4 a year for every $10,000 invested). But the ETF version is only 0.03% annually ($3 a year for every $10,000 invested). There are both certainly much cheaper than 20 years ago, but today each of their ETFs also has at least two other competitors at the same low expense ratio. Vanguard probably feels forced to keep their ETF costs as low as possible, lest they hurt their “low-cost” brand.

However, since each Vanguard fund has to pay for its own expenses including customer service costs, Vanguard is now incentivized to have you hold your ETF at another brokerage. (And once you start holding Vanguard ETFs in another brokerage, technically you should be rooting for lower costs and thus Vanguard to spend less on customer service as well.) Trades are zero now everywhere. But every single customer service call still has to be paid for somehow, and from this perspective, you can begin to understand why their customer service has gone downhill. Their margins are purposefully thin and the only solutions are to either raise their expense ratios a tiny bit (slower growth and perhaps lower executive salaries) or just try to keep spending as little as possible on customer service.

Guess which one they picked? From WSJ article (gift) Vanguard’s Die-Hard Customers Have a Message for New CEO: ‘The Service Is Abysmal’:

Brokerage-account customers were also recently warned that “excessive reliance on phone associates” could lead to additional fees or account termination.

Importantly, Vanguard has limited ways to subsidize the low costs of their ETFs. Meanwhile, Fidelity still makes a ton of money upselling customers to a variety of wealth management services. Schwab earns hundreds of millions extra by quietly paying nearly zero interest on their cash sweep (they recently dropped it to 0.05% APY in December 2024), pocketing an average of 2% to 3% annually on their customer’s idle cash. Robinhood lets me trade random crypto 24/7 and promotes active trading which results in an insane amount of payment for order flow.

Is this the natural end for Vanguard? Will they just make the commodity product and let others distribute it and deal with customers?

This is why the new CEO will undoubtedly have a big focus on low-cost wealth management. This will allow them to charge customers a higher fee for increased financial advice and customer service. They would finally have something to upsell. The only other alternative is for them to raise Vanguard brokerage fees so that the retail customers pay directly for the additional services they require.

In the end, I asked myself, “If something happens to me, would I rather have my wife deal with Vanguard, Fidelity, or Schwab?” She may end up wanting to pay for extra assistance and advice. Vanguard would have the worst customer service, but perhaps they will come up with a reasonable-cost advisory system. Fidelity and Schwab would undoubtedly be happy to provide her additional financial advice as well, likely at a higher price. Fidelity has solid customer service in my opinion, but I don’t really like their wealth management options based on my past experiences helping older relatives. Schwab has a conveniently-located physical branch near us, but I have a bad taste in my mouth after their “Intelligent Portfolios” zero-interest-cash-is-good-for-you fiasco. (See CBNC article Charles Schwab to pay $187 million to settle SEC charges that it misled robo-advisor clients on fees.)

In the end, I have punted my decision and only made some smaller moves. I transferred our Vanguard IRA assets over to Robinhood as a 5-year test run (in exchange for $16,000). I already have my Solo 401k and an active Cash Management Account at Fidelity. Perhaps Vanguard will shore up their customer service to “decent enough” and use AI to create a at-cost/low-cost advisory platform for the masses. Perhaps the Fidelity model of solid customer service plus a whole bunch of both low-cost and higher-cost menu items is the best one. Perhaps I will place the highest value on a local Schwab human rep.

Image credit: Canva AI generated with prompt “HMS Vanguard in rough seas”

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MMB Portfolio Dividend & Interest Income – 2024 Year-End Update

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Here’s my 2024 Year End income update as a companion post to my 2024 Year End asset allocation & performance update. Even though I don’t focus only on high-dividend stocks, income-focused ETFs or high-yield bonds – I consider myself focused on total return) – I still track the income from my portfolio as an alternative metric to performance. The total income goes up much more gradually and consistently than the number shown on brokerage statements (market price), which helps encourage consistent investing. Here’s a related quote from Jack Bogle (source):

The true investor will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. – Jack Bogle

Here is the historical growth of the S&P 500 total dividend, which tracks roughly the largest 500 stocks in the US, updated after 2024 Q4 (via Yardeni Research):

Why I like tracking dividends in general. Stock dividends are a portion of profits that businesses have decided to distribute directly to shareholders, as opposed to reinvesting into their business, paying back debt, or buying back shares. They have explicitly decided that they don’t need this money to improve their business, and that it would be better to distribute it to shareholders. The dividends may suffer some short-term drops, but over the long run they have grown faster than inflation.

In the US, the dividend culture is somewhat conservative in that shareholders expect dividends to be stable and only go up. Thus the starting yield is lower, but grows more steadily with smaller cuts during hard times. Companies do buybacks as well, often because they are easier to discontinue. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total US Stock ETF (VTI) via StockAnalysis.com.

European corporate culture tends to encourage paying out a higher (sometimes fixed) percentage of earnings as dividends, but that also means the dividends move up and down with earnings. The starting yield is currently higher but may not grow as reliably. Here is the historical growth of the trailing 12-month (ttm) dividend paid by the Vanguard Total International Stock ETF (VXUS).

The dividend yield (dividends divided by price) also serve as a rough valuation metric. When stock prices drop, this percentage metric usually goes up – which makes me feel better in a bear market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too euphoric during a bull market.

In the case of REITs, they are legally required to distribute at least 90 percent of their taxable income to shareholders as dividends. Historically, about half of the total return from REITs is from this dividend income.

Finally, the last component comes from interest from bonds and cash. This will obviously vary with the prevailing interest rates, the real rates on TIPS, and the current rate of inflation. In 2024, we are finally back to getting paid a certain amount more than inflation on our cash.

Dividend and interest income from my specific asset allocation. To estimate the income from my portfolio, I use the weighted “TTM” or “12-Month Yield” from Morningstar (checked 1/5/24), which is the sum of the trailing 12 months of interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed (usually zero for index funds) over the same period. My TTM portfolio yield is now roughly 2.55%.

As you can see from my total annual income tracker, my total income from this portfolio has been mostly steady since mid-2022 (when interest rates started to rise again). Again, this keeps me from getting too euphoric from the market’s gains. A lot of it is just P/E ratio expansion, which can just as easily be followed by P/E ratio contraction.

What about the 4% rule? For big-picture purposes, I support the simple 4% or 3% rule of thumb, which equates to a target of accumulating roughly 25 to 33 times your annual expenses. I would lean towards a 3% withdrawal rate if you want to retire young (closer to age 50) and a 4% withdrawal rate if retiring at a more traditional age (closer to 65). Too much time is spent debating this number. It’s just a quick and dirty target to get you started, not a number sent down from the heavens! You will always have time to adjust later.

During the accumulation stage, your time is better spent focusing on earning potential via better career moves, improving your skillset, networking, and/or looking for asymmetrical entrepreneurial opportunities where you have an ownership interest.

Our dividends and interest income are not automatically reinvested. They are simply another “paycheck”. As with our other variable paychecks, we can choose to either spend it or invest it again to compound things more quickly. You could use this money to cut back working hours, pursue a different career path, start a new business, take a sabbatical, perform charity or volunteer work, and so on. You don’t have to wait until you hit a magic number. FIRE is Life!

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MMB Portfolio: Should I Own Less International Stocks? (2024 Year End)

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The most common reader question about my personal portfolio is definitely the fact that the allocation to international stocks has been a drag on performance relative to owning 100% US stocks. This is kind of a repeat topic, so I won’t dive into the full debate again, but wanted to offer some expanded and updated thoughts to my response to a comment from reader John. All numbers below are taken as of January 2025.

The divergence between the performance of US stocks and the rest of the world started around 2009, which of course coincided with most of my investing lifetime so far. 😒 Here’s a chart from the Bloomberg article Global Diversification Has Disappointed. Don’t Give Up on It (gift article for next 7 days). Worth a read.

As noted in my portfolio updates, my asset allocation floats along with total world market cap breakdown, as tracked according to the Vanguard Total World Stock ETF (VT). I remember a time when it was only 45% US and 55% Rest of the World (World ex-US). As of the end of 2024, it is now at 65% US and 35% World ex-US.

In practical terms, this means that I used to own about the same amount of Vanguard Total US Stock Market ETF (VTI) and Vanguard Total International Stock ETF (VXUS), a 1:1 ratio. But as of the end of 2024, I now own about double the amount of VTI relative to VXUS, a 2:1 ratio. So my performance isn’t exactly that of the chart above due to ongoing investments over time, but it’s still been much lower than if I used owned 100% US stocks.

I can’t change the past. The question is: Should I change my asset allocation now?

Let’s look closer. A significant chunk (not all) of the outperformance has been due to a higher P/E ratio. Below is a Yardeni chart of the P/E ratio of US stocks vs. International stocks. The gap looks like the greatest in 25 years. Can this trend continue? I don’t know, and I don’t think anyone really knows.

Are US stocks simply a better investment, forever? They might be. The US definitely offers a very business-friendly environment overall. That’s why I just let it float. If the US manages to continue this outperformance in the future, then one day my allocation might grow to 75%/25% (3:1 ratio) or even 80%/20% (4:1 ratio). My portfolio adjusts.

This is the same theory as owning all of the companies in a market-weighted S&P 500 index fund: you own all the winners, and you also own the losers, but owning the winners is good enough to pull everything up overall. If the US keeps being a huge winner, I’ll own a lot of the US. If not, I still own the entire haystack. Therefore, I plan to continue holding a chunk of international stocks according to the investable market-cap float with maybe a slight home bias.

I could sit here and lament how big my portfolio would have been if I had bet on 100% US for the last 15 years, but honestly the stock markets have been kind to me as a business owner (although I’d say at the expense of the average worker bee) even with my international stocks and bond holdings. The 10-year trailing average annualized return has been 9.33% for VT vs. 12.50% for VTI. Owning a mix of winners and losers has still worked out just fine, and I was covered in case history turned out differently. I have no complaints.

Photo by Andrew Neel on Unsplash

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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MMB Portfolio Asset Allocation & Performance – 2024 Year-End Update

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here’s my Year End 2024 update for our primary investment holdings, including all of our combined 401k/403b/IRAs and taxable brokerage accounts but excluding our house and side portfolio of self-directed investments. Following the concept of skin in the game, the following is not a recommendation, but a sharing of our real-world, imperfect, low-cost, diversified DIY portfolio.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have in their portfolio.” – Nassim Taleb

How I Track My Portfolio
Here’s how I track my portfolio across multiple brokers and account types. There are limited free advanced options after Morningstar discontinued free access to their portfolio tracker. I use both Empower Personal Dashboard (previously known as Personal Capital) and a custom Google Spreadsheet to track my investment holdings:

  • The Empower Personal Dashboard real-time portfolio tracking tools (free) automatically logs into my different accounts, adds up my various balances, tracks my performance, and calculates my overall asset allocation daily. Formerly known as Personal Capital.
  • Once a quarter, I also update my manual Google Spreadsheet (free to copy, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation. I also create a new tab each quarter, so I have a personal archive of my holdings dating back many years.

2024 Year End Asset Allocation and YTD Performance
Here are updated performance and asset allocation charts, per the “Holdings” and “Allocation” tabs of my Empower Personal Dashboard.

I own broad, low-cost exposure to productive assets that will provide long-term returns above inflation, distribute income via dividends and interest, and offer some historical tendencies to balance each other out. I have faith in the long-term benefit of owning all of the best businesses worldwide, as well as the stability of high-quality US Treasury debt.

I let my stock holdings float relatively close to the total world market cap breakdown, and it is now at ~65% US and ~35% ex-US. I do add just a little “spice” to the broad funds with the inclusion of “small value” factor ETFs for US and Developed International stocks as well as diversified real estate exposure through US REITs. But if you step back and look at the big picture, this is my simplified target portfolio:

By paying minimal costs including management fees, transaction spreads, and tax drag, I am trying to essentially guarantee myself above-average net performance over time.

The portfolio that you can hold onto through the tough times is the best one for you. Every asset class will eventually have a low period, and you must have strong faith during these periods to earn those historically high returns. You have to keep owning and buying more stocks through the stock market crashes. You have to maintain and even buy more rental properties during a housing crunch, etc. A good sign is that if prices drop, you’ll want to buy more of that asset instead of less. I don’t have strong faith in the long-term results of commodities, gold, or bitcoin – so I don’t own them.

I do not spend a lot of time backtesting various model portfolios, as I don’t think picking through the details of the recent past will necessarily create superior future returns. You’ll usually find that whatever model portfolio is popular at the moment just happens to hold the asset class that has been the hottest recently as well.

I have settled into a long-term target ratio of roughly 70% stocks and 30% bonds within our investment strategy of buy, hold, and occasionally rebalance. My goal has evolved to more of a “perpetual income portfolio” as opposed to a “build up a big stash and hope it lasts until I die” portfolio. My target withdrawal rate is 3% or less. Here is a round-number breakdown of my target asset allocation along with my primary ETF holding for each asset class.

  • 35% US Total Market (VTI)
  • 5% US Small-Cap Value (VBR/AVUV)
  • 20% International Total Market (VXUS)
  • 5% International Small-Cap Value (AVDV)
  • 5% US Real Estate (REIT) (VNQ)
  • 15% US “Regular” Treasury Bonds or FDIC-insured deposits
  • 15% US Treasury Inflation-Protected Bonds or I Savings Bonds

I do let things wobble a bit so I don’t have to keep rebalancing. Also, I have limited tax-deferred space for TIPS so I own less than I might otherwise. So the bonds is closer to 20% Treasuries and 10% TIPS.

Performance details. According to Empower, my portfolio went up around 11.5% in 2024. The S&P 500 went up 23.3% in 2024, while the US Bond index went up around 1.3%. Another year of relative underperformance in international stocks in the books.

Overall, we spent some of our dividends/interest and also made some 401k/IRA contributions with income to take advantage of tax-deferred opportunities. We no longer have the crazy savings rate of our 20s and 30s. Owning stocks continues to reward long-term investors. Out of curiosity, I generated a Morningstar Growth of $10,000 Chart for the Vanguard LifeStrategy Growth Fund (VASGX) which holds a static 80% stocks and 20% bonds and most closely mimics my portfolio since 2005, roughly when I started investing more seriously and started this blog. A very rough approximation is to expect your money to double every decade (Rule of 72). The money that I invested 20 years ago has indeed roughly doubled twice (4X).

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

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


2024 Year-End Review: Annual Broad Asset Class & Target Fund Returns

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Happy New Year! 🎉 🥳 Let’s see how the year went for the broad asset classes that I track. Per Morningstar, here are the total annual returns (includes price appreciation and dividends/interest) for select asset classes as benchmarked by popular ETFs after market close 12/31/24.

I didn’t include Bitcoin or any other crypto because I honestly don’t track it, don’t own it as part of my long-term portfolio, and would not advise my family to own it. However, I acknowledge that it went up something like 120% this year.

The “set and forget” Vanguard Target Retirement 2055 fund (VFFVX) , currently consisting of roughly 90% diversified stocks and 10% bonds, was up 14.6% in 2023.

Commentary. 2024 again shows that you want to stay in the game. If you waited on the sidelines because stocks have historically high valuations and you were waiting for a dip… well, that didn’t work out. The S&P 500 had two great years in a row, the best two consecutive years in over 25 years according to the WSJ (gift article):

Historically, the S&P 500 annual return is negative in roughly every 1 in 4 years. But holding through that volatility is part of the price you pay for the long-term returns. For most of us, the best we can do is to “stay the course” and enjoy the up years while knowing that the down years will inevitably be sprinkled in there. I try my best not to skip and ignore all the predictions, or even listen to daily market close announcements. If you stand by the roulette table and stare long enough at the red and black numbers that come up, your mind will start to find patterns where they don’t exist.

Instead, here are your cumulative returns through the end of 2024 if you had been a steady investor in the Vanguard Target Retirement 2055 fund over the past several years, despite the many, many problems of the world:

(These work great inside 401ks and IRAs. I’d avoid buying Target Retirement funds in a taxable account.)

Holding cash would have been a lot less scary, but the returns would have been a lot less impressive. I will post more about my personal portfolio changes and performance shortly.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.