I’ve had a number of requests to discuss my own asset allocation, as if there is something magical about it.  A true internet sleuth would have found it already, as it has been posted before, but it wasn’t on this site and its been a long time.  I considered titling this post “Why My Portfolio Sucks” and then criticizing my portfolio just like I do many of the other static asset allocation portfolios I discuss here, but I think looking at how the portfolio has evolved, as well as the ways in which it may evolve in the future would be more instructive.  (Besides, it’ll get plenty of criticism in the next post, not to mention the comments section.)  Like with Genesis, let’s start with….


In the beginning….there was a broke intern.  He knew investing was important and wanted to retire someday so he took a residency-mate’s recommendation and went to see a financial planner.  Like any good financial planner, he helped the broke intern get some disability insurance and like any bad planner, he then proceeded to try to sell him some whole life insurance, or at least some expensive term insurance that could later be converted to whole life and suggested some solid high-expense loaded mutual funds for his Roth IRA.  Thus my portfolio was born in the Spring of 2004:

  • 100% Stock
  •      100% Large Cap Growth
  •          50% American Funds AMCAP C Fund  (Expense ratio 1.52%)  A popular large cap Growth Fund
  •          50% Calamos Growth C Fund (Expense ratio 2.01%) Another popular large cap Growth Fund

Yep, that’s what the highly trained financial adviser recommended.  That’s some real diversification there eh? So I went back for my meeting a year later and we added a fund to the portfolio, Fidelity Advisor Small Cap C Fund, with an ER of 2.06%.  Now my portfolio was:

  • 100% Stock
  •      75% Large Cap Growth
  •      25% Small Cap Growth

That’s a little better I suppose, but with an average expense approaching 2%, it was a recipe for long-term investment failure.  Later that Spring I was on a vacation, and picked up Eric Tyson’s Mutual Funds for Dummies.  I couldn’t wait to get home and see what kind of funds I was invested in.  What a disappointment to realize I was paying ridiculously high ERs.  I was pissed!  I started reading everything I could about investing.  By June, I was making a few tentative steps on my own.  I realized my portfolio had no international holdings, so my first investment on my very own was into the Vanguard Total International Stock Index Fund.  I requested another meeting with the advisor, fired him, and rolled my Roth IRA (after paying substantial transfer fees) over to Vanguard.  By August, I had this asset allocation:

  • 100% Stock
  •    50% Total US Stock Market
  •    50% Total International Stock Market

This is all a four figure amount, of course.  But I had reduced my investment expenses by 90% and had far better diversification.  I continued to learn and read, both about medicine (I was going into my final year of residency) and about personal finance and investing.  I was never a financial bonehead, but there were clearly large gaps in my knowledge.  I was heavily influenced by the writings of Bill Bernstein, Rick Ferri, Larry Swedroe, and John Bogle.  I eventually stumbled onto the Morningstar Vanguard Diehards forum in late 2005 (and later followed it to the independent Bogleheads forum.)  At some point in 2006, I first formulated an investment policy statement.  I don’t actually have the original one my wife and I wrote up, but I’ve got one that’s 5 years old that was only slightly modified from the original.  Here is the asset allocation it prescribes:

  • 75% Stock
  •    50% US Stock
  •       Total US Stock Market 17.5%
  •       Extended Market 10%
  •       Microcaps 5%
  •       Large Value 5%
  •       Small Value 5%
  •       REITs 7.5%
  •    25% International Stock
  •       Developed Markets 20%
  •       Emerging Markets 5%
  • 25% Bonds
  •    Nominal Bonds (G Fund) 12.5%
  •    TIPS 12.5%

Two things stand out at me as I look at this portfolio.  It was obviously heavily influenced by the investment choices available to me in my 401K, the TSP, specifically the S fund (extended markets) and the G fund.  I also wrote a caveat into the written investing plan that if reasonably priced investments that allow for international small and value tilting become available, they would be added later.  In April 2009, Vanguard came out with an international small fund for what I felt was a fair price, so I modified the asset allocation a bit to add that fund.  I rode this portfolio all the way down through my first bear market in 2008-2009, and all the way back up in the bull market since then.  Despite being tempted many times, I haven’t made any other changes to the allocation.  It currently looks like this:

  • 75% Stock
  •    50% US Stock
  •       Total US Stock Market 17.5%
  •       Extended Market 10%
  •       Microcaps 5%
  •       Large Value 5%
  •       Small Value 5%
  •       REITs 7.5%
  •    25% International Stock
  •       Developed Markets 15%
  •       Small International 5%
  •       Emerging Markets 5%
  • 25% Bonds
  •    Nominal Bonds (G Fund) 12.5%
  •    TIPS 12.5%

For each of these categories, I can point to an author who influenced the portfolio to look like it currently does. I know there are going to be a ton of questions about this portfolio, so my next post will answer the most common ones.