By Dr. Jim Dahle, WCI Founder2024, like 2023, was a pretty good year to be an investor. Just about anything you invested in made at least a little money, and if you invested in the “right” things, you made a lot of money. It's been decades (the late '90s) since the S&P 500 had 25%+ returns two years in a row like it did in 2023 and 2024.
Each year, I try to discuss the investment returns our portfolio saw for both transparency and educational purposes. Note that any links to actual investments discussed are links to WCI advertisers.
Our Portfolio
As a reminder, our portfolio (asset allocation) is 60% stocks, 20% bonds, and 20% real estate, broken down as follows:
60% Stocks:
- 25% Total US Stock Market
- 15% Small Value Stocks
- 15% Total International Stock Market
- 5% International Small/Small Value Stocks (more on this in a moment)
20% Bonds:
- 10% Nominal bonds
- 10% Inflation-protected bonds
20% Real Estate
- 5% Publicly traded REITs
- 10% Private equity real estate
- 5% Private debt real estate
Note that this is just our retirement portfolio, and it does not include UTMAs, 529s, our kids' Roth IRAs, HSA, cash reserves, small businesses, etc. The asset allocation (but not overall retirement account performance) also ignores a small cash balance plan (which interestingly has had double-digit returns the last two years).
Tracking Error
Tracking error is not actually an error (at least usually)—it's just a term that compares your portfolio return to that of an index. If it's an appropriate index, having a negative tracking error is a problem. But far too many people compare their portfolio return to a completely inappropriate index. If you invest in well-run index funds, there's little point to “benchmarking” at all. You already know you received just about exactly the benchmark return. However, a very popular index for people to compare to (again, usually inappropriately) is the S&P 500, and in a year like 2024, when the S&P 500 performed very well (about 25%), just about everything else you compare to it is going to look bad. If you were investing in stocks (much less other investments) that aren't in the S&P 500, why would you compare your returns to those of the S&P 500? That's silly. That's like comparing your returns to those of your neighbor. There's no point.
Investing is a single-player game; you against your goals. So, compare your returns to the returns you need to achieve your financial goals. If you really need a bad guy to compete against, use inflation. Inflation in 2024 as measured by CPI-U was a little under 3%. When I run long-term portfolio projections, what I use for my investment returns is a real (after inflation) 5% return. If I want to see how my portfolio is doing against what I need it to do to reach my goals, why not compare it to that? Three percent inflation plus 5% real = 8%. I should ask myself, did I beat 8% this year? Did I beat it over the last decade or two?
Try not to get stuck comparing yourself to whatever is doing particularly well at any given moment. For example, Bitcoin had a return of over 120% in 2024. QQQ, an ETF that tracks the very tech-heavy NASDAQ index, returned 25.6% in 2024, and Vanguard's Information Technology ETF (VGT) returned nearly 29.3%. Large growth stocks really dominated for the year with stocks like NVIDIA returning 171%. Even a broader growth stock index ETF like Vanguard's VUG returned 32.7%.
You don't have to get returns like 32.7% each year for very many decades before you're worth more than the entire world. No surprise how easy it is to feel FOMO when you're constantly reading and hearing news about investment returns like those. If you happened to own any of those investments in 2024, congratulations to you! I did not. As you will soon see, our portfolio returns were much lower than all of those returns, even if our returns were more than high enough to allow me to reach our financial goals.
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2024 Portfolio Performance
The performance of our overall retirement portfolio (including the cash balance plan) for 2024 was 9.62%. Since we started investing in 2004, our annualized returns have been 11.03%, so I guess this year wasn't even better than average for us. Our returns were more than 5% higher last year! That's kind of a bummer in a year when our biggest investment, the Vanguard Total Stock Market Index Fund, had a return of 23.75%. It sure would have been better if that had been our only investment. Nevertheless, we've chosen to diversify, and over the decades, we have been glad that we did. Interestingly, the return for all of our money (adding in the kids' Roth IRAs, UTMAs, 529s, HSA, emergency funds, etc.) was over 16%, mostly because a significantly larger portion of those accounts is invested in US large cap stocks. Interestingly, our long-term return on the retirement money is still a little higher than the long-term return on all of the money.
Stock Performance
Our stock portfolio is kind of boring. Twenty-five percent of the portfolio is in the Total Stock Market via VTI and its tax-loss harvesting partner ITOT, and we made 23.85% in that asset class. Fifteen percent of the portfolio is in US small value stocks. We're transitioning from VBR and its tax-loss harvesting partner VIOV to AVUV and its tax-loss harvesting partner DFSV. We had a better return on the old stuff this year (9.54%) than the new stuff (9.25%), but we still think we'll be better off in the long run with the change.
Fifteen percent of the portfolio is in the Vanguard Total International Stock Market ETF (VXUS) and its tax-loss harvesting partner IXUS. We made 5.09%. Five percent is in international small value stocks, although we're still pretty early in a transition from VSS to AVDV. While we had positive returns in both (2.97% and 6.31%, respectively), they're definitely not full of US growth tech stocks.
Bond Performance
If you thought non-US tech stocks did poorly this year, wait until you see bond returns. On the nominal side (10% of our portfolio), we made just 1.4% in muni bonds. The reversal of the inverted yield curve had a big effect on bond returns. Our “cash-like” G Fund did better with returns of 4.41%. On the inflation-indexed side (10% of our portfolio), our TIPS ETF (SCHP) returned only 1.88%, although our individual TIPS portfolio managed 4.49%. The difference is probably mostly just related to cash flows during the year and accounting differences. We also own some I Bonds, although in an effort to simplify, we may not own them much longer. We made 3.98% there.
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Real Estate Performance
Our real estate portfolio (20% of the overall portfolio) is quite a bit more complex than our stock portfolio and bond portfolio. The easy part is the publicly traded REITS (5% of the portfolio) where we use VNQ inside retirement accounts. We made 5.02% there. One of my favorite asset classes is debt real estate, where we use three separate funds that loan money to developers. Although it's not tax-efficient at all, these funds have provided very “steady-eddy” returns the whole time we've owned them. We own two of them inside retirement accounts, which helps with the tax-inefficiency. Our funds made 9.57%, 9.63%, and 10.55%—the latter from blog sponsor DLP's Lending Fund. Those are all better than the long-term returns we've seen, which range from 8.35% to 9.89%.
On the equity side, things get a lot more complicated in a hurry. I was excited to exit the office building used by my physician partnership. As you'll recall, I was in charge of the investment for a few years. I actually tried to exit in 2023, but it took most of the next year to finally pay me out. Our 2024 return was 6.6%, although over the 12 years we owned it, our annualized return was 10.5%. The main reason we exited was that it was our smallest investment, and we just wanted to simplify our portfolio. It really didn't make any sense for me to be invested in it, much less managing it.
While we're talking about small investments, it's probably worth mentioning our two losers. One is an apartment building in Houston that we bought as part of a syndication in 2017. It was supposed to be over years ago, but due to fraud on the now-jailed operator's part, it just drags on and on. I basically wrote the rest of the principal off in 2022 so our return this year is 0% on the spreadsheet. Who knows, maybe we'll get something back. My spreadsheet reports the annualized return as -98% a year. The other is a small trial investment in a REIT that bought a whole bunch of single-family homes and then ran into cash flow problems and had to fire-sale most of them. My spreadsheet actually reports a 6.74% return on this one for 2024, although last year's -90% return pretty much tells the story of this investment. Again, we're hoping to see some of the principal back, but I'm not holding my breath.
We have a few medium-sized equity investments, as well. Two of these are through blog sponsor 37th Parallel. One is a syndicated apartment building in Fort Worth and the other is the company's Fund I, which owns seven different apartment complexes. 37th Parallel doesn't mark any of the assets to market during the investment years, so you really don't know exactly how you're doing until they go round trip, which is a five- or 10-year process. I just assume they're worth exactly what I paid for them in 2018 and 2020 and only count the income as return. The income hasn't been awesome (and has been declining), but it is there every quarter. This year it paid me 1.35% and 0.88%, respectively. Obviously, there is more to the return than just the income, so you should pay a lot more attention to the periodic blog posts I do on individual investments when they go round trip than a random update in the middle of the investment like this. As a passive, private real estate investor, sometimes you just have to be OK with not knowing and not being in control. That's the price you have to pay to not have to know and not have to be in control.
Another medium-sized real estate investment is the Alpha Investing Fund I, a previous blog sponsor. It's had a couple of rough years because it invested in several “Tides” properties. As those in this space know, the Tides folks used a pretty significant amount of adjustable rate debt, and 2022 was not kind to them. Income from this fund is currently being used for capital calls on those properties. This fund did not make distributions this year (although the one from Q4 of 2023 came in February 2024). The spreadsheet says we made 0.44% for 2024. The current annualized return on this investment is 5.1% over the last five years.
On a more positive note, another medium-sized investment in a diversified fund that mostly invests in the area I live in had a great year. Although not liquid, it does mark properties to market each year so you see quite a bit more volatility compared to the funds that don't. Last year, the company reported a 4.52% loss, but this year, it had a 51.7% gain. Again, you really don't know what you have until it goes round trip, but the annualized return over the four years we've owned it is 11.4%.
Another medium-sized investment, Fund III from former blog sponsor Origin, was supposed to wrap up operations this year, but it put it off another year to try to get a better price on the last 1-2 properties in the fund. The spreadsheet shows a return of 28.56% this year, with an annualized return over the seven years we've owned it of 11.75% per year.
We have a larger investment with Origin too—its evergreen Income Plus Fund. This is a more conservative fund than many with a definite income focus. It showed 4.46% in 2024 and an annualized return over the five years since we bought it of 6.98%.
We have a sizable investment in another income fund from blog sponsor Wellings Capital. It pays out income like clockwork but doesn't mark the properties to market. I calculate the income return for 2024 at 4.77%.
Another large investment is in a self-storage fund. I was pretty excited about this one when we bought it two years ago, but it turns out that nobody is moving these days because they can't afford to buy houses at the new higher interest rates in place since we invested in this fund. And when people don't move, they don't put their stuff in storage. This fund doesn't mark its assets to market, but the income has been steady at 2%.
We have a substantial real estate investment in blog sponsor MLG's Fund IV. While not evergreen, it does mark assets to market so you have a pretty good idea how you're doing as it goes along. The spreadsheet shows me a 3.04% return. That's not quite the 43% it made last year, but it beats a kick in the teeth. We've been in it for over four years and have an annualized return of 14.67%.
Our largest real estate investment is the evergreen DLP Housing Fund from a long-term WCI sponsor. It doesn't try to shoot the lights out, aiming for a 10%-12% return. I do like the fact it usually gets it, though. It got 9.97% in 2024 and 12.7% per year since we started investing in 2021.
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Featured Real Estate Partners
Overall, our real estate returns for 2024 are as follows:
- Equity: 7.1% (the actual return is probably a little higher due to the mark to market issue with many of the investments)
- Debt: 9.9%
- Publicly traded REIT: 5.0%
It doesn't feel like much compared to Bitcoin or NVIDIA, but it's all positive in a year when no one seemed to like real estate all that much.
What do you think? How did your portfolio treat you in 2024? What were your winners and losers? How do you resist FOMO?
It’s important to note that 37th parallel has paused distributions in multiple properties for over a year. This includes the one I’m invested in in Dallas which paused distributions after only several payments. While not Tides level poor performance it’s defi I felt disappointing when combined with their lack of communication .
I almost invested with them but hundred thousand dollars base (not 50k like they advertised on WCI, at least when I corresponded) and a 10 year timeframe to go full circle was a little more than I cared for, or could comfortably do at that time. Disappointing to hear about poor communication, they sure called me and spoke to me a lot when I was interested.
I hope it works out well for you in the long run.
Minimum investments do change over time and we often negotiate lower minimum investments for WCIers. I think the minimums were $100K when I invested as well, but they really were/are $50K for WCIers. And that’s actually the first complaint I’ve ever heard about poor communication. We’ll forward the feedback.
Thanks for the update on your investments.
I have read many of your posts about why you invest in real estate. But I do note that you mention the desire to simplify. It sure seems like the real estate portion of your portfolio would occupy most of the time you need to spend on investing. Between finding and evaluating new opportunities, doing due diligence, and tracking all the separate performance, it seems like a lot of work. Is there a point where the possible benefits are not worth the effort? Especially since you seem to be meeting your goals without the real estate.
We didn’t have any new real estate investments in 2024. In fact, our last and newest real estate investment was made in January of 2023. So apparently I have spent precious little time finding and evaluating new opportunities and doing due diligence in the last year. I guess I do have to track the performance of the ones I have, but that’s no different from my mutual funds/non real estate investments.
So yes, we’re simplifying even real estate because there is obviously some point where possible benefits are not worth the effort especially when you’ve already met your financial goals. And as I’ve said all along, real estate is optional.
But people who say “I want to keep it simple and just use VTI” have a lot easier time saying that at the end of 2024 than at the end of 2022 due primarily to performance chasing. Maybe best to read that post first: https://www.whitecoatinvestor.com/private-real-estate-performance-2022/ and then come back here and see if you still feel a need to ask this question.
This is a good discussion. Diversity seems unquestionably important. Real estate appeals to me from that perspective but the complexity seems crazy except the simplest passive end of the spectrum. It seems that those who least need to take risk on active real estate are the only ones who perhaps should.
Some truth to that.
What do you think you woukd have your allocation as if you didnt do real estate
We’ve been doing real estate since 2007. For a while, the allocation was 67.5% stocks, 7.5% real estate and 20% bonds. I think in 2014 or so we went to our current 60/20/20.
Without real estate I’d probably be 75/25 or 80/20.
But asset allocation is a bit of a personal thing, which is fine because nobody knows the perfect asset allocation in advance so you just need something reasonable you can stick with long term. Copying someone else’s (even if you think they’re smart) without any additional thought may not be the best move.
Dumb question – when you are doing your equity investing in a vanguard fund and an iShares tax loss harvesting partner (for example, you say you invest in VTI and ITOT), what brokerage account are you doing that through? Are you (or can you) do it all through a Vanguard account?
All my investments are currently in Vanguard mutual funds but I’m interested in branching out to some iShares funds if it can be done fairly simply and cleanly.
I am. Our taxable account is at Vanguard. But you could do it Fidelity or Schwab or Robinhood (Confetti! Yay!) or whatever.
If your TLHing partner is an ETF you’ll likely find it easier to use a Vanguard ETF than a Vanguard traditional mutual fund, but you can just call them up and convert from one share class to another with no fees or tax consequences.
Solid investments. The flaw though is believing CPI is 3% and 8% gets you 5% real. Inflation for things in life you actually want – house, travel, education, health care, insurance, dining out, boats, etc. is well over 8%. M2 money supply grows on average 7% per year. I believe your strategy is a “break-even” strategy to tread water, not grow wealth. Fine strategy if you have massive wealth and are older. Not advisable for younger and looking to grow it. My 2 cents.
Not a flaw. There just isn’t an agency out there calculating my true personal inflation rate. So yes, use that if you have it but none of us have it.
Your 8% and M2 money supply have their own flaws. But if you want to use that because you think it’s more accurate for you, you’re free to.I find in general that the people who bring up things like M2 money supply tend to have a particular economic view they promote and preach frequently to whoever will listen and often end up concluding to put all their money into gold or Bitcoin, which I think is generally ill-advised.
It doesn’t feel like breaking even over here, but you can say whatever you want.
Who supplies the market price on the real estate investments? If it’s the company that you’re investing with how do you verify its accuracy
Great question. Yes, the company, at least until it’s sold. That’s one of the issues with marking to market. There may be some sort of audit done, but most of the time it’s just the company valuing it.
Thanks for sharing! I really appreciate the transparency. It’s a great example of dealing with diversification. With equities so strong it makes everything else look bad, but if equities were down everything else would look great! Interesting to see that real estate funds, etc. aren’t get rich quick schemes either. Modest returns over time are to be expected with good years and bad all in the mix. Great stuff as always!
How are you considering the interest rate environment and economy when looking at private real estate investments?
For stocks, I am against market timing.
For private real estate, you’re picking a sponsor, a thesis and a particular moment in time to commit capital. It seems a lot like market timing to me, which is ill advised in public equities but necessary in private real estate.
I’m curious how you think about that. Thank you.
I’m not sure it’s as necessary as you think to time the market with regards to real estate. Maybe it’s easier than stocks, but probably not dramatically easier for all the same reasons. The less you have, the more a minimum investment ($100K or whatever) feels like a decision you have to time. But if you’re investing a lot into real estate every year, it’s not much different than stocks. I find myself in that particular category.
Jim – followed your posts forever. Finally decided to take the plunge and manage our portfolio on our own. Does any of this make sense to you? We are single-income home btw, mid 40s, 3 kids.
Questions:
1. In order: we max backdoor roth x 2, max my 401K, recurring contributions to 529, and now a HSA (first time), the only investment vehicle left is the taxable brokerage right?
2. Does it make sense to have equities only exposure in our taxable brokerage acct at Vanguard & Fidelity, and then let’s say, have our entire bonds exposure in the TSP G fund? Right now the TSP is invested in a lifecycle fund. But I’m considering just making it entirely G fund to ensure our asset allocation remains 5-10% bonds (not counting our 529s here)…
3. Conversely, I have a new job and can set the 401k in this job to invest in a bonds only investment. So that between the 401K and TSP I’ve covered our bonds exposure and I can continue to use taxable brokerage for the weekly buys as outlined below (VTI, VXUS, AVUV, AVDV)….
4. What do you think about the weekly 3K investment in my taxable brokerage split up like this – 60% VTI, 25% VXUS, 9% AVUV, 6% AVDV
Current portfolio:
1. Cash ~ 6%
2. Target date investments in:
a. Three 529s ~ 6% (monthly contribution is roughly $4K / mo total)
b. TSP ~ 21%
c. Current 401K ~ 9%
3. Two Roth IRAs ~ 5% (85% VTI, 10% AVUV, 5% AVDV)
4. Taxable Brokerage Accounts (Fidelity & Vanguard) ~ 52%
a. Fidelity is entirely in 1 stock (from work), makes up 39% of our total net worth!! We are de-risking this and will slowly sell off this stock and reinvest.
b. Vanguard investing 60% VTI, 25% VXUS, 9% AVUV, 6% AVDV (WEEKLY CONTRIBUTION IS 3K per week total)
1. You can always invest more in taxable, but I have no idea if you have another job or some 1099 income or something that would make another account available to you. You’ve listed the ones docs typically use.
2. Yes, it’s ok to do that. Look at all accounts for one goal as one big portfolio. My TSP has been all G fund for many years just for that reason.
3. No question I see there, but you may like this post: https://www.whitecoatinvestor.com/asset-location/
4. Looks like my portfolio so hard to criticize it. But you’ll have A LOT of tax lots if you buy every one of those funds every 2 weeks. That’s 400 tax lots a year. What we do is invest once a month from money made in the prior month and most of the time it all goes into a single asset class/investment, whatever is currently lagging. But the brokerage will keep track of all those lots so it’s not insane but it will make tax loss harvesting more complicated later. Same issue with reinvesting dividends.
39% of your net worth in one stock is a problem you should be actively working on.
Thanks for your reply. To your notes:
Context: *Roughly 900K assets (not including house — spread across 401k/tsp 529/roth/taxable)
*currently 20% of total assets in TSP target date and as discussed 39% of total in one single stock which I’m slowly derisking by selling long-term holdings.
1. I have had an interesting career (FP) – up until 2 years ago almost no savings (career in international health). Now, W2 salary about 600K / year. No other job, no 1099 work. Single-income. Hence, after doing 401k / backdoor roth / 529s — not much else left other than taxable, right?
2. Yes, I look at my 401K & 529s as self-contained portfolios b/c they are in target date. And then my taxable accounts (vanguard / fidelity) and Roth IRAs combined as one big portfolio. I have equities only in taxable and roth — and am considering changing the TSP from target to G fund only to use as my “bond” account.
3. This question was meant to question my thinking on the two options I think I have: I can either convert some of my TSP target date investment into G fund to take care of my bond exposure OR I can not mess with it and with my new job 401K that I just started I can make that 23,500 every year invest into just bonds (and I can roll over my old 401k into this new one and also put it into bonds).
4. I wasn’t planning on TLH – I’m honestly just not financially savvy enough to do that (and may not have enough time) – hopefully doesn’t hurt in the long run. I have a monthly auto investment in 529s (Michigan, Utah, and Vanguard Nevada for the 3 kids) and then a weekly 3K total investment into VTI, VXUS, AVUV, and AVDV. I guess I could move it to every other week or once a month, but my thought was that literally as soon as I get the paycheck, I’m putting xxx into the HYSA and then the rest goes into the taxable in that weekly allocation.
Thanks!! And again, seriously thank you. I’ve lurked for probably more than a decade and I finally decided to take the plunge about 2 months ago and figure out how all of this personal wealth stuff works…hopefully not too late.
1. Right unless you get some 1099 income.
It’s almost never too late to figure this stuff out. The sooner you become financially literate the more dividends it pays.