By Dr. Rikki Racela, WCI Columnist
The ultimate question: What is the best portfolio to maximize the amount of money you make in investing and to achieve your goals? Dr. Jim Dahle had already mentioned in “150 Portfolios Better Than Yours” that multiple portfolios (actually there are more than 150 in that post; many have been added since the original article was titled) are reasonable to achieve your financial goals. As Jim says, there are many roads to Dublin.
Today, at the risk of sounding brazen, I will make the argument that I have the best asset allocation. I will outline my reasons why I believe, through a systematic and comprehensive process of analyzing my situation and choosing my asset allocation, I have built a portfolio that I will stick with through thick and thin to reach my financial goals. Namely, I will outline why my portfolio is better than yours.
And I won’t require you to wait until the end of this column to find out what that asset allocation is. In case the anticipation is killing you, the one portfolio better than yours is . . . drum roll . . .
65% total US stock market, 25% total international stocks, and 10% small cap value.
Now, let me tell you why.
Know Your Financial Goals
The first step Jim mentions in building a portfolio is to identify your goals. It makes sense: you should know where you’re headed before you plan out a path to get there. That path you build is your asset allocation. For my financial plan, the main reason I invest is for retirement. Let me reiterate: the No. 1 goal in my written financial plan is to invest for retirement. It's not for another 24 years, at which time I will turn 65 and be eligible for Medicare. My financial plan is not for short-term gain, not to have fun, not to beat my friends, and not to brag to other docs in the hospital. It is for RETIREMENT.
This statement already eliminates many potential asset classes, including Bitcoin, options, individual stocks, NFTs, angel investing, etc. Can I depend on Bitcoin to be there in 24 years for a guaranteed long-term return? Or any of the other assets that I mentioned? Absolutely not. Bitcoin hasn’t even been out for 24 years. Options are more like gambling. No thanks.
Equities, on the other hand, have stood the test of time. The New York Stock Exchange was started in 1792, more than 230 years ago. When you invest in the total US stock market, you have almost zero chance of your investment going to zero. Better yet—as Ben Carlson mentioned in his blog at A Wealth of Common Sense—over rolling 20-year periods, the S&P 500 has never been negative. And in 90% of those 20-year rolling periods, the S&P made 7% or more annually. In the context of reaching my retirement goals, stock index funds it is.
In case you were wondering which ones I use in particular and why:
You might have noticed a pattern for the stock index funds I have chosen. Not only do they fit my chosen asset allocation, but they are DIRT CHEAP. These index funds were chosen as the cheapest available options across our taxable, IRA, and work retirement accounts. Like Jack Bogle says, you get what you don’t pay for.
More information here:
10 Reasons I Invest in Index Funds
How Do You Evaluate and Compare Mutual Funds and Exchange Traded Funds?
100% Equities? Are You Nuts?
Author Larry Swedroe defines asset allocation as “the process of investing assets in a manner reflecting one's unique ability, willingness, and need to take risk.” In regards to the ability to take risk, I believe I am up there. During my short investing career, I've witnessed that stocks are indeed risky. But are they truly risky FOR ME? The risk we are usually talking about when it comes to equities is volatility risk—which, given MY time horizon and the rolling 20-year data mentioned above, is not really a risk to me at all. Since I am not drawing down my investments anytime soon, I can wait out volatility. Since my wife is not interested in looking at this financial stuff, she's technically probably the best investor in this relationship.
I'm a neurologist, and my wife is an anesthesiologist. Our incomes are incredibly stable. Even during the pandemic, while some other docs had a loss of income because of canceled outpatient procedures, we got busier. I got consulted much more during the pandemic, and my wife was busy intubating sick and dying patients. This increased amount of work resulted in our income actually increasing during the pandemic. Because of how horrendous COVID was, our skills were sorely needed. So, the volatility risk of a 100% equity index portfolio is also neutralized by our high stable income.
What if disaster strikes? What if I die in a car accident motoring down the Garden State Parkway? What if my wife is in the passenger seat with me and mangles her hands in the same accident? Not to worry (at least financially)—we have appropriate term life and true own occupation disability insurance. No need to deplete our 100% equity portfolio. As mentioned in our written financial plan, having appropriate insurance in place shores up our ability to handle volatility risk.
As for Swedroe’s “willingness” to take risk, I slept like a baby through the Coronabear and the bear market earlier in 2022. Actually, let me take that back. What keeps me up at night is that the market was NOT FALLING MORE!!! I was actually upset that the market was not tanking more, losing 50%, 60%, or even 99% of its value. You know why? Because if it fell to 1% of its value tomorrow, then I have a whole lot of my paycheck to buy a larger percentage of every company that is publicly traded.
Don’t get me wrong: I wouldn’t want the horrendous job losses or the soup lines that characterized the Great Depression. I would want society still working and fed. I just want the stock market to be horribly mispriced due to inappropriate psychological panic so that I am buying stocks at an awesome sale. When Bill Bernstein says, “If you are in the accumulation phase of investing, you should get on your hands and knees and pray for a bear market so you can buy cheap stocks,” I am taking him seriously. And my knees hurt!
In the end, every bear market to me is a lucky positive occurrence bringing me much closer to achieving my financial goal of retirement (for those of you reading this in the decumulation stage of retirement, I didn’t forget about you—I would also pray that there is an equal flight to safety and that the bond portion of your retirement portfolio will have an equal meteoric rise commensurate to the equity fall).
And finally, for Swedroe’s “need” to take risk, my wife and I don’t have to be 100% equities. But there is a sense of urgency since reaching our FI number will allow us the option of cutting down our work hours to spend more time with our kids and each other. The longer we take, the less time we have to choose more time with family. So, we are motivated to get to FI sooner, and a 100% equity portfolio is a shorter and straighter path to get there.
To clarify, getting to FI is not the same for us as retirement. FI to us just means the option of cutting down work to spend more time with family. If equities take a prolonged downturn preventing us from reaching FI sooner, so be it. As I said above, the actual goal of our investment plan is for retirement.
More information here:
Yes, Risk Tolerance Can Be Modified: You Just Have to Rewire Your Brain
But Don’t Some Bonds Also Have High Returns?
Yes they do, but evidence suggests that even the riskiest of bonds (i.e. junk bonds or long-term bonds (or God forbid, long-term junk bonds)), do not have the risk-adjusted returns of equities. As the late financial writer Raymond DeVoe Jr., famously quipped, “More money has been lost reaching for yield than at the point of a gun.” Seems like Silicon Valley Bank may have forgotten this statement.
For myself, I am taking a longer-term approach for my portfolio during the accumulation stage where I want to make the most money possible at the lowest possible risk to reach my goals. Riskier higher-yielding bonds are inferior in this regard.
Why Not Invest in Real Estate?
Easy answer: because I don’t want or need to. It is not essential to include real estate in my portfolio for me to reach my goals. I read Jim’s post about his real estate investments and started getting nauseous. He has so many RE funds/investments to track that it violates the simplicity principle. I find it ironic that Jim also authored a blog post regarding simplicity, but I guess when you run a business based on teaching about investing and sound financial principles, you really should violate the simplicity principle to learn your craft. I am a neurologist that can’t humanly practice forever, and I need a portfolio to see me through my non-working years. Real estate is not necessary for that.
But what about REITs? They’re pretty simple, right? While REITs are easy to add to a portfolio, WCI columnist Francis Bayes went over the excellent points about why REITs may not be the right move. It is highly correlated to equities, most recently approaching 0.75. Also, its projected return is not higher than equities. Finally, a REIT index is generally more expensive with VNQ, the Vanguard real estate ETF, having an expense ratio of 0.12%, while VTI is 0.03%. So, if adding REITs doesn’t add much diversification to equities in my portfolio, if it doesn't boost my return, and if it's more expensive, why in the world would I add it to my asset allocation?
Don’t You Think You Should Add More International?
What an excellent question! Many index investing purists will mention that as long as you're indexing the entire world stock market, why not mirror its percentages—currently 60% US and 40% international? I have to take a page from Saint Jack Bogle on this one. Jack is very well known for not wanting to add any international to an individual’s stock allocation. His main argument was that domestic companies already have significant operations overseas, so by investing in the total US stock market index, you have significant international exposure anyway. His insight is well founded when looking at the high correlation of international indices compared to the US stock market—consistently above 0.8, according to Morningstar.
He did soften up in later years and mentioned in his book Bogle on Mutual Funds that you could dedicate, at most, 20% of your asset allocation to international equities. Why would Jack not match the world of 60-40? He mentions how currency risk, where depending on the relative strength of the dollar compared to whatever local currency your international investment lies within, can affect your return. A second point he makes is the significant political risk that occurs in investing internationally, especially in emerging markets. These two risks of currency and political risk may not be compensated with a higher return; hence, his hesitancy to increase international exposure past 20%. But I feel my 25% allocation is close enough to Saint Jack’s advice.
There is also a behavioral bias that I am taking advantage of when I have two-thirds of my allocation in US equities: namely home bias. Yes, many cite this bias as hurtful to investors. But let’s face it: if there was a country to have a home bias in, the US is it. Having the world’s largest economy with many of its profits derived globally, you already have global diversification when investing in a US index.
More importantly, I love the US down to my core. I am proud to be an American, so much so that it will tap into my System 1 when my portfolio is tanking. If my US index falls 50%, 70%, or even 90%, my home bias will help me stay the course because I believe in America. This country has gone through so much financially, including the Great Depression almost a century earlier, and with my home bias, my System 1 will never want to sell if the US stock market is tanking. From a non-financial perspective, the success of the US stems from building a country based on all that is good in this world and what’s best for humanity. Despite not always being perfect, the fierce protection of freedom in this country for its citizens without regard to race, gender, and socioeconomic status is unparalleled anywhere in the world.
If I had more of my portfolio internationally and the world index was tanking, my System 1 would be more inclined to sell. Investing more in the US helps me stay the course.
More information here:
Why You Shouldn’t Bail Out on International Stocks
Why the 10% Small Cap Value?
Why not more than 10%? What about other factors?
I have to say that the small cap value tilt is all Paul Merriman. During my financial literacy journey, I have eaten up all he has to offer. Ever since I heard him on the WCI podcast while I was binge-listening to old episodes, I started listening to Paul’s “Sound Investing” podcast. He makes a phenomenal argument reinforcing the Fama/French data that shows small cap value has a premium over the overall stock market. So, I have a small cap value tilt. Why not add more? The small cap value premium is looking at historical data, and there is no guarantee that there will be a premium in the future. And even if it does, it might not show up in my lifetime.
Paul relays a story when somebody asked economist Eugene Fama, “You tell us that small cap has a premium over large cap. For the last 30 years, it hasn't.” Fama responded, “Well, you're not very patient, are you?” Fama’s response likely would be the same regarding value, so no, I am not comfortable making my small cap value tilt larger than 10%, given Fama’s response. I am happy with my tilt to small cap value to boost my returns to achieve my goals, and having listened to Paul, I can stick with that tilt through thick and thin. I don’t need to add more from the factor zoo.
More information here:
Which Small Cap Value Funds Are Best for You?
What About Investing in Gold or Commodities?
I look to Warren Buffett’s quote on why I don’t invest in gold:
“[Gold] gets dug out of the ground . . . Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
I am standing in the overtaxed state of New Jersey, and I am scratching my head. Gold really does not produce anything like the hardworking companies that a total stock market index fund does. The same with commodities. Investing in these assets is making a bet that someone will pay you more for them in the future. Really? You could make an argument that maybe it dampens the volatility of your overall portfolio, given its low correlation to equities, or that commodities are a good inflation hedge. I’m fine with that for other investors. For me, I want my investments to make the most money for me in the long run, and gold and commodities will not serve that role.
They say one ounce of gold 200 years ago (as well as today) buys a nice men’s suit. If you invested $100 in the S&P 500 at the beginning of 1950, you would have about $241,255 at the end of 2023, assuming you reinvested all dividends. Definitely more than a nice men’s suit!
Simple and Cheap
I mentioned the simplicity principle earlier, and my portfolio exemplifies that. My portfolio is stupidly easy to rebalance. I can easily calculate how much I should have in assets, as the US should be roughly 2/3 of my overall assets, international with one-quarter, and small cap value with one-tenth. The math is third-grade level. This asset allocation is also easily implemented across the different account types available to my wife and me. I mentioned before that the particular index funds I have chosen are DIRT CHEAP, and the average expense ratio of all our investments is 0.04%.
See the calculation below as per Personal Capital (now Empower).
I Am Also Very Competitive
I mentioned at the start of this column that beating others at this investing game is not my goal. And it shouldn’t really be your goal. Investing is a one-player game where it’s you vs. achieving your goals. I am not competing with my friends, my neighbors, other doctors, Jim Dahle . . . you get the point.
However, my System 1 is very competitive, and when I see my asset allocation of 100% equities and having that small cap value tilt, I know my portfolio has the highest chance of beating 99% of investors when I utilize low-cost index funds. Since I'm 100% in equities, a high-risk asset, the expected return is the highest it can be, short of going all out on small cap value.
Many people who pick stocks like trying to make a lot of money—and they also love to brag about it when it happens. I get to brag because I know history is on my side when I say my portfolio is going to beat 99% of all other investors in the world, as long as I don’t sell low. I can feel the dopamine hit in my nucleus accumbens, where evidence shows that even the anticipation of a win releases dopamine. My portfolio is even expected to beat the owner of this website—it’s because of his 20% in bonds. (To be fair, I am not sure when Jim will derisk, if at all. Currently, we plan to start adding bonds five years before retirement and retire on a 60/40 portfolio. If Jim stays with only 20% bonds all the way until and through retirement, then he might win.)
Did I Convince You?
So, why do I have the best portfolio? Because it is appropriate to my high-risk tolerance. Because my high-risk capacity can neutralize the volatility risk. Because, when choosing this asset allocation, I have taken into consideration the stability of my family income; my need to take risk; and, heck, even my behavioral psychology.
It is the best portfolio because it is the best one FOR ME, the asset allocation that I can stick with through thick and thin.
It’s simple to maintain and extremely cheap where any returns lost to fees are minimal. It fulfills my need to brag and beat other investors, providing me a dopamine hit. It leverages my deep-seated patriotism. I even included my wife’s risk tolerance within this calculus since, technically, it's both of us who are investing. And that is the crux of my column. The best portfolio is the one you can stick with, that has considered the multitude of factors of your life, personality, and loved ones.
I challenge you when choosing an asset allocation and building a portfolio to go through all the variables that I have outlined so you can build the one portfolio that's better than mine.
What do you think? Have you considered all the factors that I have when choosing your asset allocation? Do you think some of the items I considered are completely asinine when choosing an asset allocation? Are there some things I haven’t considered that I should have? Comment below!
This. Is. Amazing! I was nodding my head in “mmm hmmm” whiplash-esque agreement throughout your article. Simple and dirt cheap indexing ALWAYS beats the “I swear I’m smarter than the market” bros. (They’re always bros…). I also have 10% exactly in small cap value and exactly 25% international. And ZERO bonds for me as well. I also have a similar retirement horizon as you with regard to time . Now you’re competing with Jim as my WCI man crush. Haha! Seriously though, everyone should read this many times (and decide on whatever allocation they feel comfortable with). I feel like so many of the target funds are great, but they are overly conservative for many younger folks. You rock! 👏🏻👍🏻🙌🏻
Jay thanks so much man and I guess we are like financial twins!
In the discussions about long-term stock market returns, I notice that a common assumption many Bogleheads tend to make is about a 10% return based on historical data. However, it’s crucial to remember that these historical returns occurred during periods when P/E ratios were typically lower than where they currently stand.
The 10% historical return incorporates a time when there was a significant expansion of P/E ratios. Now that P/E ratios are considerably higher, it’s natural to question if this might suppress future returns. Given the current market dynamics, could the elevated P/E ratios mean that we should reasonably expect lower returns in the future?
After all, the stock market’s performance is influenced by a variety of factors, including earnings growth, dividend yields, and changes in valuation levels (i.e., P/E expansion or contraction). If we’re starting from a high P/E level, there may be less room for P/E expansion and therefore lower overall returns.
What assumption are you making for stock returns in the future?
Historical returns are all over the place. If you decide to project a lower return than past returns, how do you know how long to project it for?
I also think it’s funny that everyone was doing that in 2010-2013 as well, and the 20-teens had outsized returns.
Crystal ball so cloudy.
10 year rolling returns of the US stock market average 6.9% real. But the range is huge. -4.1% to 17.6% real.
I tend to use 8% nominal and 5% real in my long term projections. I think 2% less than historical averages is plenty conservative.
A few years ago, I remember observing an intriguing phenomenon on the Bogleheads threads. Many enthusiasts were projecting bond market returns that, in retrospect, seem unrealistically high. They seemed to be guided by the ghost of historical returns, extrapolating those figures into the future without paying due heed to the base yield levels of the day. It made me wonder: do we sometimes fall into a similar trap with stocks? For instance, when high P/E ratios suggest higher valuations, should we anticipate weaker forward-looking returns? Now, don’t get me wrong, I’m not debating your assumption of 8% nominal/5% real returns – that’s a different discussion. My point is that sometimes, as Bogleheads, we have a tendency to naively extrapolate from historical returns. It’s a tempting approach, yet we should remember that when historical returns are exceptionally good, it may be a signal that future returns will be lower.
Right. But when it gets carried to extremes it becomes ridiculous. If someone really believes future stock returns (like over their entire investment horizon) will be 1% real, there are far better ways to invest their money than buying an index fund. Go buy shaved ice kiosks or rental properties or whatever. Heck, buy fixed annuities or viaticals or TIPS etc.
And remember that pessimism always sounds smart and sexy, but financial history should be titled “Triumph of the Optimists”.
Could we be looking at a decade where stock returns are 0% real or worse? Sure. But guess what? The decade after that will likely produce above average stock returns. And for the long term investor, it’s mostly all the same.
Hey Tom, despite a 100% equity portfolio with a 10% small cap value tilt, I use a 5% real return in my calculations. I think this builds in a nice level of conservatism in my projections, overcoming the currently high valuations of equities.
R^2, this article supports your 5%+ real return assumption, https://aswathdamodaran.blogspot.com/2023/07/market-resilience-or-investors-in.html
cool thanks 🙂
People always wring their hands over increasing P/E ratios. And not that we should ignore them, but there is no magical P/E ratio carved in stone. As more buyers enter the market P/E ratios are going up. We should only be concerned if there comes a time where there is a sustained exit of buyers from the market which might drive down P/E ratios. My two cents.
Lower P/E ratios, like higher bond yields, aren’t necessarily bad. Probably better in the long run even with the short term hit.
In your table, it would be extremely helpful if you would add the name, or at least the type, of each fund.
yeah dude should have added that. The total US index funds are ITOT, FSKAX, FZROX, total international is VXUS, FTIHX, FZILX, and the small cap value index is FISVX.
Awesome post!! I think your arguments are solid. This is very encouraging news to those “moderate” earners who are not yet accredited investors (especially after maxing out a 401k and lowering your pre-tax income) who miss out on syndications and investments requiring accreditation status.
thanks dude and actually even when you become an accredited investor you don’t need syndications and those other investments requiring accreditation status to be successful. just good old index funds for me to accomplish my goals 🙂 Warren Buffett says you don’t need to swing at every pitch 🙂
Seems like a capital efficient portfolio would easily trump this. Something like 30% UPRO or similar and 70% of something non-correlated like PQTIX.
Or 50/50 PSLDX/PQTIX. Rebalanced regularly of course.
Would trump it in risk adjusted return? Or nominal returns? I assume just thr former?
Do you know ANYONE who has held a gimmicky portfolio like that long term? I don’t.
Gimmicky? Might as well keep cash in the mattress with that mindset. Maybe it’s because leverage is scary, but if you have a mortgage and investments then it’s functionally no different than what I’m suggesting.
You can go over to bogleheads and find lots of people that invest this way. Cliff Asness(now a billionaire hedge fund manager, but then just a PhD student) original study on the benefits of a leveraged 60/40 portfolio came out about 30 years ago.
While it’s only recently that capital efficient(ie leveraged) etfs and funds have been available to retail investors, it’s been common for institutions for a while.
There’s nothing gimmicky about a 3x leveraged sp500 etf. It’s exactly what it says. There’s little difference between a 30/70 upro/cash portfolio with daily rebalances than just holding spx. The benefit is that you now have 70% of your assets in cash. Or maybe bonds, or whatever appeals.
The benefits of the leveraged investment is that it lets you modify your portfolio more flexibly than otherwise. Want to pack more alpha, then go 100% UPRO. More defensive mindset?.. just add negatively correlated beta. Long bonds, trend following, etc. The thing is you can’t add either to a 100% equity portfolio without leverage.
Feel free to backtest the ones I suggested and see how they do. I’m pretty sure you’ll see they’re obviously better than the OPs portfolio. And these are just two fund portfolios.
5 year returns of SPX are 9.99% annualized. 5 year returns of UPRO are 14.51%. 3 times the risk for only 50% more returns.
Worst year of the last 5 is 2018. UPRO down 25.1%. SPX down 6.2%. Drops more than 3X too. Maybe MORE than 3X the risk for only 50% more returns.
And that’s only a 5 year sample.
I just don’t think these leveraged funds are a good idea. They’re relatively new and they’re gimmicky. If you want leverage, I suggest you get it outside the fund. Plus their goal is to mimic the S&P 500’s DAILY returns, not long term returns. So you don’t get 3X the annual returns.
Maybe my previous reply was a bit harsh. Here’s Asness’ 1996 rebuttal. Click download at the bottom of the page to get the pdf of the original article.
https://www.aqr.com/Insights/Research/Journal-Article/Why-Not–Equities
That’s an article about 100% equities, not leveraged ETFs. What am I missing?
That article is just a summary. The original study is a linked pdf at the bottom of the page to download. It was originally a rebuttal to an argument by Siegel et al iirc advocating for a 100% equity portfolio for endowments. What Asness showed was that a 155% levered 60/40 portfolio exceeded the returns for a 100% equity portfolio with a lower standard deviation(ie higher sharpe/sortino and lower cvar). This was from 1920s to 1990s, but it’s actually out performed the 100% equity portfolio since then too. Even counting last year.
There are etfs that look that are levered 90/60 that look to match this original portfolio(I think wisdomtree has one), but the gist is that a levered portfolio is generally always better than any non-levered portfolio.
For example 50/50 PSLDX/PQTIX is essentially a 50/50/50 stock/bond/managed future portfolio. The leverage allows you to get the last slice. And it’s what allows the portfolio to exceed the unlevered 50/50 stock/bond portfolio.
There are issues with these portfolios. They are not tax efficient at all so they really need to be only put in a Roth or similar account. They also need to be rebalanced regularly – even daily.
You can obviously go no nuts with leverage. Just like you can go unhedged into options, but that is probably not ideal. But using leverage to manage risk for a desired rate of return is imo a good thing.
I know a guy who did this….https://www.bogleheads.org/forum/viewtopic.php?t=5934
I’ve spent an inexcusable amount of time today reading that thread… What an incredible story. Thank you (?) for linking it.
Hey Tim, yeah, this type of investing is I believe is a risk parity type portfolio. It’s reasonable, but I always wonder about being too academic when investing with leverage. Just look at long-term capital management. I have that book when genius failed on my reading list but from my understanding, it was the use of leverage that really got them into trouble, despite having the best, Sortino and Schiller ratios and squeezing out the highest return possible for the least amount of risk long-term capital management not only went bankrupt, but almost took down the entire financial system.
ITOT – Total Market – iShares Core S&P Total US Stock Market ETF
VXUS – International – Vanguard Total International Stock Index Fund ETF
FISVX – Small Cap Value – Fidelity Small Cap Value Index Fund
FSKAX – Total Market – Fidelity Total Market Index Fund
FTIHX – International – Fidelity Total International Index Fund
FZROX – Total Market – Fidelity ZERO Total Market Index Fund
FZILX – International – Fidelity ZERO International Index Fund
ha, should have read the comments further before I responded previously!
The NYSE is not 300 years old.
1792+300=2092
Good catch! Math is obviously not my strong suit as an editor.
Maybe not, but it’s been around in four centuries!
ha! despite having done AP calc BC back in the day and getting a 5 on that exam, simple arithmatic is out of my league 🙁
holy crap, also includes spelling! a-r-i-t-h-m-E-t-i-c
I actually find that really impressive. One of the hardest subjects I ever took.
Sheesh, I never advanced past trig.
I love this ! Especially because my asset allocation is very similar: 70% US stock (S & P + US Total market), 20% Vanguard total international, 10% Small cap value (Avantis, although cost is higher for this)). At this time I am determined to ride through the tumultuous storm of ups and downs with this all equity portfolio. I hope that things will pan out well for both of us 😉
BTW Do you plan to increase your bond allocation when closer to retirement?
thanks for comments JJ! I do plan to increase my bond allocation starting 5 years before I retire, and then at retirement I plan to be 60/40. likely those bonds will be 10% cash/ultrashort treasuries, 10% short term treasuries, and 20% intermediate term treasuries. although I am not retiring for another 23 years so I will likely change my mind at least half a dozen times before I actually get there.
I’m curious as to where the $300,000 swimming pool (mentioned in an earlier post) fits into your financial goals of retirement.
For some people that pool may be the centerpiece of a retirement plan.
it fits in where I will still be married in retirement (wife really wants that pool) and swimming in said pool while still having accomplished the goal of reaching $4mil in investable assets supporting $160,000 of annual spend, although I might use a Guyton-Klinger type withdrawal strategy to boost that 4% up a little bit. also gonna claim SS at 70 so should have that as gravy on top of withdrawing from my nest egg.
wife also makes a good point-it might buy great experiences. hopefully in retirement I will have the memories of throwing my kids around in said pool and will look at those memories with rosy retrospection where I don’t remember the pain of paying $300k (actually with inflation it’s going up to $400k!). I myself as a kid loved having a swimming pool growing up, so hopefully my kids will have good memories as well.
My neighbors put in a pool. I think they live outside now. I’ve never seen anyone get their money’s worth out of something as much as they are.
Doc Racela,
I appreciate your well-articulated investment strategy of 65% in US stocks, 25% in international stocks, and 10% in small-cap value stocks. However, I’m curious about how you consider your primary residence in this asset allocation. You mention a conscious decision to stay away from real estate investments, yet owning a house inherently means you are, to some extent, invested in real estate. If we consider your home as a non-liquid, but nevertheless significant, part of your net worth, wouldn’t it make sense to include it in your overall asset allocation? If so, what percentage would you target, and how would that impact the balance of your portfolio? If not, could you please elaborate on why you consider your home outside this framework? Thanks dude.
I’m not Rikki, but I don’t include my home in my retirement asset allocation, even if I do include it in my net worth. I think that’s what most do.
Thanks, as always, for your replies. And for the great content you make available on this web site.
thanks Tom and great question! as you said the home is illiquid and more a consumption item so I don’t consider it in my asset allocation when creating an income for retirement. However, I have been fascinated with Wade Pfau’s use of a reverse mortgage to use as a buffer asset where you don’t sell equities during a bad and prolonged bear during retirement. I also am serious about dying with zero, where taking out a reverse mortgage will give me more money to blow during retirement. so in terms of planning for retirement I don’t consider it as a way to fund/create income for my retirement, but I am still wrapping my head around that this is a source of income that still can be tapped in retirement though reverse mortgage or just selling the damn thing and living in a bawler apartment and blowing the rest of the money from the sale 🙂
I believe this portfolio allocation is excellent but I’m going to take a crack at sighting some shortcomings anyway.
100% equities: Clearly you must have a high-risk tolerance for this portfolio, and one does not know their true risk tolerance until they have faced a dramatic market downturn. You don’t just have to make it through all bear markets, which occur every 3 years or so on average. You must make it through the WORST bear market. No way the writer is good with a 90% or 99% market downturn. That would be the worst downturn in US market hx by a long shot. He’s overestimating his risk tolerance. The question is by how much and he doesn’t know the answer yet. Having no bonds is a risk factor related risk tolerance and the writer hasn’t weathered a severe downturn. Don’t get me wrong. I think he’d be fine since he seems well read and likely increased his risk tolerance substantially because of it. I think this portfolio is likely to harm most people, however. I don’t hold any bonds in my own portfolio, but I’d never recommend that for others.
Dirt cheep index funds: The writer avoided most vanguard funds and went with even lower cost similar funds. However, Vanguard is known to have the most tax efficient funds. Those funds have slightly outperformed similar but different low-cost funds from other brokerages despite having a slightly higher cost. It is widely believed that the slight outperformance is due to the tax efficiency of Vanguard funds (Note that Vanguard’s patent on their tax efficient funds has recently expired so the advantage is unlikely to be present in the future.). The ER difference between 0.03% and .015% is hardly anything. It’s negligible. The difference between 0.03% and 0.3% is large. It would be difficult to claim that the slightly lower ER in the writer’s portfolio performs better than Vanguard funds because of lower cost. I’m certain Vanguard funds have outperformed historically, despite their slightly higher cost, due to superior tax efficiency.
The concept that a total stock market fund is no risk or almost no risk: The Roman empire fell dude…But to Jim’s commonly made point, if it happens were aren’t going to be worried about our retirement portfolios. We’ll want food, shelter, guns and ammo.
Having 100% equities will get you to FI soon: Not really. Having 10% bonds would significantly reduce volatility in the portfolio and the rate of return would be very similar.
Why not invest in real estate: Private equity real estate funds aren’t THAT complicated but it’s true they are a bit more work to learn about the vet. However, you typically get paid more for your illiquidity that you would in the stock market if you stick with high quality sponsors. Many people find it to be well worth their time. Also, investing in private equity real estate is a team sport. If you’re in the know you vet deals in a real estate group as a team.
International: I know currently risk was mentioned, however, another of Jack’s arguments for not investing in international was risk due specifically to currency manipulation. Another argument for more international is that it has been outperforming the US market for quite some time and it is likely due for a reversion to the mean. Nobody knows if that will come to pass but the odds are in international’s favor in the near term (not that I recommend market timing).
Small-Value tilt: Once an advantage is known by the broader maker it is typically eliminated. Note, I have a small-value tilt myself just in case.
All and all I can’t knock this portfolio allocation. It’s almost the same as mine.
Private equity real estate funds? I would avoid that. It is more or less a Ponzi. Way more money will be earned by the managers who runs it rather than you. Without SEC supervision, the corruption will be rampant.
So, that can certainly happy if you’re dealing with shady characters without researchable history and you don’t do you due diligence. However, saying all private equity real estate funds are something to be avoided because they are basically a Ponzi just isn’t based in reality. If the general manager is reputable and effective they certainly don’t earn way more than the investor. That’s not how the waterfalls work at all. Fees typically coincide with management but you’re getting a pref (assuming the investment performs as expected) prior to management getting any returns. If they don’t at least meet your pref they get nothing asside from small management fees. Once the pref is met there is a split of profits (still is highly scheduled in favor of the investor). I do get what you’re saying about new investors coming in and older investors getting paid their pref first. However, it should be recognized that the deal is typically making rental income while the general manager improves management of the asset, gets higher rental income due to excessive vacancies, makes improvements on the property, uses some leverage, and/or resells the property for a higher price because the general manager improved the value of the property. Additionally, the catch up in pref between early and late investors is usually pretty early on in the deal. Also, general managers tend to buy for cheap off market prices too. There are far more legitimate general managers out there than you seem to realize. MLG is probably the best I’ve seen. WCI works with them often to provide us education and reputable real estate fund deals. Rikki seems to be aware that private real estate equity does have the capacity to outperform. He just doesn’t want to deal with the hassle of vetting deals, which is totally understandable. Calling these deals all Ponzi’s misses the mark.
PE has a component of Ponzi to certain degree. In good term it is called return of capital. VNQ did that in 2020. That is one reason why I never put a single more penny into VNQ afterwards
Steffan thanks for reading and excellent points. The point about misjudging my risk tolerance is huge and yes, i’ve only been through the Coronabear which was pretty wimpy and last year’s bear, and I only got financially literate 4 years ago so I lost only $30k in my taxable in 2020, as well as $70k in taxable last year. I actually don’t know how much I lost in my retirement accounts b/c calculating that would require effort and might make me panic, so I didn’t bother. the only reason I check my losses in taxable is too TLH. I always questions what if in the future I lose real money in taxable, like $300k, $600k, heck even $1mil! If I lose my first million in taxable, I plan to crack open a bottle of wine and TLH, but I am saying that in the comfort of my own home with the kids asleep sipping on wine listening to Nelson (don’t judge me). what if I lose $1mil in taxable when i’m 55yo and my risk capacity is diminished? will I still talk big game? it is this issue of why I am always thinking of having a financial advisor, to protect me from what Ben Graham identifies i the biggest enemy to investing: me.
And great point about tax efficiency trumping measely changes in ER! in taxable ITOT and VXUS are ETF’s, and I should have mentioned that my asset allocation allows me to use tax efficient ETF’s in taxable. I use mutual funds only in tax advantaged accounts.
And yes, 100/0 does shave off too many years to FI compared to 90/10, but I disagree with the extreme volatility dampening benefit of 10% bonds. If in a bad bear I had $1mil, market goes down 50%, then instead of losing $500k of 100/0 I would lose $450 with a 90/10 stock/bond allocation. I don’t know about you, but $500k vs. $450k seems awefully similar and still a crapload of change, and my propensity to panic is not dampened by much.
I think you meant that international has been UNDERperforming for quite some time and will revert back to outperforming US, although you can’t predict that it will soon and as you said, you can’t market time. I base my international on how I “feel” about the growth of the globe vs. my inherent patriotism as this will allow me to not sell in a bad bear. I’m trying to use my system 1 of “feel” what my international to US allocation should to keep me in the gam and not panic.
And actually there is research that even though Fama and French have published the small and value premium, the premium still seems to exist, half of it is a risk story, and the other half of it is human behavior.
Finally, I’m not interested in learning about real estate as seems I can accomplish my financial goals with my asset allocation without needing any extra effort 🙂
If you manage to lose $1 MM with those allocations then that says to me you’re absolutely killing it. I’ll share in some of the wine buy you’re buying if your portfolio is beefy enough to lose that much….haha.
Yes, I meant UNDERperforming as you noted.
All things considered I think you’ve done quite well here. You’ve clearly put in the time. My allocations and future bond plans are extremely similar. I’m going to reiterate that we should be careful not to suggest to others that not holding bonds is a good idea. Most people reading this will have read far fewer finance books than us. They will see it as a good idea not to hold bonds but will have far worse risk tolerance because they don’t know market history. I usually tell people to hold some bonds even though I don’t.
absolutely agreed! Risk tolerance is tough an you never know how you’ll react through something like the GFC. Hell, I don’t even know how I will react I’m just banking on my behavior in previous smaller bear markets. I hope readers don’t get the impression to be 100% equities, but rather go through the process of how I came up with my 100% equity allocation, including experience a couple of bear markets like I have.
I am with Rikki mostly. A couple of minor disagreements.
(1) Crypto. I am with Rikki crypto is highly speculative. Why ignore bitcoin and ether completely? There is a fair chance that crypto may become a major way of payment in the future. Maybe dollars will be tethered to the Sats in the future. The future may be a huge surprise to us all. It is wise to take a small bet rather than no bet at all. Of course, there is a also fair chance crypto will be worthless in the future.
(2) Small cap value. Why not small cap growth? Did people buy small value simply due to past performance and some authority recommendation? All the theory behind small cap value superiority is all based on past performance. If the small cap growth wins today, there would be another theory to justify that. The future may be all upside down. Invert and always invert if everyone talks about it. Or just stick to a broad market fund and ignore factors.
Hey howard thanks for commenting and yes, it is reasonable to take a small bet on crypto, but still just as reasonable to sit it out. the main crux is that I don’t need to take a small bet on crypto to accomplish my goals. You said it yourself, putting money in crypto is a bet, and i hate betting even a little bit of my money. I tend to be an over optimizer, and I want every single cent to work for accomplishing my goals and maximizing the amount of joy I get in this life. But yes, if you or others find joy in taking a small bet, have at it! It’s ok if you find it fun and it may payoff, but for me it’s not fun. investing is serious business to me and should be boring. I take my fun gambling in my fantasy football leagues (which I won one of them last year, btw!)
As for small cap value vs small cap growth, Fama and French presented data not based just on past performance (“persistence”), but mathmatical reason why small and value should continue to pay a premium. They have shown that small and value fit Larry Swedroe’s definition of a factor:
1. persistence across long periods;
2. pervasiveness across sectors, countries, regions and even asset classes;
3. robustness to various definitions with intuitive risk-based or behavioral-based explanations for why they should persist
4. are implementable with minimal transaction costs
Small growth would not meet Larry’s persistence, pervasiveness, robustness criteria.
(1) A small bet is sometimes necessary instead of going all in something. What is chance of bitcoin to replace FIAT. Very low. But what if that happens? It is better to have something than nothing. It is also extremely low chance for other currency to replace dollars since they are in the same racing track. Crypto is from another universe and has better chance to replace dollars.
(2) That is the problem with small cap value. I feel 99% boglehead will choose small value instead of small growth if they want some factor play. Decades ago, small cap value was not popular at all which expains scv outperformance today. I would bet on sc growth. My theory is innovation is way more robust than old times now. Scv will suffer a long long term underperformance until it kept up with total stock or scg in very long trend. Sticking to certain criteria is very dangerous .
1. What if it happens? Why wouldn’t I then be able to swap cash or equities or real estate or physician services for Bitcoin?
1. dude yup very reasonable reason to have some crypto.
2. As for small cap growth, also reasonable argument to invest vs. small cap value. I would make it a small tilt like I do though. Just be aware you are going against what the evidence cited by some very smart nobel prize winning economists have said, but hey, their crystal balls are also couldy 🙂
1. Assumes you can’t just swap dollars for Sats later. Why would that be?
Rikki, thanks for this great and very thoughtful post. I’m going to venture that my portfolio is better than yours – for me and my family. Keep up the great work!
Hey Margaret, knowing you, yes! your portfolio is better than mine 🙂
what is interesting for you though is despite looking in your 30’s, apparently you are closer to retirement than I am. Your portfolio that is better than mine may have to soon change/derisk as you get closer to that retirement date. do you have a derisking strategy? Or are you keep your same asset allocation during accumulation as decumulation?
I was just being flip :). my point was that there is no “best” portfolio, just as there is no “best” school. It will depend on so many individual factors. My (our) portfolio could probably use some tweaking – I don’t spend as much time thinking about it as many folks on here do – but that’s also part of what it works for us: low-maintenance.
As for de-risking: that’s a great question, and something I think about. My husband and I have different retirement horizons: he is 60 and has a shorter expected life expectancy (because he’s a dude) and feeling ready to retire, I’m 52, likely to live longer, and not as ready to retire. So we have to find a middle ground between his justifiably more conservative approach and my more aggressive approach. Maybe I’ll write about that some day!
Hello, first of all were we separated at birth? I also am 100% equities (well not really, I have some % cash, but everything else investable is equities). No bonds, no RE. I also recently read the post re RE investing, and actually seriously considered a private RE lending fund, but also found it a bit nauseous to have to deal with all the tax forms. And to wait for the K1s to come out, which would hold up my taxes. Not to mention that even with large ETF taxable holdings, they literally leave me with zero cap gains.
Anyway I did have a question: dont you have some % cash as either emergency fund or if some cool idea came up that needed cash? Case in point, my wife used to rent her office space, and one day her landlord went nuts and tried to evict her, and since we had enough cash to straight up buy another office condo in her same building, she turned lemon into lemonade (we then re-fied after the purchase, but were able to first close in 2 weeks due to having the cash). Though I guess you could just sell stocks to accomplish this?
I also engaged with an FA recently – his initial take was “wow great job” and he said he would add RE to my portfolio. But overall he didnt think we had any ticking bombs in our portfolio.
The other tricky thing is getting your partner on board with the allocation. I would run a more aggressive allocation if it was just my risk tolerance at play.
My wife doesn’t even know the password to our accounts, even her roth IRA and her 401k. On top of our date nights this is another wonderful form of asset protection from divorce 🙂
More importantly this huge lack of looking at your portfolio makes my wife the better investor and highest risk tolerance. She will never be tempted to sell because she doesn’t even know how to look and doesn’t even have the passwords! We do have an ICE binder with the passwords but even then that little bit of friction she can’t be bothered with looking. She was like one of those Fidelity investors that did great investing and Fidelity thought they had died. It turned out in that study they were alive and people like my wife 🙂
I don’t think the password technique is very effective asset protection, or divorce protection.
You guys should consider something like LastPass though. While a pain initially to set up and make all password secure, it has made our lives much easier.
What number do you all use for financial independence? I am about 20 years from retirement and it is hard to predict what my needed income would be to multiple by 25, as the change in inflation or knowing what a reasonable retirement income would be.
Just do it in today’s dollars and then use an inflation adjusted return. So say you need $100K in today’s dollars. That’s $2.5 million in today’s dollars. So then you run your future returns at 5% real instead of 8% nominal.
But really you just adjust as you go over the next 20 years.
The 5% real figure is after tax, right?
While it is true that only after-tax, after-fee, after-inflation returns count, I have not specifically made any sort of tax adjustment there. I don’t pay a lot of tax on investments though. It’s a pretty tax-efficient portfolio.
Hey David my number is based on my projected budget when I retire of $160,000 per year and then multiply by 25, so I get $4mil as my FI number. I take my budget now, eliminate the costs I won’t have in retirement (mortgage, retirement contributions, kids costs, etc.) and add some back (travel, etc) and that’s how I got a $160k yearly spend. It’s just a rough estimate.
In terms of projection how to get to that $4mil, I agree with Jim. I keep everything in today’s dollar and assume inflation will be the historical 3%, so with my 100% equity allocation I’m being conservative thinking more 8% nominal return and subtract 3% inflation and I use a 5% real return on my money when planning for retirement.
Thank you for this post, I feel I learn a lot from your series. I’m still pretty early in my learning about personal finance journey but man 100% equities feels a bit scary in terms of risk
Yes I know you state
>Better yet—as Ben Carlson mentioned in his blog at A Wealth of Common Sense—over rolling 20-year periods, the S&P 500 has never been negative
But look at the NIKKEI 225 which had a well over 20 year bear market . Just because something hasn’t happened doesn’t mean it won’t especially when we face different macroeconomic situations than we have ever had before.
But even if we were in the same situation of Japan with your savings rate, ability to keep working it seems like it’d be fine for a nice retirement… if you are really investing with a 24 year time line, but previously you’d mentioned the goal of having 2.5M in retirement investments by 2030 so your wife could cut back.
Those are very different timelines . I guess my question reading this post was “why” . What are you going to do in retirement that requires extra risk? What are your goals after that 2.5 m mark? [other than the pool] Is the goal just to maximize the amount of money in the retirement accounts in 2047?
dude Ben glad you’re learning a lot from me! Yes, 100% equities is scary for most people so I don’t want you to think you need that allocation. 100% equities is MY allocation that works for me after going through a couple of bear markets, reading, stable income, personal circumstanes, appropriate insurance, etc- all the stuff that I outlined above is what you should consider when picking your AA, and likely won’t be 100% equities.
and yes, what happend with the Nikkei can happen here in the US. Hence the 25% international that I have, but at least in my estimation that would be extremely rare and I rather have an amount of international vs. US that helps me stay the course. I think an AA that helps you stay the course is of utmost importance compared to a Black Swan of the S&P going the way of the Nikkei.
And as for your final question you are right! I actually have no absolute need to take 100% equity risk once my wife reaches FI in 2030, but our ability and willingness to take risk are still high, and I figure like you said any extra money above our goal is pure gravy.
I believe perhaps author and I were separated at birth? Good to see someone else who loves equities and can’t get into RE. I also recently looked at a RE private debt fund but just couldn’t go for the illiquidity and the late-arriving, and multi-state, K1 forms. Can’t imagine how one does ones taxes with so many states to deal with.
One question, do you mean to say you have nearly 0% cash? Don’t see any need for a cash pile? Earns > 4% now, not so bad right.
Hey Mike thanks for reading 🙂 Yes many investors can accomplish their financial goals without real estate. Seems such a hassle to some people to do real estate while for other they love it so it works out as a great wealth accelerant and doesn’t detract from the joy you get out of life. I feel doing real estate would be more painful time away from the neurology job I do, the time I spend with my kids, and the date nights I have with my wife, and even though it might accelerate getting to the FI finish line, I’d rather enjoy the journey more and get to the finish line later.
I do have cash! but those are not for retirement, so I don’t consider part of my AA. I have $50k in iBonds ready for the pool (they are more than 1 year old), another $30k cash for emergency fund, all in hi-yield savings earning 4% 🙂
Very neat post! Just curious where and how much (percentage-wise) are you allocating things (asset locations); pretax accounts, taxable, do you have an HSA, etc? You’re using similar asset allocation to myself, and I’m shying from bonds until my loans and home are paid off most likely.
what up Marcus thanks dude. I really hadn’t thought about how much was in which account until you asked, but as of now I have about 50% in taxable, 10% in my work 403b, 20% in my solo 401k, 5% in Roth for me and wifie, 10% in my wife 401k and 5% in the non-gov’t 457 (we don’t contribute my wife’s hospital just contribute in there). I do not have an HSA. And yes makes sense not to have bonds if you have loans and mortage which is like a negative bond. don’t sell when the market tanks though!
R^2, I forgot to mention earlier that I am a big fan of your columns. I love how you incorporate into behavioral economics and neurology into how you look at personal finance and investing.
thanks Tom! I love you too man!
R^2, another investor with 100% stock market allocation, https://www.businessinsider.com/index-funds-investing-stock-market-couple-seven-figure-net-worth-2023-7
Wall street journal on more all stock allocations, https://archive.ph/DUhlY
“At Vanguard, one-fifth of taxable brokerage account investors aged 85 or older have nearly all their money in stocks”
actually if you have legacy goals, being almost 100% equities in not unreasonable.
I have a feeling though some of the retirees in this article aren’t really thinking too deeply about their all equity asset allocation 🙁
dude this is kind of bothersome that many of these 100% equity investors are not in index funds, but trading individual stocks!
man, I was loving the dude in the article until he bought Meta and then crypto 🙁
it’s all good, as long as he’s scratching the itch with 5% of his portfolio.
In general, Dr. Racela offers good advice, but he overlooks a big problem. I have not reviewed all of the comments, so my comment may be repetitive, but he needs to consider capital gains taxes. By investing in Vanguard mutual funds, which are coupled with an identical ETF, investors can avoid most capital gains. So investors should either invest in low cost Vanguard mutual funds which are coupled with identical ETFs or should invest in ETFs with other mutual fund and ETF providers.
Vanguard has had a monopoly on this approach for years, but their patent has now expired, so now other providers can do something similar. I have read that Dimensional Associates are considering adopting this approach, but I do not believe they have any such products on the market at this time.
Bob great point! luckily I use ETF’s in my taxable 🙂
also instead of DFA funds in taxable you can use Avantis ETF’s which is basically the ETF version of DFA funds.
To Follow up, I recommend the simplest possible portfolio, a variation of Larimore’s 3-fund portfolio. My Choices of funds are 40% VTSAX, the total U.S. Stock Market Index Fund, 20% VTIAX, the Total International Index Fund and 40% VSBSX, the Short Term U.S. Treasuries Index Fund. This is basically a two box approach, 60% stocks, and 40% short term treasuries for decreased volatility and short term goals. The ultimate KISS approach! All of the above funds are coupled with identical ETFs.
Bob I love it!!!! dominating portfolio! you also are avoiding the total bond fund which although a total bond fund is simple, I think it’s too simple given the risk as we saw last year of a total bond fund. there are just too many corporates in a total bond fund that make the total bond fund way too correlated to equities. And duration is a little too long and you can get hammered like last year. We should tell Taylor and the rest of the Bogleheads!!!
Actually likely the Bogleheads know this they’re a pretty smart group. I’m not sure but I think they believe sticking to a total bond fund in the 3 fund portfolio satisfies what you need to reach your goals. 2022 sure wasn’t easy though the total bond fund didn’t dampen volatility all that much!
For various reason, I have de-risked my portfolios since the fall of 2022. Buying the BIL ETF and adding to the Fidelity SPAAX Money Market Fund, while consolidating ETFS into HERD and GCOW. I also own FREL for REIT coverage and DRLL for energy coverage as well as some individual stocks for alpha and dividends in six portfolios (4 IRAs and 2 Taxable accounts). HERD and GCOW give me worldwide coverage with the U.S. slant.
HERD is a fund of funds (5) exchange traded fund (ETF) that is composed of Pacer Cash Cows ETFs™. Each of the Pacer Cash Cows ETFs™ is a strategy-driven ETF that seeks to track the total return performance, before fees and expenses, of its underlying index.
So you derisked your portfolio just in time to miss the 18% YTD returns of the market? I’m sorry to hear that. And now you’re plugging ETFs that charge 0.74%+ ERs while underperforming the market by 6% YTD? That’s very transparent of you but I’m not sure it’s a strategy I would recommend you or anyone else follow.
Yep, to each his own and my portfolios have less risk than SPY or any other 60/40 portfolio. I have six portfolios that have a “moderate” rating at Fidelity. My objective is not to beat the market, but participate in the market (Worldwide). In addition, I’m retired, over 70, and don’t need to risk $s like a 20, 30, or 40 year old. They have time to make up for mistakes. LOL
PS – Thanks for the reply
OMG Sticks please reconsider as those fees are very high for GCOW and HERD. And also you are not as diversified as you think and these etf’s are super risky. Looking under the hood, I googled GCOW morningstar and the ETF only has 100 holdings!!!! compared to a total stock market index fund which has 3,000 holdings, you are taking a crapload more risk!!! also if you look at the morningstar style box GCOW is well into the large cap value style. I would recommend instead of GCOW you do the Vanguard Value ETF which is in the same large cap value style as GCOW, but it costs 15x less at and ER of 4bps and has less risk given it has 343 holdings, 3.5x more diversification than GCOW!!!
As for HERD, 20% of it is GCOW!!! and then the other 4 funds within HERD are only it looks like 100 securities each, so it seems you only have 500 companies within HERD. if you want an ETF with worldwide coverage with a US slant I recommend VT which is the Vanguard total world ETF and has almost 10,000 companies!!! much more diversified than HERD, and diversification means less risk, and only costs 7bps, it is 10x cheaper than HERD!!!!
Please Sticks just reassess your investments. as doctors we worked hard for our money so that we can enjoy it with our families in retirement. You should be spoiling your grandkids, not enriching Pacer so the Pacer CEO can buy there 11th Ferrari off your freakin money!