[Editor’s Note: This is a republished post from Physician on FIRE, a member of The White Coat Investor Network. The original post ran here, but if you missed it the first time, it’s new to you! In this one the PoF lets us check under the hood of his aggressive financial portfolio to see how it has performed over the last year. Enjoy!]
The PoF Portfolio
[In my best Ron Burgundy
I’ve touched on the importance of investing early and often, but I haven’t given you a clue as to how I invest. It wasn’t until sometime last year that I wrote myself an Investor Policy Statement and came up with an asset allocation that felt appropriate. I made a few transactions to apply the allocation across my various accounts. This is the allocation I’ve decided upon:
- 60% US Stocks (with a tilt to small and value)
- 22.5% International Stocks (50 / 50 developed and emerging markets)
- 7.5% REIT (Real Estate Investment Trust)
- 10% Bond & Cash (mostly bond plus cash emergency fund)
Is this the perfect asset allocation?
No. The White Coat Investor has identified 150 other asset allocations that are “better than yours“, although I think mine is definitely better than some of them. The only way to know, of course, is to look back at some future date and determine which portfolio performed the best. We could look in the rearview mirror and backtest a bunch of portfolios, but as we all know, past performance does not predict future results.
How has the portfolio performed?
Let’s take a look at the You IndexTM representing my entire portfolio, provided by Personal Capital, which is plotted against the S&P 500 for 2016.
Hooray, I win! 11.52% up in 2016, compared to 9.54% for the S&P 500.
Not so fast.
Personal Capital likes to make you feel good about yourself by apparently reporting the S&P 500 returns without dividends reinvested. With dividends reinvested, the S&P 500 actually returned 11.96%. So we didn’t win, but came pretty darned close. Considering we were well diversified with a 10% bond allocation and 20% international, I’d say we did well to approach the returns of the S&P 500.
More recently, I’ve published quarterly updates. Here is a look at the first three quarters of 2017.
2017 Q1 PoF Portfolio Performance
I track all my investments with Personal Capital. If you choose to do the same, please sign up from a link on my site to further my charitable mission.
Like last year, we’re tracking pretty darned close to the S&P 500 so far this year. The S&P 500 has returned 5.21% and the PoF Portfolio is up 4.99%.
There was a decent gap there for awhile, but the gap has closed in the last 30 days, with the PoF Portfolio up 0.79% while the S&P 500 dropped 0.72%.
The top performer so far this year has been Emerging Markets, with VEMAX returning nearly 11% already in 2017.
Bonds have been rather flat, and have been the poorest performing class in the portfolio, eking out a minuscule gain year-to-date.
2017 Q2 PoF Portfolio Performance
The market hummed along in the second quarter. Volatility remained low, and gains were slow, but steady. The S&P 500 (Personal Capital’s standard benchmark) returned 2.57%, while my portfolio returned 2.78%.
Returns were boosted by the strong performance of international stocks. Developed markets outpaced emerging markets, making Vanguard’s Developed Markets Index my strongest performer at 6.38% for the quarter.
My bond fund did what bond funds tend to do. While they typically underperform in good times, they also can be expected to outperform when stocks are down. As JL Collins says, they “smooth the ride.” In the second quarter, Vanguard’s Total Bond Fund gained 0.84%.
2017 Q3 PoF Portfolio Performance
At the risk of sounding like a broken record, we had another good quarter. According to Personal Capital’s You Index, my portfolio delivered returns of 4.17%, as compared to 3.96% for the S&P 500.
Impressive? Not so fast. My S&P 500 index fund outperformed both, with a quarterly return of 4.48%. That figure includes reinvested dividends, which are oddly excluded from many reports of the index returns, including the default view from Personal Capital. I’ll omit that orange line from the remaining figures after this one, using my You Index as the comparison.
my S&P 500 > your S&P 500?
My top holding from the last quarter happens to be my favorite (and only) individual stock, Berkshire Hathaway, with a return of 8.24% or nearly double that of the overall portfolio.
Another top performer of the third quarter was the emerging markets index fund, returning 7.77%. You tend to see more volatility in emerging markets, but good stretches can be really good.
The dud of the bunch, which should come as no surprise, is the total bond market fund. Most of the time, I’m glad I keep my bond allocation low at 10%. The smooth ride ended with a 0.09% quarterly return.
How Did I Come up With This Allocation?
I read a couple books, spent some time exploring Bogleheads and WCI, and determined my risk tolerance. Vanguard has a simple risk tolerance questionnaire that takes a couple minutes to complete. Researching for this post, I played around with it a little bit and couldn’t actually come up with a 90 /10 stock bond recommendation. I’m not sure that outcome is even in the algorithm. I usually got 100% stock or 80 / 20 or 70 / 30 depending on when I said I would start taking the money from my investments.
The majority of my portfolio is invested in US stocks. I like stocks for the returns, which have delivered an average of about 10% a year for a very long time. Small and value stocks are favored by people smarter than me for potentially higher returns, so I tilt a bit that way.
I have international stocks for diversification. I overweight emerging markets for the same reason I tilt to small value. Experts with much more experience than me recommend anywhere from 0% to 50% or more of your stock portion be international. I’ve gone with a nice round number in the middle.
REIT funds are considered part of the stock portion, but provide some additional diversity. High volatility has been rewarded with solid returns, particularly if you look back more than 10 years. That says nothing about the future, but real estate will always be required by businesses and people.
Bonds are there as a safe haven and diversifier. If we experience a downturn worse than the Great Depression, I should have something left. I doubt that will happen, but I feel better having a small bond allocation than none at all.
Let’s Look Under the Hood.
Below you will see my asset allocation with the money I’ve got earmarked for retirement. Several items are not listed, including our:
One could argue for inclusion of the first two items as those have value and could be sold to fund retirement. I do include those when I calculate our net worth. I also include our 529 Plans in our net worth (it’s about 8%), but do not include it in our retirement portfolio, as it’s earmarked for a different purpose.
The DAF money, which would represent about another 8% of our portfolio, is no longer mine and will eventually be granted to charities of our choice. I don’t include that in our net worth or the retirement portfolio, but it will certainly serve a purpose in our retirement.
The taxable account has US stocks and International stocks. I tax loss harvest from this account, so the particular fund(s) used will vary as I exchange from one fund to a similar fund.
The Roth accounts have my small-cap and mid-cap value stocks, emerging markets, and REIT. The REIT fund is not very tax efficient, so this is a good place for it.
You might wonder how I have such a large percentage in the Roth IRA. Back in 2010, I converted pretty much all my retirement savings, which was in a SEP-IRA to Roth. In hindsight, it was probably not the smartest move, but the prevailing thought at the time was that the window to make a conversion would only be open to high earners for one year. The window never closed, and I paid 6 figures in extra income tax by making the conversion when I did. Live and learn.
I keep bonds in the 401(k). A total bond fund is not particularly tax efficient, so this is a good place for my bonds. After I retire, I anticipate rolling this over to a traditional IRA, and likely doing some Roth conversions. Whatever hasn’t been converted when I turn 70 will be subject to RMDs, so I also like bonds here for the likely lower long-term return.
The 457(b) has small-caps and mid-caps. Since I tax loss harvest in the taxable account, I avoid keeping identical funds here or anywhere else in the portfolio. Automatic investment and reinvestment of dividends could trigger a wash sale. The 457(b) fund will start paying out the year after I retire. I will eventually put some bonds in here since this will be part of the portfolio that I will be spending from in early retirement.
Nearly all funds are with Vanguard. The portfolio consists entirely of mutual funds and a bit of cash. I could also use ETFs, which are very similar to mutual funds, but trade a bit differently. My mutual funds are passive, index funds. There is no active management of these funds, and each passive fund tracks an established index. This keeps fees low, and it’s not common for an actively traded fund to consistently outperform the index.
Why So Aggressive?
I’ve chosen a rather aggressive allocation. Increasing risk increases potential reward. I know from experience (that ugly 2008) that I’ve got the mental fortitude to watch my accounts lose half their value and not sweat it. Those accounts have bounced back nicely and I was buying on the way down and on the recovery upswing.
My goal is to have > 36 years of anticipated expenses saved up before actually retiring; this is considerably more than the 25 years worth often cited as required to be FI (financially independent) and RE (retire early) and allows for a withdrawal rate of less than 3%. I like to call this financial freedom, which is a level up from financial independence.
There seem to be two schools of thought as to how to invest an oversized nest egg. Some would say, “You’ve won the game. Why keep playing?” Put that money in a very safe portfolio and you’ll never run out. You could go with a conservative portfolio of 80% bonds / fixed income and coast.
I say phooey to that. My plan is to hold about 5 years worth of expenses in bonds. Assuming I still have my site, I can also count on an income stream from it, which is a nice bonus I didn’t necessarily anticipate when I first wrote this post.
With the remaining funds, I can be as aggressive as I wanna be. I’m not saying that I’m putting half my portfolio into Malaysian microcaps. I just don’t have a good enough reason to play it safe with this half of the portfolio. It’s a cushion that I would love to see grow, but if it dropped in half it wouldn’t phase me or affect my long-term plans whatsoever. It’s also money that I may not touch for a very long time, if ever, and if the market does tank, I’ll have time to allow it to recover while spending from the bond portion.
Does this plan expose me to unnecessary risk? I suppose, although a diversified portfolio of index funds is light-years away from the riskiest way to invest a big pile of money. So why would I choose stocks over bonds for the overflow portion of my retirement portfolio? Because I can. Because I’m a man who likes to compete and win. Like Ron Burgundy.
The Legendary Ron Burgundy
I’m willing to take the slight risk that my accounts could lose value and never recover in order to reap the benefits of the much more likely outcome of continued growth that outpaces both bond returns and inflation.
I’m not interested in working until I’ve amassed an 8-figure portfolio, but I’d be lying if I told you I don’t like the idea of maybe having one someday. If it happens, I’d prefer to let the portfolio do the heavy lifting for me.
Portfolio Performance Updates
- May 16,2018: Pof Portfolio Performance Update
- January 3, 2017: Pof Portfolio Returns: How Did We Fare in 2016
- April 11, 2017: 2017 Q1 PoF Portfolio, Spending, and Blog Performance Update
- August 15, 2017Q2 PoF Portfolio, Spending, and Blog Performance Update
- October 10, 2017: Q3 PoF Portfolio, Spending, and Blog Performance Update
What do you think of the PoF portfolio? Is it a PoS portfolio, or something you could live with as your own? I’m open to advise and criticism and I would expect nothing less from my friends on the internet. Sound off below!
My portfolio allocation is very similar to Physician on FIRE. The only major difference is that I do not hold any REITs and I don’t tilt my portfolio to small cap or value stocks.
Sounds like a variant of the three fund portfolio. That’s essentially what mine is, with the addition of a fourth fund (REIT) and some “slicing and dicing” of the stock portions.
Best,
-PoF
It looks good PoF. I have had portfolios that were more complex in the past (like WCI has had with various “factors”) but I’m not sure it made it better. I have less risk in my current portfolio but some of that is I’m more chicken. And I’m older and richer. It is most important to know yourself and you do.
Two other key points you brought up. The early retiree has the option of working, consulting, part-time employment etc. (Blogging in your case). That makes portfolios, risk, and Early Retirement much more realistic. The other point is the importance of having and following your IPS. Some other commenters may think you have too much bond investment or too little etc. What counts is you follow your own IPS.
Thank you for the comments, WealthyDoc. I will likely simplify a bit further as I enter into retirement (from medicine). I don’t know that there’s a good reason to own both Vanguard small caps and mid caps in my Roth and retirement funds, for example. The small cap funds include some mid-caps, anyway.
Having the option to continue earning an income makes my risk tolerance quite a bit higher than it would otherwise be. Overshooting 25x by a significant margin also helps.
Cheers!
-PoF
I have had essentially the same portfolio as PoF for the last 15 years. 50, 20, 15, 15 US, Global, Bond, REIT all in vanguard funds. This year, instead of reinvesting dividends in the funds, I started buying small lots of stock in out of favor companies like GE, Celgene. Since they are cheap relative to the rest of the market, I think it is a worthwhile risk to keep the aggressiveness of the portfolio. I’m not quite 50 yet, so I don’t need to cash them out for another 10 years, hopefully.
I like the 36 number you have. I think that’s a nice conservative goal and allows to leave a legacy or a large estate for the kids.
I find it interesting that you felt you had to take on the uncompensated risk of individual stocks in order to “keep the aggressiveness of the portfolio.” Seems like you could just maintain the asset allocation to “keep aggressiveness.” If you wanted to increase risk, why not increase the stock:bond ratio or add factor-type funds like small value?
Good point. Maybe this is not for everyone. Definitely not for the early investor. This was also an attempt to play around with high risk investments with 1-2% of my portfolio. After saving 50% of our income for 15 years and achieving our original FI goal, was a way to make it interesting/less boring. My (and the strategy of WCI/PoF) strategy was very effective at building wealth, but, boring 🙂
Someone once told me if you’re looking for excitement, go sky diving or rock climbing instead
That could kill me or land in WCI’s ER 🙂 Couple of percent of my portfolio in individual value stocks? Not a big loss even if I lose that all.
Good investing is boring investing.
But if you’re really going to put a lot of effort in, it would be more likely to pay off if you did it with small businesses or real estate rather than huge stocks that are analyzed by thousands. Pretty efficient market there and hard to get an advantage.
I buy a few individual stocks. I call it gambling and I do it for fun. I don’t see the harm if it’s a small % and you just realize the much higher risk.
Yes. A high-income professional with her financial ducks in a row can burn a small percentage of her portfolio as firewood and still reach her financial goals. So if you can just burn it, of course you can invest it in individual stocks.
But is it a smart thing to do? I would argue no, because you’re taking on uncompensated risk that you’re not paid for taking.
I am 100% stock just starting as an attending. I’ll probably balance things out a bit and go 90/10 or 80/20 in five to ten years.
I don’t know that I’ll be as aggressive as you once I’ve “won the game,” but respect your line of thought.
Starting out I find it hard to diversify outside of asset allocation in various classes (I am 85% US in all index vanguard funds at my work place and Black Rock where my wife works because there is no vanguard option, but still low cost index funds). I haven’t branched out into REITS or breweries, etc. Opportunity just hasn’t afforded itself yet.
Thanks for letting us take a look under the hood!
If I were retiring with 25x to 30x expenses, I’d probably dial back on the stock allocation. Knowing I can continue to earn money in other ways also makes it easier not to fall back into the “dime package” on defense.
The brewery investments are with play money. I like to have fun when I play, and I can’t think of a more fun investment.
Cheers!
-PoF
I love it. The dime package. That’s what, 25/75?
I had to google dime package…I thought it sounded like a drug dealing term. Still don’t get the allocation.
It’s a very defensive formation used at the end of the game. A “prevent defense.” When you’re willing to give them 10 yards every play but no big plays. Can’t get beat long.
This particular thread is killing me. Ina. Good way. So what’s the “nickel package”? 50/50?
5 db’s, fifth is the nickel back. I like a qtrs defense as overall situational pass defense (video game wise).
Wow, my allocation is also very similar to yours. One difference is that you have quite a bit more in international stocks than I do. As Jim Collins highlights in his book I think many US companies give you that International exposure baked in, so I’m not sure if I really want to bother increasing in that area.
Thanks for showing your portfolio!
Bogle has made similar statements. I see diversity as a good thing. Over the long term, US has generally outperformed international, but that may not be the case indefinitely. I have been happy to have that 20% international allocation this year.
I do respect Jack’s & JL Collins’ opinion, of course. Stop by my site tomorrow for a chance to win an audiobook copy of The Simple Path to Wealth.
Cheers!
-PoF
Your post as usual made me go examine my portfolio. Since I am 60 my portfolio is not as aggressive as yours but probably too aggressive for my age. I have a couple mutual Funds that usually make big distributions in December which I will hold my nose and but in a bond fund to de risk somewhat. Vanguard tells me I am 67.4 stocks, 31.3 bonds, and 1.3 short term reserves. I want to keep stocks 60-65 so I need to rebalance next month. When ever I completely retire I will go to 60% stocks. The stocks are 78% US and 22% foreign. I try to keep the foreign at >20%. Large cap 76/midcap 10/small 14. I worked this year to build up the midcaps. Value 43%/ Blend 8.5%/Growth 49. I own some Apple and sometimes Vanguard classifies this as a Large cap Blend and sometimes Growth so It can move this classification. Bonds 84% domestic/ 15% international. Plan to not buy any more international. 45% taxable/55% Muni. My problem is complexity. I own 11Mutual funds, 4 ETFs, 1 stock (apple), and 2 muni bonds in my taxable account. Tax deferred and roth much less complex.
Looks solid to me, Hatton1.
I don’t think there’s anything wrong with dialing back some when fully retired, but I don’t think you’re necessarily overly aggressive now. I’ve never been a fan of “age in bonds” or similar criteria.
There’s some interesting work that shows dialing back in the first 5 to 10 years, then starting on a glidepath to start increasing the stock allocation gives you the highest allowable withdrawal rate / legacy. You dial back to counteract potential sequence of return risk in that first decade. If you get through that unscathed, you can afford more risk. Not everyone likes that line of thinking, but it makes sense to me.
Check out ERN, Ph.D. for more details (if you haven’t already). https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/
Cheers!
-PoF
Yes I am familiar with the glidepath from reading Kitces. I hope working part time is the ultimate protection from sequence risk
Well sone sir. I see your HSA is all invested in bonds? Is this what most in the WCI universe do, or is it reasonable to be more aggressive here?
I think it’s reasonable. Mine is invested all in stocks. Different strokes for different folks.
Good question, PK. Until recently, it was all in stocks. I changed for 2 reasons.
1) I was concerned owning S&P 500 in the HSA could interfere with tax loss harvesting in taxable. At least theoretically.
2) I used to save receipts, allowing the HSA to grow so I could someday “cash in” while allowing the HSA to grow. I found it to be overly cumbersome and not worth the few dollars it would save me in “tax drag.” Now, I just pay with a credit card to get rewards points, then transfer money from my HSA to my checking account. I think it’s a good idea to keep money you plan on using soon in something less risky. Not that it really matters — it’s 1/2 of 1 percent of my portfolio.
Best,
-PoF
When you retire the game changes
Going up the mountain is different from going down
Accumulation is a lot different than dustribution
Thanks for the transparency. It is reassuring to see other rational people with aggressive portfolios. I get some raised eyebrows for mine, but have been comfortable with it. I have been a bit aggressive to date due to high earning power, but as I scale back work my risk tolerance is changing a bit. I have also been a bit different due to tax treatment different here.
We pay full marginal rate tax on interest on bonds (regardless of type) or foreign dividends, half tax on capital gains, and Canadian Dividends are somewhere in between. The tax piece has had me about 30% in US stocks which keeps getting flagged as high by the various advisors I interact with, but is low relative to what is described here. I’d call it home country bias, but the US markets have historically and recently kicked butt – Can’t argue with that.
If I had a 30% Canadian allocation, that would be flagged as high, too!
The principles are often similar, but for Canadian investors, it’s obviously important to be aware of the differences between your system and ours.
Cheers, eh!
-PoF
Nice post. I like the charts comparing the results of your portfolio to the S&P 500. How do you use that information? Will you change your allocations if there is underperformance relative to the S&P 500 or other benchmark?
Thanks, Donnie! I use it as a benchmark. Making a change based on relative over or under-performance would be a knee jerk reaction, especially when looking one quarter or one year at a time.
I expect the portfolio to perform fairly similarly. I have the 10% bond portion which is counterbalanced by the more aggressive holding in small / mid value, emerging markets, and perhaps REIT. So far there has been a pretty close correlation. It would be simpler to hold just one fund, or a three fund portfolio, but that would make TLH difficult, and my portfolio really boring. Not that there’s anything wrong with that.
Cheers!
-PoF
p.s. ST*U, Donnie. You’re out of your element!
I’m not even mad…. I’m impressed!
Love your work! Definitely not every day you see real data from someone who has followed their strategy to a ‘T’ for years.
I’m not a doc but an engineer and only 31, we just started chasing FI hard in the last couple of years. The career profile of doctors I have found to resemble mine since I spent so long at school before working full time. It’s great to see how people starting in their late 20s or early 30s can still hit FI in a reasonable timeframe with some thought and effort.
I’ve learned a lot from your writing so far, thanks!
Well, I didn’t desecrate a refrigerator, but I have been known to eat the entire wheel of cheese. 🙂
What age did you start working full time? I often recommend engineering as a career to someone who is FI minded from the start, simply because you don’t have to wait until you’re 30+ with a pile of debt to start earning good money. I don’t regret becoming a physician, but it’s not the best path to early FI.
Best,
=PoF
Good to hear about the fridge, I trust that milk was not a bad choice in that case 😉
I started working full time in 2015, the year I turned 29, having studied music in my early 20s.
So far, engineering has been an excellent choice! FI is just another optimization problem to be solved so it’s quite fun really 🙂
Have a great weekend!
Does anyone here use Betterment? Why or why not? I just switched to their platform and makes accomplishes the above with much less time invested on my end. They take 0.25% to automate this on the backend. Pretty neat and I’ve rolled over my old IRA here too.
Why pay .25% when you can easily invest in index funds and rebalance yearly
If you had listened to bogle he has suggested. Minimal exposure to intl stocks fir at least the last 30 yrs or so
Now he might suggest 20% of stocks in intl
The last 10yrs the us killed intl
What about tax loss harvesting?
http://www.mrmoneymustache.com/betterment-vs-vanguard/
You can do it without Betterment if you’re willing to pay attention. I did TLH to the tune of ~$40,000 in 2016, a year in which the market did quite well. Here’s one example: https://www.physicianonfire.com/brofit/
I don’t think Betterment is necessarily a bad idea if you prefer to be hands off. You could certainly do much, much worse.
Total stock us. Total intl stock. Total us bond. Total intl bond. Reits. Small cap
Emerging mkts. 7 funds that should be in everyone’s basket
Kind of dogmatic, no? I only own 3 of those funds.
Prepay re taxes fir 2018 if this law is passed
It doesn’t make much sense to me to use the S&P500 as a benchmark for your portfolio. Even at 90% equity, your portfolio has a different risk profile from the large-cap equity index. Why not use something like Vanguard Target Retirement 2055, which is also 90/10 with an allocation to international?
Of course, it makes less than zero sense to compare the bond portion of your portfolio to the S&P500, so I really don’t know what you’re going for here. Bragging rights I guess?
That’s what Personal Capital uses as a benchmark. I’m not trying to prove anything, and I actually think it’s quite useful to visualize how different the return of a bond fund is as compared to a stock index fund, particularly over longer periods of time.
I do like your idea of comparing to Vanguard’s 2055 fund, though. I can easily do that in Morningstar or similar, but it would require some setup. You can compare any funds you own in Personal Capital, but I’m not sure about ones you do not.
Best,
-PoF
Good point about putting the relatively more tax inefficient investments such as bonds and REITs inside the tax-deferred retirement accounts. Many overlook this aspect of tax planning.
Tax efficiency is a basic tenet of asset location. Best not to ignore it!
The bond in tax protected is a little controversial. WCI has a post on it. REITs I definitely prefer in tax advantaged account.
It’s not controversial, it just varies. It’s really, really complicated to decide whether to put a very tax efficient high expected return investment in taxable before a very tax inefficient low expected return investment. Lots of variables, many of which cannot be known. But tax-efficient, low expected return investments like muni bonds should definitely be in taxable (assuming something has to be there) and very tax-inefficient, high expected return investments like REITS should definitely be in tax protected. In between, not so clear. You can run the numbers with your assumptions and make a best guess. The good news is that it doesn’t matter much at our current low interest rates.
This past year has increased my intl allocation to 50/50 with us stocks due to them beIng upto 30% cheaper valuation with much higher 10yr expected return. Kind of a value tilt I guess. Not sure I buy the idea that IS stocks are one’s intl exposure as it is an expensive way to do it. Yes, US beat intl the past 10 years except it was reversed the 10 years before that. Wondering peope’s thoughts whether this is home country bias or are there other concerns with we generally don’t have more intl in our allocations?
I believe Vanguard’s target date funds have international stocks at 40% of total stock allocation, a fairly recent increase. I don’t think there’s a wrong answer here, but I’m all about diversification, so I’m happy to allocate a percentage of my portfolio to international.
Best,
-PoF
Td funds do not have 40% intl
Check them out
They do have intl bonds as well
When vanguard talks I listen
Vanguard is recommending international stocks at 40% of total stock allocation, and international bonds as 30% of bond allocation: https://investor.vanguard.com/investing/investment/international-investing
The changes were implemented in February, 2015: http://www.investmentnews.com/article/20150226/FREE/150229921/in-rare-move-vanguard-beefs-up-international-exposure-in-target-date
Note that I did not say the funds are consisted of 40% international stocks, but that 40% of the stock allocation is international.
Best,
-PoF
Best,
-PoF
I would still heed bogle’s advice
do not know of it changing
so why is that not in their TD funds?
The target date funds’ stock allocation precisely reflect this. 60 : 40 US : International in the equity portion.
TD 2045 and beyond hold:
54% US Stocks
36% International Stocks
7% US Bonds
3% International Bonds
Great post. Not going to get into allocation comparisons since we all have to find what “works” for us.
My only note would be the comment in regards to how you handled 2008. It sounds like you rode through it fine, but my guess is that the size of the portfolio going into 2008 was a nice chunk smaller than it is today. It is a lot easier (If you can say that) mentally and emotionally to lose 50% of say $500,000 then it is to lose 50% of $3,000,000 or more. Yes, you would lose 50% in both scenarios, but the absolute dollars make a difference in my opinion ($250,000 versus $1,500,000). Regardless, I hope you, and all of us for that matter, ride through the next downturn just as easily.
Excellent point QP, and Yes, you are correct. It was a small six-figure portfolio then, and I I figured I had decades to make up for any losses. I’d like to think I’ll ride out the next one unphased, and I believe that I will, but I suppose I won’t know with any certainty until we’re on the other side of the next bad bear.
See you on the other side!
-PoF
I love using the personal capital graphs. we are about 90% stocks. And actual individual stocks. we are at 13.64% this year and there are no fees to the stocks to drag that down. If in funds the fees need to be extrapolated out.. to get the actual performance after fees. I don’t think the PC graphs are after fees.
You don’t have to extrapolate the fees. Mutual fund returns are reported after fee. Buying individual stocks to avoid a 4-10 basis point index fund fee is probably short-sighted as you’re taking on significant uncompensated risk.
Not really. we have nearly 100 stocks. and we don’t pay trade fees anymore. Once upon a time we did…pre-computer when you had to pick up the phone to call a broker to make a trade like when I was an intern. There is zero control for mutual funds. I’m not a fan of throwing money into a fund and the fund invests in gun companies, companies which produce porn, unethical treatment of animals (can you say Tyson foods) etc…. So between no fees and having ethical control of where your money is going….we stick with stocks. and it works. Trust me it works. I’m retiring in two years and I have no intention of divesting my stocks. There is no need. Example if you have 25 million and the stocks take a 50% hit….I’m pretty sure I can live on 12.5 million………
so I don’t worry. Also we just park all the stocks. don’t sell anything. just let the dividend income work for us. haven’t paid capital gains taxes in years. sometimes are forced with M&A.
A few issues there. Do what you want, it’s your money and $25 Million is certainly plenty of it. But I’m going to make these comments for others who read your comment. If they’re not helpful to you, just ignore them.
First, with 100 stocks you’ll probably get index fund like returns. Probably. There’s not much risk there, but there is some.
Second, I’m glad you’re paying attention to fees and taxes. They really do matter.
Third, the hassle of selecting, buying, and selling 100 stocks compared to just buying an index fund is hardly insignificant. When you add in the value of your time, you’re no longer getting index fund like returns.
Fourth, you seem to have a misunderstanding (like many who believe in Socially Responsible Investing) that the corporation gets your money when you buy stock. They don’t, unless it is an IPO. Your money goes to the person who sold you the stock. The corporation doesn’t care a bit who owns 0.0001% of it. It’s not going to change their practice. In fact, if investors shun the socially irresponsible stock, it will actually INCREASE the returns of the company, because an investor will be able to pay less per dollar of earnings. [This is borne out in the data- SRI funds underperform and “sin stocks” outperform.
If you want to influence what a company does, you have to boycott it’s product, not its stock. Maybe it helps you sleep better at night, but it likely reduces your returns and the good you can do for your family and for the world with charitable donations. As odd as it seems, you’d be better off buying Remington stock and donating the extra returns to a gun violence related charity than you would be by avoiding the stock.
Few final comments. there is no time to buying stocks. Was set on automatic investing for more than 15 years. And like I said we don’t sell.
Where do the dividends come then from the mutual funds? I don’t want Tyson slimy money…they are criminals for torturing animals. And yes, I don’t eat animals.
The dividends come from the earnings of the companies in the mutual fund, which come from the purchasers of the products. So if you want a company to go out of business, avoid purchasing the product. Avoiding the stock does nothing to make that company go out of business. Why do any of the owners care who the other investors are? Why do any of the customers care who owns 0.001% of the stock? They don’t. It has zero effect other than in your mind.
But like I said, there are many roads to Dublin. Funded adequately, a 100 stock portfolio is going to work just fine even if it might not be optimal.
I understand where the dividends originate, but they are then distributed to share holders. Mutual funds distribute dividends. That’s my point.
I agree, avoiding the stock (or fund) may not drive the company out of business, but it still is the principal of financially benefitting from actions you may not ethically agree with. No matter how small. And it is difficult to try to stay true to your values….”painfully” I made my husband sell all our McDonalds when I became a vegetarian many many years ago…maybe not the smartest financial move, but I don’t even want it on my statement…….
Oh I see. You’re not trying to affect what the company does. You just feel wrong about benefitting personally from it. Fair enough.
back to my original point/comment. Are you sure the personal capital You index has the fees excluded? It says “gross return”
That’s why we created the You Index™. We do the math for you, and extrapolate how all of your current stock, cash, ETF and mutual fund positions would have performed across all of your investment accounts. We understand that you need to be able to make informed investment decisions and that to do so, you need access to your portfolio information – ideally in a user-friendly way. Your You Index™ tracks your portfolio performance in one easy-to-read number: a percentage that illustrates the gross return of your entire current portfolio over custom periods of time. It’s completely personalized to you and your investments.
I’ll leave that one for PoF, who wrote the article.
Typically, a mutual fund’s expense ratio is reflected in the price, so I would say for a typical fund like the Vanguard funds I hold, the returns reported in the You Index include the expense ratio, but would not include additional fees like an AUM fee charged by an advisor.
I’m not sure how loaded funds would be handled or why anyone would knowingly buy them. Of course, that’s what I started out with in my IRA 20+ years ago before I knew any better.
Best,
-PoF
” “You’ve won the game. Why keep playing?” I say phooey to that.”
+10
🙂
I completely agree! I’ve never seen this logic. The ‘game’ is never over for us who have heirs and/or charities that will inherit our assets when we go. When did you ever hear anyone say “Man, I wish I didn’t have all of this money to give away to good causes?”
Another problem I have with this logic is that it implies that investing is gambling. That’s completely false; investing has an expected, long-term positive return, so why would you stop investing if you don’t have to? I can see dialing back your risk somewhat, but I know of many who have let the pendulum swing way too far in the other direction (e.g. going from mostly stocks to mostly TIPS ‘because they can’).