Here’s an update on my investment portfolio holdings for Q3 2014. This includes tax-deferred accounts like 401(k)s and taxable brokerage holdings, but excludes things like physical property and cash reserves (emergency fund). The purpose of this portfolio is to create enough income to cover all of our household expenses.

Target Asset Allocation

I try to pick asset classes that will provide long-term returns above inflation, regular income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (don’t buy what you don’t understand).

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With a self-directed portfolio of low-cost index funds and low turnover, we minimize management fees, commissions, and taxes.

Actual Asset Allocation and Holdings

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Notable Changes

Last quarter, I had sold my PIMCO Total Return fund holdings. Well, that was lucky on my part with all the recent Bill Gross drama. I decided to sell my stable value fund holdings too as I needed rebalance into more TIPS bonds and I was now able to buy TIPS inside my employee retirement plan using the Schwab PCRA brokerage window. All of our tax-deferred space is now taken up with TIPS and REITs, so the rest of my bonds are tax-exempt munis and savings bonds.

Otherwise, not much new, I rebalanced with new money and reinvested dividends. By this, I mean I don’t automatically reinvest dividends into the same mutual fund or ETF that generated them. Instead, they accumulate for bit and then I reinvest them in whatever asset class has been lagging recently. This also makes fewer tax lots for my taxable accounts.

That’s it for portfolio holdings. In a separate update post, I will update the amount of income that I am deriving from this portfolio.

I want to get back to doing quarterly updates to our investment portfolio, which includes both tax-deferred accounts like 401(k)s and taxable brokerage holdings. Other stuff like cash reserves (emergency fund) are excluded. The purpose of this portfolio is to create enough income on its own to cover all daily expenses well before we hit the standard retirement age.

Target Asset Allocation

I try to pick asset classes that will provide long-term returns above inflation, regular income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (and if you don’t do that, there’s no point).

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With low expense ratios and low turnover, we minimize our costs in terms of paying fees, commissions, and taxes.

Actual Asset Allocation and Holdings

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Stable Value Fund* (2.6% yield, net of fees)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
US Savings Bonds

Changes
I joined the exodus out of PIMCO Total Return fund earlier this year after their recent management shake-up. It actually coincided with my 401(k) allowing a self-directed brokerage “window” with Charles Schwab that allows me to buy Vanguard mutual funds, albeit with a $50 transaction fee. But my 401k assets are finally large enough that the $50 is worth the ongoing lower expense ratios. I’m buying more REITs and TIPS in order to take advantage of this newly-flexible tax-deferred space. I’m still holding onto my stable value fund, but I may sell that position as well in the future.

I think I mentioned this elsewhere, but I am now accounting for my Series I US Savings Bonds as part the TIPS asset class inside my retirement portfolio. Before, they were considered part of my emergency fund. They offer great tax-deferral benefits as I don’t have to pay taxes until they are redeemed. I don’t plan on selling any of them for a long time, at least until my tax rate is much lower in early retirement.

Here’s a 2013 year-end update of our retirement portfolio, which includes employer 401(k) plans, self-employed retirement plans, Traditional and Roth IRAs, and taxable brokerage holdings. Cash reserves (emergency fund), college savings accounts, experimental portfolios, and day-to-day cash balances are excluded. The purpose of this portfolio is to eventually create enough income on its own to cover all daily expenses.

Target Asset Allocation

This has been mostly the same for over 6 years, although I did make some slight tweaks in my last June 2013 update.

I try to pick asset classes that are likely to provide a long-term return above inflation, as well as offer some historical tendencies to be less correlated to each other. I don’t hold commodities futures or gold because theoretically their prices should only match inflation. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (and if you don’t do that, there’s no point). 2013 turned out to be a tough year for both gold and commodities funds.

Our current ratio is about 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With low expense ratios and low turnover, we minimize our costs in terms of paying fees, commissions, and taxes.

Actual Holdings

Here is our year-end asset allocation snapshot:

Stock Holdings (Ticker Symbol)
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
PIMCO Total Return Institutional* (PTTRX)
Stable Value Fund* (2.6% yield, net of fees)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
US Savings Bonds

The holdings haven’t changed through the latter half of this year, just some additional purchases of existing funds.

In terms of performance, in general stocks had a great year while bonds pretty much went nowhere or slightly down. I don’t expect everything to go up every year, not to mention my portfolio is bigger than I could have expected just a few years ago, so I can’t complain. Here are some 2013 YTD total returns for selected representative funds as of 12/27/13:

Stocks
Total US VTI +33%
Total International VXUS +14%
US Small Cap Value DES +37%
Emerging Market Small Cap Value DGS -5%
US REITs VNQ +3%

Bonds
Short-term Muni VMLUX +0.5%
Intermediate-term Muni VWALX -3%
Inflation-protected bonds -9%

Here’s a mid-2013 update of our retirement portfolio, including employer 401(k) plans, self-employed retirement plans, Traditional and Roth IRAs, and taxable brokerage holdings. Cash reserves (emergency fund), college savings accounts, experimental portfolios, and day-to-day cash balances are excluded. The purpose of this portfolio is to eventually create income and enable financial freedom.

Target Asset Allocation

Since my last update, I made a minor change to our target asset allocation by removing Emerging Markets as a separate added weighting as it now includes some huge companies and comprises nearly 20% of the Total World ex-US (Total International) asset class.

[Read more…]

Here’s a belated 2012 year-end update of our investment portfolio, including employer 401(k) plans, self-employed retirement plans, Traditional and Roth IRAs, and taxable brokerage holdings. Cash reserves (emergency fund), college savings accounts, experimental portfolios, and day-to-day cash balances are excluded. This is the portfolio that we are depending on to create income and thus financial freedom.

Asset Allocation & Holdings

Here is my current actual asset allocation:

The overall target asset allocation remains the same:
[Read more…]

Time for another update of my investment portfolio, including employer 401(k) plans, self-employed plans, IRAs, and taxable brokerage holdings.

Asset Allocation & Holdings

You can view my target asset allocation here, along with link to other model portfolios. Despite the headlines, I still like to buy, hold, and rebalance. Here is my current actual asset allocation:

Everything is within acceptable ranges, other than I need to buy more TIPS. This is just an overshoot since I have my 401k buying shares in a stable value fund automatically, and my TIPS are mostly stuck in IRAs. Actually, my TIPS holdings have been doing great, due to how low real yields are right now. Last I checked, even 10-year TIPS had negative real yields.

My current ratio is about 75% stocks and 25% bonds. I’ve been thinking about this balance. On one hand, I’m contributing a lot of money into the portfolio, and I hope that I can get my “early” retirement on within the next 10 years. At that point, I’m going to want something closer to a 60% stocks and 40% bonds setup, the classic balanced fund ratio. So I want to shift towards bonds, but bond yields don’t look very appetizing right now. For now, I’m just going to keep up the gradual shift.

Stock Holdings
Vanguard Total Stock Market ETF (VTI)
Diversified S&P 500 Index Fund (DISFX)*
Fidelity Extended Market Index Fund (FSEMX)*
Vanguard Small-Cap Value Index Fund (VISVX)
Vanguard FTSE All-World ex-US ETF (VEU)
Vanguard MSCI Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VGSIX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX)
Stable Value Fund* (3% yield on past purchases, 1.8% on new)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities

The overall expense ratio for this portfolio is in the neighborhood of .20% annually, or 20 basis points, which is much lower hurdle to overcome than the average mutual fund expense ratio of over 1% annually. This is all DIY, so I don’t pay portfolio management or financial advisor fees.

3% Safe Withdrawal Rate

I’ve also decided to use a 3% theoretical safe withdrawal rate instead of a 4% withdrawal rate. So instead of reaching 25 times our annual expected expenses, we will need to save 33 times. This is due to the fact that we will probably reach early retirement with 10 years, and thus our portfolio will have to last a lot longer than a conventional age 65 retirement. 3% is a more conservative number, and in reality I doubt that we will even go by the 3% number in strict terms. From reading other early retiree stories, we’ll stay flexible and adjust our withdrawals somewhat with market returns.

With portfolio increases and additional contributions, at a 3% withdrawal rate our current portfolio would now cover 43% of our expected expenses. If you recall, I plan to have the house paid off at retirement as well. It might be nice to have a portfolio that yields 3% where we could spend the dividends and interest payments, and I have been tossing around ideas for that as well. I still like the idea of 50% Target Retirement Income (or similar) and 50% Wellesley Income.