Plenty of people will tell you what you should own, but I’d rather they just share what they actually own. Here’s my year-end portfolio update for Q4 2019, including all of our 401k/403b/IRAs, taxable brokerage accounts, and savings bonds but excluding our house, cash reserves, and a few side investments. Dividends tend to arrive on a quarterly basis, and this helps determine where to invest new cash to rebalance back towards our target asset allocation.
Actual Asset Allocation and Holdings
I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (free, my review) automatically logs into my accounts, adds up my balances, tracks my performance, and calculates my asset allocation. I still use my manual Google Spreadsheet (free, instructions) because it helps me calculate how much I need in each asset class to rebalance back towards my target asset allocation.
Here are my YTD performance and current asset allocation visually, per the “Allocation” and “Holdings” tabs of my Personal Capital account, respectively:
Vanguard Total Stock Market (VTI, VTSAX)
Vanguard Total International Stock Market (VXUS, VTIAX)
WisdomTree SmallCap Dividend (DES)
Vanguard Small Value (VBR)
Vanguard Emerging Markets (VWO)
Vanguard REIT Index (VNQ, VGSLX)
Vanguard Limited-Term Tax-Exempt (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury (VFITX, VFIUX)
Vanguard Inflation-Protected Securities (VIPSX, VAIPX)
Fidelity Inflation-Protected Bond Index (FIPDX)
iShares Barclays TIPS Bond (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)
Target Asset Allocation. I do not spend a lot of time backtesting various model portfolios, as I don’t think picking through the details of the past will necessarily create superior future returns. I mainly make sure that I own asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I make a small bet that US Small Value and Emerging Markets will have higher future long-term returns (along with some higher volatility) than the more large and broad indexes, although I could be wrong.
While you could argue for various other asset classes, I believe that it is important to imagine an asset class doing poorly for a long time, with bad news constantly surrounding it, and only hold the ones where you still think you can maintain faith through those fearful times. I simply don’t have strong faith in the long-term results of commodities, gold, or bitcoin.
- 38% US Total Market
- 7% US Small-Cap Value
- 38% International Total Market
- 7% Emerging Markets
- 10% US Real Estate (REIT)
- 33% US Treasury Bonds, intermediate
- 33% High-Quality Municipal Bonds (taxable)
- 33% US Treasury Inflation-Protected Bonds (tax-deferred)
I have settled into a long-term target ratio of 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and occasionally rebalance. I will use the dividends and interest to rebalance whenever possible in order to avoid taxable gains. I plan to only manually rebalance past that if the stock/bond ratio is still off by more than 5% (i.e. less than 62% stocks, greater than 72% stocks). With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.
Holdings commentary. I know that US stock valuations are on the higher side, but this year of all-time US highs is another reminder that you still need to stay in the game. My forward expectations for US stock returns are muted, but I’m not selling a single share. International stocks have also hit an all-time high, but nobody really noticed because US stocks have still outperformed by a long shot this decade. I remain satisfied with my mix, knowing that I will own whatever successful businesses come out of the US, Europe, China, or wherever in the future.
On the bond side, my primary objective remains to hold high-quality bonds with a short-to-intermediate duration of under 5 years or so. This means US Treasuries, TIPS, or investment-grade municipal bonds. FDIC or NCUA-insured certificates would also fit in there. I don’t want to worry about my bonds. I then tweak the specific breakdown based on my tax-deferred space available, the tax-effective rates of muni bonds, and the real interest rates of TIPS. Right now, it is roughly 1/3rd Treasuries, 1/3 Muni bonds, and 1/3rd TIPS.
Performance numbers. According to Personal Capital, my portfolio went up +19% so far in 2019. I see that during the same period the S&P 500 has gone up +29%, Foreign Developed stocks up +21%, and the US Aggregate bond index was up about +10%.
An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund and 50% Vanguard LifeStrategy Moderate Growth Fund – one is 60/40 and the other is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of +20.9% for 2019 YTD.
The goal of this portfolio is to create sustainable income that keeps up with inflation to cover our household expenses. I’ll share about more about the income aspect in a separate post.