Asset allocation and performance — My Money Blog

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Here is my quarterly update on my current investments as of 10/4/22, including our 401k/403b/IRAs and our taxable brokerage accounts, but excluding real estate and secondary self-directed investment portfolio. Following the concept of in-game skin, the following is not a recommendation, but just to share our real, imperfect, inexpensive and diverse DIY portfolio. The goal of this “Humble Portfolio” is to create a sustainable income that tracks inflation to cover our household expenses.

“Never ask anyone for their opinion, predictions or recommendations. Just ask them what they have in their wallet. –Nassim Taleb

How to track my portfolio
I’m often asked how I track my portfolio across multiple brokers and account types. Free options are limited these days, as Morningstar recently discontinued free access to its portfolio tracker. I use both Personal Capital and a custom Google spreadsheet to track my holdings:

  • The Personal Capital financial tools and real-time monitoring (free, my opinion) automatically connects to my different accounts, adds up my different balances, tracks my performance and calculates my overall asset allocation daily.
  • Once a quarter, I also update my Manual Google Spreadsheet (free, instructions) as it helps me calculate how much I need in each asset class to rebalance towards my target asset allocation. I also create a new tab each quarter, so I have an overview of my holdings that are several years old.

Asset Allocation and YTD Performance October 2022
Here are the updated performance and asset allocation tables, according to the “Allocation” and “Holdings” tabs of my Personal Capital account.

Target asset allocation. I call this my “humble portfolio” because it accepts the repeated findings that individuals cannot reliably time the market and that persistence in picking stocks and/or sectors above the average is extremely rare. The costs are significant and almost everyone who sells outperformance, for whatever reason, continues to charge even though they provide no outperformance! By paying a small fee, including management fees and tax charges, you can actually guarantee yourself above average net performance over time.

I have broad, low-cost exposure to earning assets that will provide long-term returns above inflation, distribute income in the form of dividends and interest, and finally offer some historical trends to balance out. I am confident in the long-term benefits of owning publicly traded US and international stocks, as well as the stability of a high-quality US Treasury and municipal debt. My stock holdings roughly follow the total global market capitalization breakdown at about 60% US and 40% non-US. I’m just adding a bit of “spice” to vanilla funds with the inclusion of “small value” ETFs for US, developed international and emerging market equities, as well as additional real estate exposure through US REITs.

I strongly believe in the importance of knowing WHY you own something. Every asset class will eventually experience a low period, and you need to have strong faith during these periods to really make money. You must continue to own and buy more stocks during stock market crashes. You have to maintain and even buy more rental properties during a housing crisis, etc. A good sign is that if prices drop, you’ll want to buy After of this asset instead of less. I don’t have much confidence in the long-term results of commodities, gold or bitcoin – so I don’t own them.

I don’t spend a lot of time testing various model portfolios because I don’t think digging into the details of the recent past will necessarily create superior future returns. Usually, whatever model portfolio is popular right now, it also happens to contain the asset class that has been hottest recently.

Find productive assets that you believe in and understand, and keep buying them through the ups and downs. Mine may be different from yours.

I’ve settled into a long-term target ratio of around 70% stocks and 30% bonds (or a 2:1 ratio) as part of our investment strategy of buy, hold and rebalance occasionally. It’s more conservative than most people my age, but I’m settling into a “perpetual income portfolio” as opposed to the more common “build a big stash and hope it lasts until I die” portfolio. My target withdrawal rate is 3% or less. Here is a round number breakdown of my target portfolio.

  • 30% of the total US market
  • 5% US small cap value
  • 20% of the total international market
  • 5% international small cap value
  • 10% US Real Estate (REIT)
  • 20% nominal U.S. Treasury bonds or FDIC-insured deposits
  • 10% US Treasury inflation-protected bonds (or I Savings Bonds)

Comment. According to Personal Capital, my portfolio is down about 18% for 2022 since the start of the year. My US and international stocks have fallen again (even more than bonds, which have also fallen) and so free cash flow is being invested in buying more of these asset classes.

During this last quarter, I sold all my municipal bonds and bought US Treasuries instead. Due to rising rates, I didn’t have to worry about capital gains. Previously, when I used muni bonds, munis yielded 24% more than treasury bonds before even taking into account the tax advantages. In September 2015, I compared the 1.78% SEC yield of Vanguard Intermediate-Term Tax-Exempt Investor Shares (VWITX) to the 1.48% SEC yield of Vanguard Intermediate-Term Treasury Investor Shares (VFITX). The ratio was 1.24. In October 2022, the ratio is now 0.93 (3.26% against 3.51%). At these levels, I am compensated much less for the added risk of municipal finances. My bond portfolio now consists of US Treasuries, Bank/Credit Union CDs (bought if/when rates rise above US Treasuries), TIPS, and Savings Bonds. Can’t get better quality than this.

I’m reassured that right now I’m seeing lower P/E ratios than declining earnings on the stock side, my REITs are yielding more and my bonds are yielding more. One good thing about more “normal” interest rates if they can hold is that it gives conservative (often older) savers a chance to keep their capital safe and earn some more income without market volatility. My first fear remains that of war.

I will share more information on the income aspect in a separate article.

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