Inside Our Investment Portfolio

by Michael on Mar 11, 2013 · 5 comments

Image of a 3D Pie Chart

Today, I thought I’d pull back the curtain and give you an idea of what our investment portfolio looks like.

If you’ve been following my articles, it will likely come as no surprise that I’m a huge fan of index funds, and our holdings reflect that.

We have the lion’s share of our investments at Vanguard — love those low costs! — though we do have some funds at Fidelity.

Why Fidelity? Well, I have some work-related retirement accounts where Vanguard isn’t an option. Thus, I’ve opted for Fidelity, which is the next-best option.

Our target allocation

Overall, we’re targeting a 60/40 breakdown of stocks vs. bonds. As it turns out, this is quite close to an “age in bonds” portfolio, though that’s not why we’re holding this particular mix.

When viewed in a total market perspective, this portfolio would be expected (based on historical data) to provide 8.6% annual returns. One might further expect gains in three out of four years (75.6% to be exact) with a one-year best of +36.7% and a one-year worst of -26.6%.

That’s a bit of an oversimplification, of course, as those numbers are based on a simple mix of domestic total stock and total bond market funds. In reality, we’re also holding some international equities and TIPS, as follows.

On the equity side, we’re targeting two-thirds total domestic stocks and one-third total international stocks. On the bond side, we’re targeting two-thirds total bond market and one-third TIPS (and I-Bonds).

Asset selection, location

In terms of specifics, our stock market holdings are in the form of Vanguard’s Total Stock Market Index Fund (VTSMX, VTSAX, or VTI) and Vanguard’s Total International Stock Index Fund (VGTSX, VTIAX, or VXUS). These are all held on the taxable side due to limited tax-advantaged space.

Our total bond market holdings are mostly in Vanguard’s Total Bond Market Index Fund (VBMFX, VBTLX, BND) or Fidelity’s Spartan US Bond Index Fund (FBIDX). These are held in retirement accounts, and are augmented with a bit of Vanguard’s Intermediate Tax Exempt Bond Fund (VWITX, VWIUX) on the taxable side.

For inflation protection, we’re holding Vanguard’s Inflation Protected Securities Fund (VIPSX and VAIPX) in retirement accounts as well as our annual allotments of I-Bonds on the taxable side.

The stocks-in-taxable and bonds-in-retirement decision was primarily driven by tax considerations — though bonds aren’t paying out much more than stocks these days.

Mutual funds vs. ETFs

In terms of mutual funds vs. ETFs…

You may have noticed that some of the funds listed above are available in an ETF share class. While ETFs can offer cost savings, we qualify for Admiral shares in most cases and are thus getting rock bottom expense ratios. Thus, for simplicity, we’ve stuck with the mutual funds.

The exception is a chunk of equities that we converted to the ETF share class (VTI and VXUS) in the midst of some loss harvesting back in 2009.

Hopefully this rundown will give you some context when I make a passing reference to the contents of our investment portfolio.


1 Austintatious March 15, 2013 at 3:49 pm

Hi, Michael. You haven’t mentioned any kind of “fun money” practice, such as buying and selling individual stocks on a limited and carefully self-regulated basis, just for grins. What are your thoughts about having such a fun money practice? Thanks.

2 Michael March 18, 2013 at 9:09 am

Austintatious: Great question. No, I don’t really have a “fun money” account, though I know that many people do. I’m not avoiding it for any philosophical reason. Rather, I just don’t have a lot of spare time (four kids, work, etc.) to engage in that sort of thing.

For the most part, my “fun money” time is spent researching and writing articles for this site. 🙂

3 jeff May 25, 2013 at 3:03 pm

Michael,

Why not use for your taxable fund the tax managed Vanguard funds VTCLX,VTMGX and VWITX?

4 Chris Peplinski July 22, 2013 at 10:54 pm

Michael,

I invest pretty much the same way, however I have a 90/10 mix. We have a pension that enables me to do so.

My question for you is about your “limited space” in your tax-efficient accounts. Do you have a Solo 401(k) or an SEP since you’re self-employed?

~Chris

5 Michael July 22, 2013 at 10:59 pm

Chris: Yes, I have a Solo 401(k) — it started as a SEP but I moved it into a 401(k) to facilitate “backdoor” Roth contributions (details elsewhere on the site). I also have access to employer-related retirement plans since I also have a day job. But even with those (plus regular IRA contributions) our savings rate + our bond allocation have outstripped out tax-advantaged space. It’s a good problem to have, but it means that everything in retirement accounts is bonds plus we hold some in non-retirement accounts. And all equities go outside the retirement accounts.

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