A few years ago if you would have asked what our Portfolio Allocation is……. The best answer I could have come up with would be “aggressive” if not a shoulder shrug while mumbling “I don’t know”
I don’t like not knowing things, so I mumble in protest.
I thought Portfolios were for rich folk. And we were far from rich.
Fast forward to today, I recognize it as one of the most important financial decisions we make. Right behind actually accumulating the money you are going to allocate. It can drive growth or preserve wealth, don’t underestimate the importance of this decision.
If you are new to the investing world, you have probably allocated your money without even knowing. Remember that HR paperwork where you write down a percentage to invest and choose between three canned options called “Aggressive” “Moderate” and “Conservative”? If you didn’t put a lot of thought into the decision then, I would go back and review your choices.
Our current (as of 7/31/2017) Portfolio Allocation is outlined below at a broad level.
- Cash – 4.16%
- US Stocks – 66.29%
- International Stocks – 20.02%
- US Bonds – 1%
- Intl Bonds – .42%
- Alternatives – 7.34%
- “Undisclosed” – .76%
Don’t put too much stock (look! A Pun!) into that undisclosed bucket, it is a hangover from my trading days and will be sold (at a loss) for tax purposes this year.
Allocation Breakdown provided by Personal Capital, I highly recommend this tool for Net Worth tracking. It saves a lot of manual spreadsheet work. Could you imagine sorting through 2 401ks, 2 Roth IRAs, and a Brokerage account and bucketing all your holdings. I may receive compensation if you click the Personal Capital link above and sign up for their service – I wouldn’t recommend it so frequently if I didn’t love it.
In total, we own 12 different index funds across all our accounts. Thankfully, we are blessed with a ton of low-cost Vanguard options in our 401Ks! I have heard some people are not so lucky and only have high fee options. Start fights with your HR department until you get your way.
US Stocks are by far the biggest chunk of our portfolio (especially considering my alternatives are technically US Stocks).
What can I say, I am a homer. I have spent a lot more time watching and reading about the US markets and trust that they are monitored and regulated by the SEC. Yes, I trust the government to do something adequately.
However, I do have a decent allocated to international, and Large Cap US companies have significant international exposure.
- Small Cap 10% – market capitalization of between $300 million and $2 billion
- Mid – 15% – market capitalization between $2 billion and $10 billion
- Large – 40% – market capitalization above $10 Billion
I blend each category with Value, Growth, and Core funds, but I don’t put as much emphasis on this breakdown, just try to hit each type for diversification. I might focus on this more as I learn, but am content with the mix for now.
Over the last few months, we have increased out small cap exposure, trying to squeak out higher returns 🙂
- Developed Markets 20% – Industrialized, established and stable markets (Example: England)
- Emerging Markets 5% – Progressing economy through rapid growth (Example: Brazil)
Similar to my small cap sentiment mentioned above, I will probably tick up my emerging market allocation to around 10% as I get more comfortable.
- Real Estate – 10% – REIT (Real Estate Investment Trust)
While we are primarily low-cost index funds investors, the bulk of this is invested in a single REIT stock that I have owned for about 3 years now. It has been paying a dividend anywhere from 12 to 23%. Part of me wants to sell while I am ahead and move it into a REIT fund but I don’t want to cut my dividend in 1/3……
By far the biggest risk in my portfolio. The price does swing significantly, but I automatically reinvest and dollar cost average into the stock over time.
Shifting to a 100% Stock Portfolio Allocation
Notice that we don’t have Bonds listed in our Target Allocation, over the last 6 months we decided to shift to a more aggressive path and move to a 100% stock portfolio allocation. Basically, we are accepting short-term volatility for higher long term returns.
The small bond percentages listed above are from a target date fund I bought awhile back and haven’t switched out yet.
Since most of our money is in retirement accounts and will be growing for 30 plus years, we should be able to ride out any major storms.
If you look at this awesome Market Watch graph showing the history of the DOW it shows how long it took to recover from major bear markets. The longest being 25 years after the Great Depression. Most recently it took 6 years to fully recover from the housing bubble in 2008. Hopefully, we don’t have a 25-year stretch to battle in our future and it sticks to 10 years tops.
If you have read this site for awhile, you know my thoughts on the real risk of investing. To sum it up in one sentence: It is riskier to let fear keep you from investing than to suffer short term paper losses.
What is your mix of stocks/bonds/alternative investments? Anyone with a 100% stock portfolio?
Disclaimer! I have to Cover my Ass, this information is for informational purposes only. Please do not make investment decisions based on the above information alone. There is not a “one-size fits all” approach and depending on your situation this portfolio allocation may be a disaster waiting to happen. Ass.Covered.