As we mentioned in one of our previous posts, we are looking for ways to enhance and simplify our investment strategy. I wanted to do some shuffling in order to minimize maintenance costs and at the same time not sacrifice returns.
With that in mind, we made few changes to our stocks/bonds portfolio and added some real estate to it in mid 2019.
ACL Asset Allocation
All of our investments are tracked with Personal Capital, so here is what our portfolio looks like today. We follow the 90%/10% principle for our stocks and bonds investment.
Stocks and bonds allocation is set at ~72%/6%/~12% because of the market decline. Once the market bounces back we are looking at 90% -stocks and 10% – bonds allocation.
Right now we have 4% cash on hand, 2.7% alternatives (Vanguard REIT), and roughly 2.3% allocated to real estate (e.g unclassified) through Fundrise. Usually we keep 1% cash on hand.
In this post we discussed our plan to move from VTI and BND to VTSAX and VBTLX admiral shares, and we did just that. I was thinking to sell our international stocks (VXUS) and buy more VTSAX or VBTLX but couldn’t justify the reason so instead I sold the VXUS and bought VTIAX admiral shares.
This move didn’t necessarily lower our maintenance costs, but it didn’t increase it either. We are looking at VTSAX 0.04%, VBTLX 0.05%, and VTIAX 0.11% expense ratios while enjoying maximum diversifications at a minimum cost.
What Is The Difference
There isn’t much. For instance, from an investment stand point VTI and VTSAX are identical. They have same collection of stocks, and every publicly traded company in the U.S., they earn the same annual returns and provide the same dividend. One big thing to note is we executed the conversion completely tax free.
The only obvious difference that sticks out between VTI and VTSAX is automatic investment and minimal investment requirements. As VTSAX admiral share holder, Vanguard gives you the option to automatically invest in the fund weekly or monthly, whereas you have to manually invest in VTI. The VTSAX fund requires a minimum of $3,000 where as the VTI requires the current price at the date of trading.
Break Down Of Our Portfolio
To further break down our asset allocation, we have have split our holding in different categories.
Mutual Funds
We use Vanguard to invest across multiple different accounts such as HSA, Roth 401(k), and Roth IRA. Our allocation based on the current market performance is 72% VTSAX, 6% VTIAX stocks and 12% VBTLX bonds, across all these accounts.
Real Estate
In relation to the overall portfolio, real estate accounts for 2.3%. Thanks to Fundrise, we are investing all over the country with zero effort from our part. The remaining 2.7% in real estate is handled by Vanguard REIT. Our future plan is to increase our contribution to real estate and I’ll tell you why shortly.
Cash
I’m not a big fan of keeping cash but the way the market has been performing lately, I’ll stick with having 4% cash on hand. As I mentioned before, usually we keep at least 1% cash on hand.
Equilibrium
When the market’s going up, we think it’s going to go up forever. When the market goes down, we think it’s going to go down forever. Neither of those things actually happen.
John C. Bogle
In the early days of investing in the stock market, we made a commitment to start with stocks and bonds and go from there. Our plan was to follow the 80/20 or 90/10 principle and we have had a great success following that plan.
As we became wiser throughout the years and watched the stock market go up and down, like it’s supposed to, we made some adjustments around our finances and decided to extend our portfolio by adding real estate to it.
The driving factor behind it has to do with our ability to be able to rebalance our portfolio and have additional income which can be allocated back to buying more real estate or buying more stocks. For instance, if the stock market drops significantly and it is considered a bear market, I can buy more stocks because they are cheaper. If the market soars significantly in a given year and stocks become 20% or 30% more expensive, I can buy more real estate.
Closing Thoughts
There you have it, nothing fancy just simple efficient, effective, and pretty straight forward asset allocation of our investments.
Where do we go from here in terms of what percentage of our overall portfolio is going to be allocated to stocks/bonds vs real estate is still undetermined. Perhaps something we can discuss here as part of future portfolio enhancement.
In the mean time, don’t forget to take advantage of Mr. Bear.
