My Money Blog Portfolio Income and Withdrawal Rate – March 2019 (Q1)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

dividendmono225One of the biggest problems in retirement planning is turning a pile of money into a reliable stream of income. I have read hundreds of articles about this topic, and I have not yet found a perfect solution to this problem. Everything has pros and cons: stocks, high-dividend stocks, bonds, annuities, real estate, and so on.

The imperfect (!) solution I chose is to first build a portfolio designed for total return and enough downside protection such that I can hold through an extended downturn. As you will see below, the total income is a little under 3% of the portfolio annually. I could easily crank out a portfolio with a 4% income rate, or even 5% income. But you have to take some additional risks to get there. With a total return-oriented portfolio, I am more confident that the (lower initial) income will grow at least as fast (and hopefully faster) than inflation.

Starting with a more traditional portfolio, I then try to only spend the dividends and interest. The analogy I fall back on is owning a rental property. If you are reliably getting rent checks that increase with inflation, you can sit back calmly and ignore what the house might sell for on the open market.

I track the “TTM Yield” or “12 Mo. Yield” from Morningstar, which the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) any capital gains distributed over the same period. (Index funds have low turnover and thus little in capital gains.) I like this measure because it is based on historical distributions and not a forecast. Below is a very close approximation of my investment portfolio (2/3rd stocks and 1/3rd bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 3/15/19) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, )
25% 1.81% 0.45%
US Small Value
Vanguard Small-Cap Value ETF ()
5% 2.03% 0.10%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, )
25% 2.89% 0.72%
Emerging Markets
Vanguard Emerging Markets ETF ()
5% 2.63% 0.13%
US Real Estate
Vanguard REIT Index Fund (VNQ, )
6% 4.21% 0.25%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Tax-Exempt Fund ()
17% 2.86% 0.49%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund ()
17% 3.09% 0.53%
Totals 100% 2.67%

 

Using this metric, my maximum spending target is a 2.67% withdrawal rate. One of the things I like about using this number is that when stock prices drop, this percentage metric usually goes up… and that makes me feel better in a gloomy market. When stock prices go up, this percentage metric usually goes down, which keeps me from getting too happy. This also applies to the relative performance of US and International stocks. In this way, tracking yield adjusts in a very rough manner for valuation.

We are a real 40-year-old couple with three young kids, and this money has to last us a lifetime (without stomach ulcers). This number does not dictate how much we actually spend every year, but it gives me an idea of how comfortable I am with our withdrawal rate. We spend less than this amount now, but I like to plan for the worst while hoping for the best. For now, we are quite fortunate to be able to do work that is meaningful to us, in an amount where we still enjoy it and don’t feel burned out.

Life is not a Monte Carlo simulation, and you need a plan to ride out the rough times. Even if you run a bunch of numbers looking back to 1920 and it tells you some number is “safe”, that’s still trying to use 100 years of history to forecast 50 years into the future. Michael Pollan says that you can sum up his eating advice as “Eat food, not too much, mostly plants.” You can sum up my thoughts on portfolio income as “Spend mostly dividends and interest. Don’t eat too much principal.” At the same time, live your life. Enjoy your time with family and friends. You may be more likely to run out of time than run out of money.

In the end, I do think using a 3% withdrawal rate is a reasonable target for something retiring young (before age 50) and a 4% withdrawal rate is a reasonable target for one retiring at a more traditional age (closer to 65). If you’re still in the accumulation phase, you don’t really need a more accurate number than that. Focus on your earning potential via better career moves, investing in your skillset, and/or look for entrepreneurial opportunities where you get equity in a business.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Asset Allocation and Performance, March 2019 (Q1)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

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Here’s my quarterly portfolio update for Q1 2019. Most of my dividends arrive on a quarterly basis, and this helps me decided where to reinvest them. These are my real-world holdings, including 401k/403b/IRAs and taxable brokerage accounts but excluding our house, cash reserves, and a few side investments. The goal of this portfolio is to create sustainable income to cover our household expenses for the next (hopefully) 40+ years. We are currently “semi-retired”, meaning we both work part-time while also spending a portion of our dividends and interest from this portfolio.

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 (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 “Holdings” and “Allocation” tabs of my Personal Capital account, respectively:

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury Fund (VFITX, VFIUX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
Fidelity Inflation-Protected Bond Index Fund (FIPDX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include 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. I don’t hold commodities, gold, or bitcoin as they don’t provide any income and I don’t believe they’ll outpace inflation significantly.

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 based on a solid foundation of knowledge and experience.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

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’m fine with it drifting to 65/35 or 70/30.) With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Holdings commentary. On the bond side, I still like 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. I don’t want to worry about my bonds “blowing up”. Right now, my bond portfolio is about 1/3rd muni bonds, 1/3rd treasury bonds, and 1/3rd inflation-linked treasury bonds (and savings bonds).

On the stocks side, everything has had a nice bounce back up since the drop in late 2018. I didn’t really sweat the ride down, so I’m not celebrating the ride up. I remain satisfied with my mix, knowing that I will own whatever successful businesses come out of the US, China, or wherever in the future.

Performance commentary and benchmarks. According to Personal Capital, my portfolio went up 8.6% already so far in 2019. I see that during the same period the S&P 500 has gone up over 12%, Foreign Developed stocks up nearly 11%, and the US Aggregate bond index was up nearly 2%.

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 +8.6% for 2019 YTD. This quarter, I’m right at this benchmark with my customized portfolio.

I’ll share about more about the income aspect in a separate post.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Asset Allocation and Performance Tracking, Year-End 2018

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

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Here’s my final quarterly portfolio update for Q4 2018. This is how I track my real-world holdings, including 401k/403b/IRAs and taxable brokerage accounts but excluding our house, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our household expenses. As of 2018, we are “semi-retired” and have started spending a portion of our dividends and interest from this portfolio.

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 (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 “Holdings” and “Allocation” tabs of my Personal Capital account, respectively:

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury Fund (VFITX, VFIUX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
Fidelity Inflation-Protected Bond Index Fund (FIPDX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include 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. I don’t hold commodities, gold, or bitcoin as they don’t provide any income and I don’t believe they’ll outpace inflation significantly.

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 based on a solid foundation of knowledge and experience.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

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. (Small changes to 65/35 or 70/30 are also fine.) With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Holdings commentary. On the bond side, I still like 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. I don’t want to worry about my bonds. Right now, my bond portfolio is about 1/3rd muni bonds, 1/3rd treasury bonds, and 1/3rd inflation-linked treasury bonds (and savings bonds).

On the stocks side, I made a few comments in my 2018 year-end asset class return review. US stocks went down in 2018, but international and emerging markets stocks did even worse. On the flipside, international and emerging markets are a lot cheaper based on various metrics. I remain satisfied with my mix, knowing that I will own whatever successful businesses come out of the US, China, or wherever in the future.

Performance commentary. According to Personal Capital, my portfolio went down 6.9% in 2018. I see that during the same period the S&P 500 has lost 6% (excludes dividends), Foreign Developed stocks lost 14%, and the US Aggregate bond index was basically flat. Of course I didn’t want to see my value fall, but most of the change was due to a lower P/E ratio as opposed to lower earnings from companies.

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 -5.9% for 2018.

I’ll share about more about the income aspect in a separate post.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Income – October 2018

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

dividendmono225

For a young person making a plan to reach financial independence at a very early age (under 50), I think using a 3% withdrawal rate is a reasonable rule of thumb. For someone retiring at a more traditional age (closer to 65), I think 4% is a reasonable rule of thumb. However, life is less stressful when you are spending just the dividends and interest generated by your portfolio. The analogy I fall back on is owning a rental property. If you are reliably getting rent checks that increase with inflation, you can sit back calmly and ignore what the house might sell for on the open market.

Therefore, I track the “TTM Yield” or “12 Mo. Yield” from Morningstar, which the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) any capital gains distributed over the same period. (Index funds have low turnover and thus little in capital gains.) I like this measure because it is based on historical distributions and not a forecast. Below is a very close approximation of my portfolio (2/3rd stocks and 1/3rd bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 10/21/18) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, )
25% 1.71% 0.43%
US Small Value
Vanguard Small-Cap Value ETF ()
5% 1.96% 0.10%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, )
25% 2.86% 0.72%
Emerging Markets
Vanguard Emerging Markets ETF ()
5% 2.56% 0.13%
US Real Estate
Vanguard REIT Index Fund (VNQ, )
6% 4.30% 0.26%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Tax-Exempt Fund ()
17% 2.90% 0.49%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund ()
17% 3.30% 0.56%
Totals 100% 2.69%

 

The 2.7% trailing income yield is up slightly than in recent updates, mostly due to increased bond interest. The fact that interest rates are now reliably above inflation across the yield curve is good in my opinion, even if it means some of my bond prices drop. The relative contribution of US stocks is down, as US stock prices are slightly up. The relative contribution of International stocks is up, as International stock prices are down. In this way, tracking yield adjusts in a very rough manner for valuation.

We are a real 40-year-old couple with three young kids, and this money has to last us a lifetime (without stomach ulcers). This number does not dictate how much we actually spend every year, but it gives me an idea of how comfortable I am with our withdrawal rate. We spend less than this amount now, but I like to plan for the worst while hoping for the best. If we both lose our jobs, we should have manageable expenses such that we still won’t need to spend more than 2.7% to 3%. For now, we are quite fortunate to be able to do work that is meaningful to us, in an amount where we still enjoy it and don’t get burned out.

Life is not a Monte Carlo simulation, and you need a plan to ride out the rough times. Even if you run a bunch of numbers looking back to 1920 and it tells you some number is “safe”, that’s still trying to use 100 years of history to forecast 50 years into the future. Michael Pollan says that you can sum up his eating advice as “Eat food, not too much, mostly plants.” You can sum up my thoughts on portfolio income as “Spend mostly dividends and interest. Don’t eat too much principal.”

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Asset Allocation, October 2018

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

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Here’s my quarterly portfolio update for Q3 2018. These are my real-world holdings and includes 401k/403b/IRAs and taxable brokerage accounts but excludes our house, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our household expenses. As of 2018, we are “semi-retired” and have started spending some dividends and interest from this portfolio.

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, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my (free, instructions) because it tells me exactly how much I need in each asset class to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

Here is my more specific asset allocation broken down into a stocks-only pie chart and a bonds-only pie chart, according to my custom spreadsheet:

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard Intermediate-Term Treasury Fund (VFITX, VFIUX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include 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 personally believe that US Small Value and Emerging Markets will have higher future long-term returns (along with some higher volatility) than US Large/Total and International Large/Total, although I could be wrong. I don’t hold commodities, gold, or bitcoin as they don’t provide any income and I don’t believe they’ll outpace inflation significantly.

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.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

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. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Holdings commentary. On the bond side, as Treasury rates have risen, last quarter I sold my shares of Vanguard High-Yield Tax Exempt and replaced it with Vanguard Intermediate-Term Treasury. I liked the slightly higher yield of that (still pretty high quality) muni fund, but as I settle into semi-retirement mode, I don’t want to worry about the potential of state pension obligations making the muni market volatile. In addition, my tax bracket is lower now and the Federal tax-exempt benefits of muni bonds relatively to the state tax-exempt benefit of Treasury bonds is much smaller now. On a very high level, my bond portfolio is about 1/3rd muni bonds, 1/3rd treasury bonds, and 1/3rd inflation-linked treasury bonds (and savings bonds). These are all investment-grade and either short or intermediate term (average duration of 6 years or less).

No real changes on the stocks side. I know that US stocks have higher valuations, but that’s something that is already taken into account with my investment plan as I own businesses from around the world and US stocks are only about 30% of my total portfolio. I have been buying more shares of the Emerging Markets index fund as part of my rebalancing with new dividends and interest. I am considering tax-loss harvesting some older shares with unrealized losses against another Emerging Markets ETF.

The stock/bond split is currently at 68% stocks/32% bonds. Once a quarter, I reinvest any accumulated dividends and interest that were not spent. I don’t use automatic dividend reinvestment.

Performance commentary. According to Personal Capital, my portfolio now slightly down in 2018 (-2.7% YTD). I see that during the same period the S&P 500 has gained 5% (excludes dividends), Foreign (EAFA?) stocks are down 8.2%, and the US Aggregate bond index is down 2.4%. My portfolio is relatively heavy in international stocks which have done worse than US stocks so far this year.

An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund () and 50% Vanguard LifeStrategy Moderate Growth Fund (), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of +0.07% YTD (as of 10/16/18).

I’ll share about more about the income aspect in a separate post.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Asset Allocation, July 2018

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

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Here’s my quarterly portfolio update for Q2 2018. These are my real-world holdings and includes 401k/403b/IRAs and taxable brokerage accounts but excludes our house, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our regular household expenses. As of 2018, we are “semi-retired” and spending some of the dividends and interest from this portfolio.

Actual Asset Allocation and Holdings

I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The (free, my review) automatically logs into my accounts, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my (free, instructions) because it tells me where and how much I need to direct new money to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

Here is my more specific asset allocation, according to my custom spreadsheet:

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include 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 personally believe that US Small Value and Emerging Markets will have higher future long-term returns (along with some higher volatility) than US Large/Total and International Large/Total, although I could be wrong. I don’t hold commodities, gold, or bitcoin as they don’t provide any income and I don’t believe they’ll outpace inflation significantly.

I think it’s important to imagine an asset class doing poorly for a long time, with bad news constantly surround it, and only hold the ones where you still think you can maintain faith.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

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. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and taxes.

Real-world asset allocation details. No major changes from the last quarterly update. For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I am still pondering going back to US Treasuries due to changes in relative interest rates and our marginal income tax rate. Issues with high-quality muni bonds are unlikely, but still a bit more likely than US Treasuries.

The stock/bond split is currently at 70% stocks/30% bonds. Once a quarter, I reinvest any accumulated dividends and interest that were not spent. I don’t use automatic dividend reinvestment. Looks like we need to buy more bonds and emerging markets stocks.

Performance and commentary. According to Personal Capital, my portfolio has basically broken even so far in 2018 (+1.5% YTD). I see that during the same period the S&P 500 has gained 6.5% (excludes dividends) and the US Aggregate bond index lost 1.7%. My portfolio is relatively heavy in international stocks which have done worse than US stocks so far this year.

An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund (VASGX) and 50% Vanguard LifeStrategy Moderate Growth Fund (VSMGX), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of +2.8% YTD (as of 7/25/18).

As usual, I’ll share about more about the income aspect in a separate post.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

My Money Blog Portfolio Income – June 2018

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

dividendmono225When it comes to making your portfolio last a lifetime, you may be surprised at how long that might be. According to this , for a couple both age 40 today, there is a 50% chance that one will live to 88. That’s 48 years.

For a young person making a plan to reach financial independence at a very early age (under 50), I think using a 3% withdrawal rate is a reasonable rule of thumb. For someone retiring at a more traditional age (closer to 65), I think 4% is a reasonable rule of thumb.

In addition, I track the dividend yield of my portfolio. This is not necessarily my spending target, but more of a very safe benchmark number. Having lived through a crisis like 2008, I know that it can be hard to appreciate “very safe” things until the poo hits the fan. The analogy I fall back on is owning a rental property. If you are reliably getting rent checks that increase with inflation, you can sit back calmly and ignore what the house might sell for on the open market.

Specifically, I track the “TTM Yield” or “12 Mo. Yield” from Morningstar, which the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) any capital gains distributed over the same period. I like this measure because it is based on historical distributions and not a forecast. Below is a very close approximation of my most recent portfolio update (66% stocks and 34% bonds).

Asset Class / Fund % of Portfolio Trailing 12-Month Yield (Taken 6/11/18) Yield Contribution
US Total Stock
Vanguard Total Stock Market Fund (VTI, )
25% 1.69% 0.42%
US Small Value
Vanguard Small-Cap Value ETF ()
5% 1.82% 0.09%
International Total Stock
Vanguard Total International Stock Market Fund (VXUS, )
25% 2.75% 0.69%
Emerging Markets
Vanguard Emerging Markets ETF ()
5% 2.42% 0.12%
US Real Estate
Vanguard REIT Index Fund (VNQ, )
6% 3.48% 0.21%
Intermediate-Term High Quality Bonds
Vanguard Intermediate-Term Tax-Exempt Fund ()
17% 2.86% 0.49%
Inflation-Linked Treasury Bonds
Vanguard Inflation-Protected Securities Fund ()
17% 2.64% 0.45%
Totals 100% 2.47%

 

Our overall plan is still based on a 3% withdrawal rate. This calculation tells us that 2.5% will come out as income “naturally”, and we would have to take the remaining 0.5% by selling shares. Living off a portfolio is an area of ongoing debate, so don’t let anyone convince you that there is a “right” answer. I’m not a financial firm convincing you to let me handle your money. I’m not here to pitch you an easily-achievable dream lifestyle. Even if you run a bunch of numbers looking back to 1920, that’s still trying to use 100 years of history to forecast 50 years into the future.

Your life is not a Monte Carlo simulation, and you need a plan to ride out the rough times. We are a real 40-year-old couple with three young kids, and this money has to last us a lifetime (without stomach ulcers). Michael Pollan says that you can sum up his eating advice as “Eat food, not too much, mostly plants.” You can sum up my thoughts on portfolio income as “Spend mostly dividends and interest. Don’t eat too much principal.”

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My Money Blog Portfolio Asset Allocation, March 2018

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Here is a First Quarter 2018 update for my primary investment portfolio. These are my real-world holdings, not a recommendation. It includes tax-deferred 401k/403b/IRAs and taxable brokerage accounts and excludes our primary home, cash reserves, and a few side investments. The goal of this portfolio is to create enough income to cover our regular household expenses. As of 2018, we have started the phase of “early retirement” where we are spending some of the dividends and interest from this portfolio.

Actual Asset Allocation and Holdings

I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The (free, my review) automatically logs into my accounts, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my (free, instructions) because it tells me where and how much I need to direct new money to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

1803_pc1b

1803_pc2b

Here is my more specific asset allocation, according to my custom spreadsheet:

1803_spread1

Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include 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 personally believe that US Small Value and Emerging Market will have higher future long-term returns (along with some higher volatility) than US Large/Total and International Large/Total, although I could be wrong. I don’t hold commodities futures or gold (or bitcoin) as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. I also try to imagine each asset class doing poorly for a long time, and only hold the ones where I think I can maintain faith.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio is 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and rebalance. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and income taxes.

Real-world asset allocation details. For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

I’m still a bit underweight in TIPS and REITs mostly due to limited tax-deferred space as I don’t want to hold them in a taxable account. My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I have been seriously thinking of going back to US Treasuries due to changes in relative interest rates and our marginal income tax rate.

My stock/bond split is currently at 69% stocks/31% bonds. I continue to invest new money on a monthly basis in order to maintain the target ratios. Once a quarter, I also reinvest any accumulated dividends and interest that we did not spend. I don’t use automatic dividend reinvestment. First of all, we spend some of our dividends now. In addition, I can usually avoid creating any taxable transactions unless markets are really volatile.

Performance and commentary. According to Personal Capital, my portfolio has basically broken even so far in 2018 (-0.70% YTD). I see that during the same period the S&P 500 has lost 0.63% (excludes dividends) and the US Aggregate bond index has actually lost 1.55%.

An alternative benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund (VASGX) and 50% Vanguard LifeStrategy Moderate Growth Fund (VSMGX), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That benchmark would have a total return of -0.98% YTD (as of 4/9/18).

In a separate post, I’ll share about more about the income aspect.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

Updated “About Me” and “My Money” Pages

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

beachy200We’re in the midst of an extended Spring Break vacation, so posting will be light for the next two weeks. I have some pre-written content scheduled, but the comment moderation may be delayed.

I also updated the “About Me” and “My Money” pages, as part of a greater overall plan to clean up the site and make it easier to navigate past content. I think the last time I did this was 2013. Thanks to those that cared enough to ask about it, and thank you even more for your patience. I have grand plans, but recently other priorities have won out.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

NYT Financial Tuneup Day 6: Property Insurance

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

nyt_ftuDay 6 of the NY Times 7-Day Financial Tuneup is about insurance. Specifically, either homeowner’s or renter’s insurance to protect yourself against a large financial hit. (Sign up for your own personalized tune-up .)

Do a home inventory. Basically, take a video of everything you’d want an insurance company to replace if your home was destroyed. Store the video somewhere safe, like the cloud or a flash drive in a secure location. You can use this video to both get appropriate insurance coverage and if you do end up filing an insurance claim. I’ve seen some apps that help you do this in detail, but I agree that a simple video is a reasonable solution.

Check your current policy. Find a copy of your insurance policy. Make sure you have enough coverage. Note the difference between a “replacement value” and “fair market value” policy.

Shop around with some competitors. The NYT recommends picking two of the major insurance companies (Geico, Progressive, Allstate, State Farm, etc.) and call them for an insurance quote armed with your home inventory list. If you are willing to try a start-up insurance company, I would throw in a free online Lemonade quote if you are in one of their 9 covered states – New York, California, Illinois, New Jersey, Rhode Island, Texas, Nevada, Ohio, and Georgia. If you get a quote that is too high, simply move on.

I also recommend doing a search for “[Your State] Department of Insurance” and look for a “Homeowner’s Insurance Guide” of some sort. Insurance companies are closely regulated on the state level and you can often find a list of sample premiums, a ranking based on complaints ratio, or other useful information. This can help you narrow down your initial search and save time. For example, here are some links for and .

Call your current insurance company. Call your current insurance company and first, confirm that your policy coverage details. Then, ask if there’s any way to reduce your insurance rate. Mention a competing quote if you have one.

Financial Tuneup Recap (still in progress)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

NYT Financial Tuneup Day 5: Your Credit Reports

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

nyt_ftuDay 5 of the NY Times 7-Day Financial Tuneup is about your credit reports. (Yes, I’ve been taking this at my own pace. Sign up for your own personalized tune-up .) This one felt a bit basic, so I also recommended a bunch of additional sites that are hopefully also helpful. Let’s start with a summary of what the NYT says:

  1. Understand what your credit report means. Your credit report includes data on your credit card payment history, mortgages, student debt, new loan applications, and bankruptcies.
  2. Get a copy of your credit report. is the official government-mandated site. You can get one of each of the three major bureaus (Experian, Equifax, and TransUnion) once every 12 months, so one tactic is to stagger them every 4 months.
  3. Check for errors. You can dispute errors using from the Consumer Financial Protection Bureau. Instructions are included for disputes with both the credit bureau and the lender.
  4. Improve your habits, if needed. Credit repair 101… Pay your bills on time. Keep card balances well below your credit limit.
    Hold off on opening new accounts for a while.
  5. Freeze your credit. The NYT says that it is “generally a good idea” to freeze your credit. You will have you unfreeze your credit next time you apply for a credit card, try to rent an apartment, apply for a mortgage or do anything else where a company may need your credit report. You may need to spend $5 to $10 each time as well.

More free consumer data reports. I would also add my Big List of Free Consumer Reports, Part 1 and Part 2 if you want a complete picture including things like rental history or insurance reports.

My take on credit freezes. Freezing your credit may be a reasonable step if you rarely do anything that would require a thaw. However, between my wife and I, we probably get 10 credit pulls a year. (Don’t worry, zero credit card debt, zero car loan, zero mortgage debt. Credit score is still good too.) Every time I apply for a new credit card or join a new credit union, I might would have to thaw and then re-freeze the bureau, and that’s if I already know ahead of time which one of the three I need to thaw. That adds up to both a lot of time and money.

I would add a free credit monitoring service instead. A timely example – just yesterday on March 5th I decided to apply for a new credit union membership at Sharonview Federal Credit Union. Some preliminary research indicated that they would probably pull a credit report (probably TransUnion), but I wasn’t sure. After making the application, I was notified right away by multiple free credit monitoring services that it was TransUnion (and only them). I’m writing this post on March 6th. If a credit freeze had blocked their check, I would have to manually ask them to check again, which would have delayed my application on a limited-time offer.

Here’s a screenshot of my free alert from CreditSesame.com:

nyt_cs_sharon

Here’s a screenshot of my free alert from CreditKarma.com:

nyt_ck_sharon

I think you’ll agree that the ability to receive a free alert within a day is a lot better than checking in at most once every 4 months. CreditSesame tracks TransUnion, and CreditKarma tracks both TransUnion and Equifax. There are other options and most are advertising-supported, so you’ll see ads for mortgages and credit cards on the site. There may also be some “premium” features they try to upsell you, but I’ve never had to pay a cent.

Financial Tuneup Recap (still in progress)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

NYT Financial Tuneup Day 4: Retirement

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

nyt_ftuDay 4 of the NY Times 7-Day Financial Tuneup is about retirement. (Sign up for your own personalized tune-up .) This assumes you are eligible for a 401(k) or similar retirement plan. The key action point is bumping up your retirement contribution rate by 1% and perhaps adjusting your asset allocation if necessary. Here’s a simple chart showing you why:

nyt_tuneup_ret1

If you’re making $50,000 annually and contributing 5 percent of your salary to your retirement account, assuming an annual return of 6 percent and a 3 percent annual salary increase, in 25 years, you will have about $198,000 in your retirement account. If you start to increase that percentage by 1 percentage point annually however, you will have over $550,000 in that same account in 25 years. By increasing the amount you save by 1 percentage point each year, you’ll save an extra $354,940 for retirement.

Increase Your Savings

  • Log into your retirement savings account. (Baby steps…)
  • Increase the amount of money taken out of your paycheck by 1 percentage point annually. Also check to see if you are taking full advantage of any company match.
  • Make it automatic. If you have the option, set it to automatically escalate in the future.

Rebalance Your Account

  • Log into your retirement savings account.
  • Determine how you should rebalance your account. What is your target asset allocation? Here’s mine but it’s probably more complicated than most people need. Consider a target-date fund, especially if it is a low-cost, passive version. Fidelity, Vanguard, and Schwab all have solid versions. I put my own mom in the Vanguard one.
  • Make it automatic. If you have the option, set it to automatically escalate in the future. My provider calls it “Auto-Increase”.
  • Rebalance your account. Basically, make sure your portfolio is still what you want it to be, as it may have shifted over time. You only need to do this once or twice a year, or you can set “bands” to rebalance when things get too out of whack.

Action, action, action. This move won’t make you save enough for retirement by itself, but it’s something tangible. If you are really going for financial freedom, you should use this as a platform to do even more. We have our 401k savings rate already set at 60% (max allowed by one provider) since we are working part-time (“semi-retired” sounds better!) with a lower income but still want get as close to the annual 401k limits as possible.

Financial Tuneup Recap (still in progress)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

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