Clicky

My Investment Portfolio: 2014

Welcome to Can I Retire Yet. You'll find ideas here to accelerate your retirement, analyze whether you can retire, and generate retirement income. For more on me, click Darrow. Click here for free updates by email.

How do you actually manage your investment portfolio in a real-world retirement? Nearly every prospective or current retiree has this question. And there are lots of answers out there….

The article I wrote at the end of 2012 disclosing my actual investment portfolio has been in the Top 10 Popular Posts here for most of the year. Even though I’m not dispensing investment advice, and don’t necessarily recommend some of my particular holdings for others, people seem to benefit from reading about my experience.

So, here is an update on the state of my portfolio for the new year. Below I’ll review my holdings, outline my asset allocation, and discuss the investment moves I made during the past year. Finally, I’ll reveal my portfolio’s performance for 2013, and discuss why the relatively poor showing doesn’t have me worried….

Disclaimer

Before we get started, let me get a few caveats out of the way:

I’m not recommending specific investments here, much less an entire portfolio.

Portions of my portfolio stretch back almost two decades and aren’t exactly how I’d build one today. There are some actively managed funds and some commodity positions that I wouldn’t recommend to a new investor.

Even though my portfolio hasn’t changed much in recent years, I can’t promise that I won’t change it in the future, or that I’ll necessarily post my changes to this blog in any kind of timely manner.

That said, let’s look at the numbers….

Current Holdings

Those who understand my investing philosophy shouldn’t be surprised to hear that my portfolio has changed very little since late 2012 when I wrote that last article. The allocations are a bit different, because the market has shifted, and I added one balanced, low-cost fund to hold proceeds from the sale of our house. But, otherwise, it’s a familiar picture:

Fund Symbol(s) Percent of Portfolio
Vanguard Wellesley Income VWINX/VWIAX 31.5%
Vanguard LifeStrategy Moderate Growth VSMGX 16.0%
Vanguard Total International Stock Index VGTSX/VTIAX/VXUS 10.4%
Vanguard Total Stock Market Index VTSMX/VTSAX/VTI 7.7%
Vanguard Inflation-Protected Securities VIPSX/VAIPX 4.7%
Vanguard Intermediate-Term Treasury VFITX/VFIUX 3.9%
Vanguard Short-Term Investment-Grade VFSTX/VFSUX 3.9%
SPDR Gold Shares GLD 5.2%
Third Avenue Real Estate Value TAREX 5.8%
T. Rowe Price New Era PRNEX 3.8%
cash accounts 6.3%

I described most of these funds in more detail in my previous article, and the information is available online, so I won’t repeat it here.

But let me say a word about the Vanguard LifeStrategy Moderate Growth fund (VSMGX), which I added this year. This is a diversified, all-index, fund of funds that can be viewed as an all-weather, complete portfolio in itself. Vanguard’s family of LifeStrategy funds allows you to tailor your personal time frame and risk level. The Moderate Growth fund features a mainstream allocation of about 60% stocks/40% bonds.

I referenced this excellent fund in my guest post for Oblivious Investor a while back, and have had my eye on it ever since. And this year, thanks to our house sale, I got to put my money where my mouth was, and actually use it!

Given the new fund, and inevitable market shifts, our current overall asset allocation is similar to last year, though our stock allocation has drifted about 5% higher:

Asset Class Percent of Portfolio
Stocks 49%
Bonds 39%
Gold 5%
Cash 7%

I’m OK with that somewhat higher stock allocation. That’s partly because I question the merits of rebalancing, and partly because I believe that a substantial stock allocation is necessary to ensure the survival of your portfolio through an extended retirement. But, if and when I need to raise cash for living expenses this year, I’ll most likely be selling stocks.

Activity Last Year

Last year, 2013, was a typical slow year in my investment accounts. Essentially, I made just six trades, though a few of these were split into multiple transactions. Altogether there were several exchanges – mostly for rebalancing, a purchase with new money, and a couple of modest sales – to generate cash for living expenses.

Here is what I did and why I did it:

  • Exchanged the Vanguard FTSE All-World ex-US Index (VFWIX/VFWAX/VEU) for Vanguard’s Total International Stock Index (VGTSX/VTIAX/VXUS). I can thank blog readers for this move. I had been holding the FTSE All World ex-US because, at one time, Total International didn’t have any exposure to Canada. But Vanguard changed the underlying index used by Total International in 2010. The two funds are very similar now. The main difference I can see is that Total International has exposure to small cap stocks. I like the diversification, so I switched to it. And this was a retirement account, so there were no tax implications to consider.
  • Used most of the cash from our house sale to purchase Vanguard LifeStrategy Moderate Growth (VSMGX). I debated whether this money should go into a real estate investment, but ultimately decided that I didn’t view my house that way, so I would stick close to my existing asset allocation. Because I already had a high percentage of our investment assets in my “go-to” Vanguard Wellesley Income fund, but have a few reservations about it, I chose the LifeStrategy Moderate Growth for this chunk of money. There is more about that decision and the two funds in “Putting Our New Cash to Work” in my post Investing in Real Estate.
  • Moved a little less than 1% of my total portfolio from Vanguard Total International Stock Index (VGTSX/VTIAX/VXUS) to Vanguard Wellesley Income (VWINX/VWIAX) — a small nod to rebalancing, given the rise in stocks over the year.
  • Moved a little more than 1% of my total portfolio from Vanguard Total Stock Market Index (VTSMX/VTSAX/VTI) to Vanguard Wellesley Income (VWINX/VWIAX) — another nod to rebalancing.
  • Sold SPDR Gold Shares (GLD) equaling about 2% of my total portfolio, throughout the year, generating cash to replenish our approximate 2-year cushion for retirement living expenses. (We’ve held our GLD for many years and it was all sold at a tidy profit, despite gold’s decline this year.)
  • Sold Third Avenue Real Estate Value (TAREX) equaling about 1% of my total portfolio. We’ve owned TAREX for more than a decade, and it had double-digit returns the last two years — echoing the recovery in real estate. Again, this was to generate cash for living expenses.

Why did I choose these last two positions to sell? Because they have been enjoying banner returns and it looked like harvest time to me.

Though I’m no fan of trading, it is necessary to sell some assets to fund our retirement. And an iron-clad rule of successful investing — across nearly any investing philosophy — is to sell, if you must, when prices are high!

Overall, it was a dull year in my investing world. Which, when you are a conservative, passive index investor, is how almost all years will be.

Retirement Withdrawal Strategy

Some of you out there are probably frowning to yourselves: “Sure doesn’t sound like he has a system for living off his assets in retirement.”

You’re right, I don’t. Despite having read and written about many such systems, I don’t have one. I’d like to find a system, some day, but I’m not positive that will happen. Unless you can hold the world, and your life, constant for decades at a time, I think it’s going to be very difficult to design and stick with a single, optimal retirement withdrawal strategy.

However, I do outline the options in my post Retirement Withdrawal Strategies, and describe my approach, such as it is, there. I call it “Flexible Capital Preservation” — living off interest, dividends, growth, and some part-time work income, all with an eye to preserving assets in early retirement.

2013 Return

To conclude, let’s review investment returns – always interesting, but not always useful. When it comes to retirement, short-term returns don’t matter much: It’s how your portfolio performs over the decades that really counts. Nevertheless, I did compute my overall return like I do every year, and since it was relatively poor in 2013, I’m taking this opportunity to exercise some humility and also demonstrate the reality of living off a conservative portfolio in retirement.

So, my conservative portfolio returned only 7.3% last year, compared to more than 29% for the Dow Jones Industrial Average, dividends included.

Ouch. No bragging rights for me this year. Why did it happen? My portfolio is more than half bonds, gold, and cash. As interest rates began to rise and economic recovery appeared to take hold, those three asset classes had a terrible year, returning something like -2%, -28%, and +0.25% respectively. Those individual returns trashed my overall return, and they’re a good example of how investment losses can hurt more than wins help.

But, by definition, conservative investors are willing to give away some upside for the peace of mind ensured by less volatility and limited downside. They have the fortitude to endure tales of inflated short-term returns from their friends and the media, secure in the knowledge that their lifestyle will be protected in good times and bad.

So, will 2013 be a problem for us? Doubtful. A 7% return is not to be sneezed at: Anybody who’s run the numbers knows that you can live out a comfortable retirement given that kind of performance over the long haul. Of course it would be nice to grab more return in the good years. But I’ve watched essentially this same portfolio of mine for almost a decade, including around the punishing 2008/2009 downturn. The average of my annual returns over the last nine years has been about 7.5% — good enough to retire early and keep growing our portfolio. My holdings and asset allocation have behaved as expected, and stood the test of time. Think I’ll stick with the program….

Want to Accelerate Your Financial Independence? See my book on Amazon...

Retiring Sooner cover
  • What you must know to retire sooner
  • The essential money tools for achieving financial independence
  • A gold mine of proven tips for spending less
  • The 4 proven strategies for boosting income

Click HERE to see it on Amazon.

 

Comments

  1. Bragging rights aside. You returned enough safely to keep you where you want to be based on your withdrawl strategy. I nailed down 16.15% last year at the age of 49. Then again taking a few more risks. Trying to make it to my magic 1.5M number by age 56….. then will take on a lot less risk. We’ll see :)

  2. Interesting and transparent post, Darrow. Here in Vegas, most people only “declare victory” while keeping quiet about the inevitable losses they encounter. And like you said…7% aint bad at all. You’ve basically ” won the game” by being smart and steady while maintaining a favorable balance sheet. By avoiding the huge losses, you will continue to climb and pedal off in the sunset.

  3. My idea of investing is that it is not a contest but a way to grow that stash to achieve a specific goal using “cost/risk versus potential benefit” as a guiding principle. As for me, a 7% average return is extremely good because it is not that easy to achieve a constant 7% return without risk. Anyone who depends on a stash of $$$$ should be very careful about “the sequence of return risk” because it can be devastating, so asset allocation is very important. I fully agree that 7.5% return is not something to sneeze at, in fact it is great.

  4. I certainly have no problems with a 7.3% return for an “in retirement” portfolio. I do wonder why you don’t simplify it more, get rid of the gold, and Real Estate Value fund that has an ER of 1.08%, and own more Wellesley, Wellesley only lost 9.84% in 2008, and has returned 16.02%, 10.65%, 9.63%, 10.06%, and 9.19% from 2009 through 2013.

    I hope you are enjoying retirement.

    • Thanks Bryce. Simplification is my long-term goal. But I haven’t been inclined to sell in taxable accounts for that reason alone. I do expect to phase out those smaller positions as the years go by, though I expect to always own some gold as an insurance policy. I own a pile of Wellesley already: almost one-third of our portfolio. I love it, but that’s enough of a commitment to one fund for me.

  5. Hi Darrow,

    As always, very interesting post. Couple of questions/thoughts:
    - Might you post your annual portfolio returns for the past ten years? That’d be interesting to compare with.
    - When considering fund and/or investments, how much do fees enter into your thinking?

    For us, late last year we entered into a program at Schwab where we invested about 20% of the portfolio into two 3rd parties (10% each), who buy/sell individual bonds. The idea is this: although the bond’s market value will fluctuate (likely decline) as interest rates increase, they will still pay their return, paltry as it is. So, the downside risk is low while they mature, as long as they are “good” bonds. As they approach maturity, their market value will return to their face value, and at that time may be sold to be replaced with bonds at current rates. The annual fee is about 0.5% which is low, and there are no other fees for the bonds except for transaction costs.

    I chose this because we had such a low exposure to bonds and I hated the idea of buying into any bond funds when I feel so certain that over time, as interest rates increase, those funds should lose value. As far as I’m concerned, if I had bond funds now I’d sell them (like I would Gold). If you assume that the economy is improving then interest rates must increase, and those funds will decline in value. What do you think?

    Thanks,

    Barry

    • Hi Barry,

      Here are my annual returns from 2005 to 2013: 14.5%, 15.3%, 10.9%, -26.2%, 23.3%, 11.1%, 0.8%, 10.9%, 7.3%. I benefited in those early years when bonds were in favor. Be advised that my knowledge/ability to compute an annual return for my entire portfolio was not as good in the early years, so some of these numbers may not be perfect.

      I’ve been aware of the impact of fees since my early days of investing, though I still wound up with small positions in a couple of higher-expense funds. Nowadays I wouldn’t buy anything that didn’t have a razor-thin expense ratio.

      I’ve heard those arguments about how bond funds are supposedly less predictable than owning individual bonds. But I’ve discussed that issue with one trusted colleague, and I’m not convinced. I think the essence of the counterargument is that shareholders who stay in a bond fund are effectively holding their bonds until maturity — it’s only the ones who bail out early who sacrifice their guaranteed return. Bond duration plays into this too, with shorter duration funds being less risky in a rising interest rate environment. It’s all a topic for a longer, more technical article, that might be beyond my expertise, to be honest.

      I am categorically against trying to favor one asset class based on what I believe the future will bring. I think that’s a losing proposition, and simply not necessary if you’re properly diversified. I’m holding bonds and gold in case certain pundits are wrong about the future. But, if they’re right, I’ll live off my stocks for a while. I have plenty of those too. Not a problem, as long as I’m diversified. The problem comes in betting the farm on a single version of the future.

      Great discussion points. Thanks Barry!

  6. I LOVE THIS BLOG!

  7. Thanks for sharing your investing experience and your portfolio. We can learn from your experiences and perspectives.

  8. Glad to see a knowledgable writer finally promote Vanguard Life Strategy funds. We’re still working and have had most of our tax-advantaged accounts’ dollars in Life Strategy Growth Fund for probably a decade. It’s the best way I’ve found for buying a slice of the whole world’s economy in indexed-form for a very small fee. Enjoyed your book, too.

    • Thanks Mark, appreciate that. Hard to go wrong with a Vanguard fund of index funds. If I had it to do over I might simply put it all in a LifeStrategy fund, and plow all the time I’d save learning about investing and making investing mistakes back into my career instead!

      But, if I hadn’t been through that learning process, I’d have less to say and write about now. :-)

  9. Did you give any thought to the Vanguard Wellington fund in addition to the research you did on the LifeStrategy fund? Just curious because I did look at yours and ended up with Wellington…..

    Aloha,
    Paul

    • Hi Paul. Wellington is always on my radar. It can be an excellent core fund for many of us. But I already have a large position in the very similar Wellesley, and I want to continue moving away from active management, so I chose the LifeStrategy fund.

  10. Hi Darrow: This insight is quite helpful for all of us who are in similar situations and your blog continues to be on my “must read” so again thank you for sharing and being so open. I have two follow-up questions:

    1) Do you plan on making any adjustments moving forward in 2014? if you are it would be helpful to have a view leading into the new year.

    2) What brokerage service do you use to manage these funds? Is it in separate accounts for example at Vanguard and others to get you the mix or do you use one that you have found to do a good job with modest fees?

    Thanks again.

    Gary.

    • Hi Gary, thanks. I don’t plan any adjustments in terms of asset allocation. I will continue trying to simplify my portfolio and pare back my few expensive actively managed funds. If I needed to raise cash in the first part of this year, which I’m not expecting, I’d be selling stocks.

      Our retirement assets are entirely at Vanguard. Our taxable assets are mostly at Schwab, with a smaller amount at USAA. I can strongly recommend all three companies. The fees are negligible, especially if you rarely trade.

      • Thanks. Some follow-up questions:

        1) In some cases you have multiple ticket symbols for the same fund – the only difference I could find was the difference between an “Admiral” versus “non-Admiral” classified fund – with the former requiring a minimum investment of $50,000 with ironically the latter having higer fees. Is for example the 31.5% Wellsley split between those two fund types and if so can you shed some light as to why that is the case and what the advantage of that might be?

        2) When you say if you had to raise cash “…I’d be selling stocks” do you mean shares in your stock mutual funds referenced above?

        3) Do you do make all your investment decisions exclusively by yourself or do you have an advisor?

        Thanks again.

        Gary.

        • 1) I provided the Investor/Admiral/ETF symbols as a convenience to readers. It’s the same underlying fund, with different purchase requirements and expense ratios. In general I own the cheaper Admiral shares (which require a larger purchase).

          2) Yes, that’s what I meant. The asset class I’d choose to sell right now, if necessary, would be equities.

          3) I’m a do-it-yourself investor. Though, as described in my book, I had an important investing mentor in my early years.

          Thanks Gary.

  11. Fred Wallace says:

    Darrow,
    I really appreciate your transparency and willingness to share reality. I subscribe to one investor newsletter (which ceased publishing in January, 2014 (Fidelity Independent Adviser) and their recommended retirement portfolio only did about 1% for 2013. What a bummer!

    Here’s my question (or two): 1. How old are you now? and, 2. Has your asset allocation model changed over the past decade (and if it has, how has it changed)?

    Thanks again for your great articles. I particularly enjoyed reading about your Retirement Calculator Models.

    Regards,
    Fred Wallace

    • Thanks Fred, nice to hear from you. I’m 53 now. My personal target asset allocation has been approximately 50% stocks/50% bonds+cash for the last decade. (That’s an allocation that lets me sleep at night, but preserves opportunity for growth.) My actual allocation has fluctuated as much as 10% in either direction (60/40-40/60), but generally less than 5%.

  12. Darrow- Thanks for the update on your portfolio. We maintain a similar 50/50 portfolio (sans the gold) and we did just a little bit more last year than you. A good friend (who is the same age-50) maintains 90% in stocks and it was difficult when I heard that he increased his portfolio by 30% in one year, but we also remember when he lost half of his portfolio in 2008 and we only lost 13%. As you said, we all have to sleep well at night and there is no one size fits all portfolio. We have found it easier to save more and be less aggressive rather than take more risk and invest less. At some point, the people who invest that aggressively are going to have a hard time coming down to the reality that they can’t take so much risk and let’s hope they don’t have one of those 30% loss years right before they retire. We have focused on living the same lifestyle while working as we plan to do in retirement and maintaining a consistent balanced life & portfolio is part of that scenario. That way, we know what to expect and retirement becomes just another phase rather than a complete lifestyle change. Your balanced portfolio seems to have served you well as evidenced by your early retirement, so “sticking with the program” appears to continue to be the best way to go. Best of Luck, Ed & Dawn

    • Thanks Ed, you put it well. Perhaps I could have retired sooner with more in stocks, but approaching retirement with a high allocation to stocks would be too much of a roller coaster for me. Sounds like you have your approach dialed in for your own temperament and lifestyle. Thanks for the comment.