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My Investment Portfolio: 2017

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Boring. Yes, it’s been another dull year for my investment portfolio. Other than an IRA contribution at tax time last year, I haven’t initiated a single investment transaction since my last portfolio post. We made it entirely through 2016 living off existing cash, dividends, and a bit of blog income.

What kind of portfolio can you leave alone for years at a time? Read on to learn more about mine and how it performed….

With a nudge perhaps from the political world, the overall market had a strong year, continuing its bull run. The Dow Jones Industrial Average returned 16.3% including dividends in 2016, despite summer volatility related to the Brexit vote.

My very conservative and diversified retirement portfolio couldn’t match the Dow’s return. But it did well enough to keep our retirement on track, even if it wasn’t a headline-generating performance.

Slow and steady wins the retirement income race. That’s what I aim for, and have achieved so far. So, what follows is another report from the trenches of a real-world, do-it-yourself retirement — my current portfolio holdings, expense ratios, asset allocations, and individual and overall annual returns….

Current Holdings

My set of portfolio holdings has not changed since last year. The allocations are slightly different, due to different growth rates. But it’s still a familiar picture of low-cost Vanguard funds:

FundSymbol(s)Expense Ratio% of Portfolio2016 Return
OVERALL0.16%6.81%
Vanguard Wellesley IncomeVWINX/VWIAX0.23%/0.16%38.8%8.16%
Vanguard LifeStrategy Moderate GrowthVSMGX0.14%15.4%7.13%
Vanguard Total International Stock IndexVGTSX/VTIAX/VXUS0.19%/0.12%12.3%4.67%
Vanguard FTSE Social Index FundVFTSX0.22%11.4%10.24%
Vanguard Inflation-Protected SecuritiesVIPSX/VAIPX0.20%/0.10%4.7%4.62%
Vanguard Intermediate-Term TreasuryVFITX/VFIUX0.20%/0.10%3.9%1.29%
SPDR Gold SharesGLD0.40%6.2%8.69%
cash7.4%0.35%

(Note: Multiple symbols are for Investor/Admiral/ETF shares. Portfolio percentages are as of 1/7/2017. Annual returns are for my shares -- generally the less-expensive Admiral or ETF shares. Overall return is not a weighted average of individual returns, because holdings changed slightly during the year, but is close.)

My portfolio is currently allocated 48% in stocks, 38% in bonds, 6% in gold, and 8% in cash.

Of the stocks, 38% is international. (Taking into account the actual reported international holdings in all of my funds, not just in those funds labeled “International.”) That international position remains at the high end of my comfort range.

The cash position is also higher than I would wish, due to overhang from selling out of a short-term bond position last year. But, we are steadily spending our cash down and, given the aging bull market, it may be just as well to have an extra few years of living expenses on hand.

Activity for the Past Year

As mentioned, I made a single investment transaction last year: an IRA contribution at tax time, used to purchase more Vanguard Total International Stock Index. There was no need to sell any positions, because we had enough cash and other income to cover living expenses for the year. There was no need to rebalance, because our conservative holdings grew more or less in lockstep: None of our individual allocations changed by more than about 1-2%, other than cash, which we’ve been drawing down.

This is the first time in several years that I didn’t completely eliminate at least one of my holdings. My plan for the later stages of our retirement has always been to simplify our investments into just a few easily-managed, broad-market funds, possibly a single balanced fund. I’ve now eliminated all of my expensive actively managed holdings, and most of my specialty funds. The way forward to simplification is not as clear to me at this point, though it’s still very much a goal.

Another issue that continues to nag: As I’ve pursued my strategy of portfolio simplification, our wealth has become increasingly concentrated at Vanguard. Well more than 80% of our net worth is now with that one company. This bothers me a little, though not a lot. I have yet to figure out a solution to this “problem,” if it even is one.

Of course that wealth isn’t invested in Vanguard. They are simply holding securities in my name. The minor risk of consolidating at Vanguard might be the price I pay for simpler money management as I get older….

The wisdom of choosing Vanguard was reinforced again this year as the company reduced more already extremely low expense ratios: VXUS fell by 0.01%, VSMGX by 0.02%, VWINX/VWIAX by 0.02%, VFTSX by 0.03%, and VTIAX by 0.02%. How many business services do you use where the costs fall year after year? Certainly not cable TV!

Investment Portfolio Returns

As noted it was a good year for investors, with the Dow gaining over 16% including dividends.

My overall investment return for 2016 was 6.81%. That compares to about 7.13% for the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) — a more reasonable benchmark for my balanced portfolio than the all-stock Dow. Of course, both my portfolio and that Vanguard fund returned far less than the Dow last year, due to the lower returns of a significant bond allocation. But those bonds also reduced volatility, promoting good sleep at night!

The “star” performers in my portfolio last year were our relatively new social index fund (VFTSX), with a 10.2% return, and gold with an 8.7% return. Does that mean you should rush out and buy these “hot picks” of mine? Of course not. In 2015 they both performed poorly, and they probably will again within a year or two. The important factor is diversification, which these two holdings contribute to in my portfolio, but may not necessarily in yours.

The geometric mean of my returns going back for the 12 years I’ve closely tracked them now is at 5.9%. That’s a respectable average for a conservative portfolio in these times, including the 2008-2009 Great Recession. And if my wife and I get those returns going forward, we should be OK. In fact, thanks to 2016’s investment performance, and modest earnings from this blog, our net worth even increased slightly this past year, despite high health care and travel expenses. It was a good year for us. But retirement is a long game….

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