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My Investment Portfolio: 2019

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I can’t predict the future, but 2018 was bad for the markets, and 2019 could be worse. If you’re a seasoned investor, you’ve seen this before. 

The Dow Jones Industrial Average was in positive territory much of the year, but ended with a blowout. It lost about 3.6%, counting dividends, for 2018. 

If you’re new to the game, it’s a good time to check your risk tolerance, and possibly add to your portfolio at cheaper prices.

If you’re a retiree living off assets, caution is advised. I’ve been in a defensive posture for years. Most of my investing life I’ve held a roughly 50/50 stock/bond asset allocation. And, I usually hold several years worth of cash, plus conservative investments like gold, balanced funds, and government bonds.

But, my very conservative and diversified retirement portfolio did slightly worse than the Dow this past year. Every single one of my holdings, save one plus cash, had a loss.

Am I worried? Read on for my annual portfolio performance report….

Current Holdings

My core portfolio holdings have 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 Portfolio2018 Return
OVERALL0.13%-5.79%
Vanguard Wellesley IncomeVWINX/VWIAX0.22%/0.15%34.7%-2.49%
Vanguard LifeStrategy Moderate GrowthVSMGX0.13%19.9%-4.91%
Vanguard FTSE Social Index FundVFTSX0.18%13.4%-3.45%
Vanguard Total International Stock IndexVGTSX/VTIAX/VXUS0.17%/0.11%/0.11%7.2%-14.43%
Vanguard Inflation-Protected SecuritiesVIPSX/VAIPX0.20%/0.10%4.7%-1.39%
Vanguard Intermediate-Term TreasuryVFITX/VFIUX0.20%/0.10%4.0%1.10%
SPDR Gold SharesGLD0.40%4.7%-1.54%
digital currencies0.8%-52.3%
cash10.5%0.4%

(Note: Multiple symbols are for Investor/Admiral/ETF shares. Portfolio percentages are as of 12/31/2018. 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.)

Overall, my portfolio is currently allocated 45% in stocks, 38% in bonds, 6% in gold and digital currencies, and 11% in cash.

Of the stocks, 30% is international. (Taking into account the actual reported international holdings in all of my funds, not just in those funds labeled “International.”) I’ve been comfortable with a relatively large allocation to international as a diversification away from the U.S.’s potential long-term economic woes including debt. But I paid a price for it this year.

Though it has been my tradition, I was not able to completely eliminate one of my holdings this year. (In years past I eliminated all of my expensive actively managed holdings, and most of my specialty funds.) But at least I avoided adding any complexity or financial chores to my life with any new positions.

Cash

This year, given the aging bull market, I wanted to ensure enough liquidity on hand for living expenses and buying opportunities. I sold a large position in the early fall, to build up my cash.  

In the presence of rising interest rates, I finally made the effort to get higher returns from my cash via a Schwab Money Market Fund. (Details are in Getting Higher Returns on Your Cash.) Though I made those changes too late in the year to impact my cash return much, we’ll appreciate the higher income in years to come.

Mutual Funds

Early in the year I made a small IRA contribution, purchasing more Vanguard LifeStrategy Moderate Growth (VSMGX). It’s one of my go-to balanced funds. By sometime in my 60’s I expect to finish consolidating all of our holdings into one or more of Vanguard’s balanced offerings, plus some annuities.

The position I sold from to replenish our cash reserves this fall was our Wellesley Income (VWINX/VWIAX) in a taxable account. I first checked that we would remain securely in the first two tax brackets and pay no capital gains tax.

Though I have written in favor of Wellesley in my article on balanced funds, and still own a substantial position, I’ve grown disenchanted with the managers’ attempts to actively outguess the market. I liquidated about 15% of our position.

Vanguard

More than 80% of our holdings remain at Vanguard. I’d prefer to diversify management companies, but don’t think it’s worth the cost in money or complexity. The wisdom of choosing Vanguard was reinforced again this year as the company continued to reduce its already extremely low expense ratios:

A couple of my Vanguard funds cut their expenses yet again: VSMGX by 0.01% and VFTSX by 0.02%. Additionally, Vanguard is about to add low-cost Admiral shares of their FTSE Social Index Fund.

These are nice bonuses from Vanguard that might get lost in the shuffle of an up market, but will appear much more important in lean years. Research and common sense continue to demonstrate that expenses are one of the most important investing variables over which you have control.

Alternative Investments

My Bitcoin and digital currency position ended much lower than last year, due to their explosive growth, and subsequent crash. I trimmed back very early in the year, in time to take substantial profits.

I do not recommend this act of “catching a falling knife.” Only the most seasoned investors, who can also afford to lose it all, should even consider it. My technical background and financial security provided the opportunity. I did this more as a hedge or insurance policy at first, but it turned into a speculation. And it paid off. 

This was the one time in my investing career (after about 20 years of experience) that I made a “killing.” Even at that, I only made half of what I could have, had I timed my moves perfectly. And, if I had repeated past mistakes, I could have easily lost it all.

I don’t think that speculation has any role in the average retirement portfolio. At the moment I retain only a very small position in digital currencies and wouldn’t be surprised if it goes to $0 over time. I’ve already made my money.

Finally, after extensive research online and on the ground, I pulled the trigger on a small land deal. It’s a modest diversifier out of the stock market, and an asset we can enjoy for recreation whether or not we ever build on it. We took our time, did our homework, and waited for a screaming good deal. We’re already seeing prices in the neighborhood 50% higher than what we paid per acre. As long as we are patient, it’s highly unlikely that we’ll lose money on this asset.

Second Thoughts?

With hindsight, we are all better investors. Looking back, I wish I’d done more rebalancing out of stocks this fall. I can see now that I was a little overweighted.

But I’m on record against rebalancing in general. Unless I’m more than 5% over my target allocation (and I wasn’t), I try to ignore the market’s swings. I think the expense and potential for bad market timing of explicit rebalancing outweigh the benefits in most cases.

When it’s necessary to make a decision about the timing of a sale for retirement income, I often fall back on my “principle of least regret.” If I sell some now and the market goes up, I’ll be fine and will still catch much of the upswing, because I always own stocks. And if I sell now and the market goes down, I will be relieved, to have a bigger cash cushion.

The latter turned out to be the case this year. I had begun to harvest in late September before the first significant drop on October 9, and made another sale just after. No regrets about those decisions.

If I had my entire financial life to do over, I might choose a dividend investing or rental property strategy. Getting a steady stream of income at this stage of life would provide peace of mind, at the cost of more active management. (I never did like working on houses.)

But I’m sticking with my mostly passive index portfolio and reporting on the outcome for my readers here. It’s done well by me over nearly a decade in retirement and before….

Investment Portfolio Returns

There’s no denying, this was a lousy year for investors. Over the 14 years I’ve been keeping detailed records, only my 26% loss in 2008 was greater.

My overall investment return for 2018 was -5.8%. That compares to -4.9% for the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) — a more reasonable benchmark for my balanced portfolio than the all-stock Dow. Surprisingly, both my portfolio and that Vanguard fund did worse than the Dow’s -3.6% last year. The relatively poorer performance was likely due to international exposure and a bad year for bonds. 

But back in 2017 I enjoyed rare double-digit returns. The “star” performers in my portfolio then, other than the almost-embarrassing digital currencies, were international stocks, which had lagged for years.

This year they lost big again. So it’s payback time. To be a successful stock market investor you must stomach such swings, and take the long view.

The geometric mean of my returns going back for the 14 years I’ve closely tracked them now is at 5.9%. That’s a decent average for a conservative portfolio in these times, including the 2008-2009 Great Recession.

Taking Stock

My wife and I remain in a strong position as we head into our 60’s and the Social Security years, thanks to past savings and investment performance, small inheritances, and modest earnings from this blog.

However, due to higher spending plus the stock market swoon, our net worth fell by nearly 10% this past year, second only to 2008.

It’s a clear warning signal. So we’ll be tightening our belts in 2019, cutting back on some travel expenses and other luxuries. The economic conditions of the past decade may be changing, and retirement can be a long game….

We don’t need aggressive growth to maintain our lifestyle. But we do need to preserve our assets. Yes, I have a conservative asset allocation. But I need equities too, volatile as they may be, to ensure against future inflation. I have no choice but to live with the market’s ups and downs at this stage of my retirement.

Sometime in the next decade, annuities may provide a better solution for us. But their relatively low interest rates and the long time frames involved, have kept me from taking the plunge here in my 50’s.

And how about you? Should you react to any of the news by buying, selling, or changing your asset allocation? Unless your tolerance for risk has changed, probably not. In my opinion, the important factor is diversification. Staying diversified over long periods with minimal portfolio turnover has been the best strategy for me. 

How did your portfolio fare in 2018?

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Note: Before commenting, please understand that I am not a financial advisor and cannot give personal financial advice or discuss investments that I’m not familiar with. My portfolio is only my portfolio. I’m not recommending it for anyone else. Also, if you disagree with my actions or have a different strategy, fine. Civil comments that demonstrate an understanding of my points are welcome. Others will be deleted.

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Comments

  1. My portfolio was down about 4%. I have a good deal of bonds and they buffered things a bit. I’m a bit younger than you so more aggressive and not too worried if we have another few bad years.

  2. Hi Darrow. I’m 53, my wife is 51. We are fairly aggressive investors, holding around 85%-90% in equities. We were down 8.6% in 2018. But then we were also up 19.7% in 2017. The market giveth and the market taketh away.

    I noticed your portfolio is heavily tilted towards large cap stocks, about 86% according to Morningstar’s Portfolio X-ray. Since you’re still relatively young, I’m curious as to why you hold so little in mid-cap and small-cap funds? They have historically outperformed large-caps over long periods of time. My wife and I hold about 20% each in small caps and mid caps, especially those ETFs with a value tilt. Small cap value is the best performing asset class over history by a long shot, the caveat being you need to be prepared to sit through long periods of under-performance in order to capture those periods of outperformance.

    I figure any money I do not need to withdraw within the next 10-15 years should be invested in equities (US & foreign) with a tilt towards small & value. The rest I invest in a mix of REITs, bonds, and gold.

    I’m happy you made a profit on your cryptocurrency investment. Most investors aren’t going to be so lucky since it’s a mania that depends on the “greater fool” theory. I predict cryptocurrencies will never fully recover, and most will ultimately go to zero. Count this investor out!

    • Thanks for the details Paul. I held small cap funds earlier in my career, but I’m now consolidating into fewer holdings to simplify management in my later years. So no more sector plays for me. But I do have some value tilt via Wellesley Income.

  3. My overall investment portfolio decreased by 3.6%. I retired in July of 2018 at age 58, so this decline could have been traumatic. I felt the market was overvalued and due for a correction so before I retired I converted some investments to cash. Between my in-hand dividend income and my cash position, I estimate I have two years worth of expenses covered…time to hopefully see a rebound in equities. This strategy is giving me peace of mind in the short run. With the political environment, trade wars and such my outlook is more volatility ahead. My thoughts include real estate for diversification, passive income, and tax benefits. By the way thanks for your book and blog…helped me so much with my retirement transition!

  4. I am 56, my wife 51 and our return was -6.3%. A downer for sure, but like you, no where close to 2008. I moved to a 25% bond position at the end of 2017, so it could have been worse. I am struggling with how to migrate to a larger cash position over the next 3 – 4 years and also buying bonds direct fro Vanguard. Most of our savings is in 401k funds.
    Thanks for sharing!

  5. This is a great article. I really like how you lay out your thoughts. With respect to your fairly heavy investments in bonds (I’m about your age and still much heavier in equities), I think it is important to distinguish whether you are looking at bond funds (which expose you to market risk – prices going up and down because they tend to trade the bonds) or individual bonds (which don’t expose you to market risk if you hold them to maturity). I have started investing in individual bonds with fairly short duration (3-4 years) so I’ll have cash to reinvest if/when interest rates go up.

    • Thanks Susie. Sounds like you have a good strategy for your needs. It’s true that holding individual bonds provides predictable income, a valuable quality. I’ve never been clear on just how much market risk a bond fund really represents. I haven’t personally experienced the downside. Fellow blogger and CPA Mike Piper provides some numbers for those interested in What Happens to Bonds in a Stock Market Crash?

    • Kevin Knox says

      To Susie’s point, owning individual bonds still exposes you to market risk. The change in the value of your individual bond isn’t as obvious as watching a bond fund go up and down with interest rate moves but you also have to stay on top of reinvesting your interest payments and won’t automatically reap the benefits of new bonds paying higher interest rates in a bond fund in a rising interest rate environment like the current one.

      Individual bonds and CDs make sense if you need the funds for a specific date. They also make sense if, like me, you prefer to hold only Treasuries since there’s essentially no default risk so no need to diversify holdings (and no reason, per William Bernstein and others to pay even one cent in management fees).

      The Mike Piper article makes it abundantly clear why intermediate term Treasuries specifically, and Treasuries generally, are the only bonds worth holding in a market crisis. Given the current yield curve and the Fed’s stated plans cash (T bills) may indeed be king this year as it was last but in any case keeping maturities intermediate at most and choosing Treasuries instead of Total Bond funds that include corporates seems to make alls kinds of sense in this environment.

  6. My wife and I are 68 and retired. We have substantial savings, two properties, a reasonable pension and of course social security. With Vanguard 401k’s (mostly equities) and some other low cost investments we are settled in and willing to ride out these stormy times. Our primary strategy is to live frugally and comfortably on our income streams and only withdraw from savings in emergencies. So far we continue to increase our savings each year. This market downturn is a blip in our 30 investment history and it too shall pass.

    • I’m curious why you live frugally instead of spending some of your portfolio?

      • I agree, Mitch. At 68 years of age the number of “good” years left to enjoy the fruits of ones labors are getting less and less. Unless it is just in Luda’s use of the word frugally; one person’s frugality could be another’s definition of living it up.

      • It is a lifestyle choice. We are comfortably frugal not paupers. When we had more things we had more problems, commitments and stress. I thought that being a wealthy person meant you had fewer problems and less worry and stress. We discovered living a wealthy lifestyle can be very stressful. Our key to happiness and contentment is living with less. My advice to people pursuing wealth, “Be careful what you wish for.

  7. Always good to read portfolio updates – thanks for all the details.

  8. I’m 59 and have been retired for 3.5 years. I’m down 6.5 percent due to a heavier stock allocation; my rental property income allows me to feel more comfortable with a riskier portfolio. I did moved 16% of my near all Vanguard portfolio from Total Stock Market Index to their Balanced Index to reduce some downside risk.

    After 3.5 years of great returns and feeling comfortable spending $20K per year on travel and home improvements, 2019 will be different. I want to see how LITTLE I can withdrawal to prepare for expected lower returns over the next decade. Stocks have averaged about 12% since 2009; I don’t expect anything close to that going forward.

    • Thanks Mitch. I’m with you. I’ve been here before. I prefer to *practice* a little frugal living long before it’s forced on me by events!

      • Kenneth “Maverick” Bajda says

        Darrow, I like how you think and the “plan ahead” thinking. All good things come to an end sooner than we plan for.
        Food for thought for you: Fund Manager from Weslesley is leaving in June. I am invested in Wellington so I have been selling down to support my cash position. I know your fund is very heavy in bonds so I would watch this closely.
        I’m 64 and have a 55/25/20 portfolio. I, like you only rebalance at 5% change in either stocks or bonds, which is usually once per year.

  9. Bruce Edwards says

    Hi Darrow, My portfolio fell 3.67% in 2018. At the end of 2018 my portfolio was 48% stocks , 42% bonds, and 10% cash. One of the biggest losers for me too were international stocks. Of my stock holdings about 29% are international. I am close enough to my 50- 50 allocation to avoid any re balance at this point. Like you I hold mainly Vanguard funds and agree their low cost is very helpful.
    I sold some stock earlier in the year before the drop to re balance so I was lucky there. I reconsidered selling more as you did but did not want to change my allocation and as I believe the saying of when you get out how do you know when to get back in. So stayed the course on my target allocation.

    Thanks for sharing your information as usual. I find it helpful as I am sure your other readers do to confirm we are all seeing the same conditions.

    Best Regards,

  10. Ronald Roteman says

    When I multiplied each of you allocation percentages by the associated return, respectively, and the took the sum of the individual calculations, it appears you sustained a loss of 3.812%, not 5.79%. Are you able to tell me how you calculated the 5.79%? Thanks.

    • Good eye Ronald. I use the Four Pillars formula that I explain in my article on computing investment returns. It accounts for cash flow in and out of accounts (because those allocation percentages weren’t necessarily constant throughout the year). In my case, I’m guessing the digital currency “losses” are distorting my overall return, because those positions were actually much larger earlier in the year. Your 3.8% number is likely a more accurate reflection of the performance of my stock/bond holdings alone. Either way, the underlying conclusion is unchanged: A small single-digit loss last year is not a big deal, yet, but caution is advised. Best, Darrow

  11. Darrow, very helpful to see your investment approach in your early retirement. I am 60 and retired 5 years ago (but do own and manage some residential rentals and a mobile home park – which has turned out to be a great early “retirement’ vehicle). I have most of my stock investments outside the US (90%) and took a hit this year on that front, but that was offset by equity appreciation in the real estate. I moved out of US stocks roughly two years ago for a variety of reasons. I am still concerned about the S&P 500 PE, the Shiller PE is at 28.39 as of today, with a historic mean of 16.59. Still room to drop from here. Add in potential earnings misses by US companies this year due economic slowing and to last years tax cuts that provided a one time bump to earnings that will not be reproduced this year and I am comfortable holding cash for a bit longer. I am still confident in international stocks going forward, mostly due to current valuation levels leaving potential for appreciation greater than in the US. I do agree with Paul above about the value of small caps in a portfolio, but do understand your approach. Thanks for all the great work you do for us out here.

  12. Darrow, I hold about the same % of GLD as you do, and have for many years. Now that I am retired, I look at that number every year and question whether it belongs in a post-retirement portfolio at all. The actual dollar amount seems pretty insignificant if it is considered primarily as a hedge against some unknown calamity, and seems like it would make better sense in extremely high value accounts at that 5% level. Has your thinking on holding GLD changed over the years? Thanks.

    • Yes, my thinking is evolving. I expect to sell/consolidate it in the next decade. Probably not worth the bother as we transition to a more income-oriented asset allocation for our later years.

  13. I enjoyed the portfolio review very much. I am 63 and my wife is 57. We plan to retire or do something part time in three years. Over the last couple of years I have started a CD ladder which now represents about 40% of investment assets, excluding real estate. This year our equitiy investments lost approximately 3%. I am a somewhat active trader so I don’t hold all of my investments long term. After I am no longer working, that will change and I will be more of a buy, hold, and rebalance investor. I really appreciate the ideas you share. They help me think through the retirement planning process. Regards.

  14. Thanks Darrow. Without belaboring it too much, I assumed that (i) the calculation of each individual allocation already took account of the cash flows, and (ii) if that were true then the overall return should be determined by (a) multiplying each return by weighting and then (b) taking a sum of aggregate of those returns. I may be wrong about that, but those were my thoughts.

  15. It is a lifestyle choice. We are comfortably frugal not paupers. When we had more things we had more problems, commitments and stress. I thought that being a wealthy person meant you had fewer problems and less worry and stress. We discovered living a wealthy lifestyle can be very stressful. Our key to happiness and contentment is living with less. My advice to people pursuing wealth, “Be careful what you wish for.l

  16. Mohan Ayer says

    With reference to your comments about annuities: I look at my pension and SS payments as the annuity part of my portfolio. Since those two streams of income will hopefully cover our living expenses and a little more, I am a little more aggressive with my IRA/401k savings. I am comfortable with a 60 to 70% equity allocation, rest in bonds and a cash cushion.

  17. I always appreciate this review as a point of comparison for my personal year-end check-in. I was down 4% for the year. In anticipation of retiring midyear and a bull market that’s long in the tooth, I slid from from roughly 65/35 stocks to bonds to 50/50 at the beginning of 2018. Best performing for me was Vanguard’s International Bond fund (VTABX), up 2.93%.
    As others have said, I have a couple of years of cash/cash equivalents to ride out a significant correction. At that point I would probably slide back to 60/40.

  18. Over the years, I developed an excel program with a detailed annual budget, by category of spending, projected with a fixed inflation rate for 30 years. I am able to update this spending annually, thus reflecting decreases of expenses when the mortgage and other loans are paid off; when a vacation property is sold; when we decide to travel more; when we purchase a new car; etc. I compare the total annual expenses to my fixed income by source e.g. SS, pension, rental income, HSAs, RMDs, etc to obtain a +/- annual cash flow, thus knowing if I can add to my investments if a plus, or withdraw from my investments with negative. Inflation is built into each expense category and varies significantly e.g health care vs. groceries vs. other. I do have to estimate annual income taxes based on previous years experience. Parallel to the above annual figures, I project gains and losses in my investments which I can do using an average fixed rate or an annual estimate which has to be guessed. (I have no capability of using Monte Carlo, or do not know how to do this with Excel). As a result of all the above, I can project how long my investments will last, give RMD requirements, and annual cash flow needs.
    My accountant and financial advisor have reviewed the logic and find it to be a reasonable, albeit complicated methodology. However, I have never been satisfied and am constantly on the look-out for verification my projections are reasonably correct. Then I discovered your publication on the web and am reviewing recommendations carefully. I congratulations you on a very worthwhile presentation of alternative free and pay-for retirement software programs. I have used many of them previously but you have added to my library of possibilities.

    Having spent a lot of time thinking about retirement (I am 78, my wife 75) I recently had a break-through thought, given our retirement has permitted me to know my fixed income ( SS, pension, rent and RMD). If I continue to estimate expenses (using a personal financial management software like Quicken or Banktivity or one of many other programs, I can easily determine my annual need for withdrawals. Given my current assets, I can use a simple software program that allows me to input current investments, expenses, fixed income to calculate the life of my investments. For those in a similar position, this is much easier than my excel program maintenance and allows me to focus on controlling my annual expenses, which at my age should be pretty steady. I am now satisfied that I know how long my investments will last, which, after all is said and done, is the purpose of this exercise. I am curious about your response.

    • Hi Richard, no question retirement planning is easier if you can boil it all down to simple income and expenses. Predicting the future growth of assets is not much different than rolling dice in my opinion. I’ve done a lot of these analyses, though maybe not as detailed as you. But as the years go by, I really prefer simpler and simpler, back of the envelope, approaches.

      • One of the reasons I like the FIREcalc app you posted. Quick effective snapshot. I’ve shared it with a number of friends who have struggled to figure out their progress.

  19. Gary Price says

    Over the year, 43.5% but … I’m retiring this coming March (at 55) and for the last 3 years I’ve been very aggressive and I put 80% of my free cash “eggs” into 2 stocks, AMZN being one of them. The risk was “somewhat” balanced since I own properties, a reasonably sized annuity and company stock but that being said, I’ve been a little lucky to bet on the right horses. After the first dip in October, I sold both stocks entirely and have put all of the proceeds into a number of 2 year CD’s at 3.05% (yes, I know – a full pendulum swing in terms of risk). I’ve been watching the markets very closely in recent months (trailing stop-losses in place!) but frankly don’t need the worry of managing my portfolio at this point in my life particularly given the market nerves. When the CD’s mature, I’ll have a better handle on what I want to do but this gives me a> 3.05% APY and b> time to focus on retiring and settling down.

    • Gary Price says

      I probably posted too quickly (was leaving the office!) so a couple of clarifications on my overall portfolio so you don’t think I’m completely mad with 2 stocks only:
      40% – property (split 4 ways so low risk, inflation proof and each can be sold if needed. One rented generating income.)
      The other 50% (roughly) is:
      15% – a 5 year annuity (3 years in it’s +10%)
      20% – CD’s @ 3.05% (was all in stock, now converted as mentioned previously)
      20% – company stock (current % as price fluctuates)
      5% – cash
      Oh, and finally, although I made 47% on the stock sale (I calculated the 43.5% incorrectly, sorry …), 29% of the profit (LTCG) will go to the government)…

  20. Hi Darrow,

    Excellent article. Being transparent on losses is probably more important than gains, as it teaches us even more. It was an interesting year in that diversification didn’t help. Almost every sector was down for the year. I was down about 9% on a globally diverse portfolio but my actual losses were lower as I was still investing throughout the year. I also really appreciate your comparisons to 2008 (5X losses on a similar portfolio)

  21. I’m upset yet excited at the same time during the down market. Dollar cost averaging! I’m looking to buy more index ETFs while the market is down.

    One bad lesson learned last year. I bought new shares of some individual stocks on Nov 30 expecting the price to be close to the same by year-end to tax loss harvest some older share bought earlier in the year at a higher price. I ended up selling at a bigger loss than expected since the market went down Dec 31. Being “forced” to sell at an artifically low price was frustrating. My bad for trying to time the market.

  22. Hi Darrow,
    For 2018 my “Juicy Portfolio” returned -6.68%. It consists of:
    Stocks: 55%
    Bonds: 30%
    Gold: 15%
    Cash: 0%

    I think 2019 will be kinder to investors. Keep up the great work, I enjoy your website.

  23. Wade Shanley says

    Thanks for sharing. I faired slightly better than the market with a -2.1% return last year. a moderate position in MSFT saved me. Like you I also have a stock fund allocation to International (Van Intl Growth) that got killed last year -11%. Like you I’ve been tracking my returns back a ways and this was one of the worst outside of 2008 mostly due to December. I’m looking at it as a buying oppty as I regularly invest in HSA and Roth IRA’s in Jan so fresh cash coming into the down market looks good to me. While I’m no economist I feel most of this is short term market flux due to politics, tariffs & interest rates rather than systemic economic issues. We’re all going to need a strong stomach to deal with the market over the next few years.

  24. My major holding are Wellington and Wellesley, Dividend growth, International Growth, High Yield Corporate, Health Care…all active/all vanguard. Two years portfolio withdrawals in cash (pulled capital gains distribution from Wellington/Wellesley in December). I have actively trimmed positions in International Growth/Health Care early in 2018.
    I’ve lost on this portfolio, like others..but don’t really care, given the dividends from my two balanced funds and High Yield.
    I let the balanced funds do the rebalancing, so I’m pretty much 60 stock/40 bonds.
    The mess in Washington has spilled over into the markets, with no rhyme or reason, I’m riding this one out, like all the others (1987, 2000, 2009, and 2015). 67 years old and still spending. Best to all.

  25. Great article and thank you! My husband 62 and myself 61 who retired 6 years ago have a similar strategy. We have two years of cash and two years of very conservative funds to get us through until SS. We took the plunge 4 years ago and have 15 percent of our investments in annuities (Prudential and AXA) which will give almost enough cash flow along with SS so we are not touching much of the rest of our investments after that. We have lived extremely frugally and cautiously the past 6 years and we can see the light at the end of the tunnel so we have actually increased our money to do some more travel etc. this year. Just curious if you are considering decreasing your 30% in your international assets?

    • Thanks for those details Sue. That’s a strategy I can appreciate. I probably won’t explicitly change my international allocation, but I may let it drift down over time. The theory that the U.S. is in economic decline is taking a lot longer to play out than pundits once believed.

  26. Hi Darrow,

    Your article was very interesting. I am 66 still working but working for much less than i was earning in my peak years. I had a portfolio not similar to yours but allocated more aggressively. I used Vanguard, Fidelity and many specialty funds. I looked for funds that had good track records and managers as rated by Morningstar. As i got closer to the magic age, i too was looking for a way to preserve my assets and have a livable cash stream. After much internal debate between me and myself (as well as research), i decided to go with Closed End Funds (those that distribute most of their cash monthly or quarterly as required). I went with Reits, MLPs, Loans funds etc. I gradually moved my assets from the stocks and bond model to the CEF model. Though i have taken a big hit in 2018… these are paper losses and my income stream actually increased modestly. In fact my cash income has been increasing year over year, partly do the reinvesting which a mention further on but also to increases in distribution. So while i do not currently need the income, i have been reinvesting the cash as it is received to both reduce my average cost per share and increase my cash flow. I am anticipating retiring soon and the cash stream from the CEF will be able to sustain my retirement without touching my principle. As i get older and my time horizon diminishes i will then start to liquidate the principle in a controlled manner.

    Darrow have you looked a CEFs ?

  27. Larry Schultz says

    Hi Darrow,

    I am planning on retiring in the next year or two and am finalizing my asset allocation. Basically it will consist of a number of Vanguard stock and bond ETF’s held in Etrade (VOO, VYM, VNQ, VCLT and VCSH). For each of these ETF’s, Vanguard would offer an equivalent mutual fund directly purchased from Vanguard. I’ve noticed you hold all your Vanguard assets directly in Vanguard mutual funds, instead of ETF’s. Do you think there is any real difference economically between holding an ETF vs. the exactly equivalent direct mutual fund? Or is it really just 6 of 1, half a dozen of the other? Thanks.

    Larry

    • Hi Larry, I’m not an expert on that topic. But I haven’t read or experienced anything that makes me think there is a material difference between ETFs and mutual funds for my purposes.

      • The biggest advantage an ETF has over a mutual fund is the taxation. Due to their construction, ETFs only incur capital gains taxes when you sell the fund. In a mutual fund, capital gain taxes are incurred as the shares within the fund are traded during the life of the investment. Mutual funds also have higher expenses because they are actively managed. ETFs are often not actively managed and have lower operating costs.

        The only disadvantages to ETFs is that you have to pay a brokerage fee to buy and sell them. With mutual funds you don’t, but brokerage fees these days average $5 a trade with most brokers anyway. So not much of a consideration anymore.

        Mutual funds do have the advantage of being actively managed, but if you are investing in funds that are tied to an index, then the fund holdings normally mirror that of the index and so the fund wouldn’t need to be actively managed anyway.

        • Chris Mamula says

          Marc. I believe you’re lumping together index mutual funds with actively managed mutual funds. If we’re talking about index funds vs ETFs the differences are minimal, particularly for someone holding the funds for a long time and in tax advantaged accounts. If you use Vanguard funds invested at Vanguard, then ETFs are simply a share class of the index funds. Hope that clarifies. https://investor.vanguard.com/etf/faqs

  28. I don’t get the dislike for Vanguard Wellelsey Income???? It was in the 9th percentile this year compared to other funds in the 30% to 50% equity category.

    Also, I’m wondering why you use Vanguard Lifes Srategy Moderate Growth instead of Vanguard Wellington. I think Wellington is a much better fund. Wellington is both less volatile and has better returns over the last 1, 3, 5, 10, and 15 year periods.

  29. Darrow: Thank you for taking the time to prepare your summary and then sharing it on your site. As brief background, my wife and I have been retired for 4.5 years, and pay 100% of our expenses from the income generated (dividends and interest income) from our portfolio (we have about 10 years to go before we plan to start collecting social security and small pensions). Approximately 67% of our portfolio value consists of individual, large market cap. common and preferred stocks (with long histories of uninterrupted dividend payments and growing dividends). The remainder of the portfolio is fixed income (short term high quality bond funds and money market mutual funds). At the end of each year when I review the portfolio as a whole, I focus on: 1) the overall increase in the dividends of the stock portfolio (7.75% for 2018), 2) the income growth of the entire portfolio from year to year (12.5% for 2018 – this included the impact of changing the overall allocations of stocks, fixed income, and cash, and changes in the the distribution rates/yields of the fixed income funds), and 3) the overall income yield (dividends plus interest income) of the portfolio at year end (3.29%). I did calculate (for this purpose), the total change in the market value of the portfolio (from 12/31/17 to 12/31/18) which was -1.5% prior to withdrawals, and -3.6% after withdrawals. Our approach is not passive – it requires a fair amount time during the initial due diligence before I purchase a security, and then time quarterly to prepare and review the cash flows of each holding. I tend to only sell a stock when my quarterly analysis indicates that the dividend Payer’s cash flow may no longer be sufficient to pay the dividend and/or where the cash flow trends are headed in the wrong direction. Your observation about the value of having a well diversified portfolio, is one of the key strategies for our portfolio. Our largest individual stock holding generates 3.4% of our total income, and we are diversified across many industries (but do not hold any banks, mortgage REITs, or individual stocks that cut their dividends during the 2008 to 2010 downturn). Congratulations on the purchase of the land. My wife and I have also thought about doing this in a location where we might enjoy parking our RV during the warmer months.

  30. Thanks for the article and blog. Just found you and am looking forward to digging through the archives.

    My wife and I are 50 and 55 and planning to retire soonish (year or two out). While I’d like to say it wasn’t market timing, we luckily reduced our stock allocation dramatically late in the year, mostly moving that money to cash. (I’d be lying if I didn’t admit to feeling squeamish having about 50% of our net worth in stocks so close to retirement with financial and political storm clouds all around. Fortunately, we made the move in time. We really were too heavily invested in stocks regardless of market conditions given our approaching retirement.) So in 2018 we had a 7% investment gain overall (including all assets…and I count our real estate in that).

    We’re not going much over our current allocation of 30% stocks/35% CD/Bonds/Cash/35% Real Estate before pulling the retirement plug. Then we’ll work our way up to 50%-60% or so stocks when comfortable, mostly by spending down the cash (upwards glide slope). I think we’ll always maintain 4-5 years of cash equivalents (and I count CDs….since I can choose my term.)

    You made the right call NOT going the rental property route. Been there, done that, and too much hassle unless you really need that security. (I read your article about investing cash and if you value your time at $300/hr, there’s no way you want to be a landlord! :-).

    Cheers and thanks again!

  31. Thanks for the personal justification and decision path for your investments. Very nice to have a yearly update!

    65/35 Portfolio

    VFIAX S&P 500 16.5%
    VTI Total U.S. market 7.6%
    VWIAX Wellesley 29.7
    VWENX Wellington 46.2%

    2018 growth of portfolio -.3.41% .

  32. Darrow you stated:
    Though I have written in favor of Wellesley in my article on balanced funds, and still own a substantial position, I’ve grown disenchanted with the managers’ attempts to actively outguess the market. I liquidated about 15% of our position.

    Can you please take a moment and explain the above statement as it relates to being disenchanted with Wellesley.
    Thanks

  33. I’m more of a contrarian to CW read on the blog, and taking a turn to accept more volatility in investments. When one reviews the long term returns of bonds vs stocks, it’s just to rewarding to not accept the risk. So, here my justification to doing so.

    . Expert opinion claims the S&P if very difficult to beat and more so in recent history. Tilts or factor investing seems to have minimal alpha. Meaning small cap, value, EM, and the rest. My basic understanding is the internet of things have huge impact on the general market as well as improving computational evaluations. So, no stone goes unturned within the investment world to seek out undervalued purchases. Nonetheless the growth stocks have and most think will continue to outperform. Some are thinking the S&P is a factor, but with good results both historically and within modern times. Meaning a good bet.
    First, my financial position is setting on low cost of living for basic needs and enjoyment much like Luda Kirk. We don’t need to pull money from the markets if they are down. My thoughts to change investment to S&P and include a safety cachet of Wellesley to afford sudden expenses.

    My backup plan is simply 100% Wellington. That is the two portfolios to evaluate.

    By the way. Why would one invest in foreign? You do know the U.S. is producing more oil than Saudi Arabia and were basically energy independent. Our petrol technology is best in class. We own high tech. Our renewal energy is without competition. We own ethanol technology, world class wind and solar. Best geothermal. We have the largest coal reserve and best in technology power plants. Automotive is very competitive. Agriculture is best in world. Our tax rates have jumped to best in class for growth. We have the most educated workforce in history, Millennials. Our birthrate is down, but no one within the country is desiring to slow down legal immigration. Robot technology is just starting to replace common monotonous jobs. Our system of entrepreneurism, free enterprise, invention rewards, and the rest is best in international competition.

  34. Look at this chart http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html and evaluate the risk of “losing” money. The growth rate of stock investment is so above bonds and cash savings that even in the event of stock drawdown, this money pile will still be a higher as compared. There is something to be said of holding bonds as a cash reserve to rebalance into a stock correction or recession, but the value still lies within the opportunity to invest in stocks not to spend bonds.

    If you started and maintained a 50:50 stock/bond portfolio the stock pile value, most probably, will still be higher than you bond pile even after a recession. So, there should be no regrets even at this climatic point. If you can enjoy your life style without spending down your stock pile at this point in time, it appears to me a better choice than holding bonds.

    Most financial advisors will confess they can’t beat the returns as compared to S&P index investment, but they can educate and hold your hand when the market become volatile. Advisors will start out the investment choice by determining your risk tolerance. Then they slide the bond ratio to the lowest percentage to meet your tolerance. The factor that determines your higher rate of return is your stock percentage. Advisors don’t start the conversation out by asking how much money do you want to make as that would require them to drop off the parasitic diet of your investments.