The past year was a good one for most investors. All of the holdings in my retirement portfolio were up, many of them by double digits. Stock funds were the stars, but my bond funds did decently, gold posted a strong year, and even cash got into the act with measurable returns.
By contrast, 2022 was a sobering year for investors and early retirees. My conservative and diversified retirement portfolio lost 17.7%. It was the second-worst performance in almost twenty years of tracking my investments. What a difference a year makes.
If you’re a seasoned investor, you are not surprised. Bad years in the stock market are often followed by good ones, and vice-versa. You know that when building wealth, it’s performance over the long haul, measured in decades, that matters.
Having the temperament to ride out stock market cycles is critical. Fluctuations are inevitable. But realized losses—from speculative investments or selling at lows—are not.
My investing mentor Richard Young taught me years ago that when you lose in the stock market, you must do even better to make it back. The math is not on your side. A 10% loss requires an 11% gain somewhere else to break even. A 20% loss requires a 25% gain. So, avoid taking losses!
As a retiree living off assets, caution is always advised. I’ve been in a defensive posture for most of my investing life, holding a roughly equal stock and bond asset allocation.
Read on for my annual portfolio performance report….
My investment philosophy has not changed this year, nor have my holdings. The big picture is that I still have a small number of low-cost mostly index funds in a familiar asset allocation:
|% of Portfolio
|Vanguard Wellesley Income
|Vanguard FTSE Social Index Fund
|Schwab International Equity ETF
|Schwab Intermediate-Term U.S. Treasury ETF
|Schwab U.S. TIPS ETF
|Vanguard LifeStrategy Moderate Growth
|SPDR Gold Shares
(Note: Portfolio percentages are as of 12/29/2023. Overall return is not necessarily a weighted average of individual returns, because holdings can change slightly during the year.)
Overall, my portfolio is currently allocated about 43% in stocks, 46% in bonds, 10% in gold and digital currencies, and 1% in cash, taking into account the actual reported cash holdings in all of my funds. (The cash return stated in the table above is approximate. I don’t have a simple way to average my different cash holdings.)
NOTE: My seemingly very small cash position is just an artifact of some end-of-the-year money moves. I kept more cash than that on hand during the year.
Of the stocks, 31% is international. (Taking into account the actual reported international holdings in all of my funds, not just in those funds labeled “International.”) I’m OK with a significant allocation to international as a diversification away from potential long-term economic woes in the U.S. related to debt.
Purchases and Sales
My investment activity these days is driven by our retirement income needs.
The positions I sold to cover our retirement living expenses—mostly in the first half of the year—were a hodgepodge. I didn’t have a strong sense of stock vs. bond outperformance, so I sold equal amounts of Schwab Intermediate-Term U.S. Treasury and International Equity.
Those sales, coming from a traditional retirement account, are taxable. So I keep an eye on the realized income and the proximate tax brackets, especially toward the end of the year. So far, I’ve been successful at keeping us in the 12% marginal tax bracket.
In keeping with my theme of divesting from digital currencies, I also sold some Bitcoin early in the year. And in keeping with my theme of simplifying my retirement life, I sold the smaller of our two camper vans. I even turned a small profit on it over what I paid for it new in 2019, illustrating the fluctuations in supply and demand at work in the auto market these days.
I didn’t buy any securities during the year.
In my experience, needs and markets fluctuate year to year and I’d rather respond to those conditions than blindly follow a mechanical withdrawal strategy. Though studying systematic retirement withdrawal strategies is useful as an academic exercise, to understand how your money will last under different conditions.
In the long run, I’m aiming to consolidate all our investments in one or two Vanguard balanced funds. Liquidating those will then be a simple, one-dimensional decision that takes the stock vs. bond variable off my plate. That’s probably a good thing.
As I wrote here last month, I’ve become disenchanted with annuities. The main issues are the presence of fees and complexity and the lack of inflation adjustment. All of which underlines the question: When you buy an annuity, what will you actually get down the road?
With inflation recently at a several-decade high, am I willing to gamble that an annuity purchased now will hold its purchasing power over the decades remaining in our lives? In my experience, the stock market provides more reliable growth and inflation protection over long periods.
Recently, it appears that inflation may be cooling a bit. However, philosophically speaking, I expect inflation and shortages to be part of our life going forward. The world is more crowded than ever, with more and more wealth competing for limited resources. That seems like a recipe for rising prices to me.
I’ve owned gold (ETF GLD) as a small portion of my portfolio for many decades now and not regretted it. It’s both grown in value and been an effective diversifier for me. It was a relatively strong performer again this year.
There are good arguments both for and against gold. But in my view, you hold it for the bad times. In general, if gold is going up, I know that the stock market is probably going down.
My small digital currency position had an astounding year after last year’s trouncing, hence the relatively large representation in my portfolio. But I don’t think crypto currencies have any role in the average retirement portfolio. My advice is to ignore such speculations unless you have some related expertise!
(If you do have expertise in some domain—I was a software engineer—I see no harm in small speculations on the side. Just don’t invest more than you can afford to lose!)
I long ago booked enough crypto profits to be on the winning side of that bet. Now the crypto space has attracted a horde of speculators and con artists. At this point, I’m pessimistic about digital currencies ever playing a useful role in the economy.
My overall investment return for 2023 was 13.9%. That compares to 15.5% for the Vanguard LifeStrategy Moderate Growth Fund (VSMGX)—a possible benchmark for my balanced portfolio that holds about 60% stocks and 40% bonds.
The geometric mean of my returns going back for the 19 years I’ve closely tracked them now is at 6.5%. That’s a respectable average for a conservative portfolio in these times, including the 2008-2009 Great Recession.
And how about you? How did your portfolio fare in 2023?
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OUTDOOR ADVENTURE: My new web site explores the books, authors, and trails of the long-distance hiking movement and has more about my forthcoming memoir Rain and Fire In The Sky: Beyond Doubt On The Colorado Trail. Click over to TrailMemoir.com.
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[The founder of CanIRetireYet.com, Darrow Kirkpatrick relied on a modest lifestyle, high savings rate, and simple passive index investing to retire at age 50 from a career as a civil and software engineer. He has been quoted or published in The Wall Street Journal, MarketWatch, Kiplinger, The Huffington Post, Consumer Reports, and Money Magazine among others. His books include Retiring Sooner: How to Accelerate Your Financial Independence and Can I Retire Yet? How to Make the Biggest Financial Decision of the Rest of Your Life.]
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