A Peek At My Investment Portfolio

In the past, while planning out exactly how I was planning on investing, I discussed a number of different options that I was considering. In March 2007, for example, I discussed this plan, which included four different Vanguard index funds.

Well, a year later, I’ve actually begun investing in a taxable account. Not in a retirement account – in a place where I can easily withdraw it and do with it what I wish. My goal with this investment is down the road a bit, perhaps twelve years: I want to directly finance the building of the exact home my wife and I have dreamed of. This home would be out in the country with woods on both sides, but besides that it wouldn’t be too much different than our current home with the exception of having two floors instead of three and a larger master bath.

The portfolio To reach that goal, I’m putting all my money into Vanguard into a portfolio consisting of just two funds:
50% Vanguard Total Stock Market Index Fund (VTSMX)
50% Vanguard Total International Stock Index Fund (VGTSX)

That’s it – half in one, half in the other. Simple as can be, and I’m invested about as broadly as I possibly can, as the first fund basically invests in all American stocks and the second invests in most international stocks.

How I got started For each of these funds, I merely saved up the initial amount I needed to buy in ($3,000) in an ING Direct sub-account. I saved up for VTSMX first, then VGTSX.

Now, each month I automatically deposit a specific but equal amount into each of the funds and don’t really worry about how they’re doing day to day. I just sit back and let them do their thing.

Rebalancing I have not yet rebalanced these funds, but my plan is once a year to take an extra month worth of contributions and contribute that to whichever fund has the lower balance. So, for example, if I am contributing a total of $500 a month to the funds right now, once a year I’ll take $500 and put it in whichever of the two funds has a lower balance. This serves to keep the two funds approximately equal in value to each other over the long haul.

Future plans I really can only foresee two significant changes to this plan. My target date is 2020 for fruition, so in 2010, I am considering adding a bond fund to these two funds to reduce the effects of a negative period. In 2018 or so, I’ll likely clean the entire fund out and put it all into a high-yield savings account so that it’s not at risk from any last-minute losses.

What can you do? What is the take-home lesson here?

First, getting started in investing isn’t complicated. For a long time, I was overwhelmed by the idea of actually investing my money in something other than a bank account. The world of stock investing seemed overly complex and arcane to me, so I just avoided it. That’s simply not true – in about fifteen minutes, you can set up an online account that makes investing in the stock market about as easy as signing up for a bank account.

Second, your actual investment choices don’t have to be complicated, either. I read a lot of different books on investing and personal finance and found that they basically offered the same simple advice – buy some index funds and hold them. That’s it. I just chose the two broadest ones I could find and put my cash into them.

Third, patience is really a virtue with this. There are times when I see the stock market dropping like a rock and I get a bad feeling in my stomach. But, over the long haul, this investment will rebound. Even better, when the market is down, the money I put in for that month will buy more stocks than ever before – because they’re on sale! These thoughts make it easy for me to just sit back, not worry about it, and let the money build up over time.

Finally, you can get started, too. Put $50 a week into a savings account and you’ll soon have enough to get started. I chose funds with a high minimum because I think they’re good investments, but there are many options out there with a lower minimum investment. Just put what you can into a separate savings account each week and let it build up, then drop it into some sort of investment. Then wait and watch it grow. It might buy you a car or help you buy a house in a few years.

If you enjoyed reading this, sign up for free updates!

Loading Disqus Comments ...
Loading Facebook Comments ...

49 thoughts on “A Peek At My Investment Portfolio

  1. Trent,
    I think that you are certainly aon to something here. The diversity of your selection and the low fees that Vanguard offers make this an intelligent move.
    When Warren Buffett himself advises investing in broad based low-cost index funds, I think it is prudent to listen.
    The best advice about investing that I ever received about investing was “Start now”! That’s it…put time on your side and continue to invest.
    -Tyler

  2. My.cold.dead.hands says:

    This sounds like a good starting plan while you gain a stronger understanding of investing, because you know that you are keeping pace with the market.

    There are so many strategies to investing that it can make anyone dizzy.

  3. Wes Lewis says:

    I just graduated college and am looking for some advice on getting in to investing, just for my future.

    I have a credit card, and I try to be reasonable with my purchases. It’s is only used for establishing credit. I have a great student card. in my opinion. I keep the limit low so I can screw myself over.

    I like the idea of putting $50 away, which I do every month into a savings account. But I don’t have very much expendable income.

    How much should I be saving now that I’m in the real world, and is there better long-term place to keep it than a savings account?

  4. 42 says:

    those are both fine funds. however, a prudent investor would probably want to sit in cash or an equivalent (money mkt e.g. VMPXX) for awhile til this credit bomb has finished blowing up.

  5. Debbie M says:

    42, the problem is how you know when the credit bomb is done blowing up. Prices tend to shoot up very quickly when they go up, and at that time, it will be nice to have been buying all along at the low (and still falling) prices.

    Then, you have the problem of figuring out when the next bomb du jour is done blowing up. And when various bubbles are done growing, etc.

  6. geoff says:

    I did the same thing Monday with VFINX and VGTSX, but I moved a Roth IRA over and then opened a regular taxable account.

  7. Debbie,
    I believe you hit the nail on the head. The best time to start investing is always “now”.

  8. Pres says:

    These are times to be careful with money market funds. But Vanguard’s are part of the better choices. Phil Greenspun writes:

    “The only way that a money market can generate higher returns than Treasury Bills is by taking risk. Money markets that take risk have occasionally blown up and been unable to maintain their $1 per share price. Investors have lost as much as 90 percent of their money in what they thought was a risk-free fund. If someone offers you a high-yielding money market, drill down into the fund’s holdings and you may find a lot of stuff that you don’t recognize. The Vanguard money market funds are a safe bet with very low expenses and a reasonable yield.”

    http://philip.greenspun.com/materialism/early-retirement/investing

  9. I can’t get myself to invest on the stock market! I can’t help but be paralysed at the idea that when the baby boomers want to cash out their pension plans and their RSP (401k), the market is so going to drop… and this moment is coming. When a large portion of the population move in the same direction, it won’t be without a ripple!
    I know Trent is not a fan of Robert Kiyosaki, but I read is book Rich Dad’s Prophecy, and found his theory pretty logical! If offer on the stock market goes up and demand is steady or drops, I have no doubt the value of any stock offered is going to crumble, mutual or index fund or not. I have no doubt for many businesses it’s going to go up again, but I’d rather get out of there before the crumble or just get in at that point! Perhaps I’m paranoid and this won’t happen, but…
    Also, the leaders of these businesses won’t be the same at this time since a lot of them will also retire! They probably won’t be the same businesses!

    Finally, I believe it’s a good philosophy “not to put all our eggs in the same basket” therefore, index funds and the stock market should be PART of a portfolio!

    Keep up the good work Trent!

    (The website my name is linking to is a new blog about finances in french)

  10. Dave says:

    Trent,
    Great plan. I would just advise that when you pull the money out, don’t do it all at once. If you do, you’re subject to much volatility. Probably best to pull it out gradually over that last 2 year period.

  11. Steve G. says:

    Trent,
    You’re a regular Boglehead, huh? Even 10% in a total bond fund might help hedge against your stock plan, but overall it sounds good. It’s definitely a buyer’s market now in stocks (get ‘em while they’re down), so hopefully that works out well. Good luck!

  12. Rob says:

    I totally agree with Debbie. You cannot determine the timing of your long-term investment deposits based upon the crisis of the day. “Today” is always the best day to invest. Very few market timers are successful in the long term.

  13. You can add one wrinkle to this plan: figure what your expected return from this fund will be … if you reach that high-water mark early (perish the though … due to an unexpected bull market perhaps?), you could choose to switch your funds out of the Vanguard funds then and straight into the bods or CD’s you were thinking about.

  14. nbr says:

    looking at last year’s plan, what made you buy VTSMX versus VFINX?

  15. EN says:

    Trent,

    Just wanted to thank you for this post! I’m just about to open my first Roth IRA and this is the EXACT approach I’m using (lump sum contributing for 2007 and 2008) into those two funds split evenly.

    You practically took my thinking and wrote it down perfectly in this post. I can’t help but feel better about my selections now. :)

  16. Yesterday was on of the best single day returns in the last 30 years, I feel sorry for those that missed it. Dollar cost averaging is the way to go.

    I like your choices, might I suggest the Target Retirement funds. They include a bond fund. Its the true set and forget fund, though there is a small fee on top.

    I endorsed similar funds a week or so ago after Kiplingers pushed some terrible funds for the sake of publishing.

    http://www.kiplinger.com/features/archives/2008/03/four-safe-funds.html
    http://weakonomics.com/2008/03/11/4-safe-funds/

  17. Lorraine says:

    And a thankyou from me too. We are about to do exactly the same thing – index funds only starting to take off in Australia so we are not overwhelmed by choice – makes choosing which fund a lot easier!

    I agree – there is no time like the present – otherwise inaction has a habit of eroding plans and motivation. Dollar cost averaging as you are doing makes redundant any argument to ‘wait’.

    Good on you Trent. We are also using index funds to invest on our children’s behalf for their future, aside from our own savings for them.

    Lorraine

  18. Chris says:

    Trent, what about using Target Retirement 2020 or 2025? They’d automatically reallocate more conservatively as your target date approaches. The downside I see is that perhaps they’re too conservative too soon for you, but in that case, you could use 2030, even though you’d be pulling it out prior to then.

    I know that your current approach is pretty straightforward… this would be just a bit easier than that.

  19. Frugal Dad says:

    To those who are for sitting in a cash position and waiting out this decline, what about dollar cost averaging on the way down? As Trent indicated, he is continuing to fund his portfolio, regardless of market conditions. In doing so he is snapping up more shares of each fund as their price drops, leading to larger gains when things rebound, and they will rebound – in time.

  20. Kyle says:

    My wife and I have been executing the same plan with one change: we use the Vanguard FTSE All-World ex US fund. This is especially important if in a taxable account since the FTSE fund qualified for foreign tax credit whereas The Total International fund does not.

  21. Macinac says:

    How long do you have to wait so that it’s no longer “market timing”? For example, if I buy now and sell after 12 months, that is probably not considered market timing; even though I would definitely sell only if the price is up. Now suppose I cut that to six months: market timing or not? What about three months? How about six weeks?

  22. Bella says:

    I can’t get myself to invest on the stock market! I can’t help but be paralysed at the idea that when the baby boomers want to cash out their pension plans and their RSP (401k), the market is so going to drop… and this moment is coming. When a large portion of the population move in the same direction, it won’t be without a ripple!
    I know Trent is not a fan of Robert Kiyosaki, but I read is book Rich Dad’s Prophecy, and found his theory pretty logical! If offer on the stock market goes up and demand is steady or drops, I have no doubt the value of any stock offered is going to crumble, mutual or index fund or not. I have no doubt for many businesses it’s going to go up again, but I’d rather get out of there before the crumble or just get in at that point! Perhaps I’m paranoid and this won’t happen, but…
    Also, the leaders of these businesses won’t be the same at this time since a lot of them will also retire! They probably won’t be the same businesses!
    Finally, I believe it’s a good philosophy “not to put all our eggs in the same basket” therefore, index funds and the stock market should be PART of a portfolio!
    Thanks and keep up the good work Trent!

  23. Mark says:

    Trent, I’m 54 years old now. I’ve just recently had my financial “awakening” thanks for doing what you do. I’m a long time reader and first time commenter. I’m justa saying!

  24. Vanguard site has a lot of information and they they also have tools to calculate the expenses when investing in the fund or getting an index ETF.

  25. Lisa says:

    If you’re just starting a savings fund, you might want to consider SRI (Socially Responsible Investing)funds. It’s a good time to think about it. After the fact, it’s harder to switch things around, but Calvert offers a free online link that helps you evaluate funds you already own. If you’re interested in knowing more, click on my name-it will take you to a couple of posts I’ve written about it.

    Lisa

  26. jamie says:

    Trent and all other savvy readers, Some topics have surfaced here that I am sitting on the fence with. I am getting ready to transfer my Federal TSP Traditional IRA into a rollover Fidelity IRA account and later in a year switch it over to a Roth when my tax bracket is lower (I’m starting my own business.) I had considered putting it into FSEMX, FSTMX, FNCMX, FSMKX, FFNOX diversified index funds, but the reps suggested that I put it into Freedom Funds 2020 or 2025 a Life cycle fund. I’m 50 and its $100,000. Can I get some sound views on this please. LifeCycle Funds vs Index, Fidelity vs Vanguard, The process of converting to Roth. Thank you and I appreciate this site Trent!!

  27. Kyle makes an excellent point. Since Total International is a “fund of funds,” the dividends don’t qualify for favorable tax treatment. So, even thought there is a 0.25% charge for purchasing the Vanguard FTSE All-World ex US fund (that’s $2.50 per $1000 purchased) it’s well worth it in the long run for a taxable account.

    Chris: The Target Retirement funds are pretty light on international exposure. I’m not sure about the 2020 or 2025, but the 2035 version has only 18% international equities.

  28. riley says:

    Trent,

    I would take a portion of your funds for the future home and look to purchase the property now or as soon as possible in the future, as desirable locations are ever harder to find and this gives you more options to find that “perfect” property for your future home.
    In most areas desirable property is increasing in value at least as fast as stock market increases, so it can be viewed as a tax free investment for the future.

  29. Nice plan. The initial investment is always a bit difficult. We opted for a retirement plan that targets when we’ll specifically retire. We pushed my husband’s back to the same year as mine (he’s a few years older). The thought is I’d still be working anyway, and knowing him he’ll still either be working on freelance projects or have a part-time job. So hopefully we won’t need to dip into his retirement account until I retire too.

  30. Lauren says:

    For those that don’t have or don’t want to invest 6k right off the bat, these Vanguard funds an also be purchased at ETF’s for as little as $130 and $60 each respectively (approx.) An ETF portfolio might be a good idea for a person tryign to get their feet wet in the market. Brokerage fees can add up so a low fee brokerage account liek Zecco is a good way to go.

    I have to same portfolio as you Trent, but have considered adding Vanguard’s total bond market fund for safety during these volatile times.

  31. KC says:

    I’d certainly consider a nice bond fund – especially as you get closer to retirement. I myself have been putting that off and I really shouldn’t. Even Jim Cramer (Mr. Stocks) says people in their 30s should have 10% of their portfolio in a bond fund and increase it by 10% each decade.

    As for transferring it all to cash at your target date be careful. Although it is certainly a prudent move you need to consider how much longer you might live. Perhaps some of that nest egg needs to stay in the stock market.

    I advise my parents on their portfolio and its been quite a learning experience for me (cause I’m too young to invest like a retired person). But one argument I’ve read in several places says that life expectancy should play a role in a person’s portfolio. My grandmother is still living at 90 yrs old. I fully expect my 64 yr old father to make it that long (or at least to 80 like his father). That’s 15 – 25 years of life left. What he has in cash probably won’t keep up with inflation. Dad has about half in cash and half in funds and dividend paying stocks. He’s also still working and has income from a pension.

    Just some food for thought on when to convert it all to cash – good luck sounds like you have a good, workable plan.

  32. Quinton says:

    I would agree with KC.

    The MOST I would pull out of Stocks is to an 80% bond or cash /20% stocks, and that is when I am around 75+.

    You will still need some money, since the average age of death is what 79 or 80 now?

    So dropping it to 50/50 mix when I am 65 sounds right, then going to 75/25 when I hit 70, then 80/20.

  33. LC says:

    I have the same 2 funds although I only have 30% in international and 70% in the total index. But maybe i should change that because the international has been doing much better!

  34. jimbo says:

    I like your blog, and occasionally read it. So I am going to offer you a hint. You are going to take major, I mean MAJOR losses in the coming months with a portfolio like this. If you don’t understand what is happening right now in the financial world, and the EXACT reasons for Bear Stearns collapse, then get out. Completely out. 100% cash

  35. Trent,

    I agree with this index fund strategy of investing.

    An option others could consider that do not yet have the $3,000 minimum needed to get into the selected funds, is to buy ETF’s that track the same indexes.

  36. Sid says:

    Does anyone know of similar types of funds like the (VTSMX)(VGTSX)that are offered through investment companies in Canada? Most of the Index funds offered by the investment companies and banks have fees close to 1% for a TSX or S&P 500 based index fund and more than 2% for funds that deal with anything international. Any help would be appreciated.

  37. sharon says:

    Bella,

    If investing makes you nervous, I’d suggest reading “Why Smart People Make Big Money Mistakes and How to Correct Them.” It demystified a lot of the information we hear about risk vs. reward and will explain why stocks have historically been a good way to build wealth. It helped me understand the risks of NOT investing as well as investing.

    Trent even reviewed it – click on my name for the link.

  38. 42 says:

    Of course few can time a bottom (or top). all I know is I haven’t lost a cent of my assets since I moved out of stocks and related ETFs last year and have made a small profit sitting in Treasury ETFs. next week I am buying actual Treasury bonds to further reduce my risk. if you think Bear was the only blow-up we’re going to see, then now is a good time to go long. That is not my thesis, which is “this ain’t over.”

    good luck, and let’s compare notes in a year.

  39. 42 says:

    Oh, and KC, Cramer’s yelping helped slaughter any shareholders who took his advice to stay in Bear Stearns the same week that they blew up.

    Cramer’s job is to draw eyeballs and sell ads on CNBC, not to actually, you know, provide prudent advice.

    just thought I’d point that out.

  40. Oliver says:

    that sounds good man. Instead of taking the money out 2 years before, why not leave it in for the full 12 years. The longer you have it in, the better your average return will be. Although if the high savings will give you a return high enough to meet your goal amount by the end of those two years, you should take it out then. Good luck with it!

  41. Cramer makes mistakes, all the fund managers do, we ALL do. That’s why rich people put their money into just a few assets that they understand and love (a business here or there … a property here or there … 4 or 5 underpriced stocks) ALL to buy and hold for the long-term.

    Only speculators (who can stand the risks) and fools try to time the market. The only alternative is to do what I suggested above:

    Buy and hold low-cost index funds like Trent suggests … buy now … add to it whenever you have more cash … cash out as soon as you reach your target $$ and move the funds into bonds etc.

  42. imelda says:

    Would you consider explaining the math behind rebalancing? I’m not sure I get exactly why that increases your returns over the long run.

  43. laketrout says:

    Sid: Look into “TD e-Series Funds”. They are only available online through TD. They have the lowest MER of any index fund I know of in Canada.

  44. Sharon says:

    I don’t think that Baby boomers are going to cause the market to fall. First, I don’t think that boomers have invested in the market the way workers younger than them have. When they were in their twenties and thirties, they have assumed that “SS will be there”. People in their twenties and thirties are far more invested in the stock market than they were. Second, because of the state of SS, (and their better health) many of them will continue to work into their retirement. My mother, no stocks, is still looking at part-time jobs at 73. The boomers, which admittedly are younger than her, will be doing the same. They will be leaving the money they have in the market there and continuing to add to it. Maybe a bit of a dip, but not that much.

  45. Rob says:

    Macinac,
    Here is a typical definition of Market Timing (Investordictionary.com) It is “an investment strategy that is based on predicting market and economic trends. The purpose behind market timing is to anticipate future trends before they happen in hopes of making a profit.” The timeframe in not specified. Hope this helps.

  46. JD says:

    This is a fine strategy but you should add the caveat that this is fine for someone with a small portfolio who does not want to be too involved in their investments. First, just right off the bat, if you have a large portfolio putting it into any 2 funds is stupid just from an operational/counterparty risk point-of-view. Second, you are taking pure equity risk, just because its half in the US and half int’l doesn’t diversify you. As we’re seeing now, there is no decoupling in the markets and all equity markets are getting hit at the same time. The problem with using the “long term” market results is it is still very volatile over rolling 10-year, 20-year, 40-year periods. On average global equity markets are down about 20% from their peak in Oct 2007. If you were retiring soon and you were still invested in a wide range of stocks you’d be hurt pretty bad. If you have a decent sized portfolio you should be more diversified than just 2 equity products, but include other things like maybe a commodities fund, a bond fund, sectoral specific ETFs, etc. This doesn’t require the time and due diligence you need to make stock specific bets but it will still be much better than just putting all your eggs in 2 funds.

  47. Macinac says:

    Thanks Rob! But, it seems to me that everyone buys in anticipation that the market, or a fund, or a stock, will go up. (OK, other than short sellers or bond investors . . . and it’s pretty clear that shorts are timing downward) At the very minimum we want our equity to keep up with inflation which, alas, is a predictable trend.

  48. John says:

    I don’t agree with you about putting your money in asaving acount, but it’s our money and no one cares for your money like you do. I personally am retired and have 35 to 40% in stock funds. I to like vanguard & have had them for several years. index is a good way to go.

  49. Brian says:

    I have a question Trent, it my sound impolite, but I don’t mean anything bad by it:
    1)What is the point of reading hundreds of books, writing daily about saving and finances when at the end all your investment ends up in 2 similar index funds? Does that really require so much learning/reading?
    2)How is it that a person so intelligent, frugal, informed, educated, aware, green, etc. is overweight?

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>