Now that I”m back to posting more regularly, I thought it would be interesting to give you guys a detailed look at our portfolio. I already touched on our holdings in a previous post. This time around, however, I’ll provide a breakdown of all of our investment accounts. I’ll also talk about how our portfolio came to be as well as some of my thoughts and plans going forward.
Risk Tolerance and Asset Allocation
Before diving into the specifics of the SRGO portfolio, I wanted to talk about our asset allocation. Based on our risk tolerance, financial goals, and investment style, we have decided on the following allocation:
Overall: 75% stocks, 25% bonds
International: 20-30% of stocks (I know, kind of a broad range)
Small Cap Value: 5% of portfolio
REIT: 5% of portfolio
Our Portfolio
Here’s a snapshot of our entire investment. Sorry that it’s a bit blurry, but if you click on the table it will expand to a much clearer image.
How are we in relation to our targets?
Overall: 76% stocks, 24% bonds (75/25)
International: 21% of stocks (20-30% of stocks)
Small Cap Value: 3% of portfolio (5%)
REIT: 5% of portfolio (5%)
Mid Cap: Where did this come from? More on that later.
Things I Like
Low Fees
Since the majority of our holdings are index funds, our fees are pretty low with an overall weighted expense ratio of 0.05%. That’s pretty darn cheap.
Diversification
Another benefit of investing in index funds is the diversification that they provide. I don’t have all my eggs in one basket, so to speak. I do have a collection of individual stocks that were in my wife’s old brokerage account, but they make up just 8.5% of our portfolio.
Tax Efficiency
Overall, I think I have things in the right location for tax efficiency. At least, for the most part. There are a few tax inefficient funds where they shouldn’t be, however. For instance, we have two actively managed funds (Invesco Comstock and Lord Abbett Mid Cap) and dividend-generating individual stocks in our taxable account.
Things I Don’t Like
Complexity
I’m a fan of keeping thinks simple, but our portfolio currently is anything but. We have a total of 15 different holdings along with a collection of individual stocks. We also have six investment accounts spread across four different financial institutions.
Too Much in Pre-Tax Accounts
As it stands, we have almost two-thirds of our investments in pre-tax accounts. This isn’t too much of an issue now since we are many years from retirement and are focusing on paying off my student loans. I would, however, want to have a more even distribution of pre-tax, after-tax, and tax-free monies as we get closer to retirement.
WTF Holdings
I’m not a fan of our Invesco Comstock and Lord Abbett Mid Cap holdings. They have high expense ratios, are actively managed, and are tax-inefficient. While they make up a very small percentage of our portfolio (0.5% and 0.7% respectively), they annoy me nonetheless. Selling these investments is not as straightforward as it may seem. Their cost bases are unknown, so selling them would be treated as a $0 cost-basis transaction. For now, we’re just letting these ride. At some point in the future, however, they are getting kicked to the curb.
Things I’m Neutral About
Roth IRA Holdings
LifeStrategy Growth Fund is an all-in-one fund from Vanguard. It basically is set at an 80/20 stock to bond asset allocation with a mix of domestic and international stocks. I kind of like this fund in our Roth IRA because it automatically rebalances itself, but I may exchange it for some other fund in the future.
Individual Stocks
We’re just letting these ride with automatic dividend reinvestments. There is a bit of tax drag given they are in our brokerage account, but at least they’re taxed at the qualified dividend rate.
Final Thoughts
Overall, I think our portfolio is pretty solid. It is a bit too complicated for my taste with 15 different investments spread across several accounts. On the other hand, we have an asset allocation that we can stick with, we’re pretty diversified, and our investment fees are pretty low.
