Archives for January 5, 2015

Early Retirement Portfolio Asset Allocation Update, Year-End 2014

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Here’s a final update on my investment portfolio holdings for 2014. This includes tax-deferred accounts like 401(k)s and taxable brokerage holdings, but excludes things like physical property and cash reserves (emergency fund). The purpose of this portfolio is to create enough income to cover all of our household expenses.

Target Asset Allocation


I try to pick asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. In addition, I am not confident in them enough to know that I will hold them through an extended period of underperformance (i.e. don’t buy what you don’t understand).

Our current ratio is roughly 70% stocks and 30% bonds within our investment strategy of buy, hold, and rebalance. With a self-directed portfolio of low-cost funds and low turnover, we minimize management fees, commissions, and taxes.

Actual Asset Allocation and Holdings


Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Notes and Benchmark Comparison

There was very little activity during the last quarter of 2014. I’ll need to do some rebalancing in the beginning of 2015. I did change my asset allocation tree above to reflect that my bond holdings have a weighted duration of close to 4 years now. It used to say “shorter-term” but really now it is more “intermediate-term”. I’ve been putting my new bond money into VWIUX, which holds intermediate-term high-quality municipal bonds. I haven’t sold any of my limited-term holdings. Overall, it’s a little longer in maturity and a little higher yield, but nothing drastic. I don’t really listen to future rate predictions; they’ve been wrong more than they’ve been right.

I’ve already noted the 2014 performance of each individual fund here along with my overall portfolio total return of roughly 6.5% for 2014.

A simple benchmark for my portfolio is 50% Vanguard LifeStrategy Growth Fund (VASGX) and Vanguard LifeStrategy Moderate Growth Fund (VSMGX), one is 60/40 and one is 80/20 so it also works out to 70% stocks and 30% bonds. That would have returned about 7.1% for 2014. One reason for my portfolio’s relative underperformance to this benchmark is my inclusions of TIPS bonds which returned 3.5% whereas the Vanguard Total International Bond Index Fund (BND) returned 6% for the year. I’m still happy to hold TIPS. If I had more tax-advantaged space and/or a lower tax rate I’d hold BND instead of muni bonds but I’m still happy with my muni funds as well.

In a separate post, I will update the amount of income that I am deriving from this portfolio along with how that compares to my expenses.

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