My Personal Asset Allocation

by RJ

in Investing

Asset Allocation ExampleThis post reveals more about my personal finances, than I ever thought I would share publicly.

I’m going to share with you the location of my investments and the percentage that these investments make up of my net worth.

I always enjoy learning from real world examples, so I hope the reasoning behind my investments, can potentially help you.

Cash = 45%

I like cash. Cash makes me sleep great.

Especially, since my wife recently left her job to start her own business helping women affected by breast cancer.

I could get more creative than just letting my money sit in savings accounts, such as opening a C.D. or giving Lending Club a try, but I want the flexibility. I’m essentially giving up 1% or so a year in return and I’m fine with that.

I have four different sub-savings accounts in my ING Direct account, as well as a checking account.

  • Direct Deposit
  • Emergency Fund
  • Travel
  • 2012 Roth IRA

All of my income is funneled into the direct deposit savings account, that has monthly automatic withdrawals to a checking, which I have all bills come out of, travel, and 2012 Roth IRA accounts.

Individual Stocks – 4%

My individual portfolio consists of just one stock, Berkshire Hathaway in a Sharebuilder account.

There are two reasons for this:

  • I’m more than OK with earning the same return as Warren Buffett each year
  • I want to attend a Berkshire Hathaway shareholders meeting to see Charlie Munger and Warren speak

I allow myself to invest 10% of my net worth in individual stocks. No more. The track record of individual stock investors is poor. Even professionals who do it for a career have a hard time of beating the market.

Tax Protected Investments = 51%

The majority of my net worth is tied up in tax-protected retirement accounts. Specifically, my money is invested in the stock market.

I’m 26 right now. The earliest I imagine withdrawing from my IRA or 401(k) is the age of 60.

This puts me in the accumulation stage.

The downturn in the stock market is actually beneficial because it means I’m buying more stocks for the same price. Yes, my net worth is unstable on a month-to-month basis, but in the long run, it’s better to buy stocks cheap.

Warren Buffett once said,

“If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have raised for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Here’s an overview of the accounts and the exact investments I own.

Roth IRA # 1 (46%) – Vanguard 2050 Target Retirement Fund

I only own one fund in my Roth IRA, the Vanguard 2050 Target Retirement Fund.

The strategy is dead simple but works. I don’t worry about rebalancing, the fund has a low expense ratio, and it has the international diversification (63% domestic and 27% International) I want.

If I wanted to create a custom portfolio, with the thousands of options of stocks, bonds, funds, etc available…the mixture of stocks and bonds would be very similar to Vanguard’s 2050 Retirement Fund.

I invest in this fund by dollar cost averaging on a yearly basis. Specifically, on January 1st of each year I max out the fund for the year.

Roth IRA # 2 (39%) – Vanguard 2050 Target Retirement Fund

My wife and I both have our own Roth IRA. Both Roth IRAs are invested the same.

Traditional 401(k) – 15%

My traditional 401(k) is 100% invested in the stock market.

The fund I own, which isn’t publically traded, is managed by Clark Capital. It’s an active fund that invests in ETFs.

I would prefer to invest in index funds but my options are limited.

Conclusion | Asset Allocation Example

I can’t imagine on changing much about my asset structure anytime soon.

99% of my energy is spent trying to increase my income. This is something I have direct control over.

The more I focus about what I can control, the less stress I have.

If you have any questions for me, please let me know in the comments.


Photo by: Kess Vangavind


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{ 6 comments… read them below or add one }

matthewNo Gravatar August 24, 2011 at 11:29 am

What is your reasoning for a lump sum deposit into your Roth IRA once a year? Does that help you not spend the money in other ways throughout the year? Also wouldn’t it be better to buy over the course of the year and get potentially lower prices?


RJNo Gravatar August 24, 2011 at 2:12 pm

It’s my way of dollar cost averaging. Generally, most years the market goes up during the course of the year. So by getting my money invested as soon as I can, I’m actually buying cheaper.


Robert SchulzeNo Gravatar August 25, 2011 at 9:49 am

I know you focus more on increasing your income than on constantly watching your investments. This is, Im assuming, also one of the reasons you like the 2050 fund from Vanguard (I also use this one). However, when you look at the market over the long stretch its been shown that simply avoiding down markets increases your yield exponentially. Not trying to “time” it, just moving to safer places when the stars aren’t aligning, such as recently when the rating downgrade happened. Its a great time to buy when prices drop but its not good for the shares you already own. Retaining their value in safer vehicles temporarily, while simultaneously buying at “discount” should get you to where you want to be quicker. Again, not something that has to be done precisely, just done as well as possible. Also, I love how Buffet said that he thought and made decisions (and think it relates to our age perfectly) based on 25 year increments. Thats advice worth heeding.


JoeNo Gravatar August 26, 2011 at 8:33 am

@Robert, I don’t get it. You say don’t ‘time’ the market, but you advise moving in and out of investments when the “stars don’t align”. And then you say that Buffet gives good advice when he makes decisions on a 25-year increments. Which is it — market timing or long-term focus?


Robert SchulzeNo Gravatar August 26, 2011 at 9:40 am

In a word, both. You can think long term focus and still seek to avoid declining markets. Most buy-and-holder advisors say that missing the 10 best days of stock performance over many years can have a significant impact (negatively) on your portfolios performance. Ex. If an investor had missed the best 1% of all the days in the market between 1928 and 2010, his annualized return would have plunged from 4.86% to -7.08%. So missing the good days hurts, yes we understand that. However, if that same investor had missed the worst 1% of days his annualized return would have been 19.09%. The key point though is that missing both the best and worst 1% days yielded a return of 5.48% versus 4.86%. However, it is impossible to always perfectly time when the markets will dip and rise. But looking at the same time period 60%-80% of those 1% days were during decling markets. Look at the past few weeks for an imperfect illustration (My numbers are ballpark not exact as I can’t get the actual chart to come up). The monday after the rating downgrade the market dropped 600 points. The next day it rose 400+. The next day it dropped again 500. That monday was the 6th worst day in the history of the market. Yet 400 points up is a great day to say the least. But the dow is still 12-1400 points below what it was before the downgrade. Not too many people were feeling good about where we were at with our economy, the signs were all there, so we pulled clients out when the Dow was around 12.5. When things start looking better in the economy, unemployment goes up, government debt/spending gets under control, etc. then we move back in. You retain the value of your stock without losing it in the downtick and ride the uptick with the end result being you come out higher than if you had just bought and held. There is such a huge margin for errors that you don’t have to do it perfectly, because missing some lows and catching some highs still beats just riding it out. Again, by all means think long term. I don’t think the average person should own stocks, bonds, mutual funds, whatever if they aren’t willing to think long term. But too often people interpret buy and hold as buy and forget and then wake up in the same boat as retirees in 2008 saying, “Oh no, we can’t retire when we wanted to because the market is correcting.” 3 years later they are just starting to get back to whole. I know this was long and probably much more than you were asking about, but I like to be thorough. ————————————–Disclaimer-The information above is for information purposes only. It is not intended to provide any legal, financial or other advice. I do not make any recommendation or endorsement as to any investment, advisor or other service or product. In addition, I do not offer any advice regarding the nature, potential value or suitability of any particular investment, security or investment strategy.

The credit for the research above goes to Mebane Faber, Chief Investment Officer of Cambria, in the article titled “Cambria takes aim at 10 best days myth” by Steve Garmhausen.


TvoNo Gravatar August 26, 2011 at 9:20 pm

I am planning to attend next year’s Berkshire Hathaway Shareholder’s meeting so let me know if you are going. I have made tentative plans at work to take vacation time. I get weird looks from co-workers and especially from my boss as I plan to make a road trip from down here in Texas up to Omaha for a ‘shareholder’s meeting’.


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