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
- 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
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