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February 25th, 2008 at 07:06 pm

Wanna peek at a boring investor's portfolio? ...

Are you like me? Do you sometimes wonder what is wrong with you because you aren't getting stratospheric returns on your investments? Do you slightly envy those who so confidently pick individual stocks, buy precious metals, and short put options on future Mars travel (yea ... I made that last one up)?

In the past I have been somewhat apologetic about the conservative nature of my investments. But no more apologies.

I am reading "The Number" by Lee Eisenberg. The Number refers to "How much money you need to secure the rest of your life." This book is not so much about creating a formula for determing your Number as it is an exploration of why coming up with The Number is so challening, and why it must be an on-going, lifelong process. It also offers interesting tidbits in to the world of those who sell financial products.

One passage in the book really jumped out at me (from page 129):

"Risk aversion. Overload. Hubris. That these qualities get in so many people's way, that they louse up investment returns, that they screw up the Number, is deeply regrettable, if only because they can be tempered by a trio of reliable, if boring, traits of character: moderation, balance, common sense."

Yes-yes-yes! Validation! Here's to being reliable and boring! My investments have been seriously thought out, they are working for us, and ... well ... they are very very boring, but no longer embarrassing to talk about.

So, for anyone interested, here is a peekaboo in to the portfolio of this very boring investor. [Why do I feel like I'm about to strip naked in a room full of supermodels?]

1. Cash: Cash makes up the single biggest chunk of our portfolio. Our cash is in MMAs and CDs. [In the past we have had T-Bills as well, and we likely will again in the future ... But not right now, because frankly the yields suck at the moment.] We keep much more cash on hand than the average person needs to. These are the reasons cash is essential for us.
- Cash flow for my husband's business. Squeezing off the business cash flow wouldn't exactly be killing a golden goose, but it certainly would be killing a good ol' laying hen. Smile
- Cushy General-Purpose EF ... one year's living expenses plus ... again, more than the average person needs ... because DH is self-employed and has no guaranteed income.
- Cushions in budget categories where irregular expenses crop up: Medical/Dental/Vision (we have a HSA), Auto Maintenance, Pet Care.
- Cash for the purchase (in cash) of our next house
- Cash for the purchase of furnishings once we have purchased above-mentioned house (we sold almost all of our furniture prior to our move).
- Cash for the purchase of our next car (we are currently getting by with one car, and plan to get by with one for as long as we comfortably can. But we know sometime in the not-so-distant future we may feel a strong desire to buy a 2nd.)

2. TIPS (purchased directly from Treasury Direct): A very slender portion of our portfolio, but worth mentioning since they don't fit in either of the other 2 categories. And they are a little pet investment of mine. As with the T-Bills, we are not purchasing any more at the moment because they are just too white-hot popular.

3. Mutual Funds (almost all in the form of tax-deferred investments) ... This is where our boring investment style really shines! We have 3 Vanguard funds, and they are all funds of funds or balanced funds.

Life Stragety Conservative Growth (VSCGX) = 80% of Portfolio (YTD Return = -3.33% / 10 year return = 6.23%)

STAR Fund (VGSTX) = 18% of Portfolio (YTD Return = -4.84% / 10 year return = 7.38%)

Balanced Index Fund (VBINX) = 2% of Portfolio (YTD Return = -4.23% / 10 year return = 6.01%)

BTW, if I had my druthers, we wouldn't have the VBINX fund. However, we needed to keep a very small portion of our investments completely distinguishable from the others for tax-related accounting reasons, so we chose that fund becaue it most closely resembled our chosen funds, VSCGX & VGSTX.

Also, as simple as our choices appear, a ridiculous amount of time went in to making the choices, and it's a somewhat amusing story (which I'll share at another time).


Here's the Morningstar X-Ray breakdown of just our mutual funds (percentages rounded off to nearest whole number, therefore total does not equal 100):
Cash = 8%
US Stocks = 40%
Foreign Stocks = 7%
Bonds = 44%

Lg Cap Stocks: 25% Value / 27% Core / 29% Growth
Mid Cap Stocks: 5% Value / 6% Core / 5% Growth
Sm Cap Stocks: 2% Value / 1% Core / 1% Growth

Bonds: All high credit quality, 85% intermediate-term, 15% long-term

Expense Ratio: 0.28%, compared to expense ratio of a similar hypothetical portfolio of 1.42% [This alone is enough to make you break in to a big ol' grin, isn't it?]


I will be the first to admit that those returns are not one bit sexy; certainly nothing to brag about over on the forums! But I wanted to show that sometimes boring, reliable investments are just fine.

Here are some facts about where we stand:
- Every on-line calculator I can find says that we are on-track or ahead of the game in terms of accumulating what we will need for retirement.
- An analysis prepared for us last year by a CFP, using only our mutual fund investments (not including our cash) showed that we are at 140% of where we ought to be.
- A Monte Carlo analysis that was run for us 1-1/2 years ago showed a 70% success chance of success ... and again, that did not include our cash savings, which presumably (barring any huge business losses) will go in to the retirement funds some day and make our chances of success much higher.

So, maybe being boring isn't so bad after all! I feel pretty good about where we are, and I believe that with continued "moderation, balance, and common sense" we have a pretty good shot at having a secure future. How did we get here?

Rather than looking for the next hot investment, we have focused on:
- Spending less than we earn [This is where everyone has to start. If you don't do this, you are not going to get to your Number. Sorry, it may not be fun, but it's true.]
- Having game, both offense (earning) and defense (keeping big & small spending down, saving, and investing) --- DH is offensive coordinator, and I'm defensive coordinator, but we both play on both sides.
- Running a business
- Sensible investing

Having said all this and having let all of you peek at my boring portfolio, I know I must not rest on my laurels. We have some dreams that don't fit in to the standard "retire at 60 or 65" formulas. I have some ideas about changes I may want to make (such as switching funds from STAR to Conservative Growth), and I need to think about non-tax-deferred mutual fund investing (with part of the cash that we have set aside to buy our house, now that I think it's very likely we'll be spending less than originally planned).

The process continues ...

7 Responses to “Peekaboo”

  1. Broken Arrow Says:

    Why, yes, I HAVE been a little curious about your portfolio. So, thank you very much for providing an inside glimpse. Big Grin

    I think this is a wonderful entry. Honest. And I also it makes a very, very important point that the tortoise can also win the race, even against a hare.

    I know you don't mean it seriously when you say "boring" because, to me, it is both practical and to your investing preference. But most important of all, you are being sensible and smart about it. That alone is so much more important than what kind of investments vehicles you use or how aggressive or conservative you are....

    I admit, however, that I am one of those people who tend to chase the dream of high returns.... Maybe not futures on Mars flights Big Grin but guys like me tend to be a little on the aggressive side anyways.... But I think that's fine as well SO LONG AS it is tempered by sensible, intelligent decisions and choices....

    Well, I'm rambling, but again, I applaud the sensible approach in things, and I kind of wish people would be the same... or at least start from that point, and maintain sensibility as they progress in their investment ventures....

  2. merch Says:

    The first rule of investing is that you have to be able to sleep at night and that will dictate your risk tolerance. As long as your portfolio will be able to outpace inflation and what you need to live on, you should be fine.

    I am in awe at your financial situation. My BA is 0.78. Iím still looking to break 1. The sad part is when I compare myself to the average in my categories (income and age), I am lights out ahead of everyone.

  3. monkeymama Says:

    I am sure in a decade or 2 our portfolio will be much the same.

    While young and with less cash flow we go for more risk. I find it much easier to take on the risk when we really don't have much to lose anyway. Big Grin But I am afraid my much more conservative colors will come out with time. Of course, I think that's okay. If you are on track, well, nothing wrong with that. Why take the risk if you do not NEED to. That's my goal.

  4. luxlivingfrugalis Says:

    Hubster and I were just going over our positions this morning in readying him to meet with the financial advisor at his work for his 401-K annual review today.

    He was pleasantly surprised where we are at - which is no where near where we ought to be - but still, he was pleased in that we have more than he had calculated.

    Sometimes it's nice to have a wife who ratholes money instead of spends it on the latest Coach bag! IF ONLY, he'd of let me start saving sooner. He was admantly against it when we first married and I let him get away with it!! Better late than never, but again I'll say -

    you young'uns - save for retirement EARLY and OFTEN!!

    And scfr, there's nothing wrong w/being risk averse!

  5. Aleta Says:

    Great post. I think you hit it out of the park when you talked about the number. It is the number that lets you sleep well at night. I too, am somewhat conservative for some of the same reasons that you mentioned. My husband is also self-employed and that requires more of an EF.

    About 5 or 6 years ago, I kept wondering if I was saving enough. Once, you have the number, it actually frees you to do other things or goals with your money.

    Like you, I have different savings for different expenses that I know will come up.

    When I read Your Money or Your Life, I realized the importance of protecting your capital.

    Also, I have a notebook and I know each year where we should be and I track it to stay on top of it.

  6. pfodyssey Says:

    I'm certainly no expert, but was surprised you had such a significant portion of your overall assets in bonds given your age. Nonetheless, as long as:

    A) You can realize your financial goals with it
    B) Are comfortable with it

    Then I guess it doesn't matter. I just re-allocated my portfolio...what a difference in approaches (I'm 35 btw).

    Nonetheless, it was nice to read your post and see a different perspective.

  7. baselle Says:

    Great post on many, many levels. To carry your football analogy further: far too many people assume that if they try all the diverse and flashy plays - Hail Mary passes and flea flickers and go for interceptions - they're covered and they're cool but they are taking on more risk that what they bargained for. In fact the screen pass, the running game and blocking are what you need. Move the ball 100 yds forward without mistakes and you score. Keep doing it again and again and you win. Big Grin
    I think people aim for a certain constant level of risk. Maintaining your own business is far riskier than getting paid to do a job; income fluctuates and situations change on a dime. I think that because you have your own business you really have to be "boring" in your investments to match the risk and keep it constant.

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