How I Invest & My Asset Allocation

For a personal finance blogger, I talk about investing remarkably little. Maybe it’s because my investments are on autopilot– I think about them maybe once a quarter when I rebalance. Also, I’m not well-versed enough about financial markets to conjure up any “alpha” (I’m probably using this word wrong, even) versus following the standard advice of diversified indexing. As the disclaimer says, I am not a financial planner.

That said, in the spirit of living up to my blog’s name, let’s talk about how I invest.

Investing Philosophy

I like to keep my investing low maintenance. So my rules for it are simple:

  1. Low-fee index funds. Because nothing eats up returns faster than a 1+% annual fee.
  2. Stick to a diversified asset allocation. This means both using index funds as in the first bullet, and also investing across different asset types, which we’ll get into below with the asset allocation.
  3. Rebalance once every quarter. I used to pay a lot more attention to the daily fluctuations of my investments. That was dangerous and stupid. I made a lot of mistakes, got scared too easily, and was headed down a gamble-y path with investing that I didn’t want to be on. So now, I stick to my asset allocation, check in once a month for my financial round-ups, and then rebalance once a quarter
  4. Put stocks in post-tax retirement savings. I max out my Roth space with high growth assets before putting them in my Traditional 401k/IRA space. That way I optimize the benefits of my Roth, i.e. not paying any more taxes on growth, by using it for those assets that will see the biggest increase in the long term.

Asset Allocation

I’d like to say my allocation was well-reasoned, that I modeled a variety of strategies before picking my current portfolio. But that would be a lie. I came up with my allocation through a combination of an old Vanguard quiz that I can’t find online anymore and reading The Value of Debt in Building Wealth by Thomas J. Anderson.

I tend toward a 70/20/10 stock/bond/other split, which reflects my relatively conservative nature. I tilt more international, particularly toward emerging markets (read: China), because I am wary the halcyon days of American economic dominance will last until my retirement, nearly half a century away.

Unlike many conservative investors, I eschew gold, mostly because I don’t understand the appeal of non-fiat currencies. For the the same reason, and because of power consumption/environmental concerns, I do not invest in cryptocurrencies.

The below table summarizes my target asset allocation, my current asset allocation, and the difference between the two:


Rebalancing My Assets

Clearly, my current portfolio is a little out of what with my preferred allocation. Mostly, this is because of an unfortunate jaunt into P2P lending, which, because P2P loans are difficult to liquidate, will continue to keep a stranglehold for another 1-3 years. As those loans come due, I’ll be transferring those payments back into international stock.

I have also maxed out my company’s ESOP because a 15% discounted stock means an automatic 35% annualized return. Can’t beat that! Once those stocks are issued, though, I plan to sell them immediately and plop the money into some combination of commodities and stocks.

Not reflected in the above table is the fact that I have some bond funds sitting in my Roth 401k, which contradicts rule #4 of my investment philosophy. Because of my 401k broker’s restrictions, those won’t be able to be exchanged for stock funds until January 2018, which means I’ll just have to wait until then to properly re-allocate.

So to summarize, because my blog not-so-subtly doubles as a personal to-do list, during my next rebalancing in January 2018, I will:

  1. As P2P loans are paid off, transfer money to fill in gaps in other investments.
  2. Sell company stock, transfer amount to commodities index.
  3. Exchange US bond funds in Roth 401k for international stock funds (tax optimizing allocation).

What do you invest? What is your asset allocation?