Link to Google Sheet Referenced in this Podcast: My Retirement Investment Portfolio
Happy day to you. This is Ken Kaufman, and I’m thrilled you’re here for episode number 50, “My Retirement Investment Portfolio.” Now, I’ve had questions in the past about this, “Hey Ken, how do you invest your money? How do you think about all these things?” And this is gonna be an episode where I’m gonna show you how I think about this and how this works for me and my wife and for my family. This is just focused on retirement investments.
And I would encourage you to go to the show notes. There will be a link there to a Google sheet. I’m going to be referencing this Google sheet, there’s a lot of information on it. It will be available for you to view, and then you can make a copy and you can change and do whatever you would like to with it from there. If you wanna change some things or use it in some way or in some way if it can benefit you…
And I have to say upfront, this is just my own personal opinion and my own personal application of things I’ve learned a lot from Paul Merriman, paulmerriman.com is a great site to go to too to get information. There are a lot of other great resources and places as well to gather up information so that you can make your own investment decisions. I don’t know anything about your situation and I am by no means in a position where I could make any type of a recommendation as to what the proper allocation for your retirement investment portfolio should be. This is 100% just how I see the world. I know my situation, I’m a do-it-yourselfer, and this is what I’ve come to.
Now, as I jump into this, just a couple of things first. This overall allocation plan and strategy with my portfolio is going to be, you know, made very clear what it does not include are all of the various places where we currently have retirement accounts. Because I have a 401(k) at my current employer, I have an HSA that I include in and am treating like a 401(k) plan, and that is pulled in as well from TD Ameritrade. I have a Solo 401(k) plan from when I have in the past and continue to have consulting income that allows me to set money aside for retirement, and that is at Vanguard Investments. And then, my wife and I both have Roth IRAs from places we’ve been able to roll from in the past, or contributions we’ve made at M1 Finance. And I also have a traditional IRA that’s, you know, just listed in my name, although, you know, my wife and I think of it all these are just joint assets that we ultimately own together. But it’s in my name just because retirement accounts require, you know, just one person’s name to be on them.
And so, with all of these different places where money is at, it requires some finagling to get the percentages right. And, well, how much am I saving, for example, on a 401(k) plan? Or the Solo 401(k) plan? Or any of these other things? And so I’m not gonna get into any of that detail today. I just wanna focus on what is our overall current strategy and plan for how we are investing our retirement funds.
And, I will tell you, I love the M1 Finance platform. It’s the place where, as soon as we can roll money out of any of these other platforms, we do because it allows for us to do our percentages and easily rebalance. Anyways, that’s a platform that I’ll probably have to talk about or do a review on at some point down the road.
So, with that as the introduction, hopefully, you’ve gone to the show notes, you’ve been able to pull up this Google sheet and you can view it. And you’re going to see some interesting things on here. First, across the top, you’re going to see stocks and bonds. The first decision we make when we invest for retirement is what is the asset allocation that we desire between stocks and bonds. And if you look across row three, you’ll see that we have 90% targeted to be in stocks and 10% targeted to be in bonds.
Now, when you go one layer below that to lines four and line five, you’ll notice there’s a breakdown between U.S. equities and international equities and bonds. And so, to start, first of all, with the equity or the stock portion, our desire is is to be 70% in U.S. and 30% in international equities. And so, because 90% of our portfolio is in stocks, that means that 63% of our overall portfolio is in U.S. equities, and 27% of our overall portfolio is in international equities.
And then, within each of those two categories… Well, I’m sorry, before I even break that down then, when we look just a little further to the right, you’ll then see there’s 10% in bonds. So 63% is in U.S. equities, 27% in international equities, and 10% in bonds. And that gives us 100% total allocation of all the funds in retirement. No money markets, no stable value funds. Everything is in and working and driving and accomplishing the goal and the mission and the job that each of these asset classes is to provide within the portfolio.
Now, to go and break down just a little bit further, within the U.S. equities category, there are five different asset classes that we’re invested in. Within international equities, there are five different asset classes that we are invested in. And then within bonds, there are three investment classes specifically that we are invested in. And I will take a minute and talk about each one of those, our percentages, and how we think about that.
So, I’m starting out now, U.S. equities, this is around now row six in the Google sheet. The very first…actually it’s row seven, under class, for the asset class. The first option there is LCBS. That stands for large-cap blend securities, or stocks. And the symbol above that is VTI. That is the ETF in which we currently invest, and that is the Vanguard Total Stock Market Index Fund. Again, VTI, Vanguard Total Stock Market Index Fund, large-cap blend asset class, and we’re currently putting 11% of our overall portfolio into this asset class.
A little bit about this specific ETF and why it was selected. There’s over 3,500 companies that it invests in, so by investing in it, we now have a share of each of those, of the 3,500 companies on a cap-weighted basis. The expense ratio is just .03%. That’s really close to completely free. And it’s the lowest of all the expense ratios of the funds, as you’ll see. It has a price-to-earnings of almost 19 and a price-to-book of almost 3, those are very high, just because it’s grabbing a piece of all the market and there’s a big chunk of growth. Growth usually carries higher price-to-earnings and higher price-to-book. So, that is number one, 11% of our retirement funds go there.
Moving to the right now, the next asset class over is large-cap value. So we go from large-cap blend to large-cap value. Large-cap value, we are investing in symbol RPV, which stands for the Invesco S&P Pure Value ETF. So this goes in and looks at the S&P and is pulling out the most pure value companies, which means they have much lower price-to-earnings ratios, much lower price-to-book ratios than the large-cap blend, or even if you go all the way over into the large-cap value asset class.
This one only has 108 securities in it because we’re looking for those deeply discounted value-type opportunities. It has a higher expense ratio because it’s more effort to get in and find those and make sure that those are purchased appropriately. So it’s 0.35% expense ratio, which is about 10 times the VTI ratio. But the possible premium for investing in value is well worth, from my perspective, the potential, or the extra cost that’s going to be incurred here.
Its price-to-earnings is definitely much lower than the VTI, or the large-cap blend, it’s under 10, where the other one was over 19, so almost half. And its price-to-book is a third…it’s less than a third, from 3.15 with VTI over to RPI is only 1 times price-to-book ratio.
So, again, 11% large-cap blend, 11% into large-cap value. Then we go into small-cap value, where we have another 11% of our portfolio. And this is in small-cap blend. And specifically, we use the iShares Core S&P Small Cap ETF. And this is a blend, so it’s picking up some value, it’s picking up some growth, as well as securities that fall in between those two, in the blend section. Total of 602 securities or companies that we own within that index fund, or ETF. The expense ratio is just .07%, so very affordable. The price-to-earnings is higher here, this is gonna be a 15.9, and price-to-book is just down at 1.64. So you can see, the small-cap or smaller companies, your price-to-earnings are a little bit more favorable and the price-to-book more favorable toward…and this is why smaller companies and value-oriented companies can sometimes be considered so undervalued, or as, you know, opportunities, relative to a lot of the growth and the maturation that’s already taking place in the larger companies and the more growth-oriented companies.
Next over, now we’re to number four. We’re going to the small-cap value section, and specifically for this we use the SPDR, the SPDR S&P 600 small-cap value ETF, so focusing on the S&P 600 small-cap and the value specifically out of that. There are 454 securities that we’re accessing here, or companies. And by the way, this is 20% of the portfolio. This is the biggest portion of any of the portfolio, and the reason why is because, at the age of 45, we still have a ways down the road to retirement, we not just wanna be 90% stock, but we’re okay to take some more risk and expose ourselves to that risk with the hope that we can earn some more return by going to smaller type companies and more value-oriented companies. Now, these are more volatile. These are gonna jump up and down more and you’ve gotta be able to stomach this. And this is all part of an overall plan and strategy with a standard deviation that’s acceptable for what we’re trying to do and accomplish. But so 20% is in this SPDR S&P 600 small-cap value. This gives us access to about 450 companies. It is at .15% expense ratio, which for a small-cap value fund with that much exposure is actually pretty strong. It’s at a 13.5 price-to-earnings ratio. This is lower than the 16 price-to-earnings ratio of small-cap blends. So you can see, we’re now getting into securities that have more potential room for growth and aren’t as overvalued as other parts of the market are, especially in the small-cap sector. And price-to-book is only at 1.2, down from 1.6 on the small-cap blend.
So, excited about how these four, large-cap blend, large-cap value, small-cap blend, small-cap value, how they come together to build up kind of the four titans of the U.S. equity asset classes. Not that we don’t like mid-cap or we don’t pick on those, the philosophy that I buy into and that I follow is that the smaller and the more value-oriented companies are gonna give us a better opportunity for growth over time. And so, we’ve got large-cap but we’re gonna be on the value spectrum there as well, besides being blend and value, when you mix those together, it means we’re kind of weighted towards the value side of large-cap. And then, on small-cap blend and value, we’re definitely, because we’re 11% small-cap blend and 20% small-cap value, we’re definitely weighted more toward the value end of the spectrum.
We have one last U.S. equity class, and that is REITs, or real estate investment trusts. For this one we use the Vanguard Real Estate ETF. We allocate 10% of our overall portfolio to that. There’s 185 different companies or REITs within that, a 0.12% expense ratio, very affordable for a REIT. And I also prefer to have REITs in retirement accounts and not in taxable accounts. So next week, when I get into what we’re doing with our life event fund, you’ll notice that the REIT is gonna be missing. These tend to have very high price-to-earnings and higher price-to-book ratios, just because of the nature of REITs and the way that they hold their assets, and then the way that they earn rents and all of those things that go with it.
And that rounds out the equity portion of portfolio, or a total 63% of our retirement assets at this time. And I will say that I do, when picking small cap or large cap value or any of these other things, where, in other places where I don’t have access to these ETFs currently, but as soon as I have the opportunity, I would roll them here so I can use these ETFs. But where I don’t, I am picking the fund options, whether mutual funds or ETFs, or whatever my options are, and I’m making sure that I’m picking them to match as best as I can these ETFs that are selected here in the spreadsheet.
Now, moving to the more center part of the Google sheet. We go to the international equities section. And in this, we also have five categories. Six percent goes to large-cap blend international, 6% to large-cap value, 5% to small-cap blend international, 5% to small-cap value international, and then 5% to emerging markets. The funds that we use there for large-cap blend is Vanguard FTSE Developed Markets, there’s about 3,900 companies total we have access to, so, excluding the U.S.-based companies.
We then, for large-cap value, we are using the iShares MSCI EAFE Value ETF, standing for Europe Australia Middle East Value ETF. And there’s another 500 companies we have access to there. For the small-cap blend, we’re using the Schwab Fundamental International Small Company ETF, there’s 1,600 companies we have access to in that. Then the DLS for small-cap value, the DLS ETF, which is WisdomTree International SmallCap Dividend. And there’s just under 1,000 companies we have access to there. And then, just about 800 companies available in the emerging markets, and that’s with the WisdomTree Emerging Markets SmallCap Dividend ETF, which means more value-oriented. Any time you see “dividend,” almost always that means it’s gonna be more value-oriented.
Now, I’m not gonna get into all the expense ratios, although I will say just expense ratios are generally higher with international companies, especially the more you’re getting towards small-cap in emerging markets, because there are higher trading costs and access costs to get to those. But generally speaking, the potential returns are worth having a little bit more expense there. And when I do look at the overall equity-expense ratio, it does work out here in this portfolio with the weighting as it’s set up to a 0.20% overall weighting of the expense ratio. Which, from my perspective, is very, very affordable. Sure, it’s not that everything’s at 0.05% or 0.03% or even, there are a few mutual funds out there that are free, but I believe that this gives me the right diversification and the best opportunity to build and grow my retirement portfolio and participate in all parts of the market accordingly.
And then, jumping to the bond section, this is just 10% of our portfolio right now. The strategy here is to have short-term government bonds, intermediate-term government bonds, and then, inflation-protected treasury securities, or what are called TIPS. We use the Vanguard Short-Term Treasury ETF, the Vanguard Short-Term Inflation-Protected Securities ETF, and then, the SPDR Portfolio Intermediate Term U.S. Treasury ETF. And between all of these, it has effective durations of between 2 and 5 years, and the average, when you take how we’ve got the portfolio allocated, it’s about 3.7 years is the duration of the bonds within the ETF portfolios.
Now, so we take all of this and look at and consider exactly, you know, what’s happening and how this all works. And from the perspective of our retirement, we also… I think about this as we are on a glide path toward retirement. If we’re at 45 now, as we get closer to 50, I’m gonna start to ratchet up the bonds, say from 10% to probably closer to 15% or more, as well as on the U.S. equities, we’ll start to see my small-cap value and the way that I’ve over weighted toward that in a few categories, as well as on the international side, that will start to even out and we’ll start to see a more even mix between large-cap blend, large-cap value, small-cap blend, small-cap value in emerging markets on the U.S. equity and on the international-equity side.
I really hope that this has been helpful to you in some way. Not that I was trying to confuse you or put, you know, a lot of information out there all at once, but mostly to just give an overall perspective to say this is where I’m currently at today, my wife and I are currently at, how we think about this, how we think about the world. And this is going to change each year, as we rebalance on my wife’s birthday, I will be moving some of these target percentages and will be reallocating, amidst all of these options, to make sure that we are not over exposing ourselves to risk relative to the return that we desire, as well as relative to the timeline that we are going to potentially be needing to access the money.
And then, the last piece you always have to think about when it comes to risk tolerance, is, even if on paper it makes sense, but you know, by looking at your portfolio, that, “Hey, this could go down by 30% or 50% next year,” and you know that that would cause you great grief and cause you to get out of the market when it’s low, you have to really consider that and think about that. For me, I’ve been around the market, I started my career there, I’ve seen it go up and down, and I’ve got a lot of tolerance to be able to just gut through that. And to be at just 10% bonds at the age of 45, most people probably wouldn’t recommend that, but that’s where we’re at. I feel like it’s worth the risk to be able to try to drive the financial outcomes that we’re looking at that are gonna be, you know, way down the road.
So again, hopefully this has been helpful. If you have any questions, I’d love to hear about them and I’d love to have the opportunity to try to answer them. As well as with this Google sheet that is linked up in the show notes, you have the opportunity to make a copy of that and you can move it around, or make changes, or do anything of the sort. And I’d, you know, certainly recommend that you, you know, do that to your heart’s content.
And just to make my disclaimer one more time, I’m not trying to give investment advice, not trying to tell anybody how to do what they need to do in order for them to be successful with how they wanna invest for retirement. This is one person’s opinion. This is where I’ve come to and where my wife and I have gotten to a place where we say, “This is how we want to invest our nest egg and how we want it to grow over time.”
And I would highly recommend, if you’re looking at this and you’ve got, you know, specific questions to your particular situation, there are financial advisors out there and investment advisors and counselors that you can meet with and talk to and they can help you build out a portfolio that will, hopefully, keep your expenses very, very low, the way that I’ve attempted to here with this, as well as help you create the right outcomes financially for you and your family.
So, I want to make sure that you are invited to tune in to the next episode, that will happen next week. It’ll be Episode 51, and there I will be doing a similar review but it will be how we are currently investing our life event fund. This would be what you consider our taxable fund, where we’re saving for missions, or there’s even some college savings that’s going on in there, and other life events like marriages and other things that we know are gonna be financial costs for us in the future.
And so, if you have interest to also learn how we think about and how I’ve planned around on the taxable side, make sure to tune in to next week’s episode. There will be another Google sheet for you to take a look at. And just many, many thanks to you for joining today. This is a wrap for Episode 50. Happy day.