2013-10-27

My Investments: Mutual Funds

Over and over again, I've stressed the importance of building the core of your portfolio out of low-cost, passively-managed index mutual funds.  This is important enough that I wrote a seven-part series on it.

I've been telling you to do this and do that all month long, so in the spirit of full transparency I think it's only fair that I share what I actually do with my own money.

 Put the money... there!  Definitely over there.

My Accounts

Step one is, has been, and always will be save as much money as reasonably possible.

I have a number of different types of accounts spread between Vanguard (my brokerage of choice) and Fidelity (my historical brokerage):

Vanguard
Roth IRA - the most important type of account to have; anyone with a wage can get one!
529 Plan - a stop-gap tax minimization measure for my stay in graduate school
Taxable Brokerage - a regular old taxable investment account; no limits and no requirements

Fidelity
Roth IRA - multiple Roth IRAs at different companies? sure, but no contribution limit increase
Rollover IRA - rolled over from the 401(k) retirement plan at my old employer
457(B) Plan - the retirement plan at my current employer; contributions are made pre-tax
Taxable Brokerage - a regular old taxable investment account; no limits and no requirements

Other
Lending Club - peer-to-peer lending investment experiment
Mosaic - solar installation investment experiment

Why haven't I consolidated all of my accounts at Vanguard?
1. My current employer utilizes Fidelity for their 457(b) plan, so I can't move that
2. I have a credit card that offers 2% cashback in the form of Fidelity brokerage contributions
3. I am loathe to pay Fidelity's transfer-out fees
4. Fidelity offers index mutual funds that are cost-competitive with Vanguard's offerings
(Basically: I am somewhat locked in and it's not really hurting anything.)

My Funds

Because my accounts have grown organically over a long period of time and I was learning all the while, I make no claim that these allocations are in any way optimized; in fact, a couple things are the way they are solely for historical, hard-to-change-because-of-taxes reasons.  This highlights the importance of having a plan from the very beginning and sticking to it!

Without further qualification, here is my current arsenal:

 Brokerage Account Amount Type Fund ER Vanguard Brokerage $961 Total Stock Market VTSMX 0.18% Vanguard 529 Plan$8,434 Total Stock Market VTSMX 0.25% Fidelity Roth IRA $19,846 Total Stock Market FSTVX 0.06% Fidelity Rollover IRA$17,454 Extended Stock FSEVX 0.07% Fidelity Roth IRA $16,238 Small-Cap Stock FSSVX 0.09% Vanguard Brokerage$406 Total International VGTSX 0.18% Vanguard 529 Plan $3,614 Total International VGTSX 0.25% Fidelity Brokerage$18,042 Total International FSGDX 0.18% Vanguard Brokerage $6,543 Emerging International VEIEX 0.33% Vanguard Roth IRA$5,012 Small International VFSVX 0.45% Vanguard Brokerage $122 Total Bond Market VBMFX 0.18% Vanguard Brokerage$30 International Bond VTIBX 0.18% Fidelity UC 457(B) $7,659 Real Estate Trust VGSNX 0.08% I have$104,000 invested in mutual funds, plus an additional $7,500 in Lending Club and$500 in Mosaic.  I'm experimenting with nontraditional investments, but mutual funds are 93% of my total portfolio.  Note also that every fund on this list is a low-cost index mutual fund, and my averaged expense ratio is only 0.15%.  In other words: I eat my own cooking.

The table above is a bit of a mess, so let's break it down by the type of fund:

 Type Amount % Total Domestic Stock Market $29,240 28% Small- and Mid-Cap Domestic Stock Market$17,454 17% Small-Cap Domestic Stock Market $16,238 16% Domestic Stock Market$62,932 60% Total International Stock Market $22,062 21% Small-Cap International Stock Market$5,012 5% Emerging International Stock Market $6,543 6% International Stock Market$33,617 32% Total Domestic Bond Market $122 0% Total International Bond Market$30 0% Bond Market $152 0% Domestic Real Estate Investment Trust$7,659 7% International Real Estate Investment Trust $0 0% Real Estate Investment Trusts$7,659 7%

If you read my article on asset allocation, you might be able to recognize that this is a very aggressive asset allocation: all stocks, a relatively heavy international weighting and a sizable helping of REITs, tilted toward small- and mid-capitalization domestic stocks and small- and emerging-market international stocks.  If you can't stomach a 40% drop in asset value like we experienced in 2008, don't try this at home.  Try something a little more conservative, or invest in a target-date fund and set it all to autopilot.

Going Forward

I'll continue to keep doing what I'm doing, shoveling in as much money as possible to maintain approximately the same allocation.  Some funds will upgrade my shares as I hit certain minimum investment amounts, so my average expense ratio should continue to fall with time.  Starting next year, I will begin to increase my fixed income (bonds) proportion by 2% per year for the next fifteen years; by age 40, I should be 30% in bonds (and 100% retired!).