Inside My Portfolio

This blog is all about my path to wealth so it is about time I shared the full details of how I invest. In future posts I will add more information, but for now all you need to know is that I am working to have a fully diversified collection of index funds known as a lazy portfolio. Comments and questions are welcomed and encouraged. Subscribe to my RSS and check back to learn more about my investing philosophy which I think is my best opportunity to build wealth.

Personal Investment Employer Contribution Roth IRA $2,600 401(k) $6,176 $3,860 Holdings Ideal Allocation Current Allocation Description Roth IRA SWERX NA 5.26% Schwab Target 2040 401(k) VFINX 30% 31.20% Vanguard 500 Index VEXMX 10% 13.36% Vanguard Extended Market VFWIX 40% 37.55% Vanguard FTSE All-World ex-US VBMFX 5% 7.42% Vanguard Total Bond VSGBX 3% 5.20% Vanguard Short-Term Federal Other 12% 0% Emerging Markets, REIT, Gold, ...

A little explaination may be needed. First, my Schwab 2040 Fund is not a part of my ideal asset allocation strategy. It is a temporary account until I have built up enough money to meet the minimum account balances required for my REIT, Emerging Markets, and Commodities funds I want to hold at Vanguard. I selected Schwab for this because it was very friendly to those with small amounts to invest (no account fees, $100 to start, and $100 per contribution). Second, I do not exactly hold the Vanguard funds I list as my 401(k) holdings. The funds I actually hold are not open to the public but track the exact same index and have a similar expense ratio to the Vanguard funds. For all intents and purposes they perform identically. Also, my allocation is slightly off in my 401(k) because I am unable to directly buy my "ideal allocation" due to purchase minimums (and other logistical problems) so I have to move around my new money to move toward the right balance. Over time as the amount of my new contributions becomes a smaller percentage of the account balance I will move closer and closer to my ideal allocation. Finally, I would do an all out rebalance of my account if it strays more than 5% from my ideal (this has not happened yet due to how I use new money to do mini-reblancing bi-weekly).

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One Fund Investing

I recently opened my Roth IRA with a brokerage firm and now hold a fully diversified portfolio contained in a single fund called a Target Date Fund. I started with a balance of ZERO and have resolved myself to save $100 per paycheck (bi-weekly) with an automatic withdraw. When I was selecting the brokerage my first priority was to find one that had low minimum investment ($100) and low minimum deposits (again $100). I was also looking for access to a wide array of index funds. I am a convert to the passive investment style based on a number of great books, academic papers, and blog articles that I've read. I suggest starting with Are Index Funds the Best Investment? over at Get Rich Slowly or Walter Updegrave's CNNMoney columns.

Considering these factors, I opened my account with Charles Schwab. Once I have saved enough to create a diversified portfolio of index funds with Vanguard I will likely move my money in order to have access to funds with even lower expense ratios. So far I have been relatively happy with my choice but at this point it has only been two months. I'll write a follow up with my results and a review of Charles Schwab as a brokerage after I've been there for a while longer.

When I selected the fund to invest in I ended up choosing a Target Date Fund to hold. I put my money into the Schwab 2040 Target Fund (SWERX). The fund offers me a nearly complete diversified portfolio holding cash, bonds, foreign and domestic stock, large and small cap stock, growth and value, and real estate. I like that I can hold ONE FUND with low minimums and have exposure to nearly all of the asset classes I need. After reading the full fund prospectus from Schwab and looking at the asset allocation breakdown they provide, there are a few issues I've found. First, it is not a true index fund. Some of its holdings do use active management or deviate more than I would like from their target index. The 2040 Fund also holds more cash (6.63%) and more bonds (9.35%) than I need for my 38 year time horizon. I would also prefer a small amount of exposure to commodities and inflation protected bonds. My final gripe is that the expense ratio is 0.94% which is higher than an equivalent fund from Vanguard or Fidelity (but is still lower than 75% of its peers).

All in all I'm happy with my Roth IRA selection. Check back regularly to read more about my investment decisions and investment results as I... Aspire 2 Wealth!

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