Scalper1 News
Two weeks ago I wrote an article on Seeking Alpha discussing the ETFs that will comprise the core of our future portfolio . My goal, in all aspects of my life, is to always be learning and growing. Part of that process is to challenge myself and my ideas. My wife and I have run a bifurcated portfolio , comprised almost exclusively of individual stocks, for the past several years. While I thoroughly enjoy researching and valuing companies currently, I can see that the day is coming when I’ll want to be a much more passive investor. I anticipate achieving semi-retirement a couple years out, and at that time I’d like to transition to a portfolio which is maybe 30% individual stocks… with the rest being index ETFs and cash. Recently, I have begun to think it’s arrogant to think that our portfolio of (mostly) individual stocks can provide the diversification we require… while ‘not’ also requiring a great deal of time to manage. I also received a few comments and emails last week asking me why I wasn’t just proposing a portfolio of strictly ETF and index funds. I want to retain 20% to 30% of the portfolio in individual funds, because there are some truly amazing companies available to the investing public. I expect these companies to compound our capital for decades to come! So why not just invest in these amazing individual companies?! Two reasons: 1) I may be wrong, and it’s pure arrogance to think otherwise; and 2) I don’t believe there are enough of these truly amazing companies, that I could build a diversified portfolio out of them… even if I had the time to manage it. Simply put, I am looking to strike the right risk/reward balance. With that background expressed, below is my desired portfolio allocation. Please note that this includes my wife’s and my capital, as well as the trust fund we set up for our children. 25% Individual Stocks 20% Cash (or cash equivalents)* 15% Vanguard Total Stock Market ETF (NYSEARCA: VTI ) 15% Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) 15% Vanguard FTSE All-World ex-U.S. ETF (NYSEARCA: VEU ) 10% Vanguard REIT ETF (NYSEARCA: VNQ ) *Reduced by 10% when bonds re-enter our portfolio Individual Stocks First, let’s talk about what these categories mean. Within Individual Stocks, I mean both the amazing companies I want to hold for the long term (like Union Pacific (NYSE: UNP ), Visa (NYSE: V ), Coca-Cola (NYSE: KO ), etc.) and the “Deep Value” opportunities that present themselves from time to time. While these “Deep Value” opportunities usually manifest themselves as small and under-reported companies, they can also take the form of commodities or alternatives. Agricultural commodities are looking interesting to me today and gold will likely be appealing in a few months. My intention with this group is that the vast majority of this group be long term holdings… and the remainder be allocated toward alternatives and deep-value trades. Bonds You may have noticed, correctly may I add, that our portfolio will not have a bond allocation for the foreseeable future. Given our young age, mid-thirties, and the ultra-low interest rates… we have chosen to shift any bond allocation to other areas of our portfolio. If rates were to suddenly jump a tremendous amount, it’s possible bonds could join our portfolio… but it’s not likely for the foreseeable future. U.S. Stocks The next question I am likely to receive surrounds how we could only allocate 15% to U.S. Stocks (in the form of Vanguard’s Total Stock Market ETF ( VTI )). I will be quick to point out that the ‘vast’ majority of the individual stocks we invest in, are in fact US stocks. Therefore, it’s reasonable to assume that nearly 40% (25% individual stocks and 15% VTI) will be invested in U.S. stocks. Given that I am paid in U.S. dollars and the property we own is in the U.S., I don’t feel like we are short-changing our homeland. Around 40% of the world’s global equity capitalization is sold on U.S.-based markets. Therefore, I feel my U.S. stock allocation is right where I want it to be, especially when you back cash out of the equation. Emerging Markets I frequently receive email questions concerning why I think Emerging Markets are so well-represented in our portfolio. The simple fact is that the majority of global growth will come from countries which are now called “emerging”. Around most of the developed world, populations are barely growing… if they are growing at all. However, the populations of “emerging” markets are growing much more rapidly. There is some elevated risk that those local governments won’t enforce the rule of law, or more likely that those governments will nationalize your investment, but I think that is a risk in developed countries as well… just a little bit smaller risk. Foreign Stocks There are a ton of companies in this world, with plenty of market capitalization to go with them. To gain exposure to these markets, we will utilize Vanguard’s FTSE All World ex-U.S. ETF ( VEU ). It is important to note that nearly one-fifth (18%) of this ETF is comprised of companies from emerging market economies, so there is this overlap. The rest of the ETF is comprised of companies from developed counties (like Germany, the U.K., Japan, etc.). Real Estate Cash-flowing real estate can be a great investment. Unfortunately, our investable capital is not enough to purchase a diversified real estate portfolio in our part of Florida. We can, however, invest in real estate through Vanguard’s REIT ETF ( VNQ ), with the added benefit of instant diversification and much-improved liquidity. If I had the time and inclination to be a full-time landlord, I would prefer to go that route… but it seems unlikely on any large scale. So, with the funds listed above, we intend to transition to a simpler… and less time consuming… investment approach. Last week, I sent an email out to our subscribers discussing which current investments I was looking to rotate out of in the coming months. I also identified a few of the investments I shouldn’t have made, as I think it’s important to learn from our mistakes. If you would like to receive emails like these in the future, sign up for our email list by completing the box on the right side of our homepage. I hope this holy week is fully of good times and great memories for you all. Take care. What do you think of our allocations, and how do they compare to your own? Disclosure: Long VWO, KO, UNP, V. This article is for informational purposes only and should not be considered a recommendation for anyone to buy, sell, or hold any equities. I am not a financial professional. The information above can be found at Vanguard.com. Scalper1 News
Scalper1 News