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  • "Investor's Block" - need feedback

    So, I have a solid core composed of low cost ETF's and mutual funds. I don't own a single individual stock, bond, or other alternatives other than what is in my funds. My only other "investment" is my home, to which I have a majority of equity and a low rate/mortgage amount. I have $25k/month to invest. I am otherwise debt free with the exception of student loans, which I owe 80k at a fixed rate of 1.7% and payment of $436 for 20 remaining years.

    My portfolio is very simple:

    VTI (Vanguard Total Stock Market Index)

    VEU (Vanguard FTSE All-World Except US)

    BND (Vanguard Total Bond Market ETF)

    PRWCX (T. Rowe Price Capital Appreciation Fund)

    PRHSX (T. Rowe Price Health Sciences Fund)

    VIGRX (Vanguard Growth Index Fund)

    Allocations are as follows:

    Cash 8.9%

    International Bonds 1.8%

    US bonds 11.9%

    International Stocks 22.3%

    US Stocks 52.1%

    Alternatives 3.0%

    My initial investment plan is to maintain an aggressive portfolio with heavy weighting in US equities (60-70%). I have a retirement horizon of 15 years. I am overbalanced in Bonds (target is 3%). Instead of selling any positions, I plan to purchase to reach my goal allocations. My initial plan is to maintain the same portfolio until retirement, and to begin gradually rebalancing toward bonds/fixed income 4 years before I retire, with a goal return of 4% per year in retirement.

    I'm struggling with "investor's block" of sorts, in that I'm finding it hard to stick to my plan, and wonder if I need further diversification with individual equities to "round out" my portfolio. I'm also torn between buying these individual stocks, and investing in specific funds that target expected growth sectors (industrials, utilities, etc). Currently, I am heavily weighted in the healthcare sector (24%) and I'd like to dilute this position as well (and hold what I have).

    Should I maintain the course I am on and simply stash away my investments in VTI/PRWCX, or should I further diversify with other investments. If further diversification is suggested, what types of investment should I consider?

  • #2
    "The enemy of a good plan is the desire for a great plan."

    It sounds like your financial house is in great overall shape, and your saving habits (25k/month savings) will do more to determine the health of your portfolio than any tweaking around the edges.

    I am skeptical of sector funds for the same reason why I think indexing is the smart play-there's simply no way to know which sector will do best so better to own all sectors (eg VTI).

    The financial literature suggests there is an additional risk premium for holding value stocks, so tilting the portfolio towards growth instead of value may not be optimal.

    The other slice of the equities market that appears to have an additional risk premium is small-cap stocks.

    The major common investment I do not see listed is real estate. Many, many articles on here listing pro/con of real estate vs stock. Worth considering for diversification and potential strong returns.

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    • #3
      I agree that I don't like a few things about the asset allocation- the growth index fund, the health care fund, and the other TRP.

      Sounds like you're a tinkerer, so you probably need to do something to address that in order to be successful. Perhaps a 5% "play money" portion of the portfolio that you can invest in anything you want- individual stocks, gold, P2P loans- whatever. If you can limit your tinkering to that 5%, you'll probably do okay. If your desire to tinker kills the whole plan, you'll be in a world of hurt.

      That's a big cash allocation for someone who can save $25K a month too.

      The most important part of your plan is staying the course. So read a few books (Bernstein's 4 Pillars and Ferri's All About Asset Allocation) come to mind, settle on an asset allocation, and STICK WITH IT. If you can't stick with a plan, it's not going to matter what plan(s) you choose.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

      Comment


      • #4
        If you haven't already, take a look at the 3 fund portfolio thread.

        If you were to move some of that cash and invest in REIT, your portfolio would look a lot like mine. I don't have the health sciences fund, and I do tilt some to small and value, but those are details that may not make much of a difference in the long run.

        The fact that you're keeping fees low, saving and investing a lot, and are aware of your exact asset allocation tells me that you're going to do well, whether or not you do a little tinkering. Just try not to chase performance, do rebalance to your desired allocation with new monies, and you should be just fine.

         

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        • #5
          Congrats on saving a ton of money each month.  I would knock out the student loan even though the rate is low.  You will feel better.  I would invest some of that cash as well.  The best performing sector of all is small cap value.  I would get rid of healthcare and growth as others have said.  A small position in reits is good too.

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          • #6
            Best thing you can do at this point is to read and implement Simple Wealth, Inevitable Wealth. It will help you overcome thinker-tinker syndrome.

            CAVEAT: Nick uses a 1% AUM sample cost if you use a planner. That is NOT why I recommend this book, so don't let that throw you. Just read (can do in half a day) and get the meat out of it. It's all you will ever need, either using an advisor or DIY.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Why keep an $80k student loan for 20 years when you have the ability to pay it off in about 3.2 months?

              Comment


              • #8




                Why keep an $80k student loan for 20 years when you have the ability to pay it off in about 3.2 months?
                Click to expand...


                Because at 1.7 % interest rate on the student loan, an investment with that money will give better returns over the long term.

                Comment


                • #9
                  Thanks for the suggestions!  I've identified a few funds that may round out my portfolio and still keep the spirit of my diversification intact, while bringing up-and-coming classes and sectors into the fold.  I'm considering adding more VTI (for total equity exposure) and supplementing with VTV (value ETF) and VFH (financials ETF).  I don't think l'm going to sell any of my current positions in healthcare or growth - just dilute over time with buy and hold as above.

                  Thoughts?

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                  • #10


                    I don’t think l’m going to sell any of my current positions in healthcare or growth – just dilute over time with buy and hold as above.
                    Click to expand...


                    Why dilute over time?
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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