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Keeping My Balance

Dennis Friedman

I MET WITH MY financial advisor last week to discuss my portfolio’s performance in the first quarter. This was the first time I’d looked at my investments since the start of the public health crisis and economic shutdown.

My portfolio, with a target mix of 35% stocks and 65% in bonds and cash investments, was down 6.8% for the quarter, while the S&P 500 was off 19.6% and the Dow industrials fell 22.7%, including reinvested dividends.

So far, my portfolio has done what it was designed to do—that is, to survive a financial crisis without suffering life-changing losses. To be sure, my investments will underperform during a bull market. But I’m willing to make that sacrifice. At age 68, my goal is to own a low-risk portfolio that can limit my losses in a down market, while having enough growth in principal to keep up with inflation.

My portfolio is composed of broad-based Vanguard Group index funds. It was created by my financial advisor with my input. My investment mix prior to our recent meeting was as follows:

Stocks

  • 17.7% Vanguard Total Stock Market ETF
  • 13.1% Vanguard Total International Stock ETF

Bonds

  • 14.1% Vanguard Short-Term Bond Index Fund Admiral Shares
  • 25.7% Vanguard Intermediate-Term Bond Index Fund Admiral Shares
  • 5.6% Vanguard Long-Term Bond Index ETF
  • 19.2% Vanguard Total International Bond Index Fund Admiral Shares
  • 4.6% Vanguard Prime Money Market Fund

My advisor decided it would be a good time to rebalance my portfolio. He thought we should boost the stock allocation back to the 35% target. He also thought we should shorten the duration of the bonds. He suggested increasing the sum in the short-term bond fund, while reducing the intermediate bond fund, so they would have equal weighting. He also switched the international bonds from a mutual fund to an ETF to benefit from the lower fee.

Here’s how my portfolio looked after it was rebalanced:

Stocks

  • 20.7% Vanguard Total Stock Market ETF
  • 14.2% Vanguard Total International Stock ETF

Bonds

  • 16.8% Vanguard Short-Term Bond Index Fund Admiral Shares
  • 16.8% Vanguard Intermediate-Term Bond Index Fund Admiral Shares
  • 8.4% Vanguard Long-Term Bond Index ETF
  • 18% Vanguard Total International Bond Index ETF
  • 5% Vanguard Prime Money Market Fund

Although my portfolio is down for the year, I’m satisfied with the results. It shows that holding a diversified high-quality bond portfolio can lessen the impact of a bear market. I believe my nest egg is large enough that I can take this more conservative approach and still enjoy a comfortable retirement.

You might ask, “Why didn’t you just put all your money in a target-date fund and save the cost of hiring an advisor?” You’re right, I could have bought the Vanguard Target Retirement Income fund or the Vanguard Target Retirement 2015 fund, and probably met my financial goal of seeking current income with minimal risk.

But I’m willing to pay the 0.3% fee to have an advisor I can talk to. It has a calming effect on me, allowing me to sleep at night when all hell is breaking loose.

At times like this, an advisor can be worth his or her weight in gold. Indeed, in the long run, I believe having an advisor will pay for itself by preventing me from making irrational decisions during both bad times and good. When it comes to our investment results, the market’s performance is important. But even more crucial is our own behavior.

The same, of course, can also be said about most things in life—including the coronavirus. According to public health officials, there’s no magic bullet to protect us from this insidious disease. Instead, our best defense is staying at home, physical distancing and washing our hands frequently. Want to protect both your health and your portfolio? Think carefully about your own behavior.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include School’s in SessionBe Prepared and Bearing Up. Follow Dennis on Twitter @DMFrie.

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RV_retired_nomad
RV_retired_nomad
1 year ago

Your yield is not stated, but I would bet that, with the addition of the .3% fee, you are not keeping up with the REAL rate of inflation. Which, for you, seems to be working.

Langston Holland
Langston Holland
1 year ago

It’s one thing to recommend investments and allocations, but quite another to show your cards (well done on the -6.8%!). This takes more than confidence and humility, but a genuine interest in helping others. Thanks Dennis. 🙂

A thought on having an advisor: sure it costs money and cuts across the grain of many of us due to our (over?) confidence, but a trusted advisor will be worth his/her weight in gold for surviving beneficiaries that aren’t into this stuff.

John C
John C
1 year ago

I have enjoyed your writing on using a Vanguard advisor. I made the same decision last year at age 58. While it’s a younger age than I envisioned I might engage an advisor it was the right call for me. I am still working full time and it’s taken any angst off of having to manage our portfolio. A friend of mine who has a number of rental properties and uses managers noted I rarely discuss my portfolios ups and downs and seem more at peace. To me it’s akin to hiring a property manager but for a different type of investment. When the time comes to begin the distribution phase of our assets I will be glad to have that trusted advisor’s guidance.

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