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AS A REGULAR READER of HumbleDollar, The Wall Street Journal and Bloomberg, I pick up all kinds of pointers on investing. And the more I read, the more I think I may have been doing it wrong all these years. My approach to picking investments is more aligned with a dartboard than a spreadsheet.
I’ve never owned an exchange-traded fund. I don’t know what the VIX is, except it measures expectations. That’s a neat trick. And don’t get me started on the inverted yield curve. That sounds like a yoga position.
Take the trading week that began on Monday, Jan. 9. The S&P 500 gained 2.7% and the Dow Jones Industrial Average rose 2%. My portfolio’s increase didn’t match either percentage, but 34% of my money is invested in bonds. I did have a net gain of $38,848 for the week. That seems like a good thing.
I’ve given up trying to figure out what drives the financial markets. That week, inflation slowed, the Fed considered a quarter-point interest rate increase, U.S. consumer sentiment jumped—and more secret documents were brought home for lunchtime reading.
Since I retired, I’ve taken eight required minimum distributions (RMDs). Between December 2009 and January 2023, two things happened to my rollover IRA. It was reduced by withdrawals and increased by the performance of my investments. When all is said and done, my current IRA balance after RMDs is 27% larger than it was on Dec. 31, 2009.
Given that RMDs at my age are generally about 4% a year, the 4% rule seems to be working for me after 13 years, even during the recent market gyrations. True, I don’t add an inflation adjustment to my withdrawals, but inflation was only a significant factor for a couple of those 13 years.
I’ve heard something about mutual fund expense ratios. Frankly, I never looked at them until now. The expense ratios of the seven funds I own are 1.01%, 0.98%, 0.91%, 0.83%, 0.08%, 0.04% and 0.025%. I guess I did half good.
I own a balanced portfolio, with stocks in the majority. Of the total stock investments in my brokerage account, 20% is in one utility stock and 15% of the bonds are municipal funds.
This means I’ve broken at least one rule: too many eggs in one stock basket. But the 20% in one stock is explained by an emotional attachment. It’s the company where I worked for nearly 50 years. Most of my shares were earned as compensation.
My total portfolio looks like this: 54% index mutual funds and other U.S. stock investments, 5% foreign stock funds, 34% bonds and 6% cash equivalents. I haven’t made any changes to my asset allocation in years and I haven’t rebalanced since I retired. It would appear I am a seat-of-the-pants investor.
Yet, when I use the evaluation tools in my Fidelity Investments account, I’m told that, “The ‘style’ of your stock holdings in these accounts looks like it’s pretty similar to that of a benchmark that follows the U.S. stock market.” Similarly, I’m told that, “The ‘style’ of your bond holdings in your selected accounts looks like it’s pretty similar to that of a benchmark that follows the U.S. investment grade bond market.”
How did I manage that? There’s a lesson here: The most important investment strategy for most of us average folk is, “Just do it.”
Start early, stick with the basics, think long term, stay the course, slow and steady wins the race, and all that. Oh yes, the compounding of dividends, interest and capital gains payments is also pretty cool. I’m still reinvesting all forms of distributions in my brokerage account. Should I need to change that, I could receive at least a 15% boost in income.
Love the comment about not having a clue about why financial markets do what they do. To paraphrase Willy Shakes -“A tale of sound and fury, told by supposed experts, signifying nothing”.
Can someone explain the need to invest international. Bogle initially said no, then many yrs later, said 20% of your equity allocation as a max.
Thanx
You don’t want to end up like the Japanese who stuck to their home market.
Vanguard balanced fund, VBIAX, .07% and total international bond fund, .11%. Simple, diversified, low cost
Might be good to figure out a target asset allocation and rebalance to it periodically. The markets will change your asset allocation even if you don’t. And maybe up your allocation to foreign stocks if you like foreign travel.
Sounds like you are doing quite well. I put even less effort in my investing paying Betterment, Personal Capital and Vanguard to handle how my money is invested. They do charge me to do that but Vanguard and Betterment don’t charge much and Personal Capital has a market theory based approach that I’m willing to pay them a little more to perform. I’m sure experts could pick it apart as suboptimum but I’m happy with it. And like you, I’ve got enough. There are, for me, better ways to spend my time. Very enjoyable read!
It’s easy to get bogged down with data and earnings reports. Sometimes the “just do it” mentality is really a recipe for success. Taking the emotion out of investing and just sticking the course can be very valuable. I like to keep an investing journal to keep track of my investments and why I’ve made them. I review that journal often when adding to a position or reviewing public reports. Otherwise, set it and forget it (for up to 3 months).
My oh my, I just about had a heart attack seeing those high expense ratios. The 20% in company stock seems to be a situation many get into by default. My wife’s aunt had 90% of her net worth in company (a once great company) stock that she received.
The first paragraph tells a lot and it grabbed my attention. Sometimes we feel after many years of investing that it’s too late to make any corrections. You either continue the same path and fill someone else’s pockets or change your mindset and fill your own. The majority of my funds expense ratios (index and ETFs) are below.10%.
There are several online tools to show you how much you lose in expenses. One I like is https://larrybates.ca/t-rex-score/. It will definitely show the startling difference between paying .025% and 1.01% over a lifetime of investing.
I also have a Fidelity account, but don’t put much faith in their tools, although many folks do like it.
“The enemy of a good plan is the dream of the perfect plan”. Sure, like many of us, I’m sure that in hindsight you can think of many things you could have done better. But I’d also agree with Saint Jack–while there is a number of plans that could be better, there is also an infinite number of plans that are worse. “Stick with the good plan.”
This is an interesting column. In comparing my own results to yours, I’d say there is good news and bad news. The good news is that your IRA is still growing despite RMDs. The bad news is that it could have been so much better with a more Boglehead approach to fund selection. In my own situation, my combined IRA/Roth IRA fund grew by 72% over the same time period. It is about 55% Vanguard equity ETFs and 45% Vanguard short term bond ETFs and cash. I am sure there are others out there who did better than I did.
I suspect that expense ratios and fund selections are the main causes of the difference.
Those expense ratios of 1% are exorbitant. If in tax deferred just switch to total stock mkt. Nice article on simple investing
I agree. I start getting twitchy if I see an expense ratio above 0.2%.
Well, 20% in one stock is a little high, but if you are wealthy that makes a big difference, and utilities are pretty safe. I prefer to hold no more than 3% of my assets in any one stock…..but I am holding 6% in the stock of my former employer. It’s a very good company, but I watch it very carefully.