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WHEN I WAS IN COLLEGE, I thought I had investing all figured out. I’d taken a handful of finance and portfolio management courses, I’d allocated real money for the University of North Florida’s student-managed fund, and I’d researched individual stocks, mutual funds, exchange-traded funds and even options.
But my confidence was crushed by a year of unsuccessful options trading when I was age 20. Nonetheless, through my 20s and into my 30s, I remained optimistic that I could earn handsome long-run returns by overweighting a few investment factors—such as smaller companies and value stocks—and by having plenty of foreign stock exposure. But that also hasn’t panned out.
Sure, U.S. large-cap performance has been robust since early 2009, making broad market benchmarks hard to beat. Still, lackluster returns among U.S. small-cap stocks, foreign-index funds and value stocks have left my portfolio below where it could have been if I’d gone all-in on an S&P 500 index fund. One example: I tried to get cute with a pair of Vanguard Group factor funds. One ceased trading in 2022, while the other has performed no better than the broad market since I purchased shares in 2018.
Chastened by this underperformance, I’ve lately been tweaking my stock portfolio, so it more closely resembles the global market. Today, at age 35, if I look across my taxable and retirement accounts, I have roughly equal amounts in U.S. and non-U.S. stock index funds. Those two geographical buckets each make up roughly 40% of my total portfolio, with another 8% in a bond market index fund and the rest in a high-yield money-market mutual fund.
Compared to the weightings for the global stock market, I’m still overinvested in foreign shares, small-cap companies and, to a modest extent, emerging markets. Rather than selling any of these overweight positions, my new purchases simply go toward my U.S. and international total stock market index funds, which has the effect of diluting my overweight positions. The accompanying pie chart gives a snapshot of my current asset allocation.
I recently reviewed my mix of taxable account, retirement account and health savings account money. Overall, 53% of my assets are in my taxable brokerage account, consisting primarily of low-cost exchange-traded index funds (ETFs) and cash at Fidelity Investments. A third of my portfolio is in tax-deductible retirement accounts—a solo 401(k), a traditional IRA and a rollover IRA—plus I have some Publix Super Markets shares in the company’s employee stock ownership plan. This last holding is a holdover from my part-time work at Publix as a teenager and in my early 20s.
Just 11% is in the Roth bucket, though I’m aiming to increase that. This year, I made my first mega-backdoor Roth contribution, adding after-tax dollars to my solo 401(k) and then immediately converting that money to my Roth IRA. Finally, my health savings account makes up a modest 3% of my portfolio.
I admit to owning a tiny bit of a precious metals stock ETF—just 2% of my portfolio. Several years ago, in my taxable account, I purchased the fund at a fortunate time, and I’ve hung on to avoid realizing the capital gain. I also went rogue with extra emerging markets and real estate exposure, doing so using dirt-cheap index funds.
Readers might recall my 2021 venture into fringe alternative investments. I’ve since divested all my holdings, except a small sum invested in fine art through Masterworks, and I managed to do so without too much pain. I also sidestepped danger by withdrawing my stablecoin holdings before last year’s turmoil in the cryptocurrency market.
That’s a lot of drama for what I claim to be—a boring index-fund investor focused on increasing my net worth over the long haul. Indeed, I fear my money journey has been marked by too much excitement and hubris. Going forward, I plan to maintain an 80% stock-20% bond mix, all via index funds. Moreover, rather than having accounts scattered among several brokerage companies, I’ve made an effort to consolidate everything at Fidelity for easier tracking and fewer tax headaches.
I played the account bonus game for a few years, moving my investments from one brokerage firm to another to score some free money. But simplification is my new financial mantra. I brought my many taxable accounts home to Fidelity over the past two years. Now, my year-end goal is to consolidate my traditional and rollover IRAs into my solo 401(k), leaving just nondeductible contributions in my IRA, which I’ll then convert to a Roth IRA—what’s called a backdoor Roth conversion.
For me, it’s a huge psychological victory to take advantage of tax-savvy strategies, while also consolidating my numerous financial accounts. Another bonus: It’s now a breeze to refresh my net worth and asset allocation spreadsheet.
Thanks to my prodigious savings rate since I was a teenager, my investments today afford me financial independence by just about any measure, even though I’m still three decades’ away from the typical retirement age. But despite my net worth, my human capital remains my most valuable asset, and I have no plans to stop working. Indeed, continuing to engage in meaningful work is crucial not just to my wealth, but also to my health.
Mike Zaccardi is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com and check out his earlier articles.
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Very sensible to both reduce the number of accounts and the investments you hold in them (particularly the taxable brokerage accounts). Note that there’s a different potential lack-of-diversification risk if you hold too much of your money at a single brokerage firm. The SIPC insurance limit is essentialy $500,000 for all similarly named accounts at a firm. (IRAs and joint accounts are different than individual ones.)
If your accounts are sizeable enough, there’s a benefit to having investments at another company. It’s not wrong to be vaguely concerned about the stability, liquidity, or ability to access your funds (computer hack, website down, etc.) at one brokerage. We have funds at Schwab, Fidelity, and a robo-advisor to avoid the eggs-in-one-firm basket risk.
I’m not too concerned about that. I don’t want to be 70 years old and have investments spread across ~a dozen brokerage firms just because of the SIPC limit. Even in the event of a brokerage failure, the assets are simply moved to another firm.
Per FINRA: “In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm.”
No argument that having accounts at a dozen firms is unworkable. And I’m comfortable with how well SIPC and FDIC operate when called into service.
But the failure of Silicon Valley Bank and concerns about other brokers and banks earlier this year is a real concern. I’d like to have an extra ATM card that works and additional accounts to pay bills if there’s some sort of crisis.
Thanks for sharing. I was in a similar path where it took me a while to figure out that index investing is the best option. I had a really hard time adjusting to the fact that I’ll get “average” returns in spite of “supposedly” knowing more than an average investor :). So I kept following factors and did multi-factor funds, valuation based dynamic allocation using index funds etc. Then finally realized that I was screwing myself over and wasting time that I could be spending on my human capital or my family. I’m using total market index ETFs in my taxable account and just target date funds in my retirement account now. I still get antsy about my stock/bond allocation every now and then but I have been resisting temptations to fiddle with it so far. I came across this article from Rick Ferri a while back and his education of an index investor topic totally resonated with me.
I consistently like your commentary Mike and as Linda Grady mentioned; it’s nice to have a reflective article from someone still on the other side of 50! 😊.
Both your self focused education and experienced market pursuits seem to have worked out well.
A book called “The FourthTurning” by Strauss is a read you might enjoy.
Thanks, Evan. I suspect the challenges of tax/estate planning and happy spending will grow in the years ahead too!
Good for you, Mike. I recently consolidated 401ks and HSAs. Felt great. We have everything that we can with one brokerage (Vanguard), which is also nice.
You correctly surmised that your followers were interested in an update on some of your previous articles. Thanks.
Thanks, Ben! And well done to you. I help my uncle, and his accounts are at Vanguard. Their customer service and website seem to have gotten clunky and frustrating. I love love love Fidelity.
Mike,
I was glad to see your article after not hearing from you for a while. Your contributions are always full of practical information based on your personal experience, and that makes for good reading. I look forward to your future offerings!
Thanks, Andrew! I’ve had a busy year writing. My market update articles were good, but maybe weren’t the best fit for all of us ‘boring is better’ investors! I’ll try to post now and then.
Mike, Add me to the club that enjoys seeing your investing strategy development. The best time for losses, if there ever is one, is when you are younger and the stakes not as high. I’m positive your portfolio will grow over time, although perhaps not exactly in a linear way. Keep up the good work!
Thank you, Jeff! Learning as I go!
Mike, it’s been interesting to follow the changes in your thoughts about investing over time through your writing. It seems you’ve decided it’s best to look for excitement somewhere other than your financial life.
Thanks, Edmund. Yes – well put!
Thanks, Mike. I’ve shared your article with my teen grandson, who is a hard worker with income from a part time restaurant job and his car detailing business. He follows the market and reads extensively. Through a custodial account, he trades daily (well, ahem, trades are made on his behalf). Your article will help him consider where he might want to be when he’s your age. Nice to have a reflective article from someone still on the other side of 50! 😊
Thanks, Linda! Make sure he fully funds a Roth IRA with that work income!
Mike, thanks for the interesting article. I always enjoy your writings and lear a lot from your market commentary. It sounds like you have learned from your educational pursuits, as well as real life experience, and have come out of your early investing years in great shape. I find I have done a few cycles of complicating our finances, then simplifying, then re-complicatiing as opportunities show up. I’m in the complicated phase now and look forward to simplifying. Complicated finances are exhausting after a certain age!
Thanks, Rick. Yeah – I was literally stressed out a year ago about this time about the little 1099s I was due to receive. So so nice seeing it all nicely in like 4 accounts now.