My Investment Portfolio Details

Many people in my friends circle ask me how and where I invest. I wanted to share some of these intimate details of my portfolio.

My Investment Philosophy

I firmly believe in the power of diversification, asset allocation, and asset location. I also believe in power of  buy-and-hold approach to investing. I take advantage of the dollar-cost-average approach so much so that I am able to capture market's ups and downs daily. I believe in automation of investments such that my investments happen automatically without my emotions getting involved. Lastly, I am in the market for long-term compounded growth potential and am willing to sacrifice short-term downturns for big payoffs. I believe in the slow and steady wins, as opposed to making quick turn-arounds. At the time of this writing, I am 35 years old and have at least 30 years of investment horizon left. These values have driven my investment decisions and choices.

My Investment Portfolio

My investments can be grouped in three big categories -- Stocks, Bonds, and Cash. I do not own individual stocks or bonds, but rather mutual funds.

Stocks (65%)

Stock Mutual Funds and ETFs comprise a a major portion of my portfolio. This stock portfolio is split further into 72% Domestic, and 28% International stocks. Eventually, I'd like to target 75% in stocks.

Bonds (20%)

Bond funds comprise 20% of my portfolio. Bonds and stocks are inversely correlated, i.e. when stocks go up, bonds go down, and when stock go down, bonds go up. Bond funds provide the necessary cushion during recessions. In my portfolio, bond holdings come from the following funds.

Cash (15%)

I have at least 1.5 years of living expenses stashed away in the form of 5 year CDs that are yielding 2.39% interest rate.

Asset Locations

My assets are located in employer-sponsored 401(K) plan, Roth IRA, Traditional IRA, and Individual Accounts. It is very important to put assets in right accounts so as to maximize your income and minimize your tax liability.

401(K) (37%)

There are two reasons to invest in 401(K) accounts. The money is invested tax-deferred, meaning that you won't pay income taxes today, but will pay when you take the money out (+ 10% penalty) or when you retire. This ensures that my tax bill is lower today. The second reason to invest in a 401(K) account is to get the employer match. I receive 50% match on the first 6% of my investments.

I not only max out my 401(K), but also go above and beyond limits set up by the government. Excess of the funds above 401(K) limit goes to another employer sponsored plan called Restoration Plan, which pays a fixed 5% interest on that money. I will receive this money when I leave my employer or when I retire.

Roth IRA (9%)

I take advantage of the Roth IRA primarily because the money grows tax-free in this account. This means that when I retire, I will NOT be charged any taxes on capital gains and dividends. I contribute fully to this account.

Traditional IRA (4%)

I have set up a traditional IRA account for my wife, as a spousal IRA. My wife does not work, but you can set up a traditional IRA account for your spouse and contribute your own pre-tax money. Similar to 401(K) account, I will be charged taxes when we take the money out (+ 10% penalty) or when we retire. This account is currently lowering our tax bill.

Mutual Funds Individual Account (34%)

I use this account to fund excess funds after contributing fully to 401(K), Roth, and Traditional IRA accounts. With this account, I invest my post-tax dollars and can take them out any time I want after paying taxes capital gains and dividends. So, this provides flexibility for me.

Stocks/ETF Brokerage Account (3%)

I opened this account as an experiment to trade stocks or ETFs with a small amount of money. I traded a couple of stocks during recession, but my experience really confirmed that trading stocks is not my cup of team. Timing when to get in and when to get out is extremely hard and I believe professionals can't even do it consistently. So, why I should risk my money trading stocks. For this reason, I invest in only mutual funds and couple of ETFs that I plan to hold long-term. In this account, I am currently holding small positions of Birkshire Hathaway stock (which is more like a mutual fund based on their portfolio of companies than a stock) and an Energy ETF.

Cash (13%)

All my cash is invested in 5-year CDs that currently pay 2.39% interest. These CDs are in addition to the emergency fund that I maintain in a savings account that yields less than 1%. I do NOT factor in the emergency fund in my portfolio, but ONLY the CDs. For day to day maintenance, I also have a checking account, but I intentionally do not factor in this account as it is not an investment.

Fund	Where Held	Notes
Vanguard Target Retirement 2050	401(K)	I chose this fund for simplicity purposes since this is a retirement account and I did not want to mess this up.
Vanguard Interest Income Fund	401(K)	This fund holds excess contributions from my 401(K).
Vanguard REIT Index Fund Admiral Shares	Roth IRA	This fund generates a lot of dividend income being a REIT. Having this fund in Roth IRA means that this income is tax-free.
Vanguard Total Stock Market Index Fund Admiral Shares	Traditional IRA
Vanguard Value Index Fund Admiral Shares	Individual
Vanguard 500 Index Fund Admiral Shares	Individual
Vanguard Small-Cap Value Index Fund Admiral	Individual
Vanguard Small-Cap Index Fund Admiral Shares	Individual
Vanguard International Value Fund	Individual
Vanguard Developed Markets Index Fund Admiral	Individual
Vanguard Emerging Markets Stock Index Fund Admiral Shares	Individual
Vanguard Target Retirement 2030 Fund	Individual	This fund deserves a special mention. When our daughter was born 2 years ago, I started this fund as a way of saving money for her college education. This fund will automatically adjust its holdings from stocks to bonds when she is about to start her college.
Berkshire Hathaway (Individual Stock)	Brokerage	I hold only a small position.
Energy Select Sector SPDR (ETF)	Brokerage	I hold only a small position.

Interesting Tidbits

My portfolio is roughly divided 50-50 between tax-advantaged vs. non-tax advantaged accounts. 95% of my fund holdings are Index funds, and remaining 5% are actively managed funds or stocks. My average expense ratio is only 0.14% across all funds, whereas Vanguard's average is 0.20%, and industry average is about 0.98%. So, I know my portfolio beats industry averages in terms of fund costs.