Asset Allocation


LONG TERM PORTFOLIO - Non-Tax Accounts - Retirement - Income Considered - Passive


Prerequisites:

* Emergency Fund of 3-6 months expenses saved
* No High Interest Debt
* A Full Pantry

Consume the following notes

Diversification: https://youtu.be/Nu4lHaSh7D4

The Best Investors Are Dead https://www.morningstar.com/columns/rekenthaler-report/archives-praise-dead-investors

Disclaimer


I am not an investing professional, a feduciary or a broker. If I was, I wouldn't be YOUR broker,feduciary or advisor. I dont' know your financial situation or goals. This is an example and is meant for educational purposes and is not intended to be financial advice. All investment has risks and to be blunt, no matter how conservative you are in your portfolio, you will at some point be down. Everyone loses money at some point.

Method: DCA (Dollar Cost Averaging)


As this is a passive, long term portfolio, the method will be dollar cost averaging. That means you will be putting in a an automatic transfer from your bank into the portfolio every paycheck.

How much should I put in?

* If you have a company that matches the 401k contributions. Use that to your advantage. Try to put in the maximum percentage they will match. But never, more. Because your 401k might not allow you the same options of funds than other accounts.

* If you do not have matching, utilize a traditional IRA. There is a limit, depending on year, that dictates how much you can add, so keep that in mind. Many people start by putting in just a few dollars and watching it. An amount that you will not miss. As you become more comfortable, begin to increase contributions.

There are multiple online calculators that will help encourage you and give you an idea of how much you will need to contribute to reach your goal:

https://www.calculator.net/investment-calculator.html

The Portfolio


10% Cash (or cash equivalents) for opportunities & Speculation
45% Equities
15% Fixed Income
15% Realestate/MLP/REITS
15% Commodities & Alternate Investments


Cash (or cash equivalents) for opportunities & Speculation


What? Doesn't inflation eat away at my cash? Why would I want cash in a long term portfolio?

Like Rick Rule said "I consider the devaluation of the currency, a premium I pay for optionality." In simpler terms, you want funds to take advantage of opportunities when you see them. That ability is worth the loss of purchasing power. Warren Buffet calls this "dry powder".

What is a cash equivalent?

Anything liquid that can easily be turned to cash at a moments notice. In this case, the most common is a money market fund, or high yield savings account. In those vehicles you can at least get a % depending on the fedsfunds rate.

* High Yield Savings Accounts
* Money Market Funds

How hard and fast is this rule?

Not at all. You should already have an emergency fund and be out of high interest debt before investing. If you see an opportunity, you will deploy that cash. This cash can also be used for speculation (as it's not listed in any other catagories), but never more than 3% per trade for risk management purposes.
*Note this can and should be used by options traders to sell cash secured puts if that is part of the strategy.

Equities (That means stocks/ETFs)


This can be as simple or complicated as you would like.

* This can be done with one fund for the lazy. VTI.
* Some people like to split into 80% American Markets and 20 foriegn markets.
* If you are going to spread more, try to pick stocks in multiple sectors for further diversification.

My favorites in this space currently are
* VIG Us companies that have increased dividends for the last 25 years, including the aristocrats that have raised dividends for the last 50 years.
* VIGI Similar, but international.
* SPLV for it's monthly income and stability.


Fixed Income


Anything that vaguely preserves capital while paying out. I like treasuries, corporate bonds, CDs, and preffered shares.

* PFF (preffered stock)
* TLT, VBILX (do your own research and find duration and % you like)
* VTABX (International Bond Funds)
* VTC (note to do your own research on corporate bonds, I don't have any currently this is only a starting point)


Realestate/MLPs/REITs


This one is tough. I do not have a desire to be a realestate landlord, nor do I have the time/funds. Therefore this section is for companies that deal in realestate and has an overlap with the equities section.
Some stalwarts in this space are

* VNQ - Vanguard Real Estate Index Fund ETF
* VNQI - Vanguard Global ex-US Real Estate Index Fd ETF

Some others for diversifictation - not recommended/required, just mentioning for reader research:
* LAND (Farm Land Leasing)
* DLR (Datacenter REIT)
* UNH (Healthcare REIT)
* O (Residential Realestate)

*note that when rates are low, people use these as replacements for thier fixed income. Act accordingly by accumulating slowly when rates are high.

I am a real estate guy, I own rental properties. This is my focus.

You are in a much different position. Your casflow from this section is probably undercontrol. You have my blessing to reduce this percentage into other sections.

I own my own home and have more equity in it than anything else in this list.

Good on you. I give you the blessing to avoid the VNQ, reduce the % of this catagory - perhaps only use VNQI and non-residential options in the portfolio. For the long term I give the blessing to reduce exposure percent in this catagory until your physical home value falls below the recommended percent threshold. In that event, keep doing what you are doing, or use the recommended funds.

Commodities & Alternate Investments


This is where I put my metals (gld/slv) and general commodity funds. However, this is also where I place alternative investments like crypto, art, collectables, nfts etc if you are so inclined to those things.

* GLD/SLV or physical equivalents
* PDBC (has not performed well for me, recommend smaller percentage)
* PICK
* DBA
* crypto/art/colletables


Commodities? I'm like 20 years old. This is boreing and doesn't have a place in my portfolio. Gold? It just sits there, it doesn't create any income or wealth!

I understand. If you are young you can reduce this percentage. However, always keep some precious metals in your portfolio. It may trade sideways for years, but when things go bad you will be happy to have some. It preserves purchasing power, is a hedge against inflation, and is (to a degree) an uncorrelated asset class.

I recommend holding a little physical. It can change the way you think about currency vs money, can act as insurance, makes a wonderful gift, and has no counter-party risk. If a bail-in occured, like it did in Cypress, or your bank went under, you have an asset outside of the system.

If you are adventurous you can look at overwrite funds (covered call funds) to generate income on commodities which is much more exciting - I do not use them because they cap my upside, they don't follow the value of the underlying enough, and many use leverage. If you want to play, I'll allow a few (1-3)% of them in this section, but I do not recommed them. Some starting places for your research are:

* SLVO
* GLDI

I am a crypto/phsical metals/basebasll cards/collectable/art junky and I have a TON in this section!

Count that as part of this section. It can get difficult because you cannot auto invest in the same way with physical assets. It can also take extra time to keep track of inventory value, but for the long term I give the blessing to reduce exposure percent in this catagory until your physical collections fall below the recommended percentage. In that event, keep doing what you are doing, or use the recommended funds.

Advanced


What should I do with my generated income from dividends, return of capital etc?

Some people like an active approach and have it deposited in thier core account to build cash reserves. This gives them the ability to manually deploy when needed.

Some people like a more passive approach and re-invest the dividends into the vehicle that generated them.

If you are paying attention to the investments. You could easily split the difference. You would have the dividends deposited into your core account when the vehicle is above the 200 day moving average. Conversely, have the dividends reinvested in the vehicle when it's under the 200 day moving average.

What about my age?

In general as you approach retirement, you want to prioritize capital preservation over capital appreciation. Therefore you should start increasing your fixed income and cash equvilent %, while reduding the others. There are algorithms online that tell you the %, but I trust your judgement. Just don't get stuck in a market crash the year you are trying to retire.

In short, by the time you retire, you should have very little to no risk assets.

Should I rebalance?

You can. Here are two strategies on when to rebalance:

1. When any of your % change by 10% up or 10% down. This forces you to buy low and sell high.
2. Some people rebalance once a year no matter what.


I leave it to the reader to decide how they would like to handle rebalancing. If at all. Fidelity research indicates the best traders are dead people, so take that as you will.

What should I do with my 401k when I switch jobs?

Roll everything over to an IRA and keep trucking.

Why are you promoting this strategy?

Because many people ask me about investing and I would like them to have a way to start as easily as possible. People need to save and invest in order to retire, but can become confused with all the strategies. This strategy is set and forget for the most part, but it could also be used as a jumping off point for when someoneone wants to be more active in the future.

If you compare DCA to other strategies that are not so passive in the long term, yes, some of those strategies can work - try them yourself via backtesting if you are interested in them. However, DCA will outperform over the long term with the least amount of effort. Some quick notes to consume:

DCA vs Buy the dip: https://youtu.be/zA44IGc5fLM

Should I borrow against my investments for reasons?

No. Never. Ever.

Can I break the rules? When?

My music teacher used to say "Mozart can break the rules, you can't." That is to say this is meant for long term where you can just set it up and never look at it again.

That being said. I have broken the rules on occasion. When I feel like I have a good chunk in my 401k/IRA I will focus more on a ROTH, or paying off a mortgage. I don't recommend this until you are over 40 and have been doing this for a while so you have an understanding of the pro's and cons. Remember, if you have matching 100% up to 6% of your paycheck - you automatically have doubled your money - this can be very powerful and should only be modified in very specific circumstances.









Steal this and modify!
The Simplest Portfolio In exsistance. Only 4 funds.