(Note: the featured pie chart is the asset allocation of the Yale University Endowment Fund, managed by David Swenson) I’ve recently been writing about asset allocations based on risk tolerance. Today I decided to divulge my own personal asset allocation. As a disclaimer, this is based on my own personal risk tolerance as well as my investment preferences. This is not advice nor intended for anyone to “piggy-back” my investments and/or allocations. My asset allocation is based on several factors: my risk-aversion (hence the high % invested in “alternatives” such as real estate and hedge funds), the proximity to my planned retirement from the workforce in a few years (by 2023, God willing), and my psychological need for liquidity.
- Real Estate Crowdfunding 32%
- Cash 28%
- Residential Mortgage Bonds 7%
- Domestic Equities 5%
- International Equities 5%
- Municipal Bonds 3%
- Hedge Funds 20%
* Misc (I hold physical bullion equal to approx. 2% of my investable assets)
- Cash 18%
- Alternative Mutual Funds 27%
- Unconstrained Bonds 14%
- International Equities 12%
- Commodity Fund 10%
- Residential Mortgage Bonds 10%
- Domestic Equities 9%
As the reader will notice immediately, my holdings are very diverse. My goal is to hold as many non-correlated assets as possible, somewhat impervious to the whims of the stock market. My taxable account has a generous cash flow from the Crowdstreet Real Estate holdings, as well as the bonds and cash. My savings account is with Pure Point , the nation’s highest yielding savings currently at 1.60% APR (I am not an affiliate and receive no remuneration from this link). I’ve held a higher equity allocation in the recent past but sold down these holdings in early December 2017. The residential bonds have not sold off during the recent sell-off in treasuries. This holding is very stable and currently pays an average 3.49% with a duration of less than 2 years. The unconstrained bond funds are managed by Doubleline and Guggenheim and currently have a negative duration, meaning they are hedged from interest rate risks.
For my readers who are Wall Street Bulls, up until December of 2017 I have held equities in the form of ETF’s (SPY, MDY, PFF), select individual stocks (such as MSFT and UTX) and equity mutual funds (HDPMX & YACKX) for several years. This year I’ll pay a hefty capital gains tax bill. For the time being, I won’t benefit from any upside in the stock market. Inversely, I won’t lose sleep at night when the eventual bear market arrives as I’ll be safely invested in cash and in a low beta portfolio, with very little exposure to any potential Black Swan events.
You see, this blog is a FIRE blog, for those interested in financial independence and retiring early. If one has a goal of retiring in five years is it prudent to be heavily invested in equities now, especially at these lofty valuations? If one’s portfolio loses 30% in value, he/she doesn’t have time on their side to recoup those losses. This is not to say I won’t be reinvesting this cash later on. My plans are to redeploy the dry powder back into equities at far lower prices. I truly believe in selling at high prices and rebuying at much lower prices. Occasionally the markets offer investors stocks at a discount., it’s always wise to hold ample cash for these occasions.
Enough about asset allocations. My next blog posting will be a on the subject of DEBT and how to rapidly reduce it.