It has been almost 2 years since I last updated and wrote about my asset allocation. I’ve done a surprisingly terrible job monitoring changes and rebalancing my assets over the years. I’m not sure why that is exactly, but it’s certainly something I’ll be changing now that I’ve reached my financial independence goal and am no longer working full time. I’ve got plenty of time and no excuses now! I remember sitting down in 2015 before I ever even graduated and started earning a real paycheck and sketching out what I wanted my asset allocation to be. Since then, I’ve utilized that plan exactly zero times. I’ve basically been investing new money based on what feels right at the time, which is an awful approach and something I do not recommend! This is out of character for me since I’m usually very analytical and mathematical about things, but for some reason asset allocation and rebalancing seem to be my weakness.
The last time I wrote about my asset allocation, I was planning to buy a rental property in the near future. That never worked out. This is partly because I haven’t found a deal that made sense in the locations I’m comfortable investing in, and also because with our globetrotting lifestyle, I’m nervous to be so far away from a potential rental property. Real estate investing is certainly something I plan to get into at some point but it will most likely be once we are a little more settled in one place and aren’t spending months at a time outside of the US. Despite not needing a down payment on a rental property for the foreseeable future, my down payment fund/cash cushion/emergency fund has continued to grow. I’ve found that now that I don’t have consistent income coming in, it makes me feel more secure having funds easily accessible, but the amount I have on hand is certainly getting out of hand. Right now I have about three years worth of expenses in cash! With the crazy increases in equity values this year, I would have been much better off with that money invested, but, alas, you can’t predict the future, so here we are. Lesson learned. I’ll be gradually putting some of my cash cushion into investment accounts over the next couple of months but still plan to have at least two years of expenses in cash, you know… just in case 🙂
Bring on the Numbers!
Since I’m not comfortable sharing actual dollar values with the whole world (who needs to know everything about my financial situation anyway?), I’ll base everything on percentages. Here is a broad overview by percentage of my net assets.
- 74% in index funds
- 15% in cash
- 11% in personal loans
Looking back at my prior percentages, I’m actually pretty happy with how things have changed. Even though my cash balance is higher now than it was then, it is a much smaller proportion of my total assets due to how much additional I’ve invested as well as the growth on those investments over the past two years. The personal loans are gradually being paid back to me, so that percentage is decreasing as well. The percentage of assets allocated to index funds has increased significantly and is closer to where it should have been from the beginning.
Taxable vs. Retirement Funds
Now of the 74% in index funds, let’s look at the breakdown between Traditional Accounts (Traditional IRA and 401k), Roth Accounts, and after-tax brokerage accounts.
- 60% in traditional accounts (40% of total net assets)
- 7% in Roth accounts (6% of net assets)
- 33% in after tax brokerage accounts (28% of total net assets)
The assets in the index funds are split between several different asset classes, so let’s break those down as well.
- Traditional 401k and IRA
- 31% Large Cap (8.8% of total net assets)
- 32% Mid Cap (9% of total net assets)
- 33% Small Cap (9.1% of total net assets)
- 4% Emerging Markets (1.2% of total net assets)
- Roth IRA
- 50% Emerging Markets (2.9% of total net worth)
- 50% Real Estate Investment Trusts (2.9% of total net worth)
- Brokerage accounts
- 37% Large Cap (14.9% of total net assets)
- 7% Small Cap (2.7% of total net assets)
- 29% International (11.8% of total net assets)
- 16% Emerging Markets (6.5% of total net assets)
- 8% Short Term Bonds (3.1% of total net assets)
- 4% Crowd Funded Real Estate (1.5% of total net assets)
An even lower percentage of my total assets are in retirement accounts now than at the last update, currently at 34%. When I initially started investing so heavily in my retirement accounts, I was a little worried about having that money locked up and having to use a Roth conversion ladder to access it, but that looks like it’s not going to be much of a concern. With almost 2/3rds of my assets in either taxable brokerage accounts, cash, or personal loans, I’ll have plenty of money to fund my early retirement without having to tap into those retirement accounts. I may still utilize a Roth conversion ladder in the future though depending on how income from this website and Travel Therapy Mentor change over time, as well as how much I choose to work as a physical therapist each year. So far, I’ve only worked 10 weeks in the last year and a half though, so I probably won’t be bringing in much income from traditional employment in the future, but who knows maybe I’ll change my mind at some point. Also of that 34% in retirement accounts, 13% of those investments are Roth contributions that can be withdrawn at any time if needed. That’s not a huge amount, but in a worse case scenario I could withdraw those funds early if needed.
Actual Investment Allocation
Now let’s break things down one more time into percentages of which asset classes I actually have money invested. This will probably be the most useful for me in determining where to allocate upcoming and future investments.
- 27.6% Domestic Large Cap (23.5% of total net assets)
- 10.5% Domestic Mid Cap (9.0% of total net assets)
- 13.8% Domestic Small Cap (11.8% of total net assets)
- 1.3% Precious Metals (1.2% of total net assets)
- 3.6% Short Term Bonds (3.1% of total net assets)
- 13.8% International Equities (11.8% of total net assets)
- 11.0% Emerging Market Equities (9.4% of total net assets)
- 5.1% Real Estate- REITs and Crowded Funded (4.4% of total net assets)
- 13.1% Personal Loans (11.2% of total net assets)
- 100% High Yield Savings (14.6% of total net assets)
This asset allocation is probably more complicated than it needs to be, and I should really simplify things in the coming months. Some of this complication is due to me having not rolled over my 401k into a traditional IRA yet, which leaves me with limited fund options for that portion of my portfolio. Once I roll that money over, I’ll be able to make some changes to the funds that I’m invested in. I’m not crazy about the prospects of bonds right now, which is why my allocation there is so low. I’d rather have extra cash in my high yield savings account than to put more money in bonds. As you can see, I clearly have too much money in my cash accounts and it’s growing each month, but with my uncertainty in bonds and my limited allocation there, the high yield savings accounts will help my portfolio significantly in the event of a bear market.
What’s your current asset allocation look like? Are you staying on track with your target allocations? Leave a comment below and let me know or send me a message!