Advice on Portfolio

[firehawkocean]

Hello everyone,

I have yet another question for all of you wonderful people.

I am 27yrs, wife is 26yrs, first child is 2.5yrs and newborn baby. I was wondering what you thought of my portfolio as of now. What could I change to fit my needs? I have $367,000 in liquid cash at savings accounts. I want to continually grow my wealth and gain more than inflation rises. I don't need to take money out of my investments for a long time. I am also not jumpy about the market, I watch it constantly, but don't get scared easily. House paid and I have zero debt. I feel like I should buy a rental home to beat off inflation eating away at my money.

Vanguard Value Index Fund Investor Shares 403.025 $18.67 –$0.81 $7,524.48
Vanguard 500 Index Fund Investor Shares 96.842 $105.36 –$4.91 $10,203.27
Vanguard European Stock Index Fund Investor Shares 308.233 $23.57 –$1.36 $7,265.05
Vanguard Total Stock Market Index Fund Investor Shares 918.800 $28.49 –$1.41 $26,176.61
Vanguard Total International Stock Index Fund Investor Shares 541.747 $14.03 –$0.67 $7,600.71
Vanguard Target Retirement 2050 Fund 129.646 $19.70 –$0.86 $2,554.03

AND a college fund:

Vanguard Conservative Age-Based Option: Vanguard Moderate Growth Portfolio
173.6111 $16.19 –$0.36 $2,810.76

[mcfroggin]

Why so much money in savings accounts, when you have so little in stocks? I'd put off on the rental home unless you have a great opportunity.

[photo]

One thing that stands out is that you bought investor shares at Vanguard when, for only a little bit more money, you could have purchased admiral shares, which have a lower expense ratio.

Vanguard Value Index Fund Investor Shares: you own ~$7500. Your investor shares have a .26% expense ratio, but for $2500 more, which you can easily afford, the admiral shares expense ratio is .12%.

Same with your other shares -- especially your funds with over $10,000 (which is the minimum for admiral shares). Why pay the higher expense ratio?

[jpg7n16]

Your stock portfolio is about 75% domestic / 25% foreign - which is a good mix given what you've said about your age, risk tolerance, and goal to beat inflation.

HOWEVER

Your OVERALL portfolio is about 85% cash / 11% domestic / 4% foreign - which is way out of whack for your goal to beat inflation.

The main risk of cash is purchasing power risk (aka inflation risk). Cash earns nothing, inflation makes prices go up, you can't purchase as much as you used to be able to, therefore you lost purchasing power on your cash. So you've gotta do something about your cash allocation.

If you'd like to create a portfolio of investments based on your goals, you can use this calculator here: Asset Allocator - I did a quick test, putting in how I interpret what you told us, and it said your cash allocation should be around 5% (actual - 85%)

Or if you're looking to evaluate the rental property idea, here are some things to consider:
What interests you about rental property ownership?
What is your experience with running rental properties?
How do you feel about managaing tenants?
Would you hire a management company? How would that affect the profitability of the property?
Would you do the repairs yourself, or hire a contractor? How would that affect the profitability of the property?
How will the rental income affect your tax situation?
Have you spoken with a planner about how the property would fit into your overall picture?
What type of liability protection would you need for the home? What would that cost?
Do you know anyone who has been successful at running properties to show you how it's done?

[ez1]

jpg made some incredibly salient points, and I just wanted to reiterate the most important point. If you want to stay ahead of inflation, cash is the LAST place you want your money. Some people use gold as a hedge against inflation. And other evidence suggests that stocks are the best performing asset compared to inflation.

Decide on an asset allocation plan (jpeg's post had a link to one - I like using Bankrate.com's tool) and then invest as much of your money into that plan as possible, leaving yourself several months of emergency funds. And if you're concerned about spending hundreds of thousands of dollars at once to buy into the stock market, you can dollar-cost-average your way in. That is, purchase something like 20% of your ultimate desired amount each week or each month until you get there, thereby ensuring you don't happen to buy it all on the worst possible day.

[firehawkocean]

Wow everyone, thank you for all the great advice. I think I am going to make an appointment with a fee-only financial adviser.

On a separate point, I get the money as a stipend. I am taxed on California income tax. However, if I were to live in a state that does not charge income tax, I would not pay state income tax. What do you guys think? I know that texas does not charge income tax. I would save 1700 a month in CA income tax!

[alphadore]

I really like the suggestion from jpg7n16, although it is a weird username I am just kidding. I guess you can create a portfolio with a capital guarantee (you will still lose if there is high inflation though).

I think Abu Dhabi gov. backed Mubadala zero coupon T-bond has 5.8 yield. Check it out. You may find it useful for your investment. You can basically invest around 85 percent of your capital into government bonds and play around with rest in riskier but more rewarding vehicles like stock markets. In fact, you can purchase a put option for a stock you feel that will appreciate in future.

[jpg7n16]

I really like the suggestion from jpg7n16, although it is a weird username

It's a combination of my initials: JPG

and my two favorite numbers: 7 & 16

well, that and I'm a weird person

[firehawkocean]

It's a combination of my initials: JPG

and my two favorite numbers: 7 & 16

well, that and I'm a weird person

I met with 2 garret advisers last week. I am having a hard time deciding on one. The one I felt the most comfortable with wants to charge me $2,000 for a financial plan that includes insurance check-up, investing check up, estate planning suggestions (not the actual documents). Is this realistic. It seems high. I have zero debt and 340,000 in cash to invest.

[photo]

How much is your time worth? Just checking out a few books at the library and arming yourself with the information to make decisions with your money is something to seriously consider. (And again, if you are going to buy any more Vanguard funds, you get a better expense ratio buying admiral shares than investor shares; minimum is $10,000)

[jpg7n16]

How much is your time worth? Just checking out a few books at the library and arming yourself with the information to make decisions with your money is something to seriously consider. (And again, if you are going to buy any more Vanguard funds, you get a better expense ratio buying admiral shares than investor shares; minimum is $10,000)

Sometimes I feel that financial advice is minimalized as though anyone can pick up 'finance for dummies' and succeed instantly.

Saying, "just go read some investing books" is like saying, "how much is your time worth? Just go to the local university library and pick up some medical books. You don't need a doctor for that." Or, "How much is your time worth? Just go pick up some books on plumbing and do it yourself."

Doing any of the 3 could either work, or could be diasterous.


A common problem with financial education isn't necessarily that the things they learned were wrong, it's the things they never learned. For instance, just because you read up on asset allocation, doesn't mean that you'll understand the importance of life insurance.

If you take the time and calculate just how much it costs to be licensed and trained to discuss investments, insurance, estate issues, tax implications of investment choices, etc. - maybe that $2k won't seem so bad.