Asking to Assess My Asset Assumptions

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A few days ago I had a conversation with a fellow finance nerd-friend about asset allocation. She asked how I make my investment decisions — I pointed her to my reading list and explained my general approach that I’ve explained here. Following that conversation, I realized I am overdue for a checkup — while I have my 401(k) set to rebalance automatically, that’s not true for my brokerage account or Roth IRA. I don’t believe in following my investment performance on a regular basis, but occasional check-ins are important to make sure we’re still on track. And not lying to our friends. It was keeping me up at night (not really), so I decided this would be a good time to see if I what I said I was doing was really in fact what I was actually doing.  

What I said before:

Across accounts, I have about 80% in equity (stock) index funds, 10% in bond index funds, 5% in a Real Estate Investment Trust (REIT) index fund, and 5% in individual stocks that I treat as money I’m planning to lose but in the meantime am having fun using to bet on companies I think are doing cool things. Within that 80% of stocks, it’s about 80% U.S. equities (S&P 500 index or a total stock market index) and 20% international equities (also through index funds).

Since determining that target allocation last year, I’ve been investing regularly (thanks, robots!) in my brokerage account and I knew the results would be skewed a bit. So, I tallied up all of my investments across my three accounts, listed the total amount of each, and then assigned each investment a general category of stocks, bonds, and my Real Estate Investment Trust (REIT) index fund.

Here’s what I actually have:

  • Stock          88%
    • Total Stock Market Index (49.8%)
    • S&P 500 Index (12.66%)
    • International Stock Index (13.27%)
    • Small Cap Index (6.45%)
    • Dividend Index (3.16%)
    • Individual stocks (2.66%)
  • Bonds        9.4%
  • REIT           2.6%

Is this the “right” allocation? Absolutely not. (There’s no such thing!) Is it one I’m happy with? Absolutely yes. By some measures it’s too heavy on the stock side, but I feel OK about that — I’ve got plenty of time for my money to grow (and to ride any wild market swings) and my “true emergency” fund is more heavily weighted towards cash and bonds. This summary also does not include the equity in my house, which would swing the numbers towards real estate … for now, as long as I live here, I’m not including it in my calculations. I feel OK about that too, so long as I have a roof, four walls, and a cozy bed to oversleep in.

© 2015, Cheddar Pie. All rights reserved.

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