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Here's my actual investment portfolio. Lots of people will tell you what you should own without telling you what they own. I try to demonstrate how I think military servicemembers should invest by showing you my actual asset allocation.
My goal is to achieve financial independence by age 40. Therefore, I'm investing with the intention of having enough money to live on without running out before I die.
These are the exact mutual funds that I own in my and my wife's Roth IRA, military Thrift Savings Plan (TSP), taxable brokerage account, and Solo 401k. Cash makes up a small percentage of my total net worth and is in checking accounts with USAA.
My 2022 Asset Allocation
It's a pretty simple portfolio: 70% US stocks, 25% international stocks, 5% bonds. All in Vanguard or the TSP.
It's very similar to my 2014, 2016, and 2018 asset allocations. I have added 5% to my international stocks in the last 2 years and taken away from 5%. Good discussion on international vs US investing on the Go Curry Cracker blog.
Domestic (US Stocks) Funds in my Portfolio
Vanguard Total Stock Market Fund – available as VTSAX (I own this fund) and an ETF (VTI). VTSAX contains every publicly tradeable company in the US.
TSP C Fund – this fund is made up of the largest 500 firms in America. You might have heard of the S&P 500. Same thing, different name. The ETF SPY also tracks the S&P 500, just like the TSP C Fund.
TSP S Fund – TSP small cap fund. Small cap means “small market capitalization,” which is a fancy way of saying “the rest of stocks on the US stock market not in the C fund.” As of Dec 31, 2019, the S fund invested in the shares of over 3000 U.S. small and medium sized companies.
The Dow Jones U.S. Completion Total Stock Market Index is an index of all actively traded U.S. common stocks that are not included in the S&P 500. The index is designed to be the broadest measure of the non-S&P 500 domestic stock markets.TSP Information Sheet on the S Fund
As of December 31, 2019, the index was comprised of 3,266 common stocks. The Dow Jones U.S. Completion TSM Index made up approximately 16% of the market value of the U.S. stock markets; the S&P 500 accounted for the other 84%. Thus, the combined S Fund and C Fund cover virtually the entire U.S. stock markets.
How to Simulate VTSAX (VTI) in TSP
To create a total stock market fund in the TSP, like VTSAX, you need to hold a market cap weighted ratio of 5 percent C fund to 1 per cent S fund. The 500 stocks of the C fund has a market capitalization of about 5x that of the 2500+ stocks of the S fund.
So if you want your entire TSP to be one big VTSAX, about 80% C fund and 20% S fund is the way to go. If you want to add some bonds in there, like G or F fund, for every 1% you decrease the S fund decrease the C Fund by 5%.
So if you hold 10% bonds in your TSP and want to simulate VTSAX with the other 90%, buy 75% C fund and 15% S fund. 75 + 15 + 10 = 100%
International (Everywhere Else Except US) Funds in my Portfolio
Vanguard Total International Stock Market Fund – VTIAX is the mutual fund, VXUS is the ETF. I hold all of my shares in VTIAX.
Because the TSP “i fund” doesn't hold as many countries as VTIAX does, I choose to hold all of my international shares with Vanguard.
Bond Funds in My Portfolio
I hold my 5% bonds in TSP G fund and F fund. The G fund specially issued Treasury bonds that never decrease in value. The F fund is a broad US bond market fund, similar to the Vanguard Total Bond Market Fund available as a Admiral mutual fund VBMFX or ETF BND.
Tracking Asset Allocation
|Asset Class||Fund I Use||Target Allocation||Actual Allocation|
|US Stocks||VTSAX, C, S||70||70|
|Bonds||F and G||5||3|
Currently my asset allocation is a little off. I am 2% overweight in international stocks and 2% underweight in bonds. I will probably just increase my bond purchases inside my TSP for the next year until the percentages are back where I want them.
I use 2 tools to track my asset allocation across all of my investment accounts. Personal Capital (see my Personal Capital review) and a custom Google spreadsheet that I made. Download the TSP and Vanguard asset allocation spreadsheet.
Here's what my asset allocation looks like in Personal Capital at the moment. Personal Capital is great for a quick snapshot off all your investment accounts on one site.
I've used PC for years now and plan to keep using the free version for many more years. I do not recommend their investment services as they are much too expensive.
Why I Invest Like This
Here are a couple of quotes from Jack Bogle, founder of Vanguard, which summarizes my investment strategy.
- “The winning strategy is to own all of the nation's publicly held businesses at very low cost.” Action: buy index funds
- “Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains.” Action: buy index funds
- “Over the long term, the miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” Action: keep costs low
- “The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.” Action: buy and hold forever
How Often I Rebalance My Portfolio
Typically I rebalance annually sometime in May of the year. Usually though, since I am adding funds throughout the year, I will simply contribute more funds to my underweight assets and not sell any of my assets to rebalance.
I don't worry too much about re-balancing. Like many things in investing, it makes a lot less difference than you think it would. Vanguard Personal Advisory service only rebalances if your portfolio drifts more than 5% from your targets, as summarized by My Money Blog.
As long as you portfolio doesn't drift by more than 10%, you are probably fine to just rebalance every 5 years. It seems extreme, but from 1926-2018 but the return the from rebalancing every month (1116 times) was exactly the same as only rebalancing when your portfolio was off by 10% or more. 8.2% for both rebalancing 1000+ times vs just 14 times.
Back Testing My Asset Allocation
You can back test your asset allocation with Portfolio Visualizer, a great free site that shows you how your asset allocation would perform historically.
Here's what $10,000, invested in Jan 1987 (the furthest you can go back with international stock market data on Portfolio Visualizer) would grow to today if you added $10,000 every year until Feb 2020.
|Initial Balance||Final Balance||CAGR||Best Year||Worst Year||Max. Drawdown|
For reference, $10,000 in 1987 is about $22,700 in 2020 dollars.
Notice that over the 33 years of putting in $10,000 annually, you only contributed $330,000, and yet your final portfolio value is $2.3 million. Compounding interest is amazing!
Rich, Dead, or Broke
Check out this calculator from Engaging Data: Rich Dead or Broke. Let's say I retire at age 40 with 25x my annual expenses invested in 80%, 18% bonds, and 2% cash.
20 years later, at age 60, I would have an 11% of being dead and a 30% of having twice as much money (inflation adjusted!) as I did at age 40!
I think this topic is fascinating as most people are obsessed with preserving their retirement savings but they neglect their health, fitness, relationships, and experiences while they are young. Simply by applying the 4% rule, you are probably going to be fine.
In fact, at age 82, when your portfolio has the greatest probability for failure, you have a 6.3% chance of being broke and a 57% chance of being dead. Those are not odds I would take at the casino. Death eventually truly does come for us all.
In this example we are simply applying the 4% rule (25x your expenses invested when you retire, spend 4% of the value, inflation adjusted, until you die). The 4% rule is extremely safe and you have a much better chance of dying than running out of money.
With Social Security as well, you are not going to be eating cat food during your retirement if you retire early at age 40 with 25x your expenses. Adding just 10% flexibility into your plan (so spending $108,000 in a few years vs $120,000) moves your chance of success (i.e., not going broke before you die) from 82% to 95%.
Naval Ravikant, an American investor and entrepreneur, likes to say all good things in life come from compounding interest: wealth, health, fitness, relationships, business, and learning.
Consistent, little investments in each of these things, daily, weekly, monthly, turns into enormous returns over many years.
Spending 15 minutes with your partner in the morning, drinking coffee together, leads to a life of deep emotional connection.
A habit of riding your bike 60 minute 3 times a week may lead to better cardiovascular fitness and let's you live a health and active life until 85.
Drinking a 3-4 liters of water a day keeps you hydrated and prevents headaches, which makes you more productive and perform better in athletic activities.
Here's another quote from Arete Hoops on compounding interest.
Compound interest is one of the most powerful forces in the universe. In finance, in your habits, and throughout life in general, this idea has transformative power like nothing else.Arete Hoops
I'm going to republish the quote from Arete Hoops in it's entirety here:
Think about a simple investment equation: if you take an initial sum of $40,000 and invest it at an average rate of 10% over the course of 40 years, you will become a millionaire. But here’s the kicker: when you look at the composition of your new 1 million dollars you will find something interesting. You would have $40,000 of your initial investment, $136,000 of simple interest on the principle, and a whopping $869,000 of compound interest.
The large majority of your money’s growth can be attributed to the miracle of compounding interest (i.e. the interest that was earned on your interest). In other words, when you invest in the right things, you will experience exponential growth; and so it is with life.
All of the biggest benefits in life come from compounding interest: relationships, habits, money, success, and growth are the result of making small investments in the right things and watching those investments grow over time. For example, when you invest in relationships through a genuine care for someone else, that relationship will benefit you in more ways than one. The interconnected web of good deeds will conspire to multiply your investment exponentially . There is a compounding effect in the nature of making small investments in the right things that brings exponential growth over the course of time. The theory of compounding interest is based on the reality that your investments will grow on top of your investments.
My Personal Investing Principles
I believe everyone should write down their Personal investing principles. It doesn't have to be long or complicated, but just the act of writing it down will force you to organize your thoughts.
Personal investing principles can be part of your personal investing policy statement. An investing policy statement is just a fancy way of saying a written down plan for how you will invest. It can help when things aren't going your way, like during a huge market crash from the COVID-19 pandemic.
My principles are simple, low cost, diversified, automatic. I want my money to work for me without any input from me, not cost me much, and automatically invest in the entire world economy.
Getting Started Investing While in the Military
I started investing in stocks when I was in high school, around 2005. I had to get my parents to jointly open an account at a discount online brokerage that charged about $7 per trade. Nowadays you can start investing with no trading costs on Schwab, Fidelity, and Vanguard.
My first few stocks were a bust but I learned a lot. I quickly learned that individual stocks were far too risky and index funds, whether through ETFs or mutual funds, were the way to invest.
I quickly learned about asset allocation, diversifying my investments, and the advantages of retirement savings accounts, like the Roth IRA. Attempting to day trade, trade options, and beat the market when I was young helped me realize I can't beat the market, I can't time the market, and I can't pick stocks.
When I was in college, I read the Personal Finance reddit, Get Rich Slowly, and other personal finance blogs.
I discovered Financial Independence and Retiring Early from Mr. Money Mustache after graduating my military training course in 2012. I learned about life style design from Tim Ferriss. The most important habit I established early in life was an insatiable drive to read and learn more. If you can do that, you can achieve almost anything.
Here are some other asset allocation ideas from My Money Blog, Bogleheads Investment Policy, Bogleheads' 3 fund portfolio, JL Collins, Bogleheads' lazy portfolios, 150 portfolios better than yours, White Coat Investor's simplifying from 28 funds to 3. And here are my 2014, 2016, and 2018 asset allocations.
How are you investing? What's your portfolio look like? Let us know in the comments!