Lazy Man and Money

What’s in My Lazy Portfolio?

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Usually a “lazy portfolio” refers to investing in two or three well-diversified index funds. You can be very diversified if you invested in VTI (Vanguard Total Market), VEU (Vanguard Ex-US), and BND (Vanguard Total Bond Market). You could divide it up 30-30-40 and never touch it again (though you should continue to try to add new money to the investment). Historically, that’s been a very safe and profitable strategy.

However, since I’m Lazy Man, my “Lazy Portfolio” is a little different. It’s actually not so lazy at all. I enjoying picking satellite stocks. So while I may recommend people go with the traditional lazy portfolio because it’s easy, I don’t take my own advice.

I think it’s always interesting when a personal finance writer says one thing, and then does something different. In my case, I do something different for three reasons:

1. I’m doing well with my satellite stocks. Here’s what my actively managed portfolio performance looks like:

Personal Capital - Portfolio Performance

2. I don’t have many hobbies, but one of them is following the markets and seeing if I can make a percentage extra or two.

3. I have significant protection with my core holdings. I’m only managing retirement money, so I don’t have to worry about tax consequences. My wife has more retirement money in her government TSP which has a lazy portfolio allocation. She has a government pension providing long-term income security. We have investment properties that can provide us with income in the future. The satellite stocks in general make up a small amount of our overall portfolio.

Today, I thought I’d pull back the curtain and explain what my investments are and how they got that way. I think you’ll find that it is far from a perfect portfolio.

What’s in My Lazy Portfolio?

lazy portfolio

This mess of stocks and ETF doesn’t make much sense at the first glance. I have a lot of explaining to do. So here goes:

Vanguard Emerging Markets ETF (VWO)

The only reason why I have more in emerging markets than VEU (see below) is that it has performed worse and I feel there’s more opportunity for growth in those markets in the long-term. This is a long-term position, so I’m not too worried about COVID hitting those countries hard, right now.

Vanguard FTSE All World ex US ETF (VEU)

This holding makes up another large chunk of my international stock holdings. These first two holdings are 24% of my portfolio. With some of the stocks below, my international holdings are around 30% overall.

Vanguard Total Bond Market ETF (BND)

Whenever market indicators point towards a stock market crash, I increase the amount of money I have in bonds. I usually keep less than 5% of my portfolio in this, because I’ve got time and other safety nets. However, I’ve been selling off the indexes as they reach new highs and adding more bonds.

I did this strategy in early 2020 and when the markets crashed with COVID, I was able to sell bonds (which didn’t drop as much) and buy stocks at nearly half the price they are today. I know that I can’t call the bottom, so every time the stock market dropped about 10%, I would sell another 2% of bonds and buy-in.

Twitter (TWTR)

I invested in Twitter a long time ago, with most of the shares around $15. I sold some at $40, $45, $50, $60, and $75. Even though I keep selling shares, the overall value has grown, so it’s still a large percentage of my portfolio. Perhaps I should have sold off more, but I think it’s still undervalued.

iShares Core High Dividend ETF (HDV)

This forms part of my core United States index holdings. I like high dividend ETFs for three reasons:

1. They produce solid income. HDV has about a 3% yield right now.
2. They are typically more boring companies that earn good cash and profits which I feel protects me in most market crashes.
3. They help me remove tech risk from my portfolio. As you’ll see with this list of stocks, I’ve got a lot of technology and the market indexes have plenty of tech at the top as well.

Invesco Solar ETF (TAN)

I bought this years ago when I got solar panels on my house. The last year has seen solar stocks skyrocket. I could have sold some off and redistributed the money across broader indexes, but I don’t mind holding solar stocks for another 20, 30, or 40 years (if I’m still around that long).

Vanguard Small-Cap Index Fund ETF (VB)

Most of the big indexes (VTI, I’m looking at you) strongly favor big companies. However, over the long haul, smaller companies tend to perform better. This is a way to give me a little more diversity and better performance than if I had just bought VTI alone. My overall US stocks are still mostly large-cap, so an argument could be made that I should increase this allocation.

Alphabet Class C (GOOG) and Alphabet Class A (GOOGL)

I bought Google a long time ago and it split into two voter classes. These never differ by much and it’s about 9.5% of my portfolio which would bump it up the list towards the top.

I decided not to touch it and it has performed well. Investing in Google is almost like investing in the entire internet and smartphone markets. It almost feels like its own index fund.

Vanguard Total Stock Market Index Fund ETF (VTI)

Finally, the staple of most lazy portfolios shows up. I used to have a lot more in this, but I sold a lot and put in HDV (see above). If you were to combine my VTI, HDV, and VB holdings, that’s 17% of my portfolio in US indexes.

Snap Inc (SNAP)

I bought at lot SNAP at under $10. Much like Twitter, even though sold off more than half, it is still a significant holding. Whenever SNAP and Twitter reach new highs, I sell off about 5% or 10%. At this point, I’m playing with the house’s money.

United States Oil Fund LP (USO)

I had been buying this oil ETF for far too long. I lost a ton of money when COVID hit and the price of oil went negative. However, I continued to dollar cost average into it. About a month ago, I sold off half since it I was finally solidly in the profitable area. I am holding to the rest with the idea that vaccines will spur a lot of pent-up demand for travel.

Over the long-term, I’d rather not invest in the oil industry.

Apple Inc (AAPL)

I bought some of these several years ago and sold off enough to just play with the house’s money. It’s split once or twice as the company became the first in the US to hit 1T and 2T in market cap.

There’s really no need for me to keep this since it’s well represented in the indexes. It feels like a safe holding though.

IBM (IBM)

I bought this because I thought that Watson would revolutionize the world. It didn’t happen, but IBM has paid out 5% dividends (or more) for years that I’ve held it. In theory, if I put my entirely portfolio in this stock, I could live off the dividends as it would be higher than the 4% rule

General Electric (GE)

I bought this years ago because I thought it was cheap after it had followed it a lot. Then it fell more and more. I bought more and more, dollar cost averaging in, and I’m up about 30% at this point. I have sold some since I’m up. I would sell more, but the pandemic hit their businesses harder than many companies. I’m hopeful that when things fully open up, this stock will out-perform.

Vanguard Real Estate Index Fund ETF (VNQ)

I like to diversify with some real estate holdings. This pays a decent dividend of 3.88% as well.

iShares MSCI Frontier and Select EM ETF (FM)

Yes, 1.5% of my money is in frontier markets. These are countries like Kuwait, Vietnam, Morocco, Kenya, Romania, and Nigeria.

It has not performed well. I’m down about 5.71%. This is a very, very long-term growth investment. It also diversifies my holdings so that I’m invested in probably 100 countries.

Alibaba (BABA)

There was one day (around 2015 or so) when the stock market dropped a bunch for just about 10 minutes. I had a little liquid money and saw that Alibaba dropped more than most. I don’t mind having 1% of my money in “the Amazon of China.”

Lyft Inc (LYFT)

When Lyft dropped to being worth about $8 billion dollars I thought that Google (or another company work on self-driving technology) might acquire it. That didn’t happen, but Lyft’s stock has jumped a lot. I’m not sure how ride-sharing will be profitable as it is now, so I’ve been selling off shares to protect myself if it should drop to $0.

Altria Group (MO)

I was in a forum a couple of months ago and nearly everyone said this was the best dividend investment paying around 8.5%. They had some good news in the last earnings and I’m up 25%. It’s better to be lucky than good sometimes I guess.

I’m very morally conflicted about investing in cigarettes and will probably sell this off soon.

Pinterest Inc (PINS)

This was another case of being lucky. I saw it get down to about $18 a share and thought that it was much less than the IPO, so let’s invest a little. It has been up nearly 500%, so I sold off some to play with the house’s money. (If you hadn’t noticed, this is something I do a lot.)

Kraft Heinz Co (KHC)

Warren Buffett gave up on the company, so I jumped in at a share price lower than him. It has a dividend yield of 4% and my cost basis is about $22 a share (it’s trading at $39). I have been happy with the returns for a couple of years.

Ford Motor Company (F)

I bought Ford because it was paying a 12% dividend due to the COVID-19 impact on its stock price. Ford needed to keep the money to run operations and decided to eliminate the dividend. What could have been a disaster has turned into a blessing, the stock is up 80% from where I bought it.

AT&T Inc. (T)

I bought this about a year ago for its 7.5% dividend yield. I felt like people would still need their cell phones and cable service in a pandemic. It also looks like HBO Max is a good streaming service. The stock itself is up 7%, so with the yield, it is looking good.

Under Armour Inc Class C (UA)

I bought a few shares at around $6.50 when it was looking like a disaster. It’s around $19 now. I sold a little to play with the house’s money once again. It used to be a $20 billion-dollar company, so maybe there’s still room for it to grow.

Carnival Corp (CCL), Norwegian Cruise Line Holdings Ltd (NCLH), Royal Caribbean Cruises Ltd (RCL)

I bought a little of each of the three major cruise lines when they tank due to COVID. At the time it was less than half of a percent of my portfolio. I just wasn’t sure the entire industry would go away forever. Now they are a little over 1% of my portfolio. I’ve been selling some of them off at highs and it’s close to playing with the house’s money.

Boeing Co (BA)

Similar to the cruise lines, I bought in at $109 as it was a bargain from its $300+ highs. I was counting on COVID getting solved at some point and them being able to figure out their plane troubles. I sold some to play with the house’s money or this would be a bigger percentage.

Uber Technologies Inc (UBER)

Uber seems to lose billions of dollars a year. Still, I thought that at a $50 billion market cap, it had significant assets and would be acquired if nothing else. Guess what? Sold some for house’s money sake again.

Cash – Cash – Cash! (Cash)

I don’t like to keep a lot of cash around. I’ve been putting most of it into BND, so I can at least earn some income on the dividends.

Lazy Man’s Portfolio Recap

So that’s the rundown of how I invested my money. As you can tell, things got a little messy in some places and I got lucky in other places. The overall trend right now is to try to sell some of the individual holdings at highs and invest them in index funds.

I would also be willing to invest in new satellite stocks, but I haven’t found anything that’s a good value recently. Most of the companies that seem cheap to me (AT&T for example) aren’t likely to grow much. That’s another reason why I am content to keep the money invested in a place in bonds or dividend stocks while I wait to find a new opportunity.

The Three Tinas of COVID

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How many Tinas do you have in your life? I have a couple in real life, but I hadn’t had much interaction with them due to COVID-19. Instead, they’ve been replaced by three new Tinas. Two, I will briefly mention, but the third Tina is what we are all here to focus on today.

Giratina

Tina

Giratina is one of almost a thousand Pokemon. The kids love Pokemon. We recently watched a movie starting this character. It’s one of the more important Pokemon in their Pokemon Go games.

Each Pokemon has its own brief description and fittingly, Giratina’s is, “This Pokémon is said to live in a world on the reverse side of ours, where common knowledge is distorted and strange.”

Tina Rex

Sometime during COVID (no one knows the timing for sure because time ceased to exist), Cartoon Network inked a deal to show one million episodes of The Amazing World of Gumball. That last fact is probably not true, but it would seem true if you had kids who were a fan of the network as they grew out of Nickelodeon, PBS, and Disney.

Tina Rex, a Tyrannosaurus Rex, is a side character in the show. She’s the school’s bully.

You didn’t come here to read about cartoon Tinas. You (hopefully) didn’t even come here to read about bullying or living in a world where common knowledge is distorted and strange. We’ve got enough of that in 2020, right?

Maybe you’ll be more interested in my investing friend, TINA:

There Is No Alternative

While “There Is No Alternative” can be used in many different contexts, it’s often been used in the investing markets.

Loosely, it means that one has to deal with a sub-optimal asset allocation of investing because other investments aren’t very viable or unappealing. For example, putting money in a savings bank for a number of years hasn’t paid very much interest. Many 2-year Certificate of Deposit rates earn about 0.75%. That’s far less than the typical annual inflation.

Interest rates in bonds are down too. My go-to bond fund is the Vanguard ETF (BND). It’s paying a 1.16% SEC yield. I don’t completely understand the bond markets, but from what I do understand it seems like a very bad time for them as well.

You can look at alternative investments. Gold is up 27% this year. It’s close or at its all-time highs. Bitcoin is also close or at all-time highs. Real estate may be an option, but buying physical houses is competitive with all-time low mortgage rates. REITs (Real Estate Investment Trusts) may be better, but I’m worried about the long-term effect of the lockdown. It’s not an easy time to be asking people or businesses to pay their rent on time.

You could invest in commodities. However, earlier this year the value of oil went negative. It cost more to store oil than get someone to buy it from you to use it. It’s still a messy situation and will probably continue to be one until travel picks up.

That leaves stocks. The S&P 500 is hitting new highs. Markets internationally are doing well too. Everything almost seems to be at highs. There are some stocks that are still in difficult shape. For example, airlines and cruise ships are notably not doing well. However, they aren’t doing as bad as they used to be. Many have anticipated travel to ramp up around the middle of 2021 with better weather, vaccines, and leaders looking to take charge.

As I look at my portfolio, I see a true TINA situation. I have investment games of 20% this year, which has been compounding on investment games from the previous 10 years. I want to be more conservative because these markets scare me. However, it’s hard for me to go to investments with so little upside.

I look at the markets like it’s a Magic Eye poster waiting for the perfect answer to appear. The closest I’ve come are the solutions in my recent article about income investing. I’ve been steadily moving more investments more to dividend funds. For now, that’s about the best I can do to feel a little safer. Other people may find paying off their mortgages to produce a better return. A rational person would tell me to stop looking at the markets and my portfolio and do something to bring in more money. (So far efforts to bring in more money haven’t worked out very well.)

Is anyone else looking at their investments and thinking, “Where do we go from here?”

P.S. I should have mentioned this TINA I love, but it didn’t fit with the article.

Time to Rebalance the Portfolio

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It’s no secret that the US stock market has been going up for years. It’s had a couple of short dips, but the sharp upward trend since 2009 has been unmistakable.

The higher it climbs, the more I get worried. As a value investor, I like to buy stocks when they are cheap.

Cheap is a relative term, but the best indicator I’ve found is Shiller PE or CAPE number. Here’s a graph going back to 1880 from Multpl.com:

Shiller PE

Do you notice anything about what happens when the number gets high? I’ll give you a hint, look at the only two times the number passed 30. We had the stock market crashes of 1929 and 1999. It got up to around 27 before the crash in 2008.

Today the number sits at 29.87.

In the immortal words of Captain Malcolm Reynolds, “So here is us, on the raggedy edge.”

Now the number could go up to 45 like it did in 1999. It could even go higher. However, just looking at the graph, it seems like anytime it is above 25 there’s a coming in a year or two. We’ve been above 25 for awhile and spiking to 30 is giving me cause for concern.

I know what you are thinking. Didn’t I ask if it was Time to Sell Your Stocks? almost 3 years ago to the day? Didn’t I again ask if it was Time to Pull Out of the Market? about 2 years ago. Even this January I suggested there was gloom and doom coming, because we KNOW where the stock market will go.

So what makes this time different? Other than the Shiller PE number reach 30, I don’t have a great answer.

I’m not pulling out of the US stock market. Instead, I’m looking more at my asset allocation. I’ve always been a fan of international investing as you can tell from this 2007 article. A lot of experts would cringe at the idea of putting so much of a portfolio in overseas funds.

I think there’s no better time to embrace international investing.

The Shiller PE numbers in many countries are a lot lower than the United States. There may be obvious political or economic reasons for that. However, in general, they represent the kind of value that I’m looking for when I invest.

I’m going to adjust my portfolio so that I’m invested in more of the lower Shiller PE countries. I’m willing to put even more than 50% of my stock allocation abroad. (Not much more, but technically a little more.)

I’m making two other changes that I didn’t think I’d make at this stage in my life (early 40s). I’ve always been a very aggressive investor who believes that 100% stocks is always the way to go. (Notice how sure I have been in the past.)

For the first time, I’m putting money in bonds and REITs. Specifically, I’m buying Vanguards’ BND and VNQ ETF funds. I’m putting about 10% of my portfolio in BND and another 5% in VNQ. Perhaps I should have done this before now. I’m thinking about upping those percentages as well.

I would sum up my thinking as, “Let’s play more defense than I normally would given what appears to be an overpriced market.”*

Your Turn

What do you think of this market? Are you doing anything differently than what you’ve done before?

Let me know in the comments.

* For football fans, I’m calling more big nickel defenses and playing less of my base defense.

A Lazy Portfolio (Bought on the Cheap)

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Yesterday I introduced you to Motif Investing (introduction here). The quick takeaway: it is a great way to buy up to 30 stocks with one single brokerage fee of $9.99. Oh and one other minor detail: they’ll pay you up to $150 to do it.

I’m seriously considering trying it out myself. It seems ideal to run a set-it-and-forget-it-until-you-rebalance-it investing plan. Over the years, many people have written about “Lazy Portfolios” consisting of a few ETFs designed to broadly diversify your investments. It only makes sense that the Lazy Man have a Lazy Portfolio, right? My last attempt at a lazy portfolio was almost 7 years ago to the day. I imagine that portfolio with bonds and global real estate would have weathered the banking collapse in 2008 better than some portfolios.

Nonetheless, it is time for an update. Rather than rush into creating my own Motif, I thought, “Why run a strawman version by you, the readers, and get some feedback?”

Thus, I give to you the Lazy Portfolio (version 0.1):

InvestmentTypeTickerPercentageExpense RatioTotal Expense
Vanguard Total Stock MarketUSVTI25%0.050.013
Vanguard Small-CapUSVB10%0.090.009
Vanguard Small-Cap ValueUSVBR5%0.090.005
Vanguard Total International StockInternationalVXUS17%0.140.024
Vanguard Emerging MarketsInternationalVWO17%0.150.026
iShares MSCI Frontier 100InternationalFM6%0.790.047
Vanguard REITReal EstateVNQ10%0.100.010
Vanguard Total Bond MarketBondBND10%0.100.010
Total100%0.143
Average Expense Ratio

I know that there’s no perfect portfolio for everyone. We all have different risk tolerances. Someone older would probably want more bonds and fewer stocks. That said, here’s a brief explanation of why I went with the above assets and percentages.

I wanted to invest equally in United States and international companies. I think it is a little self-centered to invest a huge amount in your own country, because a bad economy will doom you twice: poor local job prospects and a crashing stock market. However, the United States has many companies that do business globally… in some ways there is an international component to the US-based companies.

Within the US companies, I wanted to put more money towards small capital stocks. I’ve read in numerous places, that over the long term they’ve performed better… with small cap value doing particularly well. Also, it looks like 70+% of VTI is in large capital companies. The Small-Caps balance that out.

On the international side, I went with three funds. The Vanguard Total International Stock is a bit like Vanguard Total Stock Market in that it doesn’t really reach everything very well. A quick look shows that around 65% of it is in Europe and Japan and 80+% are large companies. Vanguard Emerging Markets helps diversify to smaller countries. Finally, I put a small amount into frontier markets because I like them for the reasons outlined here.

The end result of the above is 80% in stock markets. I still young (at least people tell me that), and I’m an aggressive investor. I’m also looking at doing this with money that I don’t plan to touch for 30 years. This gives me the ability to take a little more risk to get higher returns. I may invest my 2 year old’s money in it, so again, aggressive is good.

The last 20% is divided evenly into real estate and bonds. These are not correlated with the stock market, so it gives me a little diversity. I thought long about putting a commodity ETF in there, but they haven’t performed as well I hoped. I didn’t find a commodity ETF that I was particularly enamored with.

While on the topic of being enamored with ETFs, you may have noticed that whenever possible I went with Vanguard ETFs. They are well known for keeping their expenses really low. This way more of my investment goes towards the investment, not the managers of the investment. There might be one or two stocks with lower expense ratios, but that gets to be a little like chasing pennies. As you can see my effective expense ratio (minus the $9.99 Motif Investing commission) is 0.143, which means that I am paying $14.30 in expenses for every $10,000 I invest.

One can make an argument that I should take the iShares MSCI Frontier 100 out. It has, by far, the highest expenses. If I left it out, it would lower my expense to $10.40 in expenses for every $10,000 I invest. Is it worth it? Maybe, since it is a small part of the portfolio and a pretty non-traditional investment to begin with.

What else should I look into with here? In some ways, I’m already stretching the limit of “Lazy” by having eight stocks in a Lazy Portfolio. However, I’ve got room for 22 more in my Motif, if I want to get more detailed. Should replace some of the US large capital with some US mid-caps? Should I go into a global real estate fund like I had mentioned back in 2007? What would the expense ratio ramifications be of that? Should I look into adding BRICs in my international allocation? What about an international bond fund?

So many questions. Hit me up in the comments with your answers.

A Chink in Index Funds’ Armor?

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I got my July 2013 edition of Money Magazine yesterday and on page 43 there is an interesting article about balancing a lopsided index fund. The idea is that many indexes are weighted by market capitalization which means that when Apple was trading was $700 index funds needed to have a ton of it. As we know now that was the wrong time to buy Apple. In fact, this kind process leads to investing in stocks that may be in a bubble and undervaluing stocks that could be buying opportunities.

So Money Magazine asks the question, “Is it time for you to rethink indexing?” They quickly answer it with a no. Their reason is that indexing has proven to be effective over the long haul and few managers beat the average consistently and when they do it is usually by a small amount. It’s not like betting on Tom Brady to beat Mark Sanchez, where you feel good about it happening over and over again (sorry New York fans, we were there in the early 90s).

I agree with this. Even with this chink in index funds’ armor, I don’t see a better alternative, especially because you can keep index funds expenses low. Money recommends a total market index fund (something that matches Wilshire 5000) and specifically goes with Schwab’s Total Stock Market Index (SWTSX). I’m a Vanguard ETF guy myself, so I go with VTI the differences here are minimal. The next thing they suggest is Vanguard FTSE All-World ex-US ETF. Their theory is that you can “cover a broad spectrum of domestic and foreign stocks” with just those two.

I respectfully disagree.

I had long thought that it was true, but I found it left me with a whole in emerging markets. I was almost all invested in the US (70%) and had 15% in Europe, and about 8% in Asia (China/Japan mostly). The other 7% was spread around mostly Australia, Canada, and South America. (I’m using SigFig.com geographical classifications which seem to break apart some countries, but leave other continents grouped, hence the inconsistency there.)

In order to correct this very lopsided allocation, I added a significant amount of Vanguard’s FTSE Emerging Markets ETF (VWO). It brought my US down to around 55%, my Europe down to about 13% and my Asia up to about 16%. In reality it gave me a lot of exposure to BRIC (Brazil, Russia, India, and China) that I had been largely missing. It wasn’t a ton of exposure, I’m still less than 2% invested in India and Russia each.

Interestingly the article points out that today there’s a worry that these BRIC economies may encompass too much of emerging market index funds. Considering that the article previous seemed to ignore emerging markets completely, this is still better than nothing. The article suggests looking at iShares MSCI Emerging Markets Minimum Volatility (EEMV) that has a third less in BRICS. I can’t think of the appropriate expression off the top of my head, but this I believe this is over-analyzing things. Most people will have BRICs be about 8% of their portfolio, maybe less. If the minimum volatility option moves it to 6%, it’s not the biggest deal. Should you really worry about the 2% difference divided amongst 4 very large countries or the 50% that you put in one country (United States)?

Getting back to the problem of Apple representing a big portion of the US stocks. The article mentions that you can go with PowerShares FTSE RAFI US 1000 (PRF), a mouthful, that doesn’t weigh by market capitalization. However, it is quick to point out that it had bubble problems itself in the past. The best advice that I see from the article is to augment with Vanguard Small Cap ETF (VB). Personally, I have a good amount of this stock, but for a completely unrelated reason, I’ve consistently seen research that small caps perform better over the long haul.

The article ends with a section on bond indexes. I believe that to be a bit more complicated than the equities, although the article has some good guidance. Rather than give away the whole store, I’m going to suggest that you buy the magazine or wait for the article to be available online if you are interested in the bond solution. It’ll probably be worth a couple of dollars to you.