Have you ever wondered how I invest my money? You’re too polite to ask, but likely curious all the same: “Does this guy invest for his retirement the same way he tells me to invest for mine?”
With my annual rebalancing behind me, it’s fresh in my mind and I’m happy to tell you about it.
I’ve tailored a strategy to fit my own sense of risk, need for stability, and desire for growth. The result is a retirement portfolio that is personalized to me. My allocations aren’t intended to be a blueprint for anyone else to follow. I’m in my late 60s; the portfolio of a younger investor will look quite different. That’s why I’ve asked SMI’s executive editor, Mark Biller, to weigh in with his comments as well. (You’ll see his remarks in italics.)
As you probably know, I’m big on diversification. I reflect this in my personal investing by carving my retirement plan assets into four pieces, each reflecting a different strategy of investing. Taking them together, my money is spread across many classes of assets. Each strategy is mechanical, so I don’t have to agonize over when to make changes and what they should be (I've automated as much of this as possible using the various SMI Funds).
Perhaps it will encourage you to see that I continue to use the same strategies we recommend in SMI. So, here we go:
- 40% in SMI’s Dynamic Asset Allocation (DAA) Portfolio
This strategy was designed specifically to hold up well during bear markets. It has a built-in defensive capability that periodically moves completely out of stocks into cash, bonds, and other better-performing asset classes. At my age, I need to shift my primary focus from growing my capital to protecting my capital.
MB: Over the past year, we’ve suggested a 50% DAA, 40% Upgrading, 10% Sector Rotation “default” portfolio to SMI readers. Austin is below that 50% DAA level here, which makes sense given the additional 30% he’s allocating to bonds (see next item). A total of 70% in DAA and bonds is quite conservative but fitting for his season of life. Personally, I have about 44% of my portfolio allocated to DAA as 2015 begins, a percentage that is likely to grow as I pare back my SR holdings over the next year or two. (I explain more about this shift here.)
- 30% in Bonds
This represents one-half of my remaining assets. Given my season of life, it’s prudent to have a hefty fixed-income allocation. I divided my bond portfolio into two parts. The larger share goes to SMI’s new bond Upgrading strategy, unveiled last month. I really like its flexibility. A smaller share stays in one of SMI’s former bond recommendations — the Scout Unconstrained Bond Fund. It didn’t have a great 2014, but the managers have a superior long-term record and I’m giving them more time to shine.
MB: At age 42, I don’t have any money allocated specifically to bonds (although DAA may own some from time to time). Also, Austin explains his bond allocation differently than how we normally suggest readers approach their stock/bond allocation within Upgrading. But it’s really no different than allocating 40% of the portfolio for Upgrading (the 30% Bond and 10% Upgrading piece — see below), then dividing that portion 25% to stocks and 75% to bonds. That may seem too heavy a bond allocation, but this is partially to offset Austin’s ownership interest in SMI’s business which already significantly ties much of his personal income and net worth to the stock market.
- 20% in SMI’s Sector Rotation (SR) Strategy
With 70% of my portfolio invested conservatively, I’m venturing out on the risk scale in search of returns higher than those DAA or bonds are likely to provide. SR has done great the past two years, and I’m back for (hopefully) more.
MB: There’s the old gunslinger! But note how Austin offsets higher risk here with lower risk elsewhere. In my portfolio, my SR allocation will gradually shrink from almost 25% at present to around 15% as this bull market ages, with that money shifting to DAA.
- 10% in SMI’s Fund Upgrading Strategy
Despite a stumble in 2014, I continue to expect Upgrading to produce market-beating returns. Ten percent may seem like a small allocation to our flagship strategy, but I look at it as one-third of the 30% I have left for stock investing (after setting aside the DAA and bond allocations). I could have split that evenly between Upgrading and SR with 15% each, but was willing to tilt toward the higher-risk, possibly higher-return strategy given how conservative the rest of my portfolio is.
MB: I have slightly more than a quarter of my portfolio invested in 100% stock Upgrading. Both Austin and I are a little light on Upgrading and heavier on SR — make sure you have a wrought-iron stomach/risk tolerance if you choose to make a similar tradeoff! (SMI normally recommends no more than 20% of your stock money be allocated to SR — here's why.)
There you have it — my personalized investing plan for 2015. Feel free to borrow from it, but be sure to reshape it to fit your temperament, investment goals, and level of understanding. Once your plan fits comfortably, hopefully you’ll be able to stay with it during the occasional tough times. That’s one of the keys to long-term investing success.