Question for My Readers: What Should I Do With My Portfolio?

February 9, 2013 by Joy | 15 Comments

Of my 200k portfolio, 90% of it is in stocks, ETFs, mutual funds, and a few REITs and precious metal ETFs. While I’m diversified across industries, having that much of my networth wrapped up in the stock market is potentially a bad idea. If you were me, would you reallocate, and if so, what would you invest in?

Should I keep all my money in stocks because I’m still young and the market will have time to recover even if it fails again?
Should I buy a condo for $500k and put $100k down, therefore having 50% of my networth in real estate and 50% in stocks?
Should I apply to graduate school and pay for it outright, in effect investing in myself?
What other options are there that I should consider?

Read below the fold to see how my current portfolio breaks down:

Cash Accounts
Checking: $3331
Savings: $496.23
Savings #2: $802.09

Taxable Stocks/Funds
VMGIX: $8284
AAPL: $46449
AMZN: $3111
CBOU: $1601
F: $2004
GE: $1900
GOOG: $320
HAO: $3624
IHI: $5435
INTC: $3501
JNJ: $1537
MCD: $2937
MSFT: $457
PG: $522
SBUX: $795
T: $74
VWO: $2483
VZ: $7173
WFMI: $675
Cash: $100
P2P #1: $354
P2P #2: $65

Roth IRA
VFIFX: $8659
VTSAX: $12391
GLD: $1186
PEY: $1120
SPY: $791
XLE: $717
XRT: $1487

Taxable @Retirement
401k #1: $21407
401k #2: $23034
IRA DVY: $1832
IRA EDIV: $1051
IRA GLD: $1335
IRA NLY: $519
IRA SDY: $3113
IRA SLV: $1389
IRA VNQ: $1393
IRA XRT: $2004
IRA 529 Plan: $3605

Other
Exercised Options: $20000

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plantingourpennies

First time here, so forgive me if I don't know all the backstory. Our net worth is split pretty evenly between real estate and stocks at the moment (if you want the details, our net worth stuff is on our site), though we are in very few individual stocks the way you are and stick largely to low cost mutual funds and ETFs.

I like real estate, but HATE condos as investments. Especially when you're talking about a single $500K condo. The fees and risk profile of tying finances to the whims of others has made condos seem like a bad idea – but this is from a S FL perspective. Right now would you put $100K into a single stock? If the answer's no, then I'd think about why you view a condo as different than a stock.

Anyhow, don't mean for my first comment to be contrarian, but condos give me the heebie jeebies. Especially at those prices.

http://www.hereverycentcounts.com HerEveryCentCounts

I feel the same way about condos, but unfortunately around here the only way to buy an actual home would be to somehow come up with the money to afford a $800k basic 2-3br, 1-2ba house on a small piece of property. It's a better investment than a condo, but even then I'd be tying up more of my capital in that investment. I'm not sure either makes sense. But if everyone is telling me to diversify outside of stocks, what else is out there besides real estate?

plantingourpennies

What else is there, indeed? That's the point we're at, too. We've got probably a year in front of us where we'll be finishing paying off the remaining debt we took out to invest in RE, but after that we're wondering what to invest in next. (Residential RE is over here for the time being. Wouldn't recommend buying as an investor.)

One option on the table for us is owning/operating a small local services business. It's not a 100% fully-fledged plan yet, but it's definitely an option that we're considering as we're trying to think about where our 30-35 years are going to take us.

Her Every Cent Counts

testing this new feature that I added…
myfijourney

There is some very important, but missing information here. Namely, what are your financial goals? Do you want to be a homeowner? Do you want to retire early? Do you want financial independence? Are you planning on having kids? Are you planning on going back to school? If so, for what and how long? Are you anticipating elder care?

http://www.hereverycentcounts.com HerEveryCentCounts

Great question. I will address this in a separate post, but the sort answer is I'm not sure what my financial goals are. Do I want to be a homeowner? Maybe. Do I want to retire early? Yes, but I also want to keep working, I just want the option to retire early. Do I want financial independence? Yes, but I want to keep making money past that. Am I planning on having kids? Possibly. Going back to school? Maybe. Elder care? Yes, a long time from now (if you mean for me) – my parents should be covered. Long story short it seems I need to get my goals and priorities in order to appropriately answer or even ask this question. I'll address this in an upcoming post with more detail.

http://www.thebudgetingtool.com Mochi & Macarons

I'm not sold on having to pay $500K for what I'd consider a fixer-upper in a decent area in Toronto, so real estate is out for me.

The only time I'd buy real estate is if I see a great deal, and am able to rent it out consistently and for a good price compared to the mortgage. Haven't found it yet.

Otherwise, as someone exactly like you, I have my money in index mutual funds, I will be splitting some of that off into dividend-paying funds, and that's about it.

Real estate as an investment, hasn't really made an impression on me. If you factor in inflation and maintenance ON TOP of the cost of the house, taxes, etc, it's a bum deal, especially in places like Toronto. I think I did the math once and it was 0% real (not nominal) return.

I'd rather invest in real estate-related stocks or REITs in that case.

http://www.hereverycentcounts.com HerEveryCentCounts

It sounds like we're in very similar shoes indeed. I agree that it's better to rent and invest in REITs if you want a piece of the real estate market. I'm going to do some more research into REITs as I currently own a very small amount of them in my IRA but probably should own more, esp since real estate is not an official part of my portfolio.

http://leightpf.wordpress.com Leigh

Have you considered leaving California when you want to buy a house? There are plenty of areas with tech jobs outside of California that have lower housing costs.

If you lost your job, would you sell stocks? Would you sell your stocks to buy a house/condo/car or pay for a wedding/honeymoon? If not, you should probably have more cash on hand because any money you need in the next 5 years should not be in stocks.

How long do you see yourself wanting to live in a condo? If it's < 5 years, I would keep renting and then buy when you're ready to buy a more permanent house. I bought a condo last year, but I was 23 when I bought it and I see myself living in it for 5-10 years.

You could diversify into bonds, bond funds, and CDs. If I wasn't paying my mortgage down aggressively, I would buy i-bonds (inflation protected bonds) through Treasury Direct and CDs in my IRAs.

http://www.hereverycentcounts.com HerEveryCentCounts

Yes, I've considered it, but there is no where else I want to live. If I were going to move I'd probably move back to where I grew up and where most of my family is on the east coast. But I can't really accept that as an option right now. Yes, there are plenty of areas with tech jobs outside of California, but no place has much opportunity as there is here. Once I've established myself in Silicon Valley I'll be more of an asset to tech firms across the country should I move later. I just absolutely love it here and can honestly say it wasn't until I moved out here that I found happiness. Regarding selling stocks to buy a house/condo/car – yes, I would do that. I'm considering selling about 50% of my AAPL stock which would cover the car, and reinvest the what's left over, but I think it will go up again from where it is now and want to wait for a run up before selling it. I could be shooting myself in the foot there. How long do I want to live in a condo? I don't know – I've stayed in the same area for the past 7 years and have lived in my current apartment for about 4. I am pretty settled but at the same time if I were to change jobs I'd want to be able to move closer to my job, so buying a place probably doesn't make sense. Saving for a larger downpayment does. I-bonds are interesting – I need to look more into that option as I don't think I have any of those.

Steven

First, about a quarter of your portfolio is in one stock, this doesn't seem very diversified to me.

I would probably pick an asset allocation like 10% bonds, 30% US equity, 30% International equity, and then divide the rest into REITs or whatever else you like. Then I would buy Vanguard ETFs or funds to achieve that asset allocation. But then I'm pretty much a boglehead and I encourage you to read their wiki.

I bought a house in the East Bay Area a year ago because it became cheaper to own rather than to rent. I'm guessing you live on the peninsula or in the City where this window of affordability never existed. You should play with the NY Times rent vs own calculator to see if it makes sense to buy. And a home isn't really an investment, at best it is an inflation hedge.

http://www.hereverycentcounts.com HerEveryCentCounts

You're right, having about 40% of my networth in one stock is a bad idea. It may be a risk that pays off in the end, but there is just as much of a chance of it going the other direction. I'll probably sell off half of it to buy my car, which will temporarily decrease my networth (I never consider cars assets.) I should look at the breakdown of my portfolio and rebalance to something like what you suggest. I need to better understand the tax issues of selling my stock to do this. Regarding housing – yes I live in one of the areas of the Bay Area that never got affordable. I've played around with the NY Times calculator before but a lot depends on what my rental costs will be going forward. I've kept them very stable over the last four years but as soon as I move into a 1br with my boyfriend they will start going through the roof unless I find a similar living situation with a friendly landlord who apologizes every time he has to raise the rent. I was considering a condo to potentially be an investment as later on I could potentially use it as a rental unit while purchasing a larger house for my own usage, but I don't see myself having the time to be a landlord.

http://twitter.com/Yakezie Yakezie

I think you’ll enjoy the post on Financial Samurai the week of Feb 11th. The reason why I asked about the 90% in stocks question in your GP is b/c I think it’s a very scary proposition. All is good in an upswing, and terrible in a downturn.

I wouldn’t recommend you apply to grad school if you don’t plan to work for at least 10 years afterward. Maybe go part time like I did? Sam

http://www.hereverycentcounts.com hereverycentcounts

I agree the 90% in stocks is a bad idea. Some of that isn’t stocks (my 401k accounts have retirement funds by year and I think some of that is in bonds as part of the overall mix) but I am in no way balanced properly. I do think that if the market starts to crash I could go in and sell pretty quickly – I try to watch closely and follow the economy to see this. I’d lose some money but hopefully not all of it. That said, I do want to diversify. But I don’t understand other investment opportunities outside of stocks.

Re: grad school – I’ll probably end up working for at least 10 years after, but I’m not sure. I don’t want that hanging over my head to make me have to work. Part time would be great (I was thinking about the Berkeley exec education MBA in my 30s) but I feel like I’d get the most out of a full time program.

http://simplyrichlife.wordpress.com/ Simply Rich Life

Overall I think you’re in a great position. I’m not good at keeping a running total with this many numbers so I’m not sure what the exact breakdown is, but I see you have a lot of small positions in investments that may do well or may do poorly. Hopefully the average will give you a good return.

The large amount in Apple is a bit worrying though. I don’t see it as a good long-term investment (while iPhones be cool in 2023?). Even though it’s fallen a lot already it could go down very fast if more signs of trouble start to emerge. I would be watching that daily. If you sell half of your Apple stock to buy a car I think you’ll be a lot better off, and I hate spending on cars.

Personally I want to keep as much in stocks as possible to help long-term portfolio growth. The current prices look a little above average but not overly dangerous. I’m staying away from bonds because I don’t see anything attractive there.

As for the other options, it sounds like real estate is a good value in a lot of areas in the US. I’m not sure if your area counts at the price you mentioned. If real estate is cheap or likely to go up (and stay up) in the future then it’s good to buy now. Otherwise I would invest first and just try to minimize overall real-estate costs which may mean renting.

Graduate school may help but it could also be a waste of money. For learning new skills my approach is to spend the time and money practicing and learning from people with proven success rather than getting an expensive degree. Some things can be learned with less time and money this way. Of course if your options include one career that pays much better than all the others and it’s absolutely impossible to get in without a graduate degree (and you’re willing to commit to it for long enough to see a payoff) then it may be worthwhile.

The one thing I’m doing that’s not on the list is investing in my business. This comes in many forms including hiring people and doing things to improve the business but it’s the biggest thing I’m focused on other than stocks. Of course for many things that just means putting in my time to learn something rather than spending lots money. Overall my plan is to grow my business income as much as possible without taking excessive risks, and then put that into a stock-heavy portfolio to keep it safe for the long term. I’ll just keep doing that until I no longer care whether I have a business income. Like you I want more options but I still want to keep interesting work.