Asset Allocation 3/2016

By asset class Allocation Fees
Cash 0.1% 0.00%
Home Equity 25.2% 0.00%
Private Equity (Real Estate) 9.5% 1.00%
Muni Bonds 0.9% 0.50%
S&P500 Index 37.0% 0.05%
US Total Stock Market 7.2% 0.06%
US Small-Medium Stock Index 0.3% 0.00%
ACWI ex US 1.6% 0.00%
Options Trading 18.2% 0.20%
All 100.0% 0.16%

By Account Type Allocation Fees
Taxable 63.8% 0.22%
401k 11.4% 0.00%
Deferred Comp 6.7% 0.11%
IRA (post tax) 2.2% 0.05%
IRA (rollover) 12.9% 0.05%
Roth 1.8% 0.05%
529 account 0.6% 0.12%
Health Sav Account 0.6% 0.14%
All 100.0% 0.16%



  • We started investing new money in private equity real estate funds. We also shifted money to an option trading strategy that benefits from sideways moving markets.
  • We max out our 401k contributions, but taxable accounts grow much more because most of our savings come from bonus money, which is after-tax.
  • Home equity is Zillow estimate less 7% for selling cost less mortgage
  • Private equity is two investments in multifamily housing funds, projected rental yield ~8%, plus some modest capital gains
  • Funds in the 401k are all no fee, apparently subsidized by the employer. Nice!
  • Deferred Compensation is bonuses from prior years (already vested) that we voluntarily deferred
  • Options trading: I will write some additional detail in a later post, but for right now, this is mostly exposure to US large cap equities


12 thoughts on “Asset Allocation 3/2016

    1. Thanks!

      We took a dim view on international stocks. Europe and Japan have low growth rates. That takes up a large chuck of Developed Markets equities. Same with EM. So we found that US stocks are the safe haven for our equity portfolio.

      We invested in multi-family housing through several private equity funds. We found that this is the only acceptable way (for us personally) to invest in real estate. We don’t want the hassle to be landlords and we are concerned that REITs are very overvalued and too correlated with equities. Hence the private funds. These are very illiquid investments ($100,000 minimum investment each, for a duration of 7-10 years). You become a shareholder in an LLC and those shares are non-tradable. The money is tied up for a long time, but you get the rental income of the properties as a quarterly dividend. Hopefully some capital gains in the end as well. And some tax write offs throughout.
      All funds are for “accredited investors” ( only. We are planning to write a future blog post about our experience so far and the pros and cons of these kinds of investments.

      1. Awesome! I’d love to read more about the funds. I agree with your assessment of REITs and the hassle of being a landlord so that seems like a very good option to get exposure to real estate with equity valuations being so high and bond yield being awful. Unfortunately it seems like all of the good investments are only for accredited investors and I’ve got a ways to go to get there.

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  2. I view International the same way. It hasn’t out performed the U.S. In a long time, the fees tend to be higher, and we live in a world where the worlds economies are becoming more globalized every day. I know there is a bunch of historical data saying international and domestic equities are inversely correlated but its historical. In my gut feel that won’t be the case in the future, or the the inverse correlation will be less and not worth the additional cost to invest in international funds.

    I’d love to hear someone’s argument for International though.

    1. Thanks! I think that all U.S. stocks already have plenty of international exposure (as you mention) and I like the mix of the U.S. market sector-wise. And U.S. will be the growth engine going forward. So, we will stick with mostly domestic stocks for now. Unless someone convinces me to shift to more international stocks…
      Thanks for sharing!

  3. International has a place in the portfolio. US tends to outperform vs international for long periods and then it switches back. Looking at CAPE for international; however, one can see that the US is priced significantly higher. And while the US always had the best accounting standards, etc. that is changing now (for instance US GAAP standards for leases are now more aggressive than the standard developed by the international standard setters). Here’s international CAPEs:

    1. True. But within the developed world, the USA also has one of the best growth prospects and the best stability. Europe is cheap, but could it be cheap for a reason? A lot of retailers are looking cheap relative to their 10Y rolling past earnings, but we all know why.
      Then there’s EM: Could that be cheap for a reason, too? What if China has a hard landing?
      But just to be sure: There is no definitive answer yet. We will see how things shake out over the next 10 years and what equity index will perform best.

      1. ERN – by the way, great blog – I love your detailed analysis and insight. Your work on SWRs is the best I’ve seen. While I realize Bogle and Buffett say the S&P 500 index is fine, I am more in the Paul Merriman / DFA camp with a more high maintenance portfolio with differing asset classes (including int’l) titled toward value. I do this because small and value has returned more in the past and it seems realistic that it would continue (Berkshire is a great example of diminishing returns as it grew larger and Buffett still remains a value investor).

        No doubt the US has performed better than international since the financial crisis. One of the reasons I’m high on international now is partly due to this under performance (

        Fig. 4 on this PDF shows the growing gap in forward PE ratio between US vs. international. Growth is lower for developed int’l countries but so are interest rates (which support a higher valuation based on discounted cash flows).

        Even Bogle at 88 years old admits emerging markets have potential. Emerging markets now account for greater than 50 percent of global gross domestic product but only around 10 percent of stock market capitalization. At the turn of the 20th century, the US was an emerging market. And after the crash of 1929, America wasn’t exactly looking like the best place to invest.

        Lastly, Japanese investors were heavily invested in the Japanese stock market (home country bias) before it began crashing in 1989. Prior to that crash, business schools were lauding Japanese businesses (just in time manufacturing, etc) and by market cap, Japan accounted for 45% of the global stock market, followed by the U.S. at 33% and the U.K. at 9%. Now granted in hindsight, it was a bubble, but when one is in the middle of a bubble it’s not always easy to realize it.

        1. One of the est reasons for international stocks is that they underperformed for so long that it’s time for them to come back.
          About Japan in the late 80s: It had a PE in the high double-digits, so I’m not yet worried about a repeat of that episode in the U.S.

          Thanks for sharing!

  4. This is one of my favorite sites, thanks for taking the time to provide such good detailed information!

    I am wondering about the viability of using a TIPS bond ladder in an IRA (frequently discussed on other retirement oriented web sites) for shorter windows (perhaps up to 20 years). This could be used to fund a floor strategy or even larger amount of income. Since individual TIPS bonds (held to maturity) are low cost, low risk, with low volatility, and real yields now are generally above 1% (and increasing), the “SWR” for a 20 year ladder is around 5.5% versus perhaps 4.5% for a balanced stock/bond portfolio (funds). For a 10 year period the TIPS bond ladder has an even higher relative SWR increase over a balanced stock/bond portfolio. This ladder could be used, for example, to fund an early retiree up until SS kicks in at age 70.

    The major downside I can see is that the balanced portfolio return could far surpass that of the ladder. However, given valuations and predicted returns for the next 10 years, locking in some “guaranteed” income seems like a good option to consider, and it can actually increase short/mid-term income (perhaps when more is needed earlier in retirement) substantially.

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