Investment allocation breakdown for 2023 Q1

by   •   Finance
 

Disclaimer: I am not a registered investment advisor, and even if I was, I wouldn’t be your investment advisor. The information found in this blog post is in­tended to be strictly anecdotal and should not be construed as financial advice. Everyone’s situation is uniquely different, so if you are seeking guid­ance, be sure to consult a licensed and certified professional.

 
Another quarter, another investment allocation breakdown.

It’s almost time for me to do another comprehensive edition of one of these, similar to the one I did in July 2022, but until then, I recommend taking a look at that one to understand the finer details of why I invest the way that I do (though keeping in mind that some of that information may have al­read­y become outdated in the last three quarters).

Cash

As is expected for the first quarter of the year, my cash balance has dropped substantially from saving up during Q4 of last year in or­der to dump a lot of money into tax-advantaged accounts on the first of the year after contribution limits reset.

Because of rising rates and the fact that I use an online savings account, I’ve been able to get a passable amount of interest just from keeping cash in my bank, but I don’t want to fall into the trap of becoming comfortable with guaranteed interest and missing out on potential stock market spikes, so I made sure to move forward with my standard investment strategy without being affected by emotion-based reconsiderations or doubts.

   1.21%

Domestic broad market index funds

While the economy wasn’t doing well, I focused more on investing in high-yield dividend funds so I could continue staying in the mar­ket but not be so harshly affected by falling market prices. It’s obviously not possible to predict the future, but it seems like things might have stabilized now. As a result, I’m holding all the high-yield dividend funds that I bought already, but all my new money is go­ing into the total stock market instead.

  42.35%

International total market index funds

No changes.

   4.22%

Target date funds

Like I do every year on January 1 after the annual contribution limit reset, I contributed the maximum amounts allowed to my Roth IRA and Health Savings Account (HSA) and put several thousand dollars into my SEP-IRA (if you’re not familiar, the SEP-IRA con­tri­bu­tion limit is dynamic based on your net earnings, so I never know what exactly my limit is going to be until the year’s Sched­ule C is complete).

I self-manage and self-allocate all my non-retirement savings, but for savings in retirement accounts, I use target-date funds that will au­to­mat­i­cal­ly reallocate my money into safer investment products as I get older.

  19.52%

Real estate investment trusts (REITs)

No changes.

  12.36%

Bonds

My allocation in bonds went up by a little bit since last quarter because of the purchase limit reset on Series I bonds with the United States Treasury. I don’t plan on this being a long-term thing, but at least for now when inflation is still high, Series I bonds are still a high­er guaranteed rate of return than certificates of deposit, even with the higher interest rates nowadays.

   7.40%

Cryptocurrency

I know I said I wouldn’t buy more cryptocurrency and just hold onto what I bought years ago and wait it out, but after the recent col­lapse of Silicon Valley Bank and the unprecedented move by the FDIC to insure all customer deposits (as opposed to just up to $250k) made me lose a little bit more faith in the United States dollar.

I was clearly not alone, because the price of Bitcoin started steadily climbing. It didn’t go up nowhere near enough for me to be able to recover my previous losses in cryptocurrency, but because I bought in shortly after the SVB incident at a lower price, my recent earn­ings from the past few weeks have offset some of my previous losses.

   5.50%

Individual stocks and private companies

If you remember from my previous financial breakdowns, I generally only invest in companies that I believe in and personally use fre­quent­ly. There is one more company I added this past quarter, which I will probably disclose the next time I do a “comprehensive e­di­tion” version of one of these breakdowns.

On somewhat of a related note, a company in which I invested during a private equity funding round a while back just completed its in­i­tial public offering. The stock price spiked up very hard… then plummeted uncontrollably. My original investment is now less than a tenth of what it used to be. 🤦 That should serve as a warning of the danger of investing in individual companies.

   5.23%

Precious metals

I don’t know if this is because of the substantially higher amount of money I have in Vanguard compared to Fidelity, but in Vanguard, I’m able to make purchases first and go into a negative settlement fund balance—almost as if I am investing on margin—but incur no interest or fees as long as I make my account whole via a direct deposit by the settlement date. Unfortunately, Fidelity doesn’t offer me this perk.

Because of this, every time I want to make a purchase on Fidelity, I have to pre-deposit a certain amount of money from my bank ac­count first, and then can only use that amount of money to make purchases.

This means that, on Vanguard, I can pick out my investments first, and then transfer over an exact amount of money to the cent from my savings account. However, on Fidelity, I have to estimate the approximate cost of the stocks I want to purchase, deposit a little bit more than that (in case the price goes up while I’m transacting), and then have a bit of leftover money in my settlement fund.

When I’m investing in high-risk assets like individual companies and cryptocurrency-tied securities, I have a set number of non-fractional shares that I want to purchase. With my leftover money, I’ve gotten into the habit of just putting it into more gold, which (along with the fact that the price of gold as gone a little bit up) explains why my precious metals allocation is a tiny bit higher than it was last quarter.

   1.08%

Fine art, and other collectibles

No changes.

   1.13%

If you’re used to coming to these investment allocation breakdowns to check in on my stock investment challenge with Doug Wreden, the one-year in­vesting period has concluded—you can find an in-depth analysis of the results at “One-year update: Investing US$10k in the stock market – Parkzer vs. DougDoug & Twitch Chat.”

 

—§—

 

How I keep my assets safe from bank and brokerage insolvency

by   •   Finance
 

I have gotten a lot of messages today—far more than I expected, from both friends and co-workers—regarding today’s breaking news of Silicon Valley Bank’s insolvency. If you’re not familiar with what happened, an oversimplified summary is that Silicon Valley Bank overleveraged their assets and were un­able to fulfill customer withdrawals, creating a feedback loop of panic and further withdrawals, resulting in the California Department of Fi­nan­cial Pro­tec­tion and Innovation shutting down the bank and the Federal Deposit Insurance Corporation taking over operations.

Before I get into things, I want to point out that neither I nor any of my companies were affected by Silicon Valley Bank’s collapse. Neither I nor any en­ti­ty over which I have financial oversight had a Silicon Valley Bank account, and no funds were lost or locked as a result. However, it is devastating to hear that many tech startups had their entire treasuries in Silicon Valley Bank and lost everything. What is even more concerning is that Silicon Valley Bank had an extremely high percentage of customer deposits—allegedly over 95%—that were not covered under FDIC insurance.

In short, FDIC insurance protects up to US$250,000.00 in deposits per insured bank, per owner, per account category. As you can imagine, tech startups with venture capital funding likely have far more than $250k in funds that they hold in their bank, which means everything over $250k was not insured.

With that being said, there are a lot of well-written resources available online that can explain FDIC insurance, as well as the similarly-purposed Se­cu­ri­ties Investor Protection Corporation (SIPC) insurance. I recommend conducting your own research before continuing so you can have a background ba­sis upon which to analyze my post. The purpose of my blog post is to provide an example and explanation of how I apply this information to my per­son­al financial situation.

As a disclaimer, I am not a registered financial advisor, and even if I was, I would not be your advisor. This information is being provided strictly as an anecdote to provide insight into my life, and it does not imply that you should blindly copy my strategy. If you have any questions or need guidance with your own financial situation, make sure you consult a certified professional.

 

  1. This is less of an actionable step and more of a way of thinking, but I believe that stuff is better than money. Money is nothing more than some fancy cotton paper, metal coins, or a number on a digital screen. “Stuff” is everything else—things you can use to live your day-to-day life. You can’t eat money, but you can eat food. You can’t ride money, but you can ride a bike. You can’t live in money, but you can live in a house.

    Obviously, I do not waste my money recklessly, and I am careful to ensure I do not overspend on depreciating assets (like cars). However, because I have enough of a savings buffer, if I ever encounter a situation where I can either (1) purchase an item that will be very useful in my life in many cir­cumstances and will generally retain its value, or (2) save even more money, then I will usually err on the side of making the purchase.

    The best example of this is real estate. Although I personally do not own a physical property at this time, I always keep an eye out for good deals and closely monitor real estate trends. If the biggest banks unexpectedly fail or the value of the dollar goes to zero, there isn’t much that can give you more peace of mind than owning your own house and having guaranteed shelter.

    Just make sure you appropriately consider property insurance coverage from a private carrier, if applicable.

  2. I keep most of my assets in… well, assets. As long as you are not just holding your money at your brokerage in cash, and are instead actually pur­chas­ing stocks, securities, and funds, then your SIPC insurance coverage is US$500,000.00 per owner, per account category. For the sake of not need­less­ly compromising financial structural information about my companies, I am going to just focus on my individual self in this blog post, but keep in mind that if you own companies, each duly-formed company counts as its own separate “customer.”

    I personally hold brokerage accounts on Fidelity and Vanguard. On Fidelity, I have an individual brokerage account and Health Savings Account. On Vanguard, I have two individual brokerage accounts, a Roth IRA, a SEP-IRA, and a Traditional IRA. On Vanguard, my two individual bro­ker­age accounts count as one single account type, but all the retirement accounts count as separate account categories. As a result, with $500k in SIPC in­surance coverage for each account type at each brokerage, if I spread out my money optimally, I can get $3 million in potential coverage.

  3. I have checking and savings accounts with both Discover Bank and U.S. Bank. Although checking and savings count as one account category, the fact that I have my money spread between two separate banks means I have separate FDIC insurance coverage for both, totaling $500k across the two. I can further increase coverage by creating revocable or irrevocable trusts, as well as by creating joint accounts with other people, but for now, I only have the two basic accounts.

  4. I have brokered certificates of deposit through Vanguard. Certificates of deposit (CDs) usually aren’t the most attractive investment vehicle, but with interest rates soaring lately and the stock market’s near future still uncertain, CDs have recently become a much more reasonable option. Brokered CDs are CDs that are owned by a different financial institution but purchased through your brokerage firm.

    As you saw above, the fact that I have distributed cash between two banks increased my FDIC insurance coverage. In theory, I can open even more bank accounts for even more coverage, but at some point, it becomes a hassle to keep track of all your different bank accounts. Instead, you can purchase brokered CDs through a single account and keep everything organized on one screen with one single log-in, thus taking advantage of the offering bank’s FDIC insurance coverage without having to have a direct customer account with them.

    You can get a wide range of CDs—as short as 1 month for funds you may need soon, and usually all the way up to 5 years if you want to take ad­van­tage of the high interest rates and don’t need the money for a while. Vanguard has brokered CD options from reputable institutions like JP Mor­gan, Charles Schwab, Morgan Stanley, and Wells Fargo, just to name a few. In theory, you could use this trick to get as much FDIC insurance cov­er­age as there is banks offering CDs on your brokerage’s platform.

  5. I have been annually purchasing the maximum-allowed Series I Bonds to take advantage of their high interest rates as a result of recently-spiking inflation. Although these don’t have FDIC or SIPC insurance, they are fully backed by the United States government.

 
There are a few things to note here. First, don’t panic if you have more than the SIPC insurance limit in assets in a particular account at a particular bro­ker­age. Your assets are still your assets, and they are probably still out there somewhere. SIPC insurance only needs to kick in if your assets are actually gone due to misappropriation or other misconduct by the brokerage and cannot be recovered.

Next, at some point, solely optimizing for insurance coverage will quickly give you diminishing returns in terms of priority. For example, if you are using highly stable and reputable financial institutions and they all become insolvent with several millions of your dollars, then at that point, you probably have bigger worldly problems than worrying about the extra amount of your money that wasn’t FDIC- or SIPC-insured.

Finally, the intensity to which I have prepared for doom is a definitely on the high end. I don’t think I’ve gone so far as to reach the point of insanity by optimizing it to this degree, but you usually don’t have to worry this much about your money potentially disappearing into thin air. Make sure you don’t enter a state of paranoia by overestimating the gravity of this situation.

 

—§—

 

One-year update: Investing US$10k in the stock market – Parkzer vs. DougDoug & Twitch chat

by   •   Best of the Best, DougDoug, Finance
 

Prerequisite reading: The original “Investing US$10,000 in the stock market – Parkzer vs. DougDoug & Twitch chat” blog post

 
Disclaimer: I am not a registered financial or investment advisor, and even if I was, I wouldn’t be your advisor. To you, I am nothing more than someone on the Internet posting anecdotes via a personal blog on his website. This content is intended for comedic and entertainment purposes only. Everyone’s sit­u­ation is uniquely different, so consult a certified professional if you need guidance on your own financial strategy.

 
Last year, my friend Doug Wreden and I decided to do a fun investing competition where we would both put US$10,000.00 into stocks of individual, publicly-listed companies and find out whose portfolio balance was higher after one calendar year.

Doug livestreamed the stock selection process on his Twitch channel on Friday, January 21, 2022, though it happened after markets closed at 4:00 PM EST / 1:00 PM PST, so the orders went through the morning of Monday, January 24, 2022. I had some prior commitments on the 21st so I wasn’t able to join in on the broadcast, which meant I picked my stocks by myself over the weekend, causing my orders to also go through on the 24th.

Yesterday, Monday, January 23, 2023, was the final trading day of the one-year challenge period. The results are now in.

 

The winner

I know many of you just want to see the results and don’t care about the analysis, so here is what you’re looking for. If you suffer from hexa­kosioi­hexe­kon­ta­hexa­phobia, proceed with caution.

(Apologies to those who are visually impaired and/or use screen readers; the content of those tables and charts is just too large and graphically-intensive to be able to reasonably translate into HTML. Hopefully the summary below helps you get a better idea of the information provided. All further tables on this page are hard-coded into the document.)

With my portfolio’s ending balance at $8,837.11 and Doug’s portfolio’s ending balance at $8,170.45, I am the winner of the competition by a margin of $666.66. Yes, this is real. No, I did not smudge or tweak the numbers to get that result. Feel free to validate all the numbers in the spreadsheet above.

As a reminder, my portfolio was designed not to win harder, but to lose slower (as opposed to Doug’s, which, whether or not he intended it, was de­signed to win harder at the cost of also losing harder). This strategy worked, as the overall markets did not have the best year in 2022.

My portfolio’s winners were NextEra Energy, Inc.; Waste Management, Inc.; and Walmart, Inc. My portfolio’s biggest losers were Digital Realty Trust, Inc. and, funny enough, Amazon.com, Inc. Amazon was my effort to “diversify” by adding in a wildcard company outside of my designated sector strategy (more on this later); if I had just committed to my strategy, my portfolio would have done even better.

On the other hand, Doug’s portfolio’s winners were Costco Wholesale Corp., Coca-Cola Co., and to some extent, PepsiCo, Inc. Doug’s portfolio’s biggest los­ers were Aspen Aerogels, Inc.; Intel Corp.; and Hasbro, Inc. Throughout a majority of the year-long challenge period, Netflix, Inc. was performing hor­ri­bly, but it was starting to pick back up recently; it’s unfortunate that the timing of the stock challenge was such that it didn’t have an opportunity to ful­ly recover.

Both of us lost to all of the benchmarks except for cryptocurrency. If I had invested everything into bonds, I would’ve made $37.50 more; if I had invested everything into the total domestic stock market, I would’ve made $277.84 more; and if I had invested everything into the total international stock market, I would’ve made $322.09 more. I was actually ahead of these benchmarks for a large part of the past year, but they passed me up right at the end. I think this serves as a good demonstration that, if you’re investing for the long haul, it is probably a good idea to just put your money into broad market index funds.

If it’s any consolation, we should be happy that we did not put all our money into cryptocurrency. The Grayscale Digital Large Cap Fund, which is com­posed (as of today) of Bitcoin, Ethereum, Solana, Polygon, and Cardano, fell almost 65% in value.

 

Prophet Adam

It is widely accepted that it is impossible to consistently and intentionally predict the stock market, and those who have managed to do so have just got­ten lucky. However, what isn’t impossible is to take current events into consideration and make broad generalizations about what is more likely to hap­pen in the stock market during that generalization period.

Last year, I made three major assumptions:

  1. The first was a very specific assumption that the COVID-19 pandemic would go through more severe sinusoidal phases that would cause another market crash. This was simply incorrect, as the pandemic seems to have stabilized, the United States has mostly gone back to normal life, and most people have accepted SARS-CoV-2 as being a lingering virus that we will have to deal with long-term, just like how we already deal with the flu.
  2. The second was a broad assumption that the stock market is more likely to fall than it is to rise, due to the fact that the economy is not ac­tu­al­ly as healthy as it might seem. This ended up being correct, inflation is indeed at a decades-long high, and we saw policy changes im­ple­mented by the Fed­er­al Reserve System (such as increased interest rates) to help mitigate.
  3. The third was an assumption that the world will trend towards infrastructural development and the continued transition to push rapidly-evolving tech­nol­o­gy to the general public. As far as I am aware, there is nothing particularly iconic that happened in the past year with regards to this that rev­o­lu­tion­ized the way society works. However, this statement is also so excessively broad that it sounds like, a year ago, I might have worded it in­ten­tion­ally vaguely to make it so it was borderline impossible for my prediction to be wrong.

From there, I decided that, out of the market sectors defined by the Global Industry Classification Standard (GICS), I wanted to focus on consumer sta­ples, health care, utilities, and real estate. Were those indeed the best sectors? Here are the results:

Sector (Ticker*) Start Price Shares Value Cost basis Change ($) Change (%)
Energy (VDE) $ 87.06 $125.43 114.8633 $14,407.31 $10,000.00 +$4,407.00 +44.07%
Health Care (VHT) $241.11 $247.52  41.4748 $10,265.85 $10,000.00 +$  265.85 + 2.66%
Utilities (VPU) $149.02 $151.02  67.1051 $10,134.21 $10,000.00 +$  134.21 + 1.34%
Materials (VAW) $182.44 $182.80  54.8125 $10,019.73 $10,000.00 +$   19.73 + 0.20%
Industrials (VIS) $192.23 $188.87  52.0210 $ 9,825.21 $10,000.00 –$  174.79 – 1.75%
Consumer Staples (VDC) $195.83 $188.65  51.0647 $ 9,633.36 $10,000.00 –$  366.64 – 3.67%
Financials (VFH) $ 94.19 $ 87.05 106.1684 $ 9,241.96 $10,000.00 –$  758.04 – 7.58%
Total Market (VTI) $222.33 $201.28  44.9782 $ 9,053.21 $10,000.00 –$  946.79 – 9.47%
Information Technology (VGT) $405.03 $346.23  24.6895 $ 8,548.26 $10,000.00 –$1,451.74 –14.52%
Real Estate (VNQ) $105.43 $ 88.09  94.8497 $ 8,355.31 $10,000.00 –$1,644.69 –16.45%
Consumer Discretionary (VCR) $303.61 $240.90  32.9370 $ 7,934.52 $10,000.00 –$2,065.48 –20.65%
Communication Services (VOX) $124.96 $ 92.82  80.0256 $ 7,427.98 $10,000.00 –$2,572.02 –25.72%

*For the purposes of this table, I used Vanguard sector ETFs to gauge each sector’s performance. I selected Vanguard simply because I personally use it as my primary brokerage and I am most comfortable working with their offerings. There are many other options available, and the results may vary de­pend­ing on which one you pick.

Energy was a wildcard that spiked from the Russo-Ukrainian War and its escalation as a result of the 2022 Russian invasion of Ukraine. With that ex­clud­ed, it seemed like my predictions were generally correct—although real estate underperformed, the other three sectors I picked outperformed the to­tal stock market, and if I average out all four, I would be ahead of the total stock market by $543.97.

Remember, though, that my ten individual company picks did not beat the total stock market by that amount, or at all. That further emphasizes how much of a risk it can be to invest in individual companies instead of broad indexes, as well as how basing your investment decisions even on something as seemingly reliable as stock market sectors could still end up leading you astray.

 

The Coca-Cola vs. Pepsi mini-game

Doug’s community is split in half into two teams based on the letter with which each person’s Twitch username begins—”A Crew” for the first half of the alphabet and “Z Crew” for the last half of the alphabet. As a mini-game between the two “crews,” Doug invested $500 into Coca-Cola to represent A Crew and $500 into Pepsi to represent Z Crew, and whichever stock ends with a higher balance would determine which crew wins.

Company Coca-Cola Co. PepsiCo, Inc.
Start  $  59.96    $ 175.49  
Price  $  60.23    $ 169.12  
Shares 8.3389 2.8492
Value  $ 502.25    $ 481.85  
Cost basis  $ 500.00    $ 500.00  
Change ($) +$   2.25   –$  18.15  
Change (%) +0.45%  –3.63% 

Unfortunately, Doug made a common mistake of confusing Coca-Cola Bottling Co. Con­sol­i­dat­ed (COKE) with Coca-Cola Co. (KO), so he ended up investing A Crew’s $500 into the wrong company. I flagged this for Doug so he could fix his mistake, but not before he re­al­ized $26.07 in prof­its from COKE from the first trading day. Before I could make the prop­er cal­cu­la­tions to see how much of that gain should carry over, he put the en­tire $526.07 in­to KO.

Thus, the A Crew vs. Z Crew situation becomes a bit more complicated. Instead of just look­ing at Doug’s portfolio to see who won, we have to do some math to find out what his bal­ance of KO would have been had he invested the $500 properly from the beginning.

After performing that calculation using historical data and running a market simulation ag­ing that portfolio by one year, we have A Crew’s Coca-Cola Co. finishing with $502.25 and Z Crew’s PepsiCo, Inc. fin­ish­ing with $481.85, thus making A Crew the winner of the mini-game by a mar­gin of $20.40.

 

The aftermath

One of the stipulations of this challenge was that we would have to donate any earnings beyond our $10,000 cost basis to charity. Unfortunately, both of our portfolios lost money, so there were no profits this time around.

Another stipulation was that the loser of the challenge (i.e., the person with the lower portfolio balance) would have to do a punishment. If I were to lose to Doug and his Twitch chat, it was suggested that I would have to get a phrase of Twitch chat’s choosing laser engraved onto my Glock 19 pistol. I ac­tu­al­ly don’t recall explicitly agreeing to this, but thankfully, it doesn’t matter, because I won.

Doug’s punishment, on the other hand… was undecided. I imagine it is going to be determined through a voting process with Twitch chat during an up­com­ing live stream. I also trust that whatever is selected as his punishment is of comparable severity as me potentially having some random Twitch meme permanently immortalized on my duty weapon.

 
I had fun with this stock investing challenge, and I’m glad I was able to participate. I think many people just expected all along for me to win, but in reality, there were plenty of opportunities for Doug’s portfolio to come out ahead.

I’d be happy to participate in something like this again in the future. But until then? I’m sure you already know… I’m selling everything tomorrow and putting it in the S&P 500.

 

—§—

 

Investment allocation breakdown for 2022 Q4

by   •   Finance
 

Disclaimer: I am not a registered investment advisor, and even if I was, I wouldn’t be your investment advisor. The information found in this blog post is in­tend­ed to be strictly anecdotal and should not be construed as financial advice. Everyone’s situation is uniquely different and requires personalized at­ten­tion, so if you are seeking guidance, be sure to consult a licensed and certified professional.

 
With the final few days of 2022 falling on a weekend and the last trading day of the year having already closed yesterday, I decided to do my quarterly in­vest­ment allocation breakdown a day earlier than I usually do, as my final blog post of 2022.

As prerequisite reading, I highly recommend my investment allocation break­downs for the second and third quarters of 2022 in order to get appropriate con­text for this post.

Cash

It might seem like I can’t decide what I want to do with my cash, considering that I was hoarding it during the market instability, then dumped all of it into the stock market last quarter, before now hoarding cash once again.

There are two reasons why I kept more of my money in cash this quarter:

  1. A new calendar year is approaching, which means contribution limits reset for tax-advantaged accounts like retirement, ed­u­ca­tion, and health savings, so I am preparing a lump of cash for January 1 for that purpose.
  2. Interest rates have been going up, and even though it’s still not enough to beat inflation, it mitigates just enough that I am will­ing to have this chunk of cash out of the stock market just in case it continues to fall. As of today, Discover Bank’s flexible high-yield savings account has an annual percentage yield of 3.30%.
   8.14%

Domestic broad market index funds

Of my holdings in domestic broad market index funds, 45.95% of it is in high-yield dividend funds and the other 54.05% is in a to­tal stock market fund.

I have a feeling that the market still isn’t done doing some unexpected things, so until then, I’ll probably be putting more in dividend funds as a hedge against the volatility, and then hopefully get lucky with the timing and move it over into growth funds before a bulk of the market recovery happens. If not, then at least I was still in the market farming dividends.

  42.87%

International total market index funds

   4.46%

Target date funds

Out of my target date funds, 51.31% is allocated towards a retirement year of 2055 and 40.42% is allocated towards a retirement year of 2060. Keep in mind that this does not mean that I actually plan on retiring on or around those years. This is merely a simplified in­dicator of the degree of risk I’m willing to take with my portfolio, i.e., by 2055-2060ish, I want 100% of this money in bonds, money mar­ket funds, or cash-equivalents to ensure I do not suddenly lose a lot of value to a volatile market.

The remaining 8.27% is targeted towards other dates of stability and are not necessarily retirement-related.

  17.15%

Real estate investment trusts (REITs)

  13.96%

Bonds

   5.55%

Cryptocurrency

Still holding…

   1.32%

Individual stocks and private companies

As a reminder, the $10,000 investing challenge with Doug Wreden (about which I will give an update at the end of this blog post) is not included in this section, as I didn’t want to risk giving out any clues that would allow people to potentially reverse engineer my net worth based on these percentages.

   3.97%

Precious metals

   1.03%

Fine art, and other collectibles

   1.55%

 
A little over 11 months ago, my friend Doug Wreden and I did a stock market investing challenge where we both put US$10k into individual companies to see whose portfolio would be ahead after one year. Doug relied heavily on his Twitch chat to make the decisions, while I made all my decisions on my own.

Here is a table showing the current state of our holdings, as well as a few benchmarks at the bottom:

Here is a graph of the total value of Doug’s and my portfolios, alongside what our portfolio value would have been had we invested the full amount in the S&P 500 or the total bond market instead:

My portfolio was built specifically to weather a stock market decline, and it is clearly serving its purpose, as I’ve had a solid lead over Doug since early April. With that being said, anything can still happen, and if there is a huge rally at the beginning of 2023 that causes tech stocks to spike in price again like it did during the pandemic, it is not impossible for Doug to just barely squeeze out a win right at the finish.

 

—§—

 

Investment allocation breakdown for 2022 Q3

by   •   Finance
 

Disclaimer: I am not a registered investment advisor, nor do I have the intent or proper qualifications to become one. The information contained in this blog post is strictly anecdotal and should not be construed as financial advice. Everyone’s situation is uniquely different, so if you need guidance with your own financial strategy, consult a certified professional.

 
Last quarter, I published a comprehensive breakdown and explanation of my investment allocation as of 2022 Q2. If you want the proper context to this blog post, you should review that post first as prerequisite reading.

Cash

Literal days after publishing my previous investment allocation breakdown, I dumped a majority of my cash back into the stock mar­ket. In essence, I was doing the precise thing that like to tell everyone not to do, and that is, timing the market. Thus, I am down to a mi­nus­cule amount of cash left in my checking and savings accounts.

   1.57%

Domestic broad market index funds

Building on what I just mentioned about dumping cash back into the stock market…

At first, I thought my timing was great—I held cash throughout a majority of 2022 Q2 when the S&P 500 peaked at about $4,582.64 and generally stayed above $4,000 throughout the whole quarter. Right as it dropped to ~$3,800 towards the beginning of July, I bought back in aggressively. The S&P 500 continued to rise to a high of a closing price of $4,305.20 on August 16, and I was satisfied.

Then, of course, the market started falling again. I did not pull my money back out into cash and continued holding. As of market close on September 30, the S&P 500 is at $3,585.62, lower than my aggressive buy-back price.

For now, I’m still satisfied with the fact that I bought back in at ~$3,800 and not between $4,000-4,500. I have absolutely no sub­stan­tive idea what’s going to happen to the stock market from now on, so unless I pick up on some obvious clues, I’m going to hold stead­y and con­tinue dollar-cost averaging until I have a better plan.

  43.20%

International total market index funds

The international market hasn’t been doing very well, and with China’s current economic crisis, it may be worth it to try and do a bit of optimization by withdrawing from the international market temporarily. This would be a great opportunity for some tax loss har­vesting, so I may be doing some calculations and putting in some transactions soon.

   4.53%

Target date funds

Like usual, there is going to be next to no change in target date funds in Q3 and Q4, as I usually contribute a maximum amount as soon as possible in the beginning of the year in Q1, and then again during tax due date season in Q2 when I know my new SEP-IRA contribution limit.

Consequently, the percentage will remain fairly consistent and decline slowly, caused by the rest of my net worth increasing but me be­ing unable to contribute more to retirement funds until the following calendar year.

  18.39%

Real estate investment trusts (REITs)

With the real estate market stabilizing again after the post-pandemic surge, and with my home city of Las Vegas being one of the top fastest-cooling real estate markets in the United States of America, I’m keeping an eye out on physical real estate to make sure I don’t miss out on some great opportunities. However, until I find one, I will be keeping my real estate investments in REITs.

  15.60%

Bonds

Usually, bonds are pretty boring, but now that interest rates are rising, bonds are becoming a lot more interesting because of how they tell a story about interest rates and exemplify a core principle of investing. Regardless, I haven’t made any changes with regards to my bond holdings.

   6.47%

Cryptocurrency

Since the beginning of the previous quarter, Bitcoin has been relatively even in price, but because I’m invested in broader crypto­cur­ren­cy indexes and not just a single coin, my overall cryptocurrency portfolio has actually gone up in value. Regardless, I’ve lost sig­nif­i­cant­ly more than two-thirds of my original investment, so overall, cryptocurrency has not been very kind to me.

   2.96%

Individual stocks and private companies

As a reminder, the $10,000 investing challenge with Doug Wreden (about which I will give an update at the end of this blog post) is not included in this section, as I didn’t want people to be able to have any clues to potentially reverse engineer my net worth based on these percentages.

   4.47%

Precious metals

I put a little bit of money into gold and other precious metals during market instability because I thought it would be a good way to diversify into something that has historically been a more reliable store of value during recessions, but apparently, either I was hor­ri­bly wrong or my timing was hor­ri­bly bad. I’ve lost over a third of my original investment, but because my commitment is such a small amount, I just plan on holding.

   1.00%

Fine art, and other collectibles

I sort of suffered the same fate in this category as many other investors.

Back when collecting in­vestment-grade Pokémon cards was the hype thing to do, many people obsessively bought packs and cleared store shelves of new releases, depriving actual children from buying them to play with for fun. After a while, that craze settled, and peo­ple slowly lost interest.

When I first started looking for fine art in­vestments, it consumed hours of my time because I was so intrinsically interested in and in­trigued by this concept that was new to me. However, after the dust settled, it ended up just being another form of diversification. I plan on keeping this class of investment in my portfolio for a long time, but as of this past quarter, I haven’t been actively trading or do­ing additional research.

   1.81%

 
And now, the part that, for some of you, is the only reason why you come to these quarterly investment breakdowns… here is the current state of my $10,000 investing challenge with Doug Wreden. If you’re not sure what this is, you can read the aforelinked blog post for a comprehensive explanation.

As of market close on September 30, 2022, my portfolio is worth $8,404.62 and Doug’s portfolio is worth $7,287.17. I’ve maintained my lead over the S&P 500, while Doug is avoiding last place only thanks to the crashed cryptocurrency market.

One notable change this quarter is that the bond market managed to just barely squeeze past me. I’ve only temporarily been behind the bond market during the harshest stock market dips, so it’s very possible that I’ll be winning again in a few more days, but if the market continues to decline, this can be a decent demonstration of the relative stability of bonds.

Because of this, I decided to add the Vanguard Total Bond Market Index Fund to the chart.

Doug’s portfolio managed to reach a new all-time low, and compared to last quarter’s chart, I actually had to adjust the bottom of the y-axis from $7,800 to $7,200 to fit him in.

We’re 115 days away from the end of the 1-year mark, which means we have a little less than a third of the challenge duration remaining. Regardless, that’s still a long time, and if the current chart is any indication, anything can happen over the next four months.

 

—§—

 

Investment allocation breakdown for 2022 Q2, comprehensive edition

by   •   Best of the Best, DougDoug, Finance
 

Disclaimer: I am not a registered investment advisor, nor do I have the proper qualifications to become one. The information contained in this blog post is intended to be strictly anecdotal as a means of personal storytelling, and it should not be construed as financial advice. Everyone’s situation is uniquely different, so do not blindly copy my strategy; instead, consult with a certified professional if you have any questions or need proper guidance.

 
After doing these investment breakdowns quarterly for over a year now, and each quarter, building upon the previous quarter’s breakdown, I realized that it’s not very realistic to ask people to go down the entire rabbit hole of all of my past investment allocation breakdowns in order to understand the full context of anything new that I’m sharing. Because of this, I have decided to do a “comprehensive edition” of my investment breakdown at least once a year in order to “reset” the trail of breadcrumbs and provide a new standalone anchor point from which readers can start.

Because of this, this particular comprehensive edition of 2022 Q2’s investment allocation breakdown is going to be a lot more detailed and will contain lots of repeated information from previous posts—which is the entire idea here, as the main point of me doing this is to be able to compact everything im­por­tant into a single article so readers won’t have to navigate back in time.

Now, with that having been just said, I think this may seem pretty silly, but I direct you to a blog post that I published in the past titled “Investing US$10,000.00 in the stock market – Parkzer vs. DougDoug’s Twitch chat.” In that post, I discuss my current outlook on the market; it will give a general explanation as to why I seem to be so focused lately (within the past half a year or so) with portfolio diversification and alternative investment classes.

Cash

I subscribe to many safe-investing principles, including the idea that time in the market is better than timing the market, and how you should always hold minimal cash—only enough to cover your emergency fund. If anything makes you heed my disclaimer above a­bout how I’m not an investment advisor, it should be this—I am at an all-time high in cash holdings, and I am being a hypocrite and not following my own advice.

I didn’t recently sell investments in preparation for making a major purchase or anything—I just don’t feel comfortable dumping a bunch of money into the stock market right now until I see some modicum of stability return to the charts. I am losing a substantial amount of value from my money due to high inflation by just holding it in cash, but that is a trade-off I’m wiling to accept to avoid losing even more to a crashing market.

My bank account of choice is the Discover Online Savings Account. I’ve been a Discover customer ever since I was 18 years old and got my first credit card; Discover has always been reliable for me, and because it is an online bank, even though the interest rate on the savings account is tiny, it is still astronomical compared to traditional brick-and-mortar banks that may offer less than a tenth (or even a hundredth) of a percentage point.

  27.19%

Domestic broad market index funds

For the money that I do still have in the stock market, a large portion of it is in domestic broad market index funds, namely Vanguard To­tal Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX).

I use Vanguard as my primary brokerage, but I also have a Fidelity account for account types that Vanguard doesn’t offer—namely a Health Savings Account and a regular brokerage account that supports incoming transactions of over-the-counter securities (which Van­guard recently stopped supporting in late April) (I also hold my 529 College Savings Plan with Fidelity because the sign-up proc­ess was much easier than Vanguard’s). Within my Fidelity HSA, I hold my money in the form of the Fidelity ZERO® Total Market In­dex Fund (FZROX).

Although I’m hesitant in current market conditions, domestic broad market index funds are my favorite category of investment. Each calendar year when limits reset, I max out my tax-advantaged accounts, and all other investments into the stock market generally go into brokerage accounts in the form of broad market index funds.

  17.84%

International total market index funds

For the purpose of diversifying outside of the United States of America, I also own Vanguard To­tal International Stock Index Fund Ad­mi­ral Shares (VTIAX).

I don’t know much about countries outside the United States, and I am probably grossly uneducated about international matters, but I know for a fact that the United States is not the only successful country in the world, and I want to make sure that I have exposure to outside markets in case something horrible happens to the United States and/or something incredible happens to a foreign country.

Beyond that, I don’t really have much further insight here; I just picked out a broad market index fund specifically focusing on non-US companies (as opposed to worldwide index funds) such that I don’t have any overlap with domestic index funds I already own, and can control and proportion my exposure to global markets.

   5.29%

Target date funds

In my retirement accounts, specifically my Roth IRA and SEP-IRA, I like to purchase target-date broad-market index funds. Spe­cif­i­cal­ly, I have my money split fairly evenly between Vanguard Target Re­tire­ment 2055 Fund (VFFVX) and Vanguard Target Re­tire­ment 2060 Fund (VTTSX).

The premise of a target date fund is to pick out a year in the future for when you think you are going to need to start making with­drawals, and the index fund manager automatically adjusts the holdings of the fund to optimize growth up until that point. For ex­am­ple, if you are expecting to retire in 2060, these funds will invest heavily in high-risk, high-return stocks for now, but as it gets closer to 2060, the fund will progressively shift holdings into low-risk, low-return bonds such that your money won’t suddenly plum­met if a stock market crash were to happen close to your retirement year when you need to start making withdrawals.

Due to annual contribution limits set by the government on these tax-advantaged retirement accounts, a majority of my investments are in regular brokerage accounts. Thus, by putting all my tax-advantaged retirement savings into target date funds, I’m only putting a relatively small percentage of my investment into these automatically-adjusting portfolios, and I am manually managing everything else outside of these retirement accounts.

A reasonable question I often get is why I don’t manually self-manage all of my investments (including retirement savings), instead of en­trusting my IRA contributions to Vanguard’s fund manager, considering how involved I already am with investing and wealth man­age­ment. The main reason is so it can act as a safeguard in case something happens to me in the future where I am no longer able to ac­tive­ly manage my own money. Of course, I imagine that the likelihood of that actually happening (and then my caretaker also not being able to actively manage my money) is inconceivably low. However, for my personal risk tolerance, I feel like I already have plen­ty of other investments such that I’m willing to sacrifice a bit of money on an automatically-managed target date fund with a slight­ly higher expense ratio so it acts like a makeshift insurance policy for my retirement, in case the market crashes right when I need the money.

As a side note, I also recently started taking advantage of another tax-advantaged account, the UNIQUE 529 College Investing Plan. I set one up with Fidelity, and again, for the sake of convenience, and because of how small of a fraction of my total portfolio this ac­counts for, I was comfortable just putting the money into a target date fund. Based on the fact that I may use this money myself for further education (as opposed to passing it onto my children), Fidelity selected the NH College Portfolio (Fidelity Index) as my fund.

  20.53%

Real estate investment trusts (REITs)

If you ask people how to best diversify your investment portfolio, the go-to answer from most people is usually going to be real estate. Unfortunately, traditional real estate has a relatively high barrier of entry—not only do you have to go out and find a physical prop­er­ty at a rea­son­a­ble price with good potential for positive cash flow, but you also need to put a chunk of capital down to purchase the property, even if you’re loaning money from a lender.

Luckily, there are some alternatives for real estate investment that don’t involve purchasing an actual building, facility, or plot of land. The real estate investment trust is an investment vehicle that allows you to invest in a company that, to put it simply, acts like a land­lord on your behalf and shares their real estate profits with you. A vast majority of taxable revenue from income-driving activities, such as collecting rent payments from leasees, are distributed to REIT shareholders in the form of dividends.

Because I personally am not at a point where I feel ready to commit to purchasing physical real estate, 100% of my real estate investment exposure is through Vanguard Real Estate Index Fund Admiral Shares (VGSLX).

  11.72%

Bonds

I have been relatively fickle with bond holdings because of how young I am and how much opportunity cost there is to investing in bonds instead of in stocks, considering the amount of runway I have prior to needing to withdraw from my investments. With that being said, upon the full onset of the COVID-19 pandemic and the relief efforts the United States government took to print an absurd amount of money out of nowhere, it was fairly obvious that inflation was going to skyrocket.

This was less well-known before, but I’m glad that this information is much more commonplace now—the United States Department of the Treasury offers a special bond called the Series I Savings Bonds that acts as a hedge against inflation. As of this writing, the in­ter­est rate on these bonds is 9.62%, which is earth-shatteringly high considering that many people are losing double-digit per­cent­ages on their portfolios by investing their money elsewhere.

An overwhelming majority of my bond holdings are in the form of Series I Savings Bonds. It’s a great way for me to retain as much of my money’s existing value as possible for now, and then once the market stabilizes, I can sell the bonds and reallocate them back into higher-risk stocks.

   6.77%

Cryptocurrency

I started investing in cryptocurrency primarily as a way to diversify my portfolio, but part of my interest also came from the fact that I saw many other people getting rich off buying into cryptocurrency early, and I wanted to join in on the gamble.

Tempo Games is going to be integrating blockchain technology into one of its upcoming game releases. Even though I oversee cor­po­rate operations and am not directly involved in game design or technical en­gi­neer­ing, I still felt like it would be important for me to be familiar with the concept. One of the best ways to learn is to accrue experience through first-hand, hands-on exposure and ex­per­i­men­ta­tion, so I have been making active cryptocurrency investments a lot more in the past few years.

I own a decent chunk of Bitcoin and a little bit of Dogecoin and Shiba Inu token, but a majority of my holdings are actually in the form of the Grayscale® Digital Large Cap Fund (GDLC) and the Bitwise 10 Crypto Index Fund (BITW). These are over-the-counter securities that represent underlying cryptocurrency holdings held by the firms and packaged into a single share, the convenience of which is paid for via a 2.5% annual management fee.

There are three distinct reasons why I own most of my cryptocurrency in this form:

  1. This is less applicable now, but when I first started purchasing cryptocurrency, I was not confident in my ability to manage my own wallet, and I had a mild concern that I would make a mistake that could render all my cryptocurrency useless or gone.
  2. At various times throughout the life of these funds, the market price per share was lower than the actual value of the underlying holdings. For example, on December 31, 2021, GDLC was trading OTC at US$24.25, but the cryptocurrency that each share rep­resented was valued at US$32.18, which means I got a nearly 25% discount on the cryptocurrency I purchased that day.
  3. If there were to be a situation where I suddenly die, my estate would then be distributed amongst my survivors. Because I have no spouse and no children, my parents are next in line to receive my assets. Considering my past experiences with watching them try to use emerging technology, I do not want tens of thousands of dollars’ worth of my assets to be locked behind a mo­bile app that they are going to have to figure out how to swap for United States dollars through a cryptocurrency exchange.
   2.87%

Individual stocks and private companies

I went through a phase when I was younger when I was very interested in researching companies and picking out stocks. In the past few years, I was also a participant of the retail investor movement and buying meme stocks. Since then, I’ve waned down my in­di­vid­u­al company holdings substantially, and instead just stick with companies that are meaningful to me.

I own Marriott International, Inc. (MAR) because they have functionally been my landlord for over a year now after I transferred out the lease to my condo in Las Vegas and traveled across the United States and Canada. I am an Ambassador Elite in their loyalty pro­gram, which is the highest tier achievable through their Bonvoy system; throughout this incredible volume of travel, as well as ad­di­tion­al research I’ve done on other hotel chains, I believe Marriott takes the best approach to lodging out of all the major brands.

I also own Cloudflare, Inc. (NET) and T-Mobile US, Inc. (TMUS) because they are two of my favorite companies to work with. I use almost all of Cloudflare’s available services to support my website, and also used them for Tempo’s corporate needs as well, up until we hired a new IT team and they took over that aspect of the company. I’ve been with T-Mobile ever since I left my parents’ AT&T family plan. I have never faced a single problem with either of these companies. In my opinion, both of these companies take an un­com­mon approach to business, in that they prioritize quality products and high customer satisfaction above anything else, and de­pend on those two aspects to naturally improve cash flow.

Finally, I purchased a nice batch of Stellantis, NV (STLA), the company behind my favorite auto brand and pickup truck, the Ram 1500 Rebel, as well as some other auto companies I’m a fan of, like Alfa Romeo, Maserati, and Jeep. Stellantis has shown great acumen towards advancing vehicle technology and implementing it in previously unestablished ways. I’m looking forward to seeing the Ram all-electric pickup truck, and there is a high chance that it is the next pickup truck that I’m going to end up purchasing.

Note that my holdings for the $10,000 investing challenge with DougDoug are not included in this line item (or in this investment al­lo­cation percentage breakdown at all), as I consider that more of a special project, and also want to avoid people trying to reverse en­gi­neer numbers to calculate my net worth. Instead, I have a brief section about the investment challenge at the end of this blog post.

   4.71%

Precious metals

As a way to even further diversify my portfolio, I took the recently-falling stock market trend as an opportunity to buy into some gold. I’m not really in a position right now to purchase solid gold bars and store them safely with me as a physical hedge against the market, but I found the Fidelity® Select Gold Portfolio (FSAGX) that I can buy from my existing Fidelity brokerage account, which comes close enough.

One thing to note here is that I’m not investing in gold because I’m particularly passionate about it or know what I’m doing; this is mostly a “why not” scenario where I am putting in a tiny fraction of my portfolio into something that I’ve always heard could be use­ful to have during market turbulence.

   1.20%

Fine art, and other collectibles

And finally, as a way to really diversify my portfolio, I began investing in fine art and other collectibles this quarter, and will continue doing so in increments in the future.

There were three factors that set me over the “tipping point” to begin investing in fine art:

  1. I always knew that fine art was something that only rich people invested in, and because of how I believe in the concept of “the rich get richer” (i.e., don’t work for your money, make your money work for you), I wanted to get in on this investment vehicle.
  2. With how “abstract” money has felt in the past few years, primarily caused by the United States government just printing a ton of money out of nowhere during the pandemic and making me question the core principle of the value of money (and, to some extent, how a radical move by the government could theoretically bring the value of my paper money down to zero), I realized that possessing “stuff” is more useful in the long-run than hoarding dollars.
  3. Although I can’t outright purchase fine art at my current level of wealth, I found StartEngine Collectibles Fund I, LLC’s Reg­u­la­tion A+, in which StartEngine has securitized fine art and is selling them as shares. This massively lowers the barrier of entry in­to fine art investing, even if the fees are fairly high. (To be clear, this is not a paid endorsement, which is why I linked to the SEC filing instead of their website; if you’re also interested in this type of investment, you should do your own research and con­sid­er all the options, rather than just blindly using the same company I did.)
   1.88%

 
As promised, to wrap up, here is a breakdown of how my $10,000 stock investing challenge with Doug Wreden is going:

My portfolio is weathering the stock market decline relatively well with a balance of $9,137.88, managing not only to beat Doug and his Twitch chat’s port­fo­li­o, but also the S&P 500 and even the bond market. Doug’s portfolio is at $7,944.67, rapidly re-approaching its all-time low. However, if it’s any con­so­la­tion, I guess he and his community can at least be happy that they didn’t go all-in on cryptocurrency, which would be down to $3,805.97 by now.

 

—§—