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.

 

—§—

 

Four-month update: Investing $10k in the stock market – Parkzer vs. DougDoug and Twitch chat

by   •   DougDoug, Finance
 

Disclaimer: I am not an investment advisor, and the information contained in this post is not intended to be construed as financial advice. This is simply an anecdotal report of a personal project and does not imply that you should copy my strategy. Past performance is not a guarantee of future re­sults. Con­sult a certified professional if you need guidance with your own financial strategy.
 

Today marks the exact four-month point since starting the US$10,000.00 stock market investment challenge with Doug Wreden and his Twitch chat.

If you’re not up-to-date and don’t feel like reading the previous blog post for all the details, here’s a summary:

  • Doug and I each put $10,000 of our own money into the stock market by individually picking ten companies in which to invest.
  • Because Doug is not an experienced investor, he solicited for help from his DougDoug community on Twitch to contribute to the decision-making process.
  • I have low faith in the success of the stock market over the next year, so I took a more conservative route and bought into sectors that perform well during a recession; on the other hand, Doug’s Twitch chat seems to have not really stuck with an overarching plan, and instead just picked stocks that they generally liked or thought were good companies.
  • Whichever portfolio has a higher balance after market close on January 23, 2023 wins. All profits get donated to charity, and the person with the low­er portfolio balance has to do a punishment as voted on by Doug’s Twitch chat.

With all that out of the way, here is how our portfolios are doing:

Table containing 27 rows and 9 columns of stock market data

As of today, my portfolio is beating Doug’s with a lead of $1,016.31.

My portfolio is generally hanging in there, with Pfizer and Waste Management being the biggest winners. Walmart had also been doing ex­treme­ly well, but as you can see from the sparkline, it recently tanked after they (and Target Corp.) announced that their first-quarter earnings were worse than ex­pected.

Doug, on the other hand, is going through a very rough patch in his portfolio. He had actually been doing well at first, but with Netflix committing com­mer­cial suicide and the general sell-off of technology stocks, things are not looking good for him.

I’m also tracking a few benchmarks to see how our portfolios would have been doing had we invested them in the broad stock market instead of picking our own individual stocks. My hedge-against-recession portfolio has actually been doing pretty well com­pared to the S&P 500, having consistently been higher than it over the past two months and beating it by $258.05 as of today. However, Doug is falling fairly far behind, at $758.26 in the negative com­pared to if he had just bought the S&P 500.

Bonds are generally considered a safe investment, but even bonds are dropping in price. I personally use Vanguard Total Bond Market Index Fund Ad­mi­ral Shares (VBTLX) in my main investment portfolio, so I decided to use the ETF version BND as the benchmark. If Doug and I had invested in bonds instead of companies, Doug would have $1,078.37 more in his portfolio, while I would have only $62.06 more.

Investing internationally is another common way to diversify a portfolio, and I personally own a large chunk of Vanguard Total International Stock In­dex Fund Ad­mi­ral Shares (VTIAX) in my investment portfolio, so I used the ETF version VXUS as our benchmark. If Doug and I had decided to go broad market international instead of investing domestically, Doug would have $849.49 more in his portfolio, while I would be down $166.82.

And finally, to keep things interesting, I also decided to do a benchmark with cryptocurrency. I selected the Grayscale Digital Large Cap Fund (GDLC), not only because I already personally own it in my regular investment portfolio, but also because it is a way to be able to track the health of the broader cryp­to market, as opposed to looking at just a single coin. As of today, the holdings of GDLC include about 65% Bitcoin; about 27% Ethereum; less than 2% each of Solana, Cardano, and Polakdot; and less than 1% each of Uniswap, Chainlink, Avalanche, Litecoin, and Bitcoin Cash. If Doug and I had taken a risk and put that $10k into crypto instead, Doug would be down $1,984.69 more, while I would be down $3,001.00 more.

If you haven’t noticed yet, I switched the platform I use to track our stocks—I wasn’t fully satisfied with the features of my previous platform, so I de­cid­ed to make my own using Google Sheets and Google Finance instead. Quotes from Google Finance can be up to 20 minutes behind, so it’s not vi­a­ble to use for active trading, but for my purposes of wanting full customizability and the non-urgency of price updates, it works perfectly due to its in­te­gra­tion with Google Sheets.

One of the features I was hoping for previously was to be able to chart our actual portfolio values over time, as opposed to only being able to chart per­cent changes; I made my own chart that sources from a table of the entire daily history of our portfolios, so now you can see the actual dollar a­mounts as the days progress.

My portfolio actually hadn’t been that stellar for a decent chunk of time, but you can see the point in early April at which I pull ahead and everything starts plummeting. Just like how it suddenly changed then, there is just as likely of a chance that it can suddenly change again in the future in the op­po­site direction. We’re still 8 months away from the end of the competition, and that’s a long time for unexpected things to happen, so I’m not getting too complacent.

In the meantime, I still think it’s pretty fun to keep tabs on our progress so we can will a higher power to move the stock market towards the favor of our own portfolio.

 

—§—

 

Investment allocation breakdown for 2022 Q1

by   •   Finance
 

Happy April Fool’s Day—that means it’s time for another investment allocation breakdown. Yes, all of the information in this breakdown is accurate; no, there are no April Fool’s jokes in these numbers.

As of last month, it has been one full year since I’ve done investment breakdowns. Out of all the quarter-over-quarter breakdowns, I think the first quar­ter of the year is going to be the most interesting with the greatest number of changes, because the beginning of the year is naturally the time when I spend the most cash on investments, considering that calendar-year restrictions obviously refresh on January 1.

Keep in mind that this is a series, and I’m trying not to repeat information post-over-post, so you may not be able to get a complete picture of my in­vestment portfolio unless you go back and read the previous installments.

And of course, like usual, a disclaimer: I am not a registered investment advisor, and even if I was, I wouldn’t be your investment advisor; to you, I am noth­ing more than a blogger on the Internet writing personal anecdotes on his website. I am in no way suggesting or implying that you should copy my strategy; everyone’s situation is uniquely different, so you should consult and hire a certified professional if you need guidance with your own financial planning.

Cash

As expected, my cash balance has had the most significant decline from the previous quarter, as I’ve used a large portion of it to buy investments during January. I personally think that, if you don’t have a clear plan for your cash balance, then you should hold as little cash as possible; the allocation I have towards cash right now (as opposed to previous quarters) is a lot closer to what I think is rea­son­a­ble and ideal for my situation.

   5.84%

Domestic total market index funds

Very few changes here—this is approximately the same amount of money as last quarter (minus the market changes, obviously), with the exception of purchasing additional shares of FZROX via a maximum 2022 contribution to my Health Savings Account.

  26.08%

International total market index funds

There are no changes to my international index fund allocation, except for the fact that the international market has been the worst-performing holding in my portfolio for a while now. I’m not discouraged, though; this may be a decent opportunity to buy more while it’s low.

   7.37%

Target retirement funds

As the “set it and forget it” segment of my portfolio, I had a noticeable jump in target retirement funds because I maxed out my 2022 Roth IRA contribution, put a large chunk into my 2022 SEP-IRA, and rounded out my 2021 SEP-IRA contribution after doing my tax­es and calculating the exact tax-year limit.

As a reminder, I categorize this separately because target retirement funds are self-adapting in composition. If you’re curious what mine specifically are made of, I generally split my contributions almost evenly between VFFVX and VTTSX.

  24.75%

Real estate investment trusts (REITs)

No changes.

  16.45%

Bonds

I went into far greater detail about this in a recent finance blog post about investing US$10,000 into individual companies as a com­pe­ti­tion with my friend Doug Wreden, but I personally do not think the stock market is going to do well over the next year. Be­cause of this, I’m more willing to turtle up with bonds and other safer investments. I added onto my bond balance again this quarter, and will most likely hold onto them until the next recession cycle is over, at which point I will exchange them for higher-risk in­vest­ments a­gain.

   8.17%

Precious metals

Following a similar spirit as the above, I invested in precious metals for the first time in my life this quarter. I did some light research about them, and although I still don’t really understand the nuances of metals investments yet, I still figured it’s a good way to di­ver­si­fy my portfolio.

I do a majority of my investing with Vanguard, but I have a Fidelity account for the things that Vanguard doesn’t offer—namely, a Health Savings Account and a Charitable Giving Account. A good precious metals fund also appears to be something Van­guard doesn’t offer (the Global Capital Cycles Fund seems to be the closest thing, but that only invests about a quarter of its funds into precious metals), so I decided to use my previously-dormant individual brokerage account under my Fidelity profile to purchase FSAGX.

   2.00%

Cryptocurrency

The best thing about my cryptocurrency investment so far is the fact that I was able to use it for maximum tax loss harvesting in 2021. Apart from that, I’m just holding onto it, terrified to buy more in case it keeps crashing, but also concerned that “cutting my losses” now will result in cryptocurrency rebounding and becoming mainstream and running away with all my potential profit.

   6.99%

Speculative stocks and individual companies

I decided to purchase some more individual securities, namely in Cloudflare and T-Mobile, both companies that I believe in and have personally been using for a while now. There were some dips in the prices of both stocks over the past quarter, so I took advantage of that opportunity and grabbed some shares on sale.

   2.35%

Notably missing from this breakdown, like usual, is my equity ownership of Tempo, as revealing that would likely heavily skew percentages and also potentially implicitly reveal some of the company’s confidential information.

Another thing that is missing here is the $10k I spent on stocks in the competition with Doug, the blog post for which I linked above in the “Bonds” section. I don’t have a particular reason for not including it—I just happened to forget about it, as I have those stocks held in a separate account, and it takes a lot of work to add together all the numbers and calculate percentages, so I didn’t want to bother redoing all the work… heh.

 

Edit (April 5, 2022):

Speaking of the competition with Doug, I haven’t posted an update about our progress since a week after we did the initial stock purchases, so I decided to edit this blog post and throw in some tables and a chart to show how our picks were doing.

As of the end of the market trading day today, my portfolio is valued at $10,536 and Doug’s portfolio is valued at $10,433. For comparison, if we had in­vested into an S&P 500 broad index fund instead, the portfolio would be worth $10,441.

One thing to keep in mind here is that the stock market is fairly volatile right now, and with our portfolios having only ten and eleven companies, there can be huge fluctuations in a matter of days. In fact, I’d say it’s mostly luck that I happen to have the highest portfolio balance today; for a good chunk of the past month or so, it was Doug whose portfolio value was beating not only me, but the S&P 500 as well.

 

—§—

 

Investing US$10,000.00 in the stock market – Parkzer vs. DougDoug’s Twitch chat

by   •   Best of the Best, DougDoug, Finance
 

Disclaimer: I am not a registered investment advisor and do not have the qualifications to become one. Even if I was one, I would not be your investment advisor; to you, I am nothing more than a random guy on the Internet writing in his personal blog. 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 with your own financial strat­e­gy.

 
A few days ago, my friend Doug Wreden, a broadcast personality who streams on Twitch and makes video content on YouTube, asked if I wanted to join in on a live event he was doing with his community where, together, they would invest $10,000 into the stock market. Unfortunately, I was overloaded with time-sensitive work that entire day and couldn’t join in live, but we decided to do the next best thing, which was for me to participate after-the-fact.

Thus, “Parkzer vs. DougDoug’s Twitch chat” was born.

 
Rules:

  • Invest US$10,000.00 into ten individual companies (no index funds, mutual funds, ETFs, or bonds).
  • No active trading is permitted after the initial purchase (though reinvesting dividends is allowed), and stocks must be held for one year.
  • The winner is the team with the highest account balance after one year.
  • Any profits beyond cost basis will be donated to charity.

 
Doug has very little investing experience (apart from purchasing Dogecoin as a joke and making a +800% return), so he relied on his community’s as­sis­tance to research companies and pick out the best stocks. Doug uses Robinhood as his brokerage, so that basically speaks for itself. On the other hand, investing and wealth management is one of my favorite hobbies, and I’ve taken it very seriously ever since my first paying job.

However, I knew I couldn’t let this make me get complacent. There are plenty of studies proving that even monkeys randomly throwing darts on a wall of stock ticker symbols can consistently beat investment advisors. Just because I’ve been doing this for longer doesn’t necessarily mean I am go­ing to perform better by default. I needed to es­tab­lish a plan.

 
First, I had to make some predictions and assumptions about what would happen in the coming year. Nobody can predict the future, but what I can do is use current events and cultural trends to make educated guesses. From there, I had to determine which sectors of the market are more and less likely to perform well in the given conditions. Next, I found some companies within those aforementioned sectors that I thought had potential for growth. Fi­nal­ly, I had to trim down my list to ten of my best candidates.

 
I made three major assumptions upon which I would base my investment decisions:

  1. I think the coronavirus pandemic will continue through sinusoidal phases of getting better and worse throughout the year. Although the latest var­i­ant has not been as deadly, it has evolved to become far more contagious. We don’t know how it will mutate next, and with people getting com­pla­cent, this is a ripe opportunity for COVID-19 to cause great damage when we least expect it, resulting in a stock market crash.
  2. I think it is more likely for the stock market to stabilize or fall than it is to rise in the coming year. I think the current state of the stock market is not as healthy as it may seem—it is only this high due to absurd inflation and government policy stimulating economic growth. Once things return to normal and people start repaying their COVID-19 disaster relief loans, money will be taken out of circulation and the stock market will revert back to what it “should” be.
  3. I think the development and modernization of core systems will get faster. Technology companies did well the past few years, but it will still re­quire more work to roll out their advancements infrastructurally so it turns from a luxury into something more commonplace. In simpler terms, I think we have a lot of great concepts, prototypes, and first-generation innovations, but now is the time to keep pushing development so it can be used not only by the elite, but also by the general public.

 
With my grim outlook on the future of the stock market, it is clear that I would have to pick sectors that perform well during a recession. Out of the sec­tors defined under the Global Industry Classification Standard (GICS), I knew I wanted to focus on the following:

  • Consumer staples. No matter how bad the economy, people still need to eat and use core household products. When people have less disposable in­come, they tend to shift their money away from consumer discretionary and into consumer staples.
  • Healthcare. Just because the economy is bad doesn’t mean you’re not going to get sick. On top of that, we are still in the middle of a pandemic caused by a virus that is actively mutating. The healthcare industry is booming, ignoring the fact that that’s probably not the most sensitive way to describe people’s misfortune.
  • Utilities. Similar to the above, people still use utilities during a recession, even if they might try to conserve spending and be more conscious of waste­fulness.
  • Real estate. Again, as you might have guessed, people still need a place to live, even if the economy is bad. However, real estate also bundles in de­vel­op­ment projects, which ties in with the infrastructural advancements I mentioned above that I think will happen.

 
I picked three well-established, reputable companies from each of the sectors above, plus three companies from the remaining sectors not listed above. From there, I took the list of 15 and narrowed it down to 10.

Here are my ten stocks picks with the amount of money I allocated to each company, alongside Doug and his community’s stock picks and their al­lo­ca­tions:

NextEra Energy, Inc. (NEE)

 $   800.00

Waste Management, Inc. (WM)

 $   800.00

Proctor & Gamble Co. (PG)

 $ 1,200.00

Walmart, Inc. (WMT)

 $ 1,200.00

Bio-Rad Laboratories, Inc. (BIO)

 $ 1,400.00

Pfizer, Inc. (PFE)

 $ 1,400.00

American Tower Corp. (AMT)

 $   800.00

Prologis, Inc. (PLD)

 $   800.00

Digital Realty Trust, Inc. (DLR)

 $   600.00

Amazon.com, Inc. (AMZN)

 $ 1,000.00
 

NVIDIA Corp. (NVDA)

 $ 1,250.00 

Aspen Aerogels, Inc. (ASPN)

 $   750.00 

Sony Group Corp. (SONY)

 $ 1,250.00 

Netflix, Inc. (NFLX)

 $   750.00 

Intel Corp. (INTC)

 $   750.00 

CRISPR Therapeutics, AG (CRSP)

 $ 1,000.00 

Hasbro, Inc. (HAS)

 $ 1,000.00 

Microsoft Corp. (MSFT)

 $   750.00 

Costco Wholesale Corp. (COST)

 $ 1,500.00 

The Coca-Cola Co. (KO)
PepsiCo, Inc. (PEP)

 $ 1,000.00*

*The $1000 for Doug’s final stock selection is split evenly between Coca-Cola and Pepsi as a mini-game between “A Crew” and “Z Crew,” two halves of Doug’s Twitch chat community split by the first letter of their username, to see which brand (and consequently, which crew) has a higher return on in­vestment.

From these stock picks, I think it becomes fairly clear that my portfolio was built not to grow faster, but to decline slower. Thus, if the economy con­tin­ues to do well, Doug’s portfolio will defeat mine, but the economy slows down, my portfolio’s balance will conclude the year higher.

 
I’ve loaded all of our stock picks into some portfolio analysis software, and I might do quarterly (or even monthly, depending on level of interest) re­ports on the performance of our portfolios, showing who is in the process of winning. At the very least, I’ll be providing some statistics, charts, and tables for Doug to be able to review on his live stream.

Seeing as this is ultimately going to be for charity, I wish great success for Doug and his Twitch chat… with the caveat that his portfolio yields 1¢ less profit than mine. GL

 

Edit (January 28, 2022):

It’s been a week since we started this little competition, so I decided to go back and edit this blog post to add in some bonus content in the form of charts and a graph.

First, one thing to note is that, if you’re attentive to the numbers, you’ll notice that Doug’s cost basis is not a flat $10,000.00. This is because, when he was picking out stocks on his Twitch stream, he intended to invest $500 in Coca-Cola (as in, the competitor to Pepsi), but instead, he accidentally invested it into the Coca-Cola Bottling Co. Consolidated. This happened because the bottling company’s ticker symbol is COKE, while the Coca-Cola Company’s ticker symbol is KO; Doug and his Twitch chat got those two mixed up.

After I informed Doug of this error, he sold all his shares of COKE and realized $26 in profit, then put all $526 into KO. I was not aware that he was going to do this, otherwise I would have advised him to only put $500.04 back into KO, because that would’ve been the equivalent return on investment from KO from that time period. Thus, because of the transaction, Doug’s numbers are going to be a little bit off.

Hopefully the final results won’t come down to $26, but if our portfolios are indeed within $26 of each other at the end of one year when we determine the winner, we’re going to need to do a bit of math to see how much this affected Doug’s earnings.

After five market days, this is how our portfolios are looking right now:

For comparison, if we had invested the $10,000 into the S&P 500 instead, it would have grown to $10,230—$97 higher than my portfolio, and $363 higher than Doug’s.

Here is a graph of the price change of each of our portfolios, alongside the chart for the S&P 500. Keep in mind that these are by percentage, and are relative values, so this might not be the most intuitive graph. I ideally would have wanted to graph the total value of each of our portfolios over time in dollar amounts, but it seems like that is not a feature offered by my portfolio tracking and analysis software.

 

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Investment allocation breakdown for 2021 Q4

by   •   Finance
 

Another quarter, another investment allocation breakdown. Note that this is a series and a lot of the commentary in this breakdown builds off the pre­vi­ous breakdowns, so I recommend that you take a look at my investment allocation breakdown for 2021 Q3 first, if you haven’t already.

Like always, keep in mind that I am not a registered investment advisor, and even if I was, I would not be your advisor. To you, I am nothing more than a guy on the Internet writing on his personal website. This blog post is intended to be strictly anecdotal, and I am in no way suggesting or implying that you should copy my strategy. Everyone’s situation is uniquely different, so be sure to consult a certified professional if you have any questions or need any guidance with your own financial strategy.

Cash

Again, at the end of this quarter, I’m still a little bit high on my cash allocation.

However, I have a good reason for it this time—it’s the end of the tax year. One of my favorite things to do on January 1 of every year is to max out my retirement and tax-advantaged accounts, such as my Roth Individual Retirement Account (IRA), Health Savings Ac­count (HSA), and Simplified Employee Pension Individual Retirement Account (SEP-IRA) (to the extent that I can predict a base­line of the coming year’s net income).

Because of this, I have a hefty chunk of cash waiting for January 1, 2022 so I can dump it into all these accounts, primarily because I prescribe to the philosophy that time in the market is better than attempting to time the market, and also because I don’t particularly have a propensity towards gambling or taking financial risks.

  11.76%

Index funds – Domestic

There has been very little change when it comes to my index fund investment strategy—I put a majority of money into broad-market index funds and leave it there to passively grow. I don’t really have additional comments for this category.

  28.43%

Index funds – International

This section is the same as above—there are no substantial changes since last quarter, and I don’t have any additional commentary for this category.

   8.00%

Target retirement funds

Just to clarify, the percentage allocation in target retirement funds is shrinking not because I’m taking early distributions or anything, but because my wealth in general is growing, so I’m consistently putting money into other areas of my portfolio, while I only con­trib­ute money to target retirement funds twice a year (once on January 1 and once when I finish my annual tax return and know my max­imum SEP-IRA contribution amount for the previous year).

As a side note, I briefly touched on this the very first time I did an investment allocation breakdown nearly a year ago, but I figured I’d comment on these two points again with a bit greater detail:

First, the reason I separate this category out is because target retirement funds are managed by a brokerage as a mutual fund that auto­matically adjusts its asset mixture over time. Because of this, at any given moment, a target retirement fund can have a different allo­ca­tion of all the different kinds of categories I present in this breakdown.

For example, a portion of my target retirement fund holdings is in VFFVX, which, as of the final day of last month, is composed of 54.9% of the total domestic stock market, 35.5% of the total international stock market, 6.6% of the total domestic bond market, and 3.0% of the total international bond market. Going through and checking on the allocation each quarter and disbursing the per­cent­ages to each of my existing table categories is a hassle, so I decided to just give it its own row in the table.

Second, the reason I use a target retirement fund with a marginally higher management fee, as opposed to managing my allocation my­self, is because I want to leave my retirement accounts in a “set it and forget it” state. I already actively tweak my portfolio al­lo­ca­tions in my regular brokerage accounts, and I’m fine with letting my tax-advantaged retirement accounts grow passively without my attention.

  19.83%

Real estate investment trusts (REITs)

I’ve continued to add more money to REITs, and my percentage allocation has increased since last quarter. In my previous breakdown, I explained why I’m investing more in REITs now, and in summary, it is just a way to try and spread my money out to diversify against a potential stock market crash.

I’m also sort of treating this like my “down payment fund” on a house. If real estate prices stabilize and I end up purchasing a property sometime in the near future, I’ll probably sell some of my REITs and use it to buy the aforementioned property to ensure that I’m still maintaining good diversification and not overinvesting into real estate.

  17.76%

Bonds

I’m always doing research and learning more about finance, and I recently learned about Series I Sav­ings Bonds, a special type of bond that is hedged against inflation. I’ve owned bonds in the past and have sold them due to their poor growth potential, but seeing as the government just printed an astronomical amount of money during the COVID-19 pandemic and inflation has skyrocketed, Series I Sav­ings Bonds end up being a lucrative investment—the current rate as of today is 7.12% in annual interest.

I didn’t mention this earlier because I wanted to save it for the bond section, but another reason I’m holding onto more cash than my target is because I also want to purchase more Series I Sav­ings Bonds once the new calendar year comes around and the maximum pur­chase refreshes.

   4.21%

Charitable fund

I think one of the best ways to learn something is to just go and do it, and following my desire to master everything related to prac­ti­cal everyday finance, I created a charitable fund via a Giving Account through Fidelity Charitable. Fidelity is one of two bro­ker­ages with which I have an account (the other being Vanguard), so the Giving Account creation process was quick, easy, and straight­for­ward.

Fidelity Charitable accepts tax-deductible donations that they will then invest on your behalf, and you can use the post-growth a­mount to donate to your preferred 501(c)(3) charities without having to pay additional taxes on the growth.

I’ve set up my account to invest in the total domestic stock market, so I will likely just lump this in together with the domestic index fund category in my allocation breakdown table, but I still wanted to separate this out as its own line item for this quarter because it’s something new.

   0.43%

Cryptocurrency

Yes, I did indeed increase my cryptocurrency allocation once again. However, it’s probably not what you think… I’m not falling into the gambler’s fallacy or any other kind of obsessive or unhealthy chance- or luck-based investment strategy.

Like I mentioned in the previous two sections, I like to be a hands-on learner because I feel like being directly involved helps you un­der­stand the topic far faster and more effectively than being a bystander or observer. Because of this, I am continuing to put more money into different kinds of cryptocurrency and actively researching different kinds of blockchain technology, and in the process, seeing what’s happening with it first-hand while having a personal stake in the outcome.

This is particularly important to me because we’re going to be integrating blockchain technology in­to Tempo Games’ new upcoming strategy game, so it’s critical for me to have an intimate understanding of it, even though I’m still a degree separated from it due to primarily overseeing corporate operations (as opposed to game design or game development).

As I mentioned last quarter, I’ve lost quite a bit of money investing in cryptocurrency so far, but at the very least, it’s a decent op­por­tu­ni­ty for some tax loss harvesting. As of now, my holdings consist of approximately 60% Bitcoin, 30% Ethereum, 4% Solana, 4% Car­dano, and 2% miscellaneous coins.

   8.78%

Speculative stocks and individual companies

To my eyes, my “speculative stock” fund is almost like my “gambling fund,” in that I pick stocks that I think are going to do well, but invest with the expectation that, even if I lose everything, I won’t be upset.

I chose to slim down a bit on speculative stocks compared to last quarter because I also see a large portion of cryptocurrency investing as being on-par with gambling, and I wanted to lower the amount of money that I was putting into extremely high-risk investments. A secondary reason is, I have limited time to put into doing securities research, and if I’m going to be putting that time into researching cryptocurrency and other blockchain technology, it means I’m not going to be making as educated decisions about the securities of publicly-traded companies, so I am adjusting my allocation accordingly to ensure I’m optimizing my time-to-money ratio.

   0.80%

From what I foresee, apart from the routine spike in target retirement funds that I already justified, there aren’t going to be substantial changes during the first quarter of 2022. With that being said, if anything new does happen, I’ll be back in three months with another investment breakdown… or I might just do one anyway regardless, to maintain the cadence of analyzing my portfolio, because if anything, it’s also good to do for my own benefit.

 

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Investment allocation breakdown for 2021 Q3

by   •   Finance
 

The last time I did a breakdown like this, I hinted at the fact that I might want to start doing this on a quarterly basis, depending on how much I’ve shuf­fled around my investment allocation. I figured I would follow through with that and do a breakdown for the third quarter of 2021.

Like usual, keep in mind that I am not a registered investment advisor, and even if I was, I would not be your advisor—I am nothing more to you than a guy on the Internet writing on his website. This blog post is intended to be strictly anecdotal, and I am in no way suggesting or implying that you should copy my strategy. Everyone’s situation is uniquely different, so be sure to consult with a certified professional if you have any questions or need any guid­ance.

 
With that being said, here is a revised breakdown of my investment allocation:

Cash

I like to hover around 5-10% in cash reserves, so 12% is a tiny bit over my target.

This quarter’s cash reserves are about the same as last quarter’s. As a reminder, “cash” here includes stuff like my savings and checking account, but also includes settlement funds, i.e., money waiting to be used to purchase stocks, or money set aside in a cash reserve mutual fund in case I need to use my HSA debit card.

Since I set off on my cross-country road trip, I also keep a few hundred dollars of paper cash with me in case I run into a situation where credit cards are not accepted (such as exchanging for quarters to use a washing machine), which is not something I have ever done before until now.

  12.75%

Index funds – Domestic

I have put a marginal amount of more money into United States domestic index funds, but overall have avoided doing so because I spent this past quarter focusing on other investment objectives. You’ll notice that the percentage that domestic index funds take up in my portfolio has decreased because I have put a substantial amount of additional money in other categories.

Within domestic index funds, 39.48% of it is in the total stock market, 36.31% in stocks geared specifically towards growth, and 24.21% in stocks geared specifically towards high dividend yields.

  30.97%

Index funds – International

If you scour the Internet for investment advice, there’s a lot of speculation out there. One thing that I do believe is that the United States stock market is unusually high right now, and I am slightly concerned about putting more money into domestic index funds in case there is a sudden crash. However, I also believe in the fact that you should not try to time the market, because even professionals will miss more often than not.

With that being said, I still wanted to keep a steady stream of money going into investments, so I decided to diversify a little bit more by opting to put more money into international index funds. My allocation went up from 6.28% to just shy of 10%.

   9.99%

Target retirement funds

I make marginal tweaks to target retirement funds based off projected income, and I incrementally add more money throughout the year depending on how much I think I will be able to put into my SEP-IRA. However, this category generally only gets a hefty in­crease twice a year—on January 1, when I dump several thousands of dollars in for the new year, and when taxes are due, once I know precisely what my net income was and how much in qualified SEP-IRA contributions that translates to.

  24.03%

Real estate investment trusts (REITs)

This category was my biggest increase, up from just 2.56% last quarter. In a similar vein to the topic I touched in the section about international index funds, I want to diversify and not commit too hard to domestic index funds.

In a stock market crash or a recession, there are a few categories of investments that are more resistant to the drop than others, and real estate is one of them. No matter how bad the economy is, you still need a place to live, and REITs will continue to pay dividends as long as people continue paying their rent and transacting in real estate.

Buying actual real estate (i.e., a physical property) is something I considered, but I decided I wasn’t ready for that yet, so I concluded REITs are the next best thing for my current situation. I mentioned websites like Fundrise last quarter and how I didn’t follow through with using their platform; I’ve maintained that same strategy for this quarter as well, and have my exposure through the Vanguard Real Estate Index Fund Admiral Shares (VGSLX) instead.

  15.15%

Cryptocurrency

I’m not one of those religious believers in cryptocurrency, but I think that’s mainly because I don’t really know that much about it, so a lot of it still seems borderline foreign to me. I’m also not a non-believer either, so I’m continuing to invest a small slice of my port­fo­lio into crypto.

Since last quarter, cryptocurrency prices have recovered a noticeable amount. Since last quarter, I also invested into a new crypto­cur­ren­cy, Ethereum Classic, which now composes 1.44% of my cryptocurrency allocation (i.e., a microscopic sliver). The remainder of my cryptocurrency allocation is composed of 58.54% Bitcoin and 40.02% Ethereum.

   5.23%

Speculative stocks

I’ve more than doubled my investment allocation in speculative stocks, but it’s still a tiny portion of my total portfolio—not even 2%. If anything, this should be considered my “gambling budget,” where I pick stocks that I think will do well, and trade them more for fun than for profit. Like last quarter, a majority of these holdings remain mostly with companies in the travel industry.

   1.75%

Private companies

I bundle together the shares of publicly-traded companies that I hold in the “speculative stocks” category, but there are a few private companies whose stock I have purchased as an early investor.

Again, this should mostly be considered my “gambling budget,” but this specifically is on the extreme end of “high risk, high reward.” This is money that I am pretty much expecting to lose, and if one of these companies happens to make it big, I will get back an as­tro­nomic return.

One thing to note is that this does not include stock options for my current employer; I have opted not to include those stock options at all as part of this investment portfolio breakdown, and will likely continue to avoid doing so unless the company hits some mile­stone where they become liquid. I’d say this is sort of like how I don’t include the value of my paid-off pickup truck in this either—I don’t really consider either of those assets as something I would include in an investment portfolio.

   0.13%

I can’t promise that I actually will end up doing this every single quarter, but if I have any notable portfolio changes, I’ll make another breakdown… if anything, mainly for me to be able to look back and see how my investment strategy has evolved over the years.

 

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