Balanced-Growth Portfolio

Welcome to Part-3 of my series on asset allocation.  In my last post, I wrote about Adding Bonds To Reduce Volatility in the portfolio that my wife and I held for the past ten years.  In this post, I am going to write about our new asset allocation.  This is the allocation that we will hold until we reach early retirement (FIRE).

As a Financial Independence (FI) blogger, I have always been a portfolio nerd.  The Lazy Portfolios made popular by Paul B. Farrell on and his book The Lazy Person’s Guide to Investing have always been something that I have enjoyed following.  It is interesting to analyze the performance of famous portfolios like the Coffeehouse Portfolio, Yale’s Unconventional Portfolio, the Second Graders Starter Portfolio, as well as others.

The portfolio that I would like to introduce to you is what I call The Sweet Dreams Portfolio.  The portfolio is named after what it provides for us.  It is a portfolio that allows us to sleep well at night in spite of all the scary headlines that can easily cause nightmares from the sensationalized financial and political media.

This portfolio has a balanced-growth asset allocation.  Based on the Vanguard portfolio allocation model, a portfolio that is made up of 60% stocks and 40% bonds is classified as a balanced portfolio.  Vanguard classifies a portfolio of 70% stocks and 30% bonds as a growth portfolio.  The Sweet Dream’s portfolio is 65% stocks and 35% bonds.  The Sweet Dreams portfolio is made up of the same funds that we used in our previous asset allocation.

The Sweet Dreams Portfolio:

S&P 500 – 38%

Extended Market Index Fund – 11%

Total International Stock Market Fund – 16%

Total Bond Market – 35%

You might be asking, why not just use the total stock market instead of using an S&P 500 and an extended market fund?  The answer to that question is that these are the options that my wife and I have available in our 403B accounts.  A total stock market fund has the same market weighted allocation of a 4:1 ratio and can be used in place of those two funds.  There are many different ways to approximate the total stock market with a combination of other funds.

Our Roth IRA’s and taxable funds are invested with Vanguard.  My 403B has index funds from Fidelity.  My wife’s 403B plan has index funds from Charles Schwab.  This asset allocation can be created with index funds from any of those companies.

In my first two posts in this series, I wrote from a position of experience.  In those two posts, I was able to look back at how my asset allocation performed over long periods of time.  Those posts were also about how I responded to different market conditions.

The Sweet Dreams Portfolio is a brand new asset allocation model for us.  There is no such thing as a crystal ball that I can use to see into the future.  We can only look backward at how an asset allocation performed during different market conditions.

Over the past 10 years, The Sweet Dreams Portfolio returned an average of 6.34% per year.  The largest one-year loss was in 2008 with a -24% loss.  An initial investment of $10K would have grown to nearly $20K if rebalanced annually.

Over the past 20 years, The Sweet Dreams Portfolio returned an average of 6.91%. The worst one-year loss over the period of 20 years was still in 2008.  An initial investment of $10K would have grown to more than $38K if re-balanced annually.

At the age of 40, I still have a long investing horizon.  It is not as long as others because of our goal to retire in less than 12 years.  We are comfortable with the 65% invested in equities for growth.  We are also comfortable with the 35% invested in bonds to use as a re-balancing tool during market corrections.  Ultimately, we are comfortable with the thought of having restful nights and sweet dreams as we work toward our next goal on this financial journey.

Please keep an eye out for the 4th and final part of this series.  The final post in this series will be about how we plan on structuring the asset allocation of our retirement portfolio when we reach early retirement (FIRE).  The final post will also include how we plan on funding our retirement based on investment withdrawal rates, pensions, and Social Security.

Please remember to check with a financial professional before you ever buy an investment and to read my Disclaimer page.

4 thoughts on “Balanced-Growth Portfolio

  1. Save Splurge Deny Debt - Cameron

    Good job dialing the portfolio down a little bit to provide comfort for both of you. It is also awesome to see a couple working together to decide allocations.

    Emotions can play a dangerous role in investing, so having a portfolio that eases your fears and allows you to ride out rough patches is very valuable. It may not ever earn 15%, but it does the job you need it to do and shields you from having a catastrophic collapse ruining your dreams. Well Done!

    1. thefinancialjourneyman Post author

      Thanks for the comment.

      Yes, 15% would be nice, but at this point 6-7% is what we need to reach our goals.

      I have found that the best allocation is the one that a person can stick with and continue to fund moving forward.

      You are right, I too think that managing emotions might be the hardest part of investing.

  2. Mustard Seed Money

    I love reading the different asset allocations that people decide are right for them. I also think it’s incredibly interesting how 401ks affect each persons allocations. It just goes to show you how many other factors come into play when it comes to asset allocation. Thanks for sharing!!!

    1. thefinancialjourneyman Post author

      Thanks for your comment.

      Yes, they are interesting to follow.

      It is interesting to read about how different tilts such as small cap value or REITS impact performance over periods of time.

      The 401K is the largest investment account for many people and they are limited on the choice of funds.

      Having an IRA and brokerage account come in handy for building the ideal asset allocation.


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