How I Invest My Own Money
A look at my portfolio allocation.
I talk a lot about investing in index funds. I think everyone should be investing in index funds for their long-term goals. More recently, I’ve discussed the merits of factor investing. While I don’t think everyone should be investing in factors necessarily, I do enjoy digging into more intermediate-level investing topics and ways I can be adjusting my portfolio.
I also think it’s always good for people who talk and write about money to be transparent about what exactly they do with theirs, specifically how they invest it. And while I can’t make specific recommendations to individual investors — beyond the good one-size-fits-all advice to invest in index funds — I think it’s worth revealing what my own portfolio looks like.
So here’s a walkthrough of how I invest and why.
First, Some Background
My first portfolio ever was an automated portfolio with Betterment. Near the end of 2019, I was just beginning to learn about how to invest and was deciding between a robo-advisor like Betterment and Wealthfront or a DIY brokerage like Vanguard and Fidelity. I ultimately chose Betterment, as I still lacked the confidence necessary to create my own portfolio and Wealthfront had higher minimums. My plan was for this to be temporary while I learned more and got more comfortable.
I began with a Roth IRA. The basic portfolio based on the age and risk tolerance questions I answered when I opened the account put me in a 90/10 stock/bond portfolio of mostly Vanguard ETFs and some iShares ETFs with the following approximate allocations:
30.9% Vanguard Total Stock Market ETF (VTI)
8.2% Vanguard Value ETF (VTV)
6.7% Vanguard Mid-Cap Value ETF (VOE)
5.7% Vanguard Small-Cap Value ETF (VBR)
24.6% Vanguard FTSE Developed Markets ETF (VEA)
14.0% Vanguard FTSE Emerging Markets ETF (VWO)
1.2% Vanguard Short-Term Inflation-Protected Securities ETF (VTIP)
3.5% iShares Core U.S. Aggregate Bond ETF (AGG)
3.5% Vanguard Total International Bond ETF (BNDX)
1.7% iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)
While I understood little about the funds in this portfolio, it helped me see what a portfolio looked like and forced me to figure out why this combination of funds would be put together.
Shortly after, I selected a high-deductible health insurance plan through my job and began putting money in an HSA at HealthEquity. They had a small selection of Vanguard index funds. While there was an automated advisor option, I chose to build a DIY portfolio, using my Betterment portfolio as a rough guideline. It went through a couple of iterations. For simplicity’s sake, I’m going to include the equivalent Vanguard ETF tickers, however, I actually owned the mutual fund versions. Here’s how it started:
50% Vanguard S&P 500 ETF (VOO)
5% Vanguard Growth ETF (VUG)
8% Vanguard Value ETF (VTV)
7% Vanguard Mid-Cap Value ETF (VOE)
5% Vanguard Small-Cap Value ETF (VBR)
10% Vanguard Total International Stock ETF (VXUS)
10% Vanguard Total Bond Market ETF (BND)
5% Vanguard Real Estate ETF (VNQ)
The biggest change was the inclusion of a growth fund, a single international fund (as opposed to splitting developed and emerging markets) and a minor allocation to real estate.
In the meantime, I started to realize that owning any bonds when my time horizon was more than 40 years out made no sense. In March 2021, a little more than a year after I started investing, I decided to move my Roth IRA to 100% stocks. After that, this is how Betterment adjusted my portfolio holdings:
34.57% Vanguard Total Stock Market ETF (VTI)
9.22% Vanguard Value ETF (VTV)
7.47% Vanguard Mid-Cap Value ETF (VOE)
6.31% Vanguard Small-Cap Value ETF (VBR)
27.37% Vanguard FTSE Developed Markets ETF (VEA)
15.06% Vanguard FTSE Emerging Markets ETF (VWO)
I did keep bonds in my HSA for a few months longer, with the justification that as a hybrid account, I could use an HSA to pay for current medical expenses. Still, 10% is not a lot in bonds to cushion portfolio losses, so I ultimately gave in here as well. I took out the bonds and moved them into VOO.
60% Vanguard S&P 500 ETF (VOO)
5% Vanguard Growth ETF (VUG)
8% Vanguard Value ETF (VTV)
7% Vanguard Mid-Cap Value ETF (VOE)
5% Vanguard Small-Cap Value ETF (VBR)
10% Vanguard Total International Stock ETF (VXUS)
5% Vanguard Real Estate ETF (VNQ)
Lessons From My First Portfolios
Looking back, I can take a few lessons from my first portfolios:
1. Some of My Funds Canceled Each Other Out
In my HSA, the bulk of my portfolio was in the S&P 500, as there was no total market fund. And I used large, mid and small value funds to mirror the value tilt in my Roth IRA. But I also added an allocation to large growth. Owning both value and growth makes no sense, as one will cancel the other out. In my case, all the small growth fund did was dilute my value tilt. I could have achieved almost the same result by simply lowering my value allocation and had one less fund in my portfolio.
If you want to tilt toward growth or value, you should start with a total market or S&P 500 fund and then add the growth or value, but not both.
2. My Holdings Could Have Been Simpler
Betterment split up the international allocation into developed and emerging markets rather than a single total international market fund. I now prefer the one fund for international.
As mentioned previously, I could have also removed the growth fund from my HSA. And the REIT index (VNQ) was also unnecessary. Total market or S&P 500 funds already own most or all of the stocks contained in REIT indexes, so I was just adding more.
3. I Had Too Much International
I would recommend Betterment to a lot of beginners wanting to open their first Roth IRA, but one of my enduring complaints about their default portfolio is the heavy international allocation at roughly 40%. Sure, this is the same international allocation you’d get if you invested in a total world fund, as it’s the global market cap weight, and it’s the allocation of many target-date funds. But it’s not what I want for my portfolio. Furthermore, their portfolio overweights emerging markets, putting it at 36% of the international allocation as opposed to the market weight of 25%.
My personal preference is for 75/25 or 70/30 U.S./international. Some investors don’t believe in any international allocation, including some Bogleheads. The argument goes that U.S. has historically outperformed international and that U.S. companies are already heavily invested in global markets. The former argument is classic recency bias. The latter is somewhat true, but I still think investors need direct exposure to international markets, as even the greatest countries eventually fall.
4. I Invested in Bonds Too Early
Put simply, I was investing for 40+ years, so I didn’t need bonds. I figured this out eventually.
5. I Neglected International Value
This one I had no control over, as Betterment and HealthEquity have a limited menu of fund options. Instead, I got U.S. value in all sizes and through index funds. This is the suboptimal way to invest in value, as I discussed in a recent post.
My New Permanent Portfolio
Most recently, I’ve gone completely DIY. I dropped Betterment and HealthEquity in favor of Fidelity and Vanguard for more complete control over my investments.
My investing philosophy is a lot more grounded now in guiding principles I’ve developed. There’s more of a purpose to what I do, whereas before I was haphazardly throwing things together and there was lots of redundancy. With the confidence I’ve gained since first opening a Roth IRA, I’ve recently developed a more permanent portfolio I will try to implement across all my accounts where possible.
The biggest change in how I invest is mainly how I combine two strategies: market-cap-weighted investing and factor investing.
Market-cap-weighted investing would be owning the entire global market of stocks at exactly the weight they exist in the market. A true version of this (or as close as you could reasonably get) would be to invest in a total world market fund, like Vanguard’s VT. Most people do some variation of this with a higher allocation to U.S. stocks through VTI and VXUS.
Factor investing means implementing some of the academic factors that have been identified in research, like the Fama-French Three-Factor Model or the later Five-Factor Model.
My biggest inspiration for tilting toward factors comes from Ben Felix, a Canadian investment advisor who runs an investing YouTube channel and co-hosts the Rational Reminder podcast. In his video, “Five Factor Investing with ETFs,” he devised a model portfolio of market-cap-weighted funds consisting of a Canadian ETF, a U.S. ETF, a developed markets ETF excluding the U.S. and Canada and an emerging markets ETF. He then added a modest 16% tilt toward factors using the Avantis U.S. Small Cap Value ETF (AVUV) and the Avantis International Small Cap Value ETF (AVDV).
Being a U.S. investor and wanting a more aggressive tilt, I then modified this portfolio for my own needs. The biggest difference was the inclusion of the Avantis Emerging Markets Value ETF (AVES), as this didn’t exist at the time of the model portfolio’s creation. It only made sense that if I was going to tilt my portfolio toward value, I should get value exposure across as much of the global market as possible.
Here’s what I created:
55% Vanguard Total Stock Market ETF (VTI)
20% Vanguard Total International Stock ETF (VXUS)
15% Avantis U.S. Small Cap Value ETF (AVUV)
5% Avantis International Small Cap Value ETF (AVDV)
5% Avantis Emerging Markets Value ETF (AVES)
My portfolio can be easily divided into two parts: a market-cap-weighted core portion through Vanguard funds and a value-oriented satellite portion through Avantis funds. My core holdings make up 75% and my satellite holdings make up 25%. If you added up the U.S./international split, it comes out to about 70/30.
My Basic Investing Strategy
My basic investing strategy can be explained by a few key factors.
1. My Risk Tolerance
I have quite a high risk tolerance. I know investing in 100% stocks and owning a 25% value tilt carries a risk, but it’s the exact kind of risk that will benefit me.
2. My Time Horizon
I’m investing for goals that are 40 years or more away. Even after retiring, I’ll still be investing, meaning I’ll still need to be exposed to risks to grow my money.
3. My Core Beliefs
I believe in index investing for the long-term, and I also believe that there’s a good chance I’ll be rewarded for taking on the extra risk of factor tilting my portfolio. At this point, I’ve found Vanguard to be the best at offering index funds and Avantis the best at offering factor funds that cover the entire global market. I won’t touch my asset allocation based on major crashes I’m sure to see in my lifetime, and if I do make adjustments, they won’t be spur-of-the-moment decisions but rather rational actions after updating my beliefs.