TweetI admit that I am a newbie when it comes to investing. I like to stick with mutual funds and exchange-traded funds rather than complicated investments like individual stocks and bonds.
As I am in my later 20s, I want to have investments that match my risk tolerance. I also want to invest in a way that will give me the chance to retire as early as possible. Right now, I only invest through my employer’s 401k plan. As you know, you can put up to $16,500 per year in a 401k.
My Asset Allocation
My employer is a very good steward of our investment portfolios. We have access to the full line of Vanguard ETFs. Vanguard’s mutual funds and exchange-traded funds are known for having the lowest fees in the market.
Here is what I have in my portfolio:
- Vanguard Total Stock Market Index – I like this one because it has the best diversification. This ETF invests in more than 3000 public companies so I feel like I will always get the returns of the total stock market and be diversified the whole time. Also, this ETF has a very low annual fee. It costs .06% per year. I allocate 20% of my retirement savings to this fund.
- Vanguard High Dividend Yield – This ETF is also based on US stocks, but it invests in stocks that pay a high dividend. Since I am investing in a 401k, I do not have to worry about the tax problems with dividend stocks. This fund tends to move smoothly and I like that I can regularly reinvest dividends into more stock. The 3.26% dividend yield is very good, too. I allocate 20% of my portfolio to this fund.
- Vanguard Total World Index – This ETF holds stocks all around the world. It is 50% invested in North America most of which is US stock. But the second highest holdings are in the emerging markets. Since I have a long way to retirement, I want to invest in emerging markets, too. This fund costs .22% per year, which is why I also invest in the Total Stock Market Index so that I can reduce the amount I pay for exposure to the United States.
You will notice that I am missing a key part of a good retirement portfolio.
No Bonds!
Right now I do not have any investments in bonds. Some would think this is a problem. Others say that you shouldn’t invest in bonds when you are in your 20s. Personally, I do not invest in bonds because I have debt.
I pay 6.2% on my student loan balance. I think bonds are a good investment, but I earn a higher and safer return by paying back my student loans. When my student loans are paid off, I will contribute the extra money that I have to my retirement plan. That money will be divided between stocks and bonds.
What do you think of my retirement portfolio?
This post was featured in the carnival of personal finance, Carnival of Wealth, the Festival of Frugality, and the self-directed investing carnival.
Sounds like a solid portfolio. I can’t understand the people who think that having a large holding in one country is enough…
We don’t have much in bonds, mainly because the yield is insulting! They are a bit lower than the highest interest rate we pay on our mortgage, so maybe it would make more sense to cancel things out instead of paying the interest rate spread. I just like having a little bit of safe capital in case there’s a great buying opportunity.
You are making a very wise decision to pay off your student loans instead of buying bonds for two reasons. Your return on paying off student loans is a risk free 6.2%. That is awesome. Secondly, after a 30+ year bull market bond offer record low yields (low reward) and record high prices (high risk).
I would still conclude that bond investments as well as stock investments are somewhat dangerous right now. In fact at any given time, there is some level of risk associated with any investment. It’s the nature of investing. Risk is a funny thing. When the stock market is rip roaring, most everyone is willing to take a little more risk than they really should, and when the market is depressed, most are so fearful that little to no level of risk can be tolerated. Neither of these extremes makes for good investing. Thanks for the post.