Portfolio Toolbox
Highway 24

Going Public

There is a plethora of financial information available on the Internet and it can be overwhelming for a new investor to know where to begin. I built this website as an attempt to provide easy to understand tools and content on investing. I realize there are a large number of people who just don't care about the details and simply want to have someone help them invest. As a result, many of these hands-off investors are taken advantage of and are investing in products with high expenses. A good option for stock investing is a low-cost total market index fund like VTI. If you want to add some safety to your portfolio, add some U.S. Treasuries and rebalance frequently. If you want a "set it & forget it" portfolio, here are some ideas to get you started.

In 2019, I joined the Facebook group Friends of Vanguard. This group provides a forum to talk about The Vanguard Group founded by John C. Bogle and the markets. In this group, I learned the importance of de-risking your portfolio by investing in U.S. Treasuries. I allocated 8% of my portfolio to U.S. Treasuries in 2019 and when COVID-19 turned into a world-wide pandemic in March 2020, it lessened the impact of the downturn and provided me with a rebalancing opportunity to buy more stocks before the rebound in April. I am very grateful to have received this recommendation just in time to make good use of it.

Vanguard Logo I first learned about Vanguard in 1997, although I didn't start investing with them until 2004. While I believe Vanguard provides the individual retail investor with investment products to give them the best chance of success, I am always on the lookout for something better. I haven't found it. Vanguard has a unique ownership structure and is owned by the investors themselves and has grown to be one of the world's largest investment companies with over $8 trillion in global assets under management as of September 30, 2021. Some other companies have a handful of products that are competitive with Vanguard, but I'm sticking with Vanguard because they helped me get to where I am faster than any other investment company would have. If you are looking for an investment company for the long run, I highly recommend Vanguard. If you are looking for a company that supports lots of trading activity, you might want to look elsewhere.

For the investor who wants to get into a broader discussion of the markets, there is a very good online forum called Bogleheads, named after Vanguard's founder.

Exchange Traded Funds

The first Exchange Traded Fund (ETF) hit the market in 1993. This ETF allowed investors to invest in the S&P 500 indirectly. While you cannot invest in an index directly, mutual funds and ETFs are the closest investment vehicles that allow you to replicate the performance of a stock market index. ETFs are priced and traded continuously throughout the day, unlike mutual funds that only trade at the closing net asset value (NAV) once a day. Because of their construction, ETFs can provide a slight reduction of expenses over traditional mutual funds. ETFs are traded just like stocks, which means there are bid / ask spreads, and you can use limit orders and stock options.

In 2020, I finally took the plunge and converted my mutual funds into ETFs. The main driver for this was I wanted to invest in EDV (Vanguard Extended Duration Treasury ETF). It took a little while to get used to ETFs after using mutual funds for so long. I could not exchange directly from one ETF to another like I could with mutual funds. First, I have to sell ETF and money goes into settlement fund and then purchase the new ETF or mutual fund from the settlement fund. ETF purchases can happen on the same day as the sell, mutual fund purchases clear overnight. I was unable to perform automatic transactions using ETFs, although my main reason for using automatic transactions was to bypass 30-day trading restrictions after selling a mutual fund. ETFs do not have 30-day trading restrictions. I started using market orders for most of my trades, though I have switched to using mostly good til cancelled (GTC) limit orders to catch bargains when prices drop and to sell at all-time highs when I need to rebalance. My orders don't always execute, and when they do I feel like I made a good trade.

Risk Adjusted Portfolio

The Holy Grail™ of investing is to find a portfolio that can stand the test of time. While the "best" portfolio is subjective, and different based on one's risk tolerance, I think the best portfolio for me is a risk adjusted portfolio that provides the highest returns over a long time period with half the drawdown of a 100% stock portfolio. My target portfolio is 60% VTI / 40% EDV + cash and rebalance at 1% deviation. The chart below is a backtest of a 100% stock portfolio (VTI) vs. a 60% VTI / 40% EDV portfolio rebalanced at 1% deviation from 60/40 using monthly data.

Full Disclosure - my actual portfolio is listed below.

Portfolio for
Seann Herdejurgen

Vanguard Total Stock Market ETF
Vanguard Federal Money Market Fund
Vanguard Extended Duration Treasury ETF
Vanguard International Dividend Appreciation ETF
Vanguard Information Technology ETF
Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares
Vanguard Health Care ETF
Vanguard Long-Term Investment-Grade Fund Investor Shares
Vanguard Wellington Fund Investor Shares
Vanguard Capital Opportunity Fund Investor Shares