Hello,
I have been reading investing books and info for several years now, and been a converted mustacian for at least 18 months. I've come up with the following asset allocation and I was hoping to get some feedback from other mustacians, or diagnose any problems before I put it fully into action.
Basically, my future is uncertain. I have a high income job. Some of the time I don't mind it, but much of the time I want to get away from the stress and retire. So my time until retirement could be as little as 2-3 years or as much as 5-7 years or possibly even longer, depending. Because of this, I want to keep things flexible and I plan on never spending any principal, unless absolutely necessary. I have no debt whatsoever, and already live fairly mustacian-like with an 80% savings rate, so "personal finance" is really not an issue, just asset allocation.
Overall, I have 15% bonds, 10% reits, 75% stocks, however of those stocks I have a heavy slant towards high dividend paying stocks and utility stocks (also high dividend paying.) My thinking being, worst case I can live on the dividends and not have to touch any of the principal. I can also make up to $36,250 per year from dividends without paying ANY income taxes. I live in a non income tax state, so this is a very desirable benefit.
I want the principal to grow aggressively, so that is the reason for the heavy weighting towards stocks. However, keep in mind that utility stocks (and to a lesser extent high dividend stocks) tend to be large companies that are very established and not nearly as volatile as the general market, so for this reason they are almost a little bit "bond like" in their behavior.
I am a major Vanguard fan, so all of these funds are Vanguard:
Stock Funds (these are all in a standard taxable account):
25% Total stock market (VTSAX) - I also have some of this in 500 index (VFIAX) however this acts almost identically to VTSAX, so I'm just going to combine these two holdings into the "total stock market" category.
20% Total International Stock Market (VTIAX). Most of what I've read says 20% is a good number for international exposure.
15% Utilities ETF (VPU) I like the stability of utilities, people are always going to need utilities and the vast majority of people pay their bills consistently. Yield is typically around 4%.
15% High Dividend Yield Index (VHDYX) Again, these are stocks with a slant towards those which consistently pay high dividends, in keeping with my philosophy that I can live off the dividends if needed at any time without needing to sell any assets.
Bonds:
7.5% Bond Index (VBTLX) Vanguards "standard" core bond index. These are also in my standard taxable account. No room left in my IRA.
7.5% High Yield Bonds (VWEHX) AKA Junk Bonds. This fund is currently closed to new investors, but I happened to buy a bunch of this in my Roth IRA before they closed the fund, and it pays well by todays standards, so I'm just going to leave it for now as half of my bond exposure. If things change in the future (or rather when they change) I may switch to a different type of bond fund (or maybe just move it into the above fund) but for now I'm leaving it as is and enjoying the high rates.
Reits:
10% Reits. (VGSLX) I already have a high percentage of my net worth into physical real estate, so I didn't want to go overboard on the reits (plus the total stock market funds also hold reits at their market percentage), so 10% seems like a good percentage for some diversification. These are also all in my IRA.
I would appreciate any feedback here, am I about to make any mistakes or have I overlooked anything? Thanks!