Author Topic: balanced portfolio is giving me nightmares ...  (Read 2912 times)

bye-bye Ms. FancyPants

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balanced portfolio is giving me nightmares ...
« on: February 28, 2015, 12:35:14 PM »
My husband and I (DINKY's) have almost paid off all of our debts (besides mortgages) - we are 37 & 38 yrs old. I have been reading and learning about investments but suck at most things that involve numbers and really confused about how much diversification is needed. It look like we are a little to aggressive (personal capital seems to think so also), but having some trouble figuring out how to fix it.

We've gotten good at paying off debt (and not accumulating more), but not sure the best place to save our continued 'stache.

Our net worth is about $254,700.00 with the following breakdown:

Cash - 8%
Investments - 22% of total net worth, broken down:
       85% -  in an IRA, 401k 2040 fund, tsp 75% in 2050 and 25% in 2040 accounts - we are both close to maxing out 401k's
      15% - vanguard VTSMX

Real Estate - 70% (several rental properties - also considering paying off the highest rate mortgage 6% and snowballing the rest)

What do you guys think about this? Obviously we are heavy in real estate. I'm thinking we should focus on putting future savings (about $3000/month)into our Vanguard VTSMX, but maybe we need something a little more conservative. Thoughts?

GueroKC

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Re: balanced portfolio is giving me nightmares ...
« Reply #1 on: February 28, 2015, 02:33:56 PM »
I'm a little unsure how you could be considered too aggressive when you're so young and have so much tied up in real-estate. Everyone has their own risk tolerance, of course, but IMO, at your young age, you can afford the risk exposure of investing more heavily in stocks than you currently are.

wtjbatman

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Re: balanced portfolio is giving me nightmares ...
« Reply #2 on: February 28, 2015, 06:39:59 PM »
If it's already giving you nightmares, you probably need to put more of your stash into safer investments like bonds/fixed income. Imagine how bad your dreams will be during the next correction or crash?

Mighty-Dollar

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Re: balanced portfolio is giving me nightmares ...
« Reply #3 on: March 01, 2015, 09:00:42 PM »
Too many eggs in the real estate "basket". At your ages you should be about 80% stocks (like a total US stock market index fund or S&P 500 index fund). If you want less risk then put more in a total bond market index fund like AGG or BND.

Retired To Win

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Re: balanced portfolio is giving me nightmares ...
« Reply #4 on: March 02, 2015, 06:53:13 AM »
Can you tell us specifically why your portfolio is giving you nightmares?  Is there a specific bad scenario that concerns you?  Or are you worrying because people/websites/calculators are telling you that you are supposed to be worried?

matchewed

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Re: balanced portfolio is giving me nightmares ...
« Reply #5 on: March 02, 2015, 07:31:45 AM »
Your asset allocation should reflect a balance of investments that makes it so you won't make any emotionally driven decisions. There is no answer for you from us. You'll have to look and analyze the risks associated with your investments, understand them and accept them. If you cannot, then that investment or quantity of investment is not for you.

Take your time to understand your investments and the risks associated with them. Invest accordingly.

Another Reader

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Re: balanced portfolio is giving me nightmares ...
« Reply #6 on: March 02, 2015, 07:33:33 AM »
The Personal Capital investment analysis is for people that only own paper assets.  It's not much help for people that own a lot of investment real estate.  The person up thread that said you own too much real estate clearly does not own investment properties.

Although not as "safe" as bonds are thought to be, real estate produces a steady income as a lot of folks found out during the Great Recession.  My stocks went way down as did the nominal value of the real estate, but those rent checks continued to roll in.  Since selling the real estate is probably not on your agenda, you don't really care what the price is on any given day.  Over time, the real estate should appreciate and rents (your income) should go up.  No one has mentioned the tax shelter of real estate in this thread and that is not a small amount of money.

In my opinion, bonds are not a safe investment, as interest rates will eventually go up.  The effect on bonds of interest rate increases is huge (interest rate risk).  I'm a lot older than you are, and the only bonds I own are in Vanguard's Wellington fund in an IRA.  Other than that, I invest in equities and real estate.   I keep some cash - liquid and in CD's.  Reserves are critical to a real estate portfolio and having "dry powder" to buy assets when they go on sale is my approach.

You mentioned having a TSP.  If one or both or you is a federal employee, you probably have a pension coming at some point.  Between the real estate income and the future pension, you are much less dependent on your paper asset portfolio to support you.  More volatility is acceptable and you don't have the level of sequence of returns risk that folks have that are completely dependent on their paper asset portfolios for retirement income.

In your shoes, I would refinance or pay off mortgages with 6 percent interest rates.  Balance that with maxing out the 401k's and IRA's and you will be in a great position to FIRE in a few years.
« Last Edit: March 02, 2015, 07:44:49 AM by Another Reader »

humblefi

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Re: balanced portfolio is giving me nightmares ...
« Reply #7 on: March 02, 2015, 08:17:16 AM »
Quote
Our net worth is about $254,700.00 with the following breakdown:
Cash - 8%
Investments - 22% of total net worth, broken down:
       85% -  in an IRA, 401k 2040 fund, tsp 75% in 2050 and 25% in 2040 accounts - we are both close to maxing out 401k's
      15% - vanguard VTSMX

Real Estate - 70% (several rental properties - also considering paying off the highest rate mortgage 6% and snowballing the rest)

Before commenting on solutions, I feel we should spend a bit more time on defining the problem some more.
Can you please comment on where the nightmares are coming from? For ex.
+ Management headache on rental properties
+ Vacancy headache on the rental properties
+ ....
This would help focus the feedback much more.

On the other hand, if you are just concerned about the imbalance in your portfolio, the question to ask is: what should be the right asset allocation?
This could be what you are after. But, to answer this question, one would need to know what your goals are for the next 5 yrs, 10yrs, 15 yrs, .....
For example,
+ if you want to retire in the next 5 years, one goal might be repayment of most debts on the rentals.
+ if you have 20 more working years left, then mortgage repayment may not be the most suitable goal.

So, please add some of your target goals to the question for a more focused feedback on asset allocation.

Hope that helps.