Investment Strategies For Retirement Based On Modern Portfolio Theory

Investment Strategies For Retirement: Portfolio Allocation

Let's look at some investment strategies for retirement baed on modern portfolio theory. As a retiree, you are focused more on capital preservation since you can't or don't want to go back to work.

After publishing my post, The Best Asset Allocation Of Stocks And Bonds By Age, I decided to do a comparison of what I recommend versus what digital wealth managers like Empower recommend. 

Not only has Empower developed a great free app for managing your net worth that most of you already use, it also manages over $10 billion in client assets.

For those who don't know, from 2013-2015 I consulted for them in their marketing department and still meet up once a quarter since they're in San Francisco. Thus, I'm very familiar with Personal Capital's people and product.

Its board of advisors include:

Harry Markowitz Modern Portfolio Theory Father

Harry Markowitz, recipient of the 1990 Nobel Memorial Prize in Economic Sciences. He pioneered work in portfolio construction and is known as the “Father of Modern Portfolio Theory.” Markowitz received his Ph.D. from the University of Chicago and is currently a professor of finance at the Rady School of Management, University of California, San Diego. His Modern Portfolio Theory is central to the design of Personal Capital's portfolios.

Schlomo Benartzi Behavioral Economist UCLA

Shlomo Benartzi, a renowned behavioral economist. He received his Ph.D. from Cornell University, and is currently a professor and co-chair of the Behavioral Decision-Making Group at UCLA's Anderson School of Management.

Together they advise a team of portfolio management professionals and have created several long-term investment strategies. But first, let's have a brief overview of Modern Portfolio Theory.

Investment Strategies Based On Modern Portfolio Theory

The efficient frontier is a concept in modern portfolio theory introduced by Harry Markowitz and others in 1952. If there are two portfolios that offer the same expected return, investors will prefer the less risky one. If the price is the same, wouldn't you buy the exact same house with panoramic ocean views over the one with a view of another building? Of course you would.

In Modern Portfolio Theory, everything is RATIONAL, which is why I'm such a big fan. Everybody here wants to improve their personal finances, which is why none of you are on Buzzfeed killing brain cells. Nobody here thinks they'll have guaranteed employment for life, which is why you are building as many income streams as possible.

Lots Of Irrational Investors Out There

Unfortunately, there are a lot of irrational people out there who believe you can get ahead without putting in the effort. I've even met some C students who think they deserve A lifestyles. No wonder credit cards are such big business. They allow consumers to realize their delusions.

According to the Efficient Frontier chart below, optimum portfolios track the hyperbola. Portfolio mixes under the hyperbola are inferior because they either offer the same return with more risk, or they offer less return for the same risk. Portfolios above the hyperbola don't exist because unicorns don't exist. The markets will arbitrage everything away.

Remember, you don't have to be a great investor to make a lot of money. You just need to be a good-enough investor who also has an investment thesis to help them stay invested.

The Efficient Frontier / Modern Portfolio Theory By Harry Markowitz
The Efficient Frontier / Modern Portfolio Theory by Harry Markowitz

Now that we have some understanding about the basics of Modern Portfolio Theory, let's look at Conservative, Moderate, and Aggressive investment strategies recommended by Personal Capital under the guidance of Harry Markowitz himself.

Investment Strategies For Your Retirement Portfolio

Conservative Investment Strategy

Conservative Investment Strategy

For those who are already financially independent or soon will be, this conservative investment strategy is my favorite. It allows you to sleep well at night and let you focus on life instead of your portfolio.

People following this strategy are usually around 60, but if you've already achieved financial independence at a younger age, consider following this asset allocation. Note 48% of the investment portfolio is in bonds and 2% is in cash to take advantage of any opportunities.

In the past, we've discussed how large endowments and very wealthy individuals invest a heavy portion of their portfolio in Alternatives (50%+) to provide diversification and hopefully higher returns due to inefficient private markets.

The 10% Alternatives weighting is a common weighting private wealth advisors recommend for high net worth clients. Thus, the question to ask is: what kinds of alternatives is one investing in. The answer is usually private equity, hedge funds, venture capital, and real estate.

The blended average weighting of all my public investment portfolios (Rollover IRA, Solo 401k, SEP-IRA, After-Tax Accounts) has a fixed income weighting of 40% – 50%.

All I'm shooting for is a 4-5% return, or 3X the risk-free rate. I'm looking to preserve capital that took 20 years to build and not worry about my investments as much. Instead I'm focused on actively building new active income via entrepreneurial activities.

Moderate Investment Strategy

Moderate Investment Strategy Personal Capital

With a 25% bond weighting, this moderate investment strategy is created for people who are still aggressively trying to save and build capital, but want less volatility due to growing financial responsibilities e.g. mortgage, wedding, spouse, kids, overpriced car, parents, etc. This portfolio is designed for people who are typically between 30 – 50 and plan to work a day job into their 60s.

The assumption behind holding international stocks is that there may be more opportunities for growth and therefore profit compared to domestic stocks. For example, China's annual GDP is supposedly growing anywhere between 6% – 8% compared to just 1% – 3% for US.

But sometimes you lose, like when the London FTSE 250 declined by 12% versus just 3% for the S&P 500 after Brexit. If valuations are reasonable, allocating roughly 20% of your portfolio into international index funds and stocks may be a good idea.

Remember, what is considered international to us is considered domestic to others. For example, for a moment pretend you're a Canadian investor. Your portfolio probably consists mainly of Canadian equities and perhaps small international investments in the US, Asia, and Europe.

In other words, we tend to invest in the places we know best. Never invest in what you comfortably don't understand. This is called country investing bias.

Aggressive Investment Strategy

Aggressive Investment Strategy Personal Capital

This investment strategy is what most investors in their 20s and early 30s pursue. Returns are strongest in a bull market and terrible in a bear market. Yes, bear markets do happen as we saw most recently from 2000 – 2002 and 2007 – 2009.

While my asset allocation chart has a 100% equities allocation up to age 30, I'm nervous for anyone whose net worth is made up entirely of their public investment portfolio.

Having a 3% allocation in bonds and 0.5% allocation in cash doesn't provide much protection against declines. Nor does it produce much income. Thus, if you want to be aggressive, you might as well go all-in 100% equities. I would consider the 3% bonds weighting as part of a 3.5% cash allocation for equity buying opportunities.

For those who follow this Aggressive Investment Strategy please do not confuse brains with a bull market, especially if you're 35 years old or under. It's very hard to know your true risk tolerance when you haven't lost much money on an absolute level or large percentage basis (30%+).

Come up with a better dollar cost averaging strategy and continue to actively grow new income streams.

Your Investment Portfolio Should NOT Equal Your Total Net Worth

When pure digital wealth managers or financial advisors with incomplete information give you investment recommendations they often do so based on the mistaken assumption that your investment portfolio with them equals your entire net worth. For most people, this is clearly not the case.

For example, public investments in stocks and bonds make up roughly 25% of my net worth. ~38% of my net worth is comprised of physical real estate. Another ~12% of my net worth is made up of risk-free assets such as CDs.

Finally, the remaining 25% of my net worth is made up of my online business. My net worth is diverse because like most people, I have diverse interests. Life is not just about making money to invest in stocks and bonds!

Net Worth Composition Is Conservative

If I had 50% of my net worth already in CDs and money markets because I plan to upgrade houses within the next three years, then an advisor recommending any cash weighting in my investment portfolio may be suboptimal.

If an advisor doesn't realize you have 70% of your net worth tied up in speculative real estate projects, perhaps following an Aggressive Investment Strategy of 90% equities is the wrong move.

Without knowing your entire net worth makeup, it's difficult for pure digital wealth managers to make the most appropriate investment strategies. If you don't want to be completely forthright with your financial advisor about your overall wealth, then it's up to you to first analyze your own net worth and then accept or disagree with their recommendations.

The good thing about Empower is that it is a hybrid advisor with technology to leverage and people to talk to about your financial situation. The bad thing about Empower is it charges more than its 100% purely digital competitors to manage your money because financial advisors cost money.

Luckily for all of us, they have free wealth management tools for everyone to use whether you are a client or not.

Whomever you decide to invest your money through, make sure they know your entire net worth composition. Bare all! If you decide to invest all the money by yourself, be sure to consider your entire net worth when allocating weightings.

Differences With My Asset Allocation Weightings

Investment Strategy Asset Allocation Financial Samurai

There is no one size fits all investment strategy recommendation. Everybody has different financial goals and liquidity needs. Further, within the overall split between stocks and beyonds there are obviously many different types of stocks and bonds to choose from.

My asset allocation recommendation is based on Harry Markowitz's modern portfolio theory, but has some key differences.

1) New normal.

I take into consideration the new normal of highly interconnected markets, more volatility, lower inflation, and lower interest rates. Further, markets are now highly efficient thanks to technology, thereby limiting successful arbitrage opportunities.

In other words, the returns of the past will be harder to replicate today. Yet with massive corrections every 5-10 years, risk seems to have stayed the same or increased.

Remember, Markowitz came out with his Modern Portfolio Theory over 60 years ago. The people still sticking with a 4% safe withdrawal rate in retirement are not changing with the times.

2) We are living longer.

In 1952, life expectancy was about 60 in America and 65 in Europe. Someone born today expects to live past 80. Longer lives mean more risk is needed to generate higher returns. A 50-year retirement could be a reality for millions of people born today!

At the same time, however, longer lives mean that if you take on too much risk, there's a greater chance for you to be screwed unless you jump off a bridge. Given its better to be safe, than broke, my asset allocation recommendation is more conservative once you've reached your financial nut.

3) More opportunities to earn money.

In the past, once you were retired, to survive you relied on Social Security, savings, investment income, and maybe a pension. Today, it's possible to retire by age 40, live off your multiple income streams, and do some consulting or gig economy work to make up for any financial shortfalls. 

The Affordable Care Act has given middle income and lower income people more work flexibility to be untethered from a job they dislike because they no longer have to worry about medical bankruptcy with subsidized coverage. It's been 4.5 years since I held a day job and I can unequivocally say there are endless ways to earn money thanks to technology.

When it comes to investing in public markets, it no longer pays as well to take on the same level of risk as before. Look at the 10-year bond yield at ~4.1. Now look at the average annual return of the S&P 500 over the past 15 years versus the previous 15 years. Look at the dearth of IPOs as private companies stay private for longer. So many signals are telling us to be more conservative.

For these three reasons, I recommend everybody build their financial nut as soon as possible and then get as close to a 50/50 stocks/bonds allocation to preserve capital and keep the passive income flowing. You don't have to wait until 65 to get to a 50/50 weighting if you amass your enough money at a younger age.

Stay On The Ball With Your Retirement

Don't view public equities as your retirement savior. View public equities as only one retirement engine out of hopefully four or more.

Your other engines should include real estate, alternatives, Social Security and your own business where you can really make a killing if you get things right. But if all you can manage is investing in stocks and bonds, then so be it. It's still better than just hoarding cash all your life.

To get a free analysis of your investment portfolio(s), link your investment account(s) and then click Investment Checkup under the Advisor Tools tab in the Personal Capital app.

You'll see where your portfolio stands on the Efficient Frontier and how your current allocation matches up with your target allocation recommendation.

Personal Capital Investment Checkup

The next 10 years likely won't be as good as the previous 10 years. Track your finances like a hawk!

Invest In Private Growth Companies

Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

86 thoughts on “Investment Strategies For Retirement Based On Modern Portfolio Theory”

  1. Mehul Patel

    Hi Sam, I am considering signing up for personal capital service in which they would manage all of my money. My concerns are:
    1. Is the fees worth it?
    2. They are recommend stocks and I am not sure about that?
    I am currently invested in mutual funds with a 60% bond and 40% stock allocation. They claim that I need to be at 50/50% and get me better returns and lower standard deviation.
    Any guidance please.

  2. Sam,

    Where is gold, silver, and commodities in general, in your asset classification mix? Are commodities intended to be part of “alternatives”? And do you personally own gold or silver? What is position on them? I know they don’t provide any interest or dividend return, only potential appreciation return… but I see them more as a hedge against erosion of the US dollar or an insurance policy. With 4.5 trillion in QE printed since the financial crisis and 20 trillion in overall debt, this certainly has to have a negative impact at some point.

  3. Dang, so much to think about here. Not going to lie, haven’t though seriously about investments until three years ago. I was too busy traveling the world (no regrets, still have about $150k net worth). Right now it’s freelancing, blogging, getting back into teaching (I have to get my paperwork since I moved to the US from Canada) and looking at real estate (I have $20k to invest).

    I hope you don’t take this the wrong way, but your blog is a black hole. I’ve already spent an hour on here and there is no sign of me getting out, ha!

  4. I retired in 2010 and I’m now 63. Live in the Central Coast of California, home mortgage less than 900 a month. Been an aggressive investor all my life, have enough income (about 90k) inflation adjusted to meet all living expenses along with travel money. I take about 1% ($12k) from my portfolio a year (less than the dividend yield) for fun money. I’m 100% invested in equities for my retirement portfolio and have significant cash (short term TIPS fund) for any emergencies. Is there any reason I should be more conservative? I project that I will continue withdrawing 12k a year until RMDs start.

  5. Cool..which stocks you are long on for the next few years?

    Netflix has been a 10 bagger in 4 short years! Same with Tesla but it’s fading right now.

    I’ve got $ in Facebook and Amazon which both have been 4x too, but I got in late.

    Funny how the US market seemed to surge after Trump got elected. people were expecting things to tank…but it’s been the bond market that’s been crushed.

    You’re playing it smart, with only 5% of your portfolio even if you lose it all it won’t make a dent.

    Knowing when to sell is half the battle. Apple’s been on a roller coaster ride with big ups and downs, people lost alot when it crashed almost 50% a few yrs back.

  6. hey Sam, do you invest in individual stocks still or mainly indexes? With your net worth and risk tolerance now you probably aren’t looking for 10 baggers like when you were in your early 20’s!

  7. Great post, it was very interesting to read. Could you explain what cash represents in the various portfolio strategies? Is it cash waiting to be invested or more like a cash cushion to be used for personal expenses in unexpected situations?

  8. Hi Samurai,
    This article was great. I am 36 I own a home with my fiancé we have about $100k in equity there, I have $20k cash for an emergency fund. My investment portfolio is $100k with 82% us stocks, 12% international stocks, bonds only 2%, and the rest alternatives or cash. I know that is aggressive personal capital says I’m one notch too aggressive. So I will slowly invest more in bonds. Also within the us stocks I am working on a dividend portfolio for an income stream just started a year ago. I am currently maxing out my 401k and I have a rental home I’ve had for 10 years it’s not making much just enough to sustain itself hoping that I will see the rewards in the next 5-10 years. My goals this year are to up that emergency fund and start a cd ladder and in the next two years max out my traditional Ira.

  9. littledoggy

    I guess I am not getting this about bonds (according to many charts, I should be 30-40% in bonds). Currently, the real return on bonds is negative in real term. Furthermore, these bonds will probably take a big hit when the interest rate starts going up. I think I will take my chance with high quality dividend stocks. Am I missing something fundamental?

    1. Yes. Check out TLT, ETF bond fund. It is up about 20% over the past year versus 5% for the S&P 500.

      I’m not sure where you are getting that the real return of bonds is negative.

      Can you elaborate and share with us your age and investing experience? Thx!

      1. I will be mid 50’s in a couple of year.

        I am looking at US treasury bond yield.
        My understanding is that currently, the 10-year treasury yield is around 2%.
        Inflation is around 3% a year (it feels much higher personally), so doesn’t this come out to be negative 1% in real return?
        I have some CA tax-exempt mini-bonds and they are also yielding around 2%.
        Perhaps, you guys are talking about corporate bonds?
        My experience with investing is pretty clueless.
        I have been contributing to 401K regularly since around 1989 (with a gap in contribution of one year around 2000). However, my balance last checked was around $800K. (few years ago, I read in some CNN column profiling a guy who was similar to my situation but perhaps a couple of years older and his balance was in 1.2M range). I did a spreadsheet and this comes out to be about 6.1% compound return which is rather pathetic consider that I live through one of the greatest periods of stock market boom.

  10. It seems a lot of these “lazy portfolios” and ray dalio all season portfolio are measuring their past risk reward results based on a multi decade bull market in bonds as yields have dropped so they all have higher bond exposure…..I would be concerned about bond asset class performance in next 10 years if rates ever move bonds can drop exponentially for such small interest rate increase…..what do you think?

    What do you think ?

  11. We are at 60/40 and it’s working out great for us! Only fell 1.5% on Brexit day and then came ROARING back as the markets rallied. And today, we just got paid some sweet sweet dividends and I’m doing my “happy dividends day” dance!

    Since we’ve only been retired for 1 year, the portfolio is more on the conservative side, but we may want to move to 75/25 as we get more comfortable with it and build a stable side income (we already have some income from coding but it’s not consistent yet).

    Totally geeked out over your mention of “Modern Portfolio Theory” and Harry Markowitz. I had no idea he was on the board of advisors for Personal Capital! I wish we had that option here, but Personal Capital is mostly for Americans. I’m not sure what the Canadian version is…I guess Mint? I’m pretty suspicious of Mint as you have to put in your banking passwords, and the banks have a clause that say they are excused from any security hacks if you give your password away to third party tools. Oh well.

  12. I think it’s because I have too much cash allocation. It’s like at 15%. Don’t trust the markets at the current time and looking/waiting for better places to stash the cash.

    My spending is OK, runs about $8-9k a month.

    I hope Personal Capital is wrong about the 5% chance, because I already left the workforce a few years ago. Haha…

  13. Personal Capital sent me an email stating

    Take Action: You only have a 5% chance of meeting your retirement goals

    With an 8 figure portfolio, I find it hard to trust their analysis.

    1. That is hilarious! And it shows the weakness of purely digital wealth advisors. The robots only know what is inputted to come up with their extrapolations. It is up to us to decide whether what they say makes sense or not. I’ve got a new post using myself as a guinea pig to highlight the errors in their output versus my thinking.

      But with a 5% chance of meeting your retirement goals, there must be some kind of nugget to take away from that email or retirement planning calculation. Perhaps you are spending way too much per month?

      The only way robo advisors can make money is based off of a fee on your assets under management. Therefore, along with the bias of an upward moving stock market, there is incentive for Robo advisers to have a bullish viewpoint and a push towards investors investing more of their cash. The good thing is that Personal Capital has these free tools which allow us to analyze and decide for ourselves what we want to do. we can blindly trust what the computer says. But we can utilize software developed by people who thought of many variables to help us with our finances.

  14. Sam, I think most people would benefit from developing a portfolio of a handful of dividend paying individual stocks, sizing each share count based upon volatility of each stock as it relates to their account size. An easy calculation is (account value X .02)/ (Average True Range of the stock)= share count. What is your opinion on this formula and approach rather than potentially high fee mutual funds offering dividends?

  15. Hi Sam.

    I was wondering how you determined

    “Finally, the remaining 25% of my net worth is made up of my online business.”

    That must be over a million dollar valuation you are giving your website. When you are in a business like yours that has a key employee & founder and isn’t capital intensive, how do you value your future cash flows? I don’t think Financial Samurai would be the same if you quit working or sold the business.

    Sure, if your book sales are still strong you might have some cash flow coming from that. If that is the major contributor, then well done! You’d have to really crank out the copies to make it there.

    1. Hi Chris – You can value a business based off a multiple of revenue or operating profits usually. It’s up to you to decide how much you are willing to sell your business for e.g. how much would you sell a business generating $1,000,000 in operating profits a year when it takes $50,000,000 at 2% to generate $1,000,000 a year?

      See: Your Income Producing Properties Are Much More Valuable Than You Realize

      A net worth figure is nice, but it doesn’t mean much if you don’t plan to sell any of your assets. It’s a vanity metric that can be used to see how diverse you are. Focus on cash flow, building assets, and growing your net worth.

      The great thing about having your own website is that it can produce many different income streams. My book sales is just one of over 10 income streams online. Think BIGGER.

      Do you have a business you’ve started or are considering evaluating for sale?


      1. Sam, I spent some time looking at businesses to buy, if you are interested in benchmarks. You can get a good old-fashioned bricks and mortar business for around 2.5 times cash flow plus inventory if applicable. A good e-commerce site might go as high as 4-5 times cash flow. A bricks and mortag business you can finance with an SBA loan, but an online business needs to be all cash!

        1. Could be good, but I will never buy an old-fashioned bricks and mortar business after running an online business. Upside is so much greater online, and the costs are so much less.

          Risky to finance a business too, especially when you can launch a website for $5!

          1. I agree. That’s why I ultimately gave up on the idea of buying a business. Bricks and mortar was too capital intensive and e-commerce was too high a multiple.

            Decided to go back to global mega-corp and start my side hustle online!

      2. I already have a business. I do contract QA and writing. In general, I love what I do and make good money. But my “business” is worthless. Here’s why:

        There are only three ways I can cash out from my business; I could keep working, but any money I get from that is more like wages than cash flow from a business; I can stop working and let any remaining cash flow come in; and I can sell my business. Those are the three main ways any business owner makes money.

        But there is a problem with each of these valuation methods for my business and I think for yours as well. The first issue is that continuing to work is like wages, which is hardly something you can value with discounted cash flows. Doing so would be like saying that a college degree is an asset that should be on a balance sheet because it makes your future work worth more.

        For the second issue, I know you have some passive income from your book and from click ad revenue. But, I’d be shocked if that all exceeded a million dollars! Without your continuing contribution to your site, I think this cash flow would dry up quickly. I love your site btw.

        Finally, the third issue is that no one could replace you without some extensive training and recruitment. Could you really sell your company? If your business was more capital-intensive, then that would be easier to value. If you had impressive networks of employees and extensive intellectual property, then that could also be worth something to a buyer. Ultimately, a buyer you would put a large goodwill adjustment on their accounting sheets, and I don’t think there will be a lot of assets behind that value.

        I am a key employee & founder working in a non-capital intensive industry, but I know that my business has negative net worth. If I stopped working today, I have accounts payable that I will need to close up before moving on to the next project and that my intellectual property is probably not enough to cover that charge.

        John gave us some great data on e-commerce sites, but Financial Samurai isn’t like a conventional e-commerce site like Amazon.

        1. Chris – These are good points. Have you created a website for someone to actually buy your business? Or is your business your service? A website must be created, b/c that is what can be bought. Build the BRAND, and build the product on the website.

          Thanks for saying I’m irreplaceable. But the reality is I know MANY sites that hire ghost writers to replace the voice and brand that has already been established. That’s an easy solution for keeping the business going.

          Point 2: Look at big online media companies. They just hire plenty of different writers under the brand. They drive traffic to their website, and have sold their website for big bucks e.g. BusinessInsider. Consumers have been brainwashed into thinking anything written by a big media company is legit b/c they’ve built a BRAND. You can have a 24 yo writing about retirement on Forbes, and it would be taken seriously b/c it is Forbes.

          It is VERY easy for me to hire several staff writers and fill up the editorial calendar. I’ve also got endless amounts of inquiries for guest posts. They would write under some Financial Samurai brand guidelines, and I think the posts will do well. Here is a guest post called, Confessions Of A Spoiled Rich Kid that went viral for example. Look at the ridiculous amount of social shares.

          See: Is “Fake It Til You Make It” The Reason Why We Are So Screwed?

          Point 3: Organic search traffic is 70% of traffic to FS. It’s completely passive. When you can figure out how to generate automatic recurring traffic and recurring revenue, that is a GOLDEN business model.

          Always think about Scale, Recurring Revenue, and Branding. I’d love to check out your site/business if you want to share.

          Don’t be fixated on just the severance negotiation book as a way for a site like FS to make money. Start a website to leverage 3 billion+ people online.

          Do you think people would be interested in an ebook from me about scaling up online and branding? There are tons out there already, but perhaps I can be more insightful.

          1. I don’t have a website yet. I only have two clients right now and they take up 90% of my time. But, I admit that I should be taking your advice and building my website. One thing I’m always wondering about is if I risk pigeonholing myself if I build too strong of a brand. I could have never predicted that I’d land a client in technology; my education and background was far away from the skill set they are usually looking for. But now, it’s the best paying gig I have ever had. But, no, I’m way too small at this point to sell my business. You on the other hand certainly could.

            I think the ghost writer idea is good. If you built a quality network of employees, you’d be managing and engineering your business, not just working for yourself. Adding a good workforce (with good labor relations) to your portfolio of intellectual property and the brand would close up a hole in your business plan. Then, if you managed to simplify your own role to the level where you could train an interested buyer, you’d be in a position to sell and could boast about a high business value. You cited some situations where you have progress in this direction, and you have talented editors like your Dad working for you.

            Your Forbes point is well taken. You are hardly big media, though. People work hard to be able to slap a brand like “Forbes” or “Trump” on a product and be able to sell it, and then they develop the idea to the point that they can prove it. Maybe you are in a position where you could consider the direction your brand will take. Could you be the next Forbes?

            It is great how you have so many organic search traffic. Is your SEO strategy expensive? Regardless, it has been effective. But if you went 5 years without a new post then I think your SEO will be harder and your posts probably depreciate in value over time. Do your posts get fewer clicks over time? If they do, then projecting their cashflows further than a couple of years is risky. Would your sponsors jump ship if they heard you were quitting? Before you sold, you’d have to make sure your sponsor relations were excellent or your couldn’t include them in your FCF projections.

            I don’t know if a new book would sell. I think the major critique of your first book was the high price, but I’d need more information & research time. But this highlights two of the critical contributions you make to your business: first, deciding what to write; and then, actually writing it. Now, if you employed an editor that contracted the writing to a ghost writer, that would be impressive. You’d be a publisher! Then, I’d say that your business is worth 3x or 5x or some other multiple of forward looking earnings and that any executive that would buy you out could probably do your job.

            I liked Jon’s post. He listed two traditional industries and multipliers for them. I suppose we’d need to look at your competitors to find an industry multiplier for FS, but I’d estimate it’s under 1x right now.

            1. I’m not putting you down, Sam. Like you said before, you are indispensable. I do like your work. Just saying you are overvaluing yourself, a common mistake and a minor one at that.

              Best wishes.

              1. Chris, it really is OK. I just don’t understand why if many sites like mine (traffic, history, genre) have sold for and are selling for 3X revenue, why would you think mine would sell for 70% less? There’s no overestimation of the value of my business. I have rejected three offers already for 2 to 4 times annual revenue because I think the multiples are way too cheap given where public companies trade for and how low interest rates are. Would it help if I forward you the offer details to help you believe?

                It is much harder to make a sustainable living as a freelancer. You’ve got to always work to make money. But if you develop a platform, you can go to Europe for a month, do nothing and still make a lot of passive income if you establish your brand.

                Study the various income streams from the charts in this post. It should give you a better idea.


                Don’t sell yourself short!

            2. Oh, if you have offers, then that makes sense. That is a very easy way to value cash flows. I wasn’t aware there was an such an active market for sites like this. You do have an impressive collection of intellectual property and very nice demographics, so I totally believe it if you say it. Congrats again on the stellar work.

              And you’re totally right about public sector valuations, they are much higher than anything we’ve discussed so far. Maybe both me and your lower offers need to rebenchmark. :-)

  16. 44 yo, (wife, 3 kids) no debt (military for college, recent move to arbitrage home price differences, so no mortgage, 529s funded to 75% of instate undergrad cost) and have had an impossible time trying to find an advisor that can comprehend our ‘plan’……we have harvested our ‘nut’. 60% of our net worth is split between TSP G fund (32%) and equities (28%) portion so that the total package of equities / bonds closely resembles your ‘conservative’ portfolio. Our real estate / alternative investment is a large tract of vacant land we bought at a steep discount from a distressed seller. At the low end we will do very well (30% of net worth). At the high end we may double or triple our net worth. We consider this a risky investment. Additionally, we keep 10% cash for ‘other opportunities’ and believe that a more conservative (equity/ bond) portfolio is warranted considering how our net worth is diversified.

    In the past, we have met with an advisor every 3-5 years depending on life events for an overall assessment and managed the details on our own. This time around we have tried 3 different advisors (USAA, Personal Capital and a local firm) and all have recommended more aggressive approaches with significantly higher equity percentages. I was beginning to feel we were crazy and way out of line, but your article adds some credence to our plan (confirmation bias?).

    The problem we have is two fold. How do you stay calm and stick with a plan that you have rationally chosen? and is it even worth working with an advisor? Of course, there is the very real possibility we are very wrong and the advisors are correct. Or we may be right and we are ready for a long winter. Either way, keep writing! I enjoy your blog immensely and have used your articles as starters for many family chit chats.

    1. Great to hear you’ve leveraged my articles to have family financial discussions! Those are so important and aren’t done enough!

      You may enjoy these articles:

      Advisors don’t have perfect info, unless you give it to them. They also may not be as experienced as you would like unless you get to the $5M in assets or higher and go with private wealth managers at bigger firms.


  17. Hey Sam, since many of your readers here are probably ahead of the whole age/allocation curve you put up I think it would be good to make some sort of hybrid chart to help people. Basically your % of desired financial nut achieved vs. allocation (regardless of age). Maybe for example if you are 35 years old but 80% of your way to your goal to be what you considered FI you probably should be closer to the 60/40 split vs. the 80/20 that’s in the chart above. Maybe its a little too complicated way to think about it, but that is just how I think about it. You allude to it in the text but some people just go right to the fancy charts and graphs : )

    1. It’s the right way to think about it. If you are 40, but have found your “enough money” then move to a 50/50 allocation as a 65+ yo person would. Let me think about how to graphically portray it.

  18. I’m 92% stocks and 8% cash and other vehicles currently, but I am 32 and just now starting to invest. My timeline is necessarily long. I’m also building up my own business so I can leave my W2 job and devote my energies where I desire.

  19. supernova72

    This is very timely Sam. I’m currently at 73/27 equities to bonds/stable value fund (401k). My job within IT was recently surplussed and I’m getting a severance for six months pay (30 yrs at Megacorp).

    My question about asset allocation is upon “retirement” (I’m 55) my pension will provide 60% of my needed income stream.

    Would you throttle back on equities if you were me? Knock on wood my health is good and I get retiree medical. Have about $785K in 401K referenced above.

    1. Sorry about getting let go from Megacorp. Is it too late to go back and negotiate a severance? If I worked with you, I would have argued for at least ONE YEAR’s worth of severance pay PLUS your mandatory WARN Act salary for 2-3 months. These kind of things is the whole reason why I wrote a book on negotiating a severance. Real money is at stake.

      To answer your question: YES. I would absolutely throttle back to a 60/40 or 50/50 weighting in equities/bonds at age 55 w/ a 60% pension.

      May I ask you another question? Was the layoff a surprise? Or did Megacorp show signs of impending uncertainty?



  20. PhysicianOnFIRE

    I decided to have the 45-minute portfolio review with my Personal Capital adviser. I had between 5% and 10% bonds at age 39, and said I wanted to be retired by 50.

    The advisor’s model suggested I was too heavy in bonds. I found that odd. The advisor could tell I knew what I was doing, and knew his odds of selling me on the management service were nil, but we went through the whole spiel. I still manage my own investments, but appreciate the free service they provide.

  21. DIY Money Guy

    Good thought-provoking article and interesting comments so far. Really good point about robo-advisors or even a human financial advisor not having full picture or net worth and only investments. I think a lot of investors tend to overlook. My wife and I are very aggressive with stocks vs bonds as well currently but will be dipping our toes into some commercial real estate pretty soon.

    I hadn’t heard about the Betterment shutdown after Brexit. I disagree with their approach if that is what they really did. I understand people tend to make decisions based on emotion rather than logic sometimes but that is truly the investors choice and not for Betterment to make. How are people ever going to learn how to best handle their money if Betterment or a financial adviser take away the options of being able to make a decision?

    1. Exactly. Betterment and all wealth managers, banks, financial institutions need to keep their doors open at all times. Providing liquidity is one of the main tenets for financial institutions.

      Think about this: why do banks close down during times of crisis? To protect you? Or to protect the BANK who lends out 90% of your money and won’t have money left to give if 100% of their clients come collecting.

  22. Hi Sam,

    This part you said is so true “we tend to invest in the places we know best. Never invest in what you comfortably don’t understand.”

    Most of my after-tax investments are not only in companies I understand but also companies whose products and services I actually use. This way I’m not just reading their financial data, but seeing what other types of consumers purchase there products and services and see where they can improve their business.

  23. Chris @ Sleepy Capital

    I’m in my 20’s and am 100% in equities, I agree with your alternative portfolio allocation when it comes to stocks to bonds. I am also trying to heed your advice by diversifying my net worth. I love your comment that “because like most people, I have diverse interests. Life is not just about making money to invest in stocks and bonds!”. My goal is to develop my online business and to buy some real estate (to live in at first) in the next few years.

    Additionally, because of FS, I have been using personal capital over the last year and it’s been a great means to managing my personal finances and tracking my portfolio.

    1. Hi Chris,

      I think you will really ENJOY living in your primary residence and getting neutral inflation. Nobody ever writes how amazing it is to finally land your own place to do what you will. The feeling of not being beholden to others (except for the bank!) feels good.


  24. I’m a bit underweight on bonds in my portfolio now because I bought a decent chunk of stock the day after Brexit. I just ran my mid-year net worth figures recently and have about 16% cash, 55% in stock, bonds and alternative investments and 30% in real estate. So excluding cash/CDs, I feel pretty good that my net worth isn’t close to 100% investments.

  25. One additional factor that contributes heavily to the riskiness (however you choose to define that word) of a portfolio is your recurring savings/investing cash flow situation. If you continue to 1. have consistent income that you can continue to save/invest (the norm for many people given their corporate jobs or side gigs) and 2. have the mental fortitude to continue investing in the face of significant downturns, then you can take a riskier position because you will be able to buy into the inevitable dips. I’m not saying this is easy… just straightforward. It is easier once you have a few major downturns (2000-2001 and 2008-2009 in my case) under your belt.

    On a grander scale, this is what Berkshire Hathaway has built. Their cabal of operating companies generate ~$25B in annual cashflow in good times and especially bad which they constantly choose where best to deploy (e.g., invest in PP&E, public equities, private acquisitions, distressed situations, cash, etc…). They can afford to take a lot of risk because they constantly have substantial amounts of cash flowing to HQ.

    1. Jamin: These are great points regarding savings/free-cash-flow to invest “always”, most importantly MORE $$ during such “dips” (or Black Swan events ? :-)

      Steady/good income, decent career growth, “savings-and-investing discipline”, “save and start investment early in your career!”, “auto pilot” investing of most of your savings, diversified and aggressive portfolio until 30s-40s — will stand a good chance of taking you where you could aspire to!

      Folks: do consider a side hustle or gig, and/or “second/multiple” sources of income — these will definitely “balance” or assist in a few dips/change-of-course in career. If you have multiple incomes or multiple streams of income like FS indicates, your appetite for bigger/better career moves increases. Also – if you have one steady income/paycheck from your spouse/partner to cover steadiness in paying bills and “group family health” coverage etc., one could consider doing “consulting” at typically 30-40% higher rater than “full-time/w2” job.


    2. Good example on Berkshire. It also helps that the money managers are “one removed” from the money by setting up a corporation. I’ve found it’s easier to stay the course if it’s not directly your money.

      For example, it’s harder for me to spend $200 on dinner for two on my personal account. But if it is on my business account, even if I own the business, it’s much easier to spend $200.

      So the same goes for investing in a way.

  26. The Green Swan

    We would be considered in the aggressive category, although that’s because we’re on the young side and are further out from actual retirement. I’ll need to reconsider in the coming years a re-allocation to possible become more conservative. Great tool to help you monitor!

  27. Hey!

    I would be interested on your thoughts on the ideal theoretical path to financial independence for an ambitious college grad with good job outlook. Basically if you had to do it over again would you do anything differently?

    Obviously saving 50%+ what they make and not spending frivolously, investing in you 401k and IRA, etc. What would be the types of things would you invest in and on what timeline? Would you leverage yourself out because being so young you can assume much more risk? Would you aim to have you first income generating rental property within 2 years of graduating? Other hustles?

    Let me know what you think!


    1. Sure. The #1 thing I would have done differently would be to start a website or multiple websites while in college or right after college in order to build a brand and learn about the internet and the many ways you can make money online.

      I didn’t start Financial Samurai until I was 32! Yet, I clearly was aware of the internet when I was 19-20. If I started earlier, I would have learned tremendous entrepreneurial and communications skills earlier. But as they say, better late than never!

  28. I’m in my early 30’s with a wife and young child, with only debt a mortgage. We both max out our 401k and make too much for ROTH, we have roll-over IRA’s from previous employment, we have a small traditional IRA with just Vanguard REIT Index fund, and I’m getting close to having a 6 month emergency fund. After that I’ll be looking into other investments as I continue to save money.

    On the mortgage I have a high rate at 4.6%, but I didn’t put 20% down so I’m not at the magical 80-82% LTV that most lenders are looking for so I can refinance.

    What I’m trying to figure out is, should I cutback on my 401k to pay down the mortgage so I get into the refinancable range, while still working on building up the 6 month emergency fund? Or continue maxing the 401k, wait until my emergency fund is built, and then try to refinance?

    1. Here’s an option C that I’ve actually be implementing for the past year and a half while my wife finishes graduate school (which we’ve cash-flowed for 2.5 years):

      Don’t wait to get to 6 months of emergency fund. Settle on 3,4,5 months that you have currently. Refinance to a 5/1 ARM or 7/1 ARM at the lowest possible rate and pay down your mortgage to 80%LTV at the same time to dodge the PMI (you can use some of your emergency fund or other liquidity to make this happen, and I’ll explain why). Your bank should be fine with refinancing and paying down principal at the same time. Then, establish a home equity line of credit (not a home equity loan) safety net that is only to be used for emergencies that your liquidity can’t cover but you would pay off ASAP. This will substitute as your 6 month emergency fund until you build that up with your newly discovered cash flow. You only pay interest on the amount withdrawn after 30 days (like a credit card that you will hopefully never use without an annual fee!).

      Going from a 4.625% interest rate to something in the 2.375-2.875% range will free up tons of cash flow right away for you to then get to that 6 months emergency fund faster, you’ll feel better about not paying PMI or that higher interest rate and you’ll have a healthy buffer with the HELOC if you ever need to tap into additional liquidity that was previously illiquid in the form of your home equity. And a lot of banks will pay the closing costs/fees for opening a HELOC! Take advantage of the uber-low rates now man.

      I did this exact same thing in early 2015 and cut my mortgage payment by 27%, increased my principal pay-down amount each month by 27% and have never paid interest on my HELOC. Any interest you DO pay is treated similar to mortgage interest at tax time bc the HELOC is a variation of a mortgage. This sounds scary but it’s absolutely harmless in responsible hands and you seem responsible.

      Let me know if you have any questions about my proposed strategy. It’s worked wonders for me and my wife. Good luck!

      1. Kendall, will I actually be able to refinance down to the low rates even though I’m not at 80% LTV? I was under the impression that I need to be at 80% LTV to even be considered.

        1. We were not at 80% LTV and still paying PMI when we approached our bank about refinancing. Initially, we agreed to refi and continue paying PMI at the current LTV of ~85% and just try to pay down extra principal quickly to drop the PMI. Towards the end of the process, we decided to just bite the bullet and slap down a chunk of cash with the refi to get to 80% LTV and not pay PMI. Our bank had already agreed to pay off our current 4.625% mortgage and give us a new 7/1 ARM at 2.875% before we made that call, so we would have proceeded with the refinance either way. Check out bankrate . com for the lowest ARM interest rates with 0 points in your area (or national banks are ok, just harder to work with IMO) and call several of them.

          I hope you’re able to succeed! Open to any additional questions, also.

        2. You should get pretty close on the rate even without 80% LTV, although you’ll obviously have PMI till you hit 78/80%. You can bring money at closing to get you to 80% even if you aren’t currently at 80%.

          Also, another option you could do if you are sure you aren’t at layoff risk and have no plans on leaving your company anytime soon is to take a 401k loan to use to help get you to 80%. The upside to this is the interest on the loan is close to the PMI cost but you are paying yourself the interest (usually around 4% these day) rather than an insurer. It’s also a better return than you’re likely to get with bonds, so I wouldn’t touch your equities portion of your 401k but could borrow what you have allocated to cash/bonds. This is what I did on my first house. Unless something has changed, 401k loans were not counted as part of your DTI ratio. Just keep in mind if you leave your job, your 401k loan typically has to be repaid in full in 90-120 days or its considered a distribution. There are a handful of companies that do make you suspend contributions when you take out a loan so if that’s the case, I wouldn’t recommend this strategy either.

            1. /shrug – I did it with my first property (net monthly payment was the same for 3 years 401k loan + mortgage vs renting). Will probably use it to bridge the gap to buy another townhome rental outright next year as well which I have modeled at 8-9% cap rate after I pay back the loan over 2-3 yrs. I just considered it a secured loan to myself. I especially like this strategy when I think both stocks and bonds are overvalued (like now) and MM funds are making nothing. At least this way I can put up to $50k to work in something I’m confident will generate a return well north of inflation. Could HELOC my main property as well but haven’t decided yet. But yes if not used wisely, it can definitely blow up in your face.

    2. Depends on how much mortgage you have to pay down to get to 80% LTV and how much in reserves you have.

      Think about the mortgage pay down as an investment:

      Interest Rate Savings DIVIDED BY Principal paydown amount = X?

      You can get a 5/1 ARM for 2.5% now with no points. Compared to your current 4.6% rate, that is HUGE. Refinancing now is a no-brainer for you. I refinanced when my spread was at just 0.25%!

      See also: Pay Down Debt Or Invest? Implement FS-DAIR


  29. BeSmartRich

    Your allocation weighting is pretty solid. You kept it simple. As you get older, you need to have some stable liquidity and having some weights towards bonds are an excellent idea. I am in early 30’s so I am typically 95%-100% stocks. Currently at 95% stocks and 5% cash to take advantage of volatility.

    Thanks for sharing!


  30. Very timely article as I’m considering retirement plans/options/investments.

    I will need to dig into this a bit to understand and weigh all my options. I’ve saved it for a future read.

    As always, thanks for the GREAT content! Much appreciated!!

    1. No problem! I’ve written a follow up post about how to think about the various options using these tools you might like to read.

      The advice/output provided can’t be taken as given. They should help individuals think about their overall finances b/c investing in stocks and bonds should only be one part of a net worth make up.

  31. Sam,

    I’m very interested in seeing how robo-advisors perform in the next downturn.

    I studied MPT in my Financial Math master’s program and there are many assumptions in the original theory from 1952 that have been proved wrong. For example, the returns of a particular asset or portfolio are assumed to be normal, which is obviously false if you look at historical market data (also, the Black Swan and Fooled by Randomness by Nassim Taleb are great reads on this subject). If the analyst does not include a downturn period in their data, how will the model react to a downturn if it assumes normality?

    As you mention above, “…the returns of the past will be harder to replicate today.” This is where I fear that data driven investment strategies (MPT) will be obsolete (which you also mention above, MPT is 64 years old!)

    I haven’t read up on the algorithms in place at Betterment, Wealthfront, or Personal Capital, however I’m sure that they are thinking about these assumptions and limitations and how to make improvements.

    Any thoughts on robo-advisors and the effects of a potential downturn?

    1. Hi Erik,

      That’s the thing. The world has changed since MPT was introduced. Technology, more efficiency, lower interest rates are big drivers of change. As a result, we should view: 1) our asset allocations differently, and 2) the amount of our net worth exposed to public equities and bonds differently.

      In a way, private investments is like going back in time to take advantage of the inefficiencies of the stock market before the internet. I’m hesitant on anybody having more than 50% of their net worth in public investments.

      In a potential downturn, I have a feeling clients who have money managed by robo-advisors may actually do better than traditional managers because 1) investments are in the lowest cost ETFs like Vanguard, 2) investments are in passive index funds that neither outperform or underperform given they are the markets, and 3) management fees are much lower than the 1-2% on average. Taking human emotion out of the equation may ultimately help.

      However, a downturn would hurt asset gathering for all money management firms, thereby hurting profitability. Since robo-advisors charge so much less than traditional wealth advisors (Wealthfront is free for first 15K managed and 0.25% after), they need lots more assets to become profitable. As a result, they’ve got to raise a lot of money to stay independent or get swallowed like FutureAdvisor did by BlackRock earlier in the year.


  32. I looked into personal capital but ultimately went with Betterment. Primarily because of the high fees but also because i don’t believe humans can pick funds better than algorithms (at least not at a level worth paying for).
    Plus betterment has a wider assortment of features.

    1. Hi Kyle,

      Betterment and Wealthfront are the main pure robo-advisors that have the lowest fees. Not bad choices, especially if you don’t need or want to talk to anybody about financial planning or anything other than stocks and bonds. Once your finances get more complex, a lot of people are willing to pay higher fees for human consultation about estate planning, taxes, what other people are doing with their money, a quarterly update etc. It’s like paying up for Apple and having the Genius Bar versus paying for a generic laptop with no support. As I’ve grown wealthier, I’m willing to pay a premium for Apple.

      The one shock w/ Betterment was them shutting down trading the day after Brexit. I’ve been thinking about writing a post about this. A financial institution should NEVER take out liquidity for the investor. That is simply wrong. I would be so pissed if I had to withdraw money for whatever reason, and my financial institution said I couldn’t.

      May I ask your age and how much you have w/ Betterment?


      1. Interesting, I didn’t know they actually did that. From an algorithmic stance though it makes perfect sense. You don’t want your robo-advisor to take action on a single data point that is far outside the norm. Betterment is in it for the long haul and the pause demonstrates that commitment in my mind. I’m actually far more impressed with it now.

        What in your mind is ‘Genius Bar’ level features that you get with Personal Capital? I spent some time with their advisors before I decided on Betterment and didn’t come away with any ideas of what value they were actually providing.

        I’m 30 and have ~170k with Betterment.

        1. That is fascinating feedback that you see Betterment denying withdrawals as a good thing. Thank you! It helps in a future article I’m contemplating writing about liquidity. Thanks for sharing.

          1. If you write that article on liquidity, perhaps you could also mention Schwab’s Intelligent Portfolios? They hold a fair amount in cash and I am not sure of the advantages and disadvantages of this (I am assuming they do not use it to buy the dips or something).

            1. I agree with the FS article saying that cash an be a defensive investment… BUT only if you deploy that cash during a downturn. If you just constantly re-balance to a fixed % of cash, you miss out a lot of opportunity to buy the dips. That is why I don’t like the fixed cash % of the Schwab IP’s. I use Schwab for most of my investments but I don’t use their IP’s for just this reason.

              I would follow a structured approach… something like redeploy 50% of cash at a correction level (down 20%) and the rest if/when it dips 40% or more. Sam wrote a similar article about this but did it in something like four buckets of 25% each when the market dips 10, 20, 30, and 40% respectively.

        2. Kyle,

          I’ve had two accounts under Personal Capital management for about 18 months now, one is a taxable account and the other is an IRA. In my view, this is the best use of PC’s financial advisory; they are able to optimize your overall portfolio for tax efficiency while still keeping costs relatively low (compared to traditional FAs). In addition, I’ve used there advisors to help with our two 401k allocations And to discuss real estate investments and insurance. These are some of the free benefits you can take advantage of, as Sam mentioned sometimes it’s nice to bounce ideas off different people.

  33. Apathy Ends

    we are between aggressive and moderate, around 12% bond allocation right now – that is about my comfort level as well – I am 29 my wife is 27

    Outside of a REIT investment and our primary residence. The bulk of our money is in the stock market. over the next few years I will start diversifying into other areas – hopefully real estate beyond our primary residence.

  34. This was a good read. I’m in my 40’s and my allocation is likely better suited to someone 15 years younger than myself. Found myself behind a few years ago, so put together an allocation that is more on the risky/rewardy side. I’ve been a ‘genius’ due to the bull market we’ve had for the last couple of years, allowing me to ‘catch up’ in terms of total net worth (though sadly still behind your charts because of irresponsible living + choices I made earlier on).

    Though on the efficient frontier for an aggressive portfolio as per Personal Capital, I’d likely do myself a service rebalancing to something similarly efficient but less risky considering my age to transition towards preservation mode.

    Not that I haven’t been considering it, but this post certainly helped clarify the benefits of doing so. I/we wont be geniuses forever and it makes sense to have less exposure once the bulls stop running. Time to get even smarter. Thanks, Sam.

    1. Great job being a genius these past few years of the bull market and catching up! Now that you’ve “caught up,” it’s more important than ever to stay that way.

      It’s like being up in the casino and then giving it all back and then some because one couldn’t walk away. They thought they just couldn’t lose and take bigger and bigger bets until things go to hell.

      This is what this one developer of a house I’m looking at is facing in Kahala. Was remodeling $2M properties and doing fine, and now is stuck trying to sell a $5M property with inventory ballooning. Uh oh.

  35. Vicki@Make Smarter Decisions

    Just signed up for Personal Capital a few weeks ago and love what they have to offer. They assigned me a personal advisor and I look forward to our upcoming conversation. I find this product much easier to use and linking accounts was a breeze. Had one glitch and a quick email solved it.

    1. Cool. It’s worth having a conversation to see where you stand and what they recommend. Good to have another set of eyeballs to see if you are missing something, especially if its free.

  36. I’m a big fan of Personal Capital which I started using based upon your recommendation almost a year ago. So easy to track and optimize my portfolio and stay on the efficient frontier!

    I had previously been using a Morgan Stanley pension asset allocation model that I picked up in b-school. Turns out they both recommend similar allocations, but PC is much easier than manually calculating positions in Excel!

    1. I used to LOVE Excel. I’d create pro forma calculations for 10-20 years just for fun. But that was before the days of fintech, PC, and all these other free tools. I do like to play around once a quarter or so with Personal Capital’s retirement calculator since it allows you to input pro forma expenses and income events, while using your real spending and income data so you can’t “cheat” to a better retirement.

  37. Kate @ Cashville Skyline

    I’m 32, and I definitely fall under the aggressive category. I’m 100% in stocks in both my Roth IRA and brokerage accounts. This makes up less than half of my net worth. Honestly, I’m a little uncomfortable having so much of my net worth tied up in my home (~$150,000 in equity, currently). I have no plans to sell the home, so I’m not overly excited the value continues to rise.

    1. 50/50 stocks/real estate at 32 is a nice balance. Just try and beef up the risk free portion of your net worth as well to around 10%, for the inevitable correction. It’s important to have liquidity during those uncertain times.

      If you ever move up, you’ll enjoy the appreciation of your home. But try building up reserves for a new home, whether you buy one or not, and then you can have the option of renting out your old to build a nice income stream. Do that 2-3 times and you’ll be golden! Just takes time.

  38. Matt @ Distilled Dollar

    I agree that it is interesting when the aggressive allocation suggestion is to place a few % points in bonds. At such an immaterial level in the portfolio, I can’t imagine how they offer any benefits.

    Happy to say we’re following your investing allocation model at the moment with 100% in equities. It helps that we’re in our 20s and investing aggressively using a dollar cost average method.

    As for net worth, we’re still in the negative with the goal of becoming worthless before the end of this year. Our student loan burden was originally crushing but we’ve since gotten a grip on it.

    1. “Goal of becoming worthless before the end of the year”? Awesome! Nice job getting a handle on your student loans. It’s going to feel amazing once you get rid of it all, so keep up the extra payments!

    2. Fiscally Free

      I agree the minuscule bond position is pretty worthless.

      Our net worth is currently around 63% in our home, 31% in equities (all stock), and 6% in cash. The housing portion is higher than I would like, but expensive LA real estate makes it hard to avoid.

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