So, after 10+ years, I kept my job, but had to leave my employer. That doesn’t make sense, does it? It is a long story that is explained here. I was OK with it. I didn’t like them much and they didn’t like me. See ya’ old company and thanks for all the
fish 401(k) match!
One of the great benefits of moving on was that I was able to finally move away from the former employer’s crappy 401(k). It was filled with funds that had ridiculous fees. 2%/year? Come on now. The best choice was the Fidelity Contrafund. This fund isn’t as terrible as some, but it isn’t great either. The chart below shows that the Contrafund has been thoroughly torched by the S&P 500. Good-bye Contrafund. Better luck to you.
UPDATE: Dividend Growth Investor pointed out in the comments that I may have unfairly dissed the Contrafund. Apparently, the chart I used from Yahoo Finance doesn’t account for dividend reinvestments. Check out this chart instead. This article from the Wall Street Journal supports what he is saying. The only fair thing to do is to include the Contrafund in my experiment. Update tomorrow.
If you have read personal finance blogs for any amount of time, you know that Vanguard is a great choice. Actively managed funds have a very difficult time beating their low fee, index counterparts that were popularized by Vanguard. Furthermore, the choice of a Vanguard fund is simple as well; the total market fund or VTI (ETF version of VTSAX) is the way to go. Mr. Collins does a nice job of explaining it all, so I’ll leave that to him.
Normal people may think twice about experimenting with $275,000. Not me. If I was completely sane, I’d just throw the whole thing into VTI and not look back. (I also wouldn’t be 41 and playing with dinosaurs.) What fun would that be? Besides, I like a little excitement in my life. Let’s do a little experiment.
I have put $40,000 into each of these 6 funds:
- VGT (Vanguard Information Technology): I’m a nerd at heart. I love computers. I love gadgets. I love cars. I also love taking all of those things apart and experimenting with them. I am buying VGT because I love technology. Yes, I love technology:
- VBR (Vanguard Small-Cap): I have frequently read that small caps beat the bigger guys over time. The chart below gives a little credence to that rumor. Besides, Betterment also has this in its portfolio and the folks who work there are sharp.
- VNQ (Vanguard REIT): I love real estate. Not as much as I love technology, but I still love it. So far, I’ve been wildly unsuccessful in my attempts to purchase any income property, so I’ll pick up some real estate through this REIT. I also think that U.S. real estate will do well in the near and distant future. The U.S. has no shortage of issues, but I am bullish on my beautiful land of opportunity.
- VXUS (Vanguard International Stock): This provides exposure to investments outside of the U.S.
- VIG* (Vanguard Dividend Appreciation): Dividend lovers (Hi Jason! Hello Mr. Pipeline!! Hi Dividend Ladder!!!) I didn’t forget about you! There is no shortage of folks obsessed with dividends. I’m not a dividend investor, but I think it’s a relevant strategy for a particular mindset. I also readily admit that my heart rate quickens and a huge smile blooms across my face when my account statements show dividend disbursements.
- VTI (Vanguard Total Stock Market): This is the gold standard and measuring stick. If I had more sense, I’d just throw it all in here.
Of course, we all know that historical performance isn’t a great predictor of future returns, but it’s still fun to look at. VGT is the big winner with VXUS stinking up the place over the past 10 years:
- I’ll show you how this portfolio is performing frequently. I will try to do it monthly in my performance updates.
- All dividends will be reinvested.
- These 6 funds will be treated equally. If I take money out or add more, I will do the exact same with all 6 funds.
- I will keep this portfolio for as long as I’m blogging.
- This account is separate from my Solo 401(k). In that account ($50,000!!!), everything is going to VTI. See, maybe I’m not so crazy after all.
- The above investments add up to $240,000. The remaining money will be dumped into a bond fund. That is almost too boring to even mention. I’m getting sleepy just thinking about it. I may redistribute that money down the road.
I expect VTI to win over the very long term. Think decades. Over the short term (less than 10 years), VGT (technology) or VBR (small-cap) have a reasonable chance of winning.
VXUS (international) scares me. The U.S. has its issues, but some of the stuff going on in the Eurozone (Hello Greece!), the Middle East (Hello CNN!) and the Ukraine (Greetings comrades!) makes us pale in comparison.
Warning, lawyer talk ahead!
Please don’t follow in my footsteps. This post is not advice, just a fun experiment that I want to watch play out over the years at my own expense. If it goes bad, you have the joy of pointing fingers and laughing. I’ll try not to cry.
However, I think it will be entertaining, even though it isn’t very sensible. Sensible means no dangerous hikes, no fast motorcycles and no drama. Sensible is boring. Full speed ahead!
Gen Y is a sharp guy and I agree with him. One need look no further than here to see that if you buy now, you’ll be paying a premium for equities. However, I’m still going full in. My thoughts on this are:
- I don’t like the idea of timing markets. Valuations will return to normal some day, but no one really knows when.
- My time horizon is long, even if I do leave the workforce soon. While a correction will surely happen in the next 10 years, it will be even longer before I look to sell these assets.
- After I leave work, I’ll have an active withdrawal strategy. I’ll have at least 3 years worth of cash in the bank. In high times like now, I’ll live off stock sales. In times of recession, I’ll live off cash. Since I have 2 more years of work to go, it will be at least 5 years until I have to sell a stock. If my portfolio is way down in 5 years, I’d probably go back to work. This topic will have its own post.
I’d love to see a pullback. I do think my portfolio will sink back into the $800’s at some point and that will be just fine. I hope it happens while I’m still working though so I can pick up equities at more reasonable valuations.
*I reached out to Jason from Dividend Mantra about my choice of VIG as a dividend growth investment. It turns out that he isn’t a fan and even wrote a post about it. For the sake of simplicity, I’m going to stick with it, although this will surely make some people angry. Hell hath no fury like a dividend growth investor scorned!
On a related note, folks tend to get into holy wars about dividend versus growth investing. I do not wish to engage in these wars. While my preference is growth, I’d never try to tell anyone what they should or should not be doing (except my own family). Everyone is different. Some investors forgo the stock market completely in favor of other strategies like real estate. Everything doesn’t have to come down to numbers. Personality and your level of comfort should have a say in the matter too. If you’re going to worry about pesky tenants or market volatility, you probably shouldn’t be a landlord or growth investor respectively. Find the investment that allows you to sleep well at night and go with it.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.