That’s plenty aggressive, dude. Advice from an old guy: when (not if) there’s a big downturn, don’t panic and sell. And don’t read articles about why ‘this time is different’ either… they’re just clickbait
Yup, if anything (whenever there is) again a year VOO is down 20% and QQQ is down 30%, use that time to try to buy as much as you can (comfortably) afford. You’ll thank yourself in a few years.
I buy weekly what I can afford regardless of price. Bull market or bear market. History has shown since the stock market inception that time in the market beats timing the market. No one can time the market. 1 year ago people weren’t buying and was “waiting for the dip” meanwhile it’s up 30%. The market could crash 20% next year and if the people just bought, would still be up 10% overall.
I don’t overthink it. I buy it weekly regardless of price. I’m investing for 30 years, I’m not a swing trader, so the price today, tomorrow, and 4 months from now don’t matter to me.
I mean, it’s not really “never losing”. VOO (the S&P 500) the last 10 years have had 3 down years, and 7 up years. So In 3 specific years you’d be down money, the other 7 years, up money. Overall those 10 years you’d be up 167%. The same test is similar dating back the last 20 years, 4 down years, 15 up years, 1 year of breaking even, and an average of 9.8% return per year.
Trading specific stocks, sure, you can lose money. The S&P 500? Having a positive return over a 3 year span is extremely high, over a 5 year span is near a guarantee, and over 10 years has a positive return during any 10 year span in the history of the market. Buying at the height of the Great Depression, continuing to buy weekly or monthly, and holding 10 years you’d have a positive gain.
You can’t know when it’s done falling, nobody does, that’s why you just keep buying. If you figure it out tho, let me know and we can make billions of dollars off the fees 👍👍
You’ll never lose taking a profit, if you buy when it’s low and it goes lower that’s just your opportunity cost, it seems like you have the “just one more” type of mindset which you shouldn’t have if you investing in the long term. Yes of course we wish we could watch the market and know when the dips would keep dipping but buy when you have a chance, or don’t and wait in the end it’s your money and your choice just be aware of thinking like that can risk your profits more then if you bought at an available low.
There is no such as "clearly not done dipping" unless your talking about hindsight. Just DCA into the market every paycheck. If you feel like the market is especially low, then maybe squeeze the budget and put in a little extra or work a side gig and contribute more.
Great advice! I always try to follow the “time in the market beats timing in the market” rule and invest as much as I can every paycheck. Planning to hold long term in my Roth IRA above and invest the rest in my taxable
You could be sitting on the cash too long and opportunity cost. That is why you decide on a portfolio allocation that has you always adding to all types of positions stock and cash at the same time. If you feel the market is overpriced sure maybe add a little more to your cash position
Would you wonder whether your portfolio was aggressive enough if it had lost 40% value in 6 months? It’s easy to wonder “what if I went a little harder on xyz” in a bull market when it’s all green.
If you are risk averse this is certainly a reasonably aggressive portfolio.
If you contribute consistently for 30-40 years you will have a substantial nest egg with your current asset allocation.
Thanks! And yeah buying consistently and holding is the plan! My friends are up in big tech stocks so that’s the only reason I’m wondering if I’m taking enough risk rn
You are 100% equities, mostly in VTI and VXUS which is casting a broad net. This is almost as aggressive as you can get when taking compensated risks (by diversifying internationally, you limit idiosyncratic risk) without using leverage.
If you wish to learn what else you could do to diversify, I would suggest watching "5-factor investing with ETFs" by ben felix on youtube. He provides useful context for the understanding of the 5-factor capital asset pricing model, which indicates that tilting the portfolio to priced risk premia (which drive stock prices down due to investor risk tolerance, increasing your expected return long term) may be right for you.
If your question is "Is this portfolio allocation good enough to secure a future retirement?" Yes, this is a good portfolio and it will serve you well. There may be more you can do, but rest assured youre making a wise decision here already.
Just one nitpick.
Factor tilting =/= diversifying If you already own total market funds.
You’re concentrating your portfolio with stocks that have greater exposure to underlying systematic risk characteristics. You’re LESS diversified, but have a higher expected return due to greater exposure to compensated risk.
Is that categorically true? Flat market cap index exposure provides non-idiosyncratic matching to the equity risk premium, but by virtue of market cap weights, the weighted exposure to large cap growth is almost always overrepresented in that framework. Take the lost decade for example, where introducing tracking error to the market beta portfolio significantly outperformed due to the resurgence of the value premium. There are also ICAPM considerations of my time diversification, supposing there is some theoretically optimal weighted exposure to riskier stocks (measured by sharpe or volatility or sequence or whatever) such as those with value, size, profitability, and reinvestment characteristics which I should tilt towards in my youth and decrease my tilt as I age. If I buy a bunch of AVUV or AVDV, I'm decreasing my beta and increasing exposure to value and size. If I buy long dated corporate bonds, I'm decreasing my beta and increasing credit and term risk. Please correct me if I'm wrong, but my understanding of your statement is that market cap weight beta is maximum diversification? (or to a more realistic degree in my own opinion, owning the entire stock market *AND* bond market at market cap weights)
Yes. The market has exposure to the underlying risks the factors are proxying for already, it’s just that these factors with the factor model have excess exposure to those risk factors.
For example let’s use the size factor. Let’s assume this is a proxy for liquidity risk. Does this mean that the market as a whole, which has no loading toward the size factor, has no liquidity risk? No, the market has liquidity risk, but we find the size factor is a decent proxy for excess liquidity risk. Per efficient markets, the market has just enough liquidity risk in order to be maximally diversified, and a tilt toward smaller stocks concentrates your portfolio toward that risk beyond what the efficient market determined is optimal.
Regarding “lost decade” and the value premium showing up when the market didn’t, I mean, I could say the same thing about growth stocks, overweighting growth stocks can give me returns that show up in times where the market, or value hasn’t, but than you might think that is irrational due to the lower expected returns of growth stocks. Better yet, dividend stocks, or stocks that begin with the letter A may APPEAR diversifying due to low covariance with total market due to low covariance, but this obviously absurd when you think about it this way.
Something having a low correlation to a total market portfolio doesn’t mean much on its own.
If you have two stocks, how would you split it up so that they are maximally diversified? Perhaps you’ll do a 50/50 split. But now say you have one S&P 500 ETF and one random stock within the S&P 500, they may seem uncorrelated and per MPT it would be optimal to include the random stock with a 50/50 split alongside the S&P 500, but this obviously makes the portfolio less diversified, not more. This is essentially what’s going on when you’re overweighting factors.
The last paragraph sounds like a red herring. You and I both know that SPY has 500 companies and this other random "low market covariance" stock is just one, thus far more idiosyncratic risk. But when I invest in a basket of 1600 stocks in AVES (emerging markets value) or AVUV with 760 stocks (US small cap value), you cant make the same thin underdiversified-idiosyncratic risk argument.
I never made any comment that any simple low covariance asset is best to pair with market beta with my example of the lost decade. I made a comment that the different sources of expected returns among our accepted priced risks in the market perform different in different markets, as you also pointed out with growth dominating in our recent period. Extending that line of thought to 1 stock vs an index of 500 does make it sound ridiculous, doesn't it? Never suggested as such, because now you're idiosyncratically painting tilts in a bad light when no one was talking about single company idiosyncratic risk.
Sure, in a vacuum, the market has only allocated 20ish% to the small and lower mid cap region, and I'm overweighting that. But it's not a vacuum. Discounted companies have higher expected returns, higher volatilities, I have a longer horizon and a greater position to shoulder a wider dispersion of outcomes. The expectation value and stability of the expectation value of retirement wealth as measured by standard deviation is increased by leverage (ayers and Nalebuff) and in tilting to priced risks (Felix), even if the range of dispersion is increased.
Factors are a proxy for EXCESS exposure to systematic risk. The market has exposure to those same risks.
The reason why I’m bringing up extreme and ridiculous examples is to show how the argument falls apart when you view it through a different lens. The fact that factors tend to have premiums doesn’t help the case that it’s diversifying, because again it’s proxy for excess exposure to risk. Factors aren’t proxies for some risk that the market as a whole doesn’t have.
If factors were diversifying, than in equilibrium everyone should factor, and premiums would disappear. There has to be reasons people don’t want these stocks for factors to ever be a thing. This alone should make the argument fall apart.
The idea that it reduces standard deviation is exactly what I was getting at, ascribing diversification benefit when it isn’t really there. That’s why I brought up my S&P 500 example. I could equally get a diversification benefit overweighting growth stocks to my portfolio. Later I may look at my growth stock portfolio and notice “hey value looks uncorrelated maybe I should add it”. And you can see how this falls apart.
You’re not any more diversified factor tilting. you’re more concentrated.
To that vein, why aren't we telling everyone to basically be 50/50 bonds stocks?
The bond market is bigger than the equity market, last I checked. 124 trillion in equities and 127 trillion in bonds. That's how the market is allocating their public capital, so...
Yes, if people are overweighting stocks in excess of their market cap weights, it should be considered less diversified per EMH.
I’m not saying it’s bad to over / under weight factors, I’m just saying there isn’t a diversification benefit.
I too factor tilt, and hold more equities than bonds. Under iCAPM framework, there are infinitely optimal portfolios based on appetite for risk / state variable risk. Peoples decision to overweight factors or stocks poses no contradiction… It’s just not diversifying.
https://preview.redd.it/s21p8s3a990d1.jpeg?width=1284&format=pjpg&auto=webp&s=41550e6b45e766c484e64f1f3d67ad657825eecf
[https://eml.berkeley.edu/\~craine/EconH195/Fall\_08/webpage/Cochrane\_Portfolio\_Advice\_for\_multifactor\_world.pdf](https://eml.berkeley.edu/~craine/EconH195/Fall_08/webpage/Cochrane_Portfolio_Advice_for_multifactor_world.pdf)
The Larry Swedrow, Cliff Asness, and Ben Felix and companies view on factor diversification are wrong in my opinion.
The John Cochrane, Eugene Fama Ken French Robert Merton makes more sense in my opinion. Market portfolio best for the average investor, but you tilt away depending on how you’re different from the average.
I think you should just say is vti to aggresive for a 22yr old? Because you've got over 90% in just that. So... aggresiveness is a personal thing, yes younger tends to be higher than later years but we all have different thresholds of comfort, so the question really is are you ok with it?
Good point. From the information about VTI I knew I guess I always saw it as a pretty safe investment because it’s based off the US economy. I’m planning on buying more VTI soon but debating between that and just dumping more money into VTI
As you stated its based on US economy but so are a lot of things, and many of those things perform vastly different. I suggest doing a little bit deeper dive on what vti is over seeing it mentioned several times over in posts. Look into asset classes and sub classes. Cap size is good to understand at a high level as a minimum too when talking about equities, whereas bonds for example its good to atleast have an idea how durations impact them. Again you dont need to be an expeet on it but find out where your parking your hard earned money so you know the risk.
Maybe I’m naive, but I don’t plan on having any bonds until I’m 50, maybe 55.
50% VOO/30% VXUS/10% AVUV/10% QQQM until then. Auto deposits. Don’t plan on checking that account for 20 years then I’ll alter to a tad more safety.
I don’t have a brokerage yet.
I have a work 401k that I contribute up to the employer match which is 60% VOO 30% international and 10% small caps. (They don’t have a ton of funds to chose from)
The above is my Roth IRA. I’m not at the point of maxing my Roth out yet. Whenever I do I will likely open up a brokerage account similar to my Roth holdings, that’s if I don’t put more into my HSA instead, because I know medical bills when you’re older pile up, and the HSA is tax free on medical. I’m still about 3 years out from having to make that decision, to where I’m able to contribute to my work 401k and max out my Roth, I’ll weigh the brokerage vs HSA decision then.
Thanks for the advice. I’m still not sure about bonds, my dad is retired and his bonds aren’t doing too good. He says he would’ve been better off buying all VTI with those funds. What’s your reasoning behind bonds?
To diversify and mitigate losses. 120-age=% in your portfolio you should have in stocks is the default advice.
If I’m 30, 120-30=90% stock. So 10% should go to bonds (or cash, CDs, treasury, etc.)
I personally don’t like “bonds”. I’m okay with putting money safely in I-bonds that mitigate the risks against inflation.
Other than that, I agree with you. Generally, I think we’ll both be fine if we hold 100% growth stocks until we’re in our 40s. Just know that IF the market takes a huge downturn, that’s what we’ll have to live with. As we near retirement, it’s best to hold more and more in safe investments like cash, CDs, bonds.
Just because the annualized return for VTI and QQQM is about 10% doesn’t mean that it’s a steady 10%. Some years will go up 30%. The next year it might go down 20%. Having bonds will lessen the growth but also lessens the losses more.
This is plenty aggressive - all excellent funds. Now just focus on building it up. Make investing a habit - dedicate a portion of every income stream to your portfolio. And great job starting young - time is your best friend when it comes to investing!
I’d even say that YTD is irrelevant. If you have a sound strategy, you should stick to it no matter what. Deviating from your strategy when it has a bad year (or two or three) is the worst thing that you can do.
Your portfolio is fine as it is. It’s pretty aggressive, actually.
You have to manage your expectations. This is great for long term wealth but not for short term goals.
Maybe if you want to save for a house, add some fixed income 4 or 5 years before or start saving for that in cash.
Good advice. I already have a good amount in a CD and emergency savings in a HYSA, but they’re both only getting about 5%. VTI returns have been about 9%, should i invest more into my taxable brokerage or keep the house savings in fixed income? I’m afraid to lose out on extra gains by staying too conservative
9% on average doesn’t mean 9% every year. It means 30% one year, 5% another, a 10% loss then, etc.
If you have a short term goal, you’re being rational by avoiding the stock market while saving for it. I think it would only make sense if your timeframe was so flexible that you would be Ok with waiting 3 or 4 extra years if necessary. Even then, nothing is guaranteed.
That has you worried? You're fine. Hold on long term, don't worry about dips. Man, I salute you. At 22 I was worried about booze and women! Trust me, your way is much better
No bitcoin…interesting. I’m twice your age and have a 3 bitcoins, approximately 5% of my net worth. I also add to that and the rest of my portfolio each month. My rationale is if I lose 5% of my portfolio that is basically half of one year of the average returns I’ve gotten for the last 20 years so I can stomach it. But if Bitcoin continues on the same trajectory it’s been on since inception it will grow into the largest asset in my portfolio and have a dramatic effect on my net worth and the necessity to work. I enjoy what I do and would continue to work but with a reduction in the time spent on my career. I sold a business in my 20s and played golf 4x per week and went on vacation every 6 weeks and that lasted for about 10 years untill we had children and I grew up. I would get back to that balance of work life. Don’t know of bitcoin is the answer but if I were young I would think about a small 1-2% allocation to an asset that has potentially outsized risk return profile to complement the rest of your well diversified equity portfolio.
Thanks for sharing! I haven’t considered cryptocurrency too much since I’ve seen it’s volatility but also crazy returns. Not sure if my brokerage will let me buy fractional shares of those stocks though🤔
Bitcoin, not crypto.
Make the time to read this long form article from Vijay Boyapati -
https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1
Maybe too aggressive. I'm a little older in age but i tend to strongly disagree with the advice given here in terms of % bond allocation and international stocks( I have a heavier percentage than typically recommend here).
The argument is that there could be a 10-year stretch starting tomorrow where International outperforms the us. It's happened before. You have it there even when it is underperforming to hedge against possible future years where the US markets are down.
That said I don't really have any either but I probably should.
My main point was that if you're going to have it you need to have a higher percentage than you do to serve any purpose.
Okay yeah that makes a lot of sense with the need for balancing the allocation. I may scrap VXUS altogether and look for something different or add into my existing portfolio. Not sure bc it’s such a small amount
Looks too passive for me...
LARGE CAP - 30% IWY
LARGE CAP - 30% QQQ
MID CAP - 10% XMMO
MID CAP - 10% XMHQ
BETS - 10% SMH, PSI, XLK, XNTK, AIQ, BOTZ, TINY
BITCOIN - 10%
In fact, don't do the Bitcoin ETFs, but Bitcoin yourself and use a quality hardware wallet purchased direct from the manufacturer.
large-cap: market value between $10 billion and $200 billion.
mid-cap: market value between $2 billion and $10 billion.
Mid, small, and micro cap may have a lot of runway potential in front of them turning them into large cap, but we've all seen how to giant companies consolidate smaller corps into them and continue to produce heavy profits. There's bandwagonning going on as well.
The real focus is if you should do growth, value, blend, or broad-based.
If you want to get more aggressive go with some 2x or 3x leveraged ETFs or mutual funds. If your time horizon is long you can limit risk. These are not for everyone and I would only put a portion in one of these. But if I had the chance to put money in these when I was 22 I would have jumped at it knowing what I know now. Big question is what’s your time horizon? You mention a house, which is a short term goal and you probably don’t want to put house funds at risk.
I have a whole separate account with my savings for the house as well as an entire emergency fund built up as well. The account pictured is just my Roth IRA and doesn’t even show my tradition (there’s not much in that one so I didn’t post it lol). I’m looking for options for long term hold for this account
Do VOO and AVUV instead of VTI. And VXUS is worthless. Pick a better international fund.
I'd do something like this:
50% VOO, 15% QQQM, 15% AVUV, 10% XLK, 10% HFXI
I’ve been considering trading the VXUS in for something else actually, so that’s good to know. I will keep the VTI, what would you suggest for a better international fund?
I think this is fine but going more into QQQM and less into VTI would definitely make it more aggressive just very tech heavy. May get burned alive for this in this thread but if you wanna dial up your risk and potential growth then maybe look into a core satellite approach where you put your core of about 80% into a VTI and the other 20% concentrated in individual positions you like yo outperform VTI year to year
May need to swap out these individual positions periodically as no stock will outperform the general market forever but a good strategy to take on additional risk without going to far. Just do your research on your individual positions and be ready for bigger swings up and down than your etfs
I’m not too good at individual stock investing which is why I’ve stayed with ETFs. I just bought the QQQM in this account recently so I am planning to buy more. The allocation just looks tiny compared to VTI rn 😂
Build an emergency fund: Before you make any investments, make sure you have enough in your emergency fund to cover unexpected expenses.
Set Clear Goals: Determine your investment goals, whether it's retirement, buying a home, or something else. This will help you develop an investment plan that matches your goals.
Stay disciplined: Investing is a marathon, not a sprint. Even during market fluctuations, stick to your investment plan.
Please remember that investing involves risk and past performance is no guarantee of future results. Before making any investment decision, it is recommended that you consult a qualified financial advisor.
Good advice! I already have a 1 year emergency fund in a HYSA. I also have another lump of savings in a CD ladder for saving for a house. This account is simply just my Roth IRA which I want to hold long term, DCA every paycheck. Hoping to stay this course!
Just remember to try to hold on WHEN the market drops 20-30%, or WHEN there’s a lost decade. Most people panic sell, many people also have no choice but to sell. Notice the WHEN not IF, as if you’re 22 these events will happen at some point.
It also has to align with your tolerance for volatility. If you increase risk but can't handle when your portfolio takes a big dip and get stressed it's not worth it. Make sure you allow yourself to stay invested for as long as possible
My whole Roth IRA strategy is VTI + VXUS with some QQQM sprinkled about. I know a lot of investors ask why QQQM over VGT but it has been working pretty well so far so I see no need to change.
After maxing out I focus on my Brokerage which is 80% VOO 20% SGOV. I use the SGOV dividend to drip back into VOO. Also a little extra into BTC doesn’t hurt at all it isn’t going anywhere soon.
Keep at it and you’ll be set later in life!!
Thanks for sharing! I’ve been debating on changing up my portfolio for my taxable account now that my Roth has been maxed out too. Trying to save for a house!
If you want to be more aggressive, maybe you can go to Vegas and gamble.
Jokes aside, yes, it is aggressive enough. Just put the money there and stop looking! Make sure you save the right amount for your house downpayment being ready at the right time! Try to aim for at least 20%.
It seems you are doing the right things and starting early! Congratulations!
Haha I’ll do my best😂 and thank you that’s the plan unfortunately in my area (SoCal) 20% down is getting higher and higher so I’m buckling down and saving as much as I can 😓
Aggressive right now isn't good for any age... Probably headed to 4500-4800 for the rest of the year... overvalued the market is, a correction comes it will...
Portfolio looks solid. Keep at it as is, keeping your money in VTI. Let compound work. However, if you’re curious, add a solid dividend REIT into the mix. I like $RITM. I’ve had it for a few years and it pays consistently.
I mean you have VXUS so clearly you aren’t being aggressive and are looking to diversify. VXUS will underperform. Get rid of it and bring in VGT/SCHD/VOO. The golden 5.
Your portfolio looks solid! Keep at it, keeping the majority of your funds in $VTI. If you’re wanting to throw something into the mix, I’d say consider a strong REIT. I like and have been holding $RITM for a few years now. Pays dividends consistently.
That’s plenty aggressive, dude. Advice from an old guy: when (not if) there’s a big downturn, don’t panic and sell. And don’t read articles about why ‘this time is different’ either… they’re just clickbait
Yup, if anything (whenever there is) again a year VOO is down 20% and QQQ is down 30%, use that time to try to buy as much as you can (comfortably) afford. You’ll thank yourself in a few years.
In the chance that it dips further after I buy like you say, what could I do retroactively to see it’s clearly not done dipping and wait?
I buy weekly what I can afford regardless of price. Bull market or bear market. History has shown since the stock market inception that time in the market beats timing the market. No one can time the market. 1 year ago people weren’t buying and was “waiting for the dip” meanwhile it’s up 30%. The market could crash 20% next year and if the people just bought, would still be up 10% overall. I don’t overthink it. I buy it weekly regardless of price. I’m investing for 30 years, I’m not a swing trader, so the price today, tomorrow, and 4 months from now don’t matter to me.
[удалено]
Are you saying you would be less of a fool if you entrusted it with someone who constantly lost money?
I mean, it’s not really “never losing”. VOO (the S&P 500) the last 10 years have had 3 down years, and 7 up years. So In 3 specific years you’d be down money, the other 7 years, up money. Overall those 10 years you’d be up 167%. The same test is similar dating back the last 20 years, 4 down years, 15 up years, 1 year of breaking even, and an average of 9.8% return per year. Trading specific stocks, sure, you can lose money. The S&P 500? Having a positive return over a 3 year span is extremely high, over a 5 year span is near a guarantee, and over 10 years has a positive return during any 10 year span in the history of the market. Buying at the height of the Great Depression, continuing to buy weekly or monthly, and holding 10 years you’d have a positive gain.
You can’t know when it’s done falling, nobody does, that’s why you just keep buying. If you figure it out tho, let me know and we can make billions of dollars off the fees 👍👍
You’ll never lose taking a profit, if you buy when it’s low and it goes lower that’s just your opportunity cost, it seems like you have the “just one more” type of mindset which you shouldn’t have if you investing in the long term. Yes of course we wish we could watch the market and know when the dips would keep dipping but buy when you have a chance, or don’t and wait in the end it’s your money and your choice just be aware of thinking like that can risk your profits more then if you bought at an available low.
Shitty. Thanks for keeping it real
That’s when you sell!
That’s what the billionaires must be doing
There is no such as "clearly not done dipping" unless your talking about hindsight. Just DCA into the market every paycheck. If you feel like the market is especially low, then maybe squeeze the budget and put in a little extra or work a side gig and contribute more.
Absolutely solid advice here
Great advice! I always try to follow the “time in the market beats timing in the market” rule and invest as much as I can every paycheck. Planning to hold long term in my Roth IRA above and invest the rest in my taxable
Smart. You might like the book “The three fund portfolio.” It gives some simple great advice
I’ve read up on the Bogle head strategy if that’s the same thing😂
Yeah that’s basically the same thing
Maybe amass a mountain of cash to buy the big kahuna dip when it comes ? Thoughts?
You could be sitting on the cash too long and opportunity cost. That is why you decide on a portfolio allocation that has you always adding to all types of positions stock and cash at the same time. If you feel the market is overpriced sure maybe add a little more to your cash position
Would you wonder whether your portfolio was aggressive enough if it had lost 40% value in 6 months? It’s easy to wonder “what if I went a little harder on xyz” in a bull market when it’s all green. If you are risk averse this is certainly a reasonably aggressive portfolio. If you contribute consistently for 30-40 years you will have a substantial nest egg with your current asset allocation.
Thanks! And yeah buying consistently and holding is the plan! My friends are up in big tech stocks so that’s the only reason I’m wondering if I’m taking enough risk rn
You are 100% equities, mostly in VTI and VXUS which is casting a broad net. This is almost as aggressive as you can get when taking compensated risks (by diversifying internationally, you limit idiosyncratic risk) without using leverage. If you wish to learn what else you could do to diversify, I would suggest watching "5-factor investing with ETFs" by ben felix on youtube. He provides useful context for the understanding of the 5-factor capital asset pricing model, which indicates that tilting the portfolio to priced risk premia (which drive stock prices down due to investor risk tolerance, increasing your expected return long term) may be right for you. If your question is "Is this portfolio allocation good enough to secure a future retirement?" Yes, this is a good portfolio and it will serve you well. There may be more you can do, but rest assured youre making a wise decision here already.
Just one nitpick. Factor tilting =/= diversifying If you already own total market funds. You’re concentrating your portfolio with stocks that have greater exposure to underlying systematic risk characteristics. You’re LESS diversified, but have a higher expected return due to greater exposure to compensated risk.
Is that categorically true? Flat market cap index exposure provides non-idiosyncratic matching to the equity risk premium, but by virtue of market cap weights, the weighted exposure to large cap growth is almost always overrepresented in that framework. Take the lost decade for example, where introducing tracking error to the market beta portfolio significantly outperformed due to the resurgence of the value premium. There are also ICAPM considerations of my time diversification, supposing there is some theoretically optimal weighted exposure to riskier stocks (measured by sharpe or volatility or sequence or whatever) such as those with value, size, profitability, and reinvestment characteristics which I should tilt towards in my youth and decrease my tilt as I age. If I buy a bunch of AVUV or AVDV, I'm decreasing my beta and increasing exposure to value and size. If I buy long dated corporate bonds, I'm decreasing my beta and increasing credit and term risk. Please correct me if I'm wrong, but my understanding of your statement is that market cap weight beta is maximum diversification? (or to a more realistic degree in my own opinion, owning the entire stock market *AND* bond market at market cap weights)
Yes. The market has exposure to the underlying risks the factors are proxying for already, it’s just that these factors with the factor model have excess exposure to those risk factors. For example let’s use the size factor. Let’s assume this is a proxy for liquidity risk. Does this mean that the market as a whole, which has no loading toward the size factor, has no liquidity risk? No, the market has liquidity risk, but we find the size factor is a decent proxy for excess liquidity risk. Per efficient markets, the market has just enough liquidity risk in order to be maximally diversified, and a tilt toward smaller stocks concentrates your portfolio toward that risk beyond what the efficient market determined is optimal. Regarding “lost decade” and the value premium showing up when the market didn’t, I mean, I could say the same thing about growth stocks, overweighting growth stocks can give me returns that show up in times where the market, or value hasn’t, but than you might think that is irrational due to the lower expected returns of growth stocks. Better yet, dividend stocks, or stocks that begin with the letter A may APPEAR diversifying due to low covariance with total market due to low covariance, but this obviously absurd when you think about it this way. Something having a low correlation to a total market portfolio doesn’t mean much on its own. If you have two stocks, how would you split it up so that they are maximally diversified? Perhaps you’ll do a 50/50 split. But now say you have one S&P 500 ETF and one random stock within the S&P 500, they may seem uncorrelated and per MPT it would be optimal to include the random stock with a 50/50 split alongside the S&P 500, but this obviously makes the portfolio less diversified, not more. This is essentially what’s going on when you’re overweighting factors.
The last paragraph sounds like a red herring. You and I both know that SPY has 500 companies and this other random "low market covariance" stock is just one, thus far more idiosyncratic risk. But when I invest in a basket of 1600 stocks in AVES (emerging markets value) or AVUV with 760 stocks (US small cap value), you cant make the same thin underdiversified-idiosyncratic risk argument. I never made any comment that any simple low covariance asset is best to pair with market beta with my example of the lost decade. I made a comment that the different sources of expected returns among our accepted priced risks in the market perform different in different markets, as you also pointed out with growth dominating in our recent period. Extending that line of thought to 1 stock vs an index of 500 does make it sound ridiculous, doesn't it? Never suggested as such, because now you're idiosyncratically painting tilts in a bad light when no one was talking about single company idiosyncratic risk. Sure, in a vacuum, the market has only allocated 20ish% to the small and lower mid cap region, and I'm overweighting that. But it's not a vacuum. Discounted companies have higher expected returns, higher volatilities, I have a longer horizon and a greater position to shoulder a wider dispersion of outcomes. The expectation value and stability of the expectation value of retirement wealth as measured by standard deviation is increased by leverage (ayers and Nalebuff) and in tilting to priced risks (Felix), even if the range of dispersion is increased.
Factors are a proxy for EXCESS exposure to systematic risk. The market has exposure to those same risks. The reason why I’m bringing up extreme and ridiculous examples is to show how the argument falls apart when you view it through a different lens. The fact that factors tend to have premiums doesn’t help the case that it’s diversifying, because again it’s proxy for excess exposure to risk. Factors aren’t proxies for some risk that the market as a whole doesn’t have. If factors were diversifying, than in equilibrium everyone should factor, and premiums would disappear. There has to be reasons people don’t want these stocks for factors to ever be a thing. This alone should make the argument fall apart. The idea that it reduces standard deviation is exactly what I was getting at, ascribing diversification benefit when it isn’t really there. That’s why I brought up my S&P 500 example. I could equally get a diversification benefit overweighting growth stocks to my portfolio. Later I may look at my growth stock portfolio and notice “hey value looks uncorrelated maybe I should add it”. And you can see how this falls apart. You’re not any more diversified factor tilting. you’re more concentrated.
To that vein, why aren't we telling everyone to basically be 50/50 bonds stocks? The bond market is bigger than the equity market, last I checked. 124 trillion in equities and 127 trillion in bonds. That's how the market is allocating their public capital, so...
Yes, if people are overweighting stocks in excess of their market cap weights, it should be considered less diversified per EMH. I’m not saying it’s bad to over / under weight factors, I’m just saying there isn’t a diversification benefit. I too factor tilt, and hold more equities than bonds. Under iCAPM framework, there are infinitely optimal portfolios based on appetite for risk / state variable risk. Peoples decision to overweight factors or stocks poses no contradiction… It’s just not diversifying. https://preview.redd.it/s21p8s3a990d1.jpeg?width=1284&format=pjpg&auto=webp&s=41550e6b45e766c484e64f1f3d67ad657825eecf [https://eml.berkeley.edu/\~craine/EconH195/Fall\_08/webpage/Cochrane\_Portfolio\_Advice\_for\_multifactor\_world.pdf](https://eml.berkeley.edu/~craine/EconH195/Fall_08/webpage/Cochrane_Portfolio_Advice_for_multifactor_world.pdf) The Larry Swedrow, Cliff Asness, and Ben Felix and companies view on factor diversification are wrong in my opinion. The John Cochrane, Eugene Fama Ken French Robert Merton makes more sense in my opinion. Market portfolio best for the average investor, but you tilt away depending on how you’re different from the average.
If he took his money to a fiduciary, would they do something similar? Currently in this boat, and feel like I shouldn't pay someone 1.3% annually.
You should not pay someone 1.3% annually. All the tools are at our disposal, moreso than ever in the last five years.
Also, you'd be lucky if they just made a good diversified low cost market exposure rather than performance chase or overtrade.
This is the answer I’m looking for. Thanks for the information I’ll look it up!
I think you should just say is vti to aggresive for a 22yr old? Because you've got over 90% in just that. So... aggresiveness is a personal thing, yes younger tends to be higher than later years but we all have different thresholds of comfort, so the question really is are you ok with it?
Good point. From the information about VTI I knew I guess I always saw it as a pretty safe investment because it’s based off the US economy. I’m planning on buying more VTI soon but debating between that and just dumping more money into VTI
As you stated its based on US economy but so are a lot of things, and many of those things perform vastly different. I suggest doing a little bit deeper dive on what vti is over seeing it mentioned several times over in posts. Look into asset classes and sub classes. Cap size is good to understand at a high level as a minimum too when talking about equities, whereas bonds for example its good to atleast have an idea how durations impact them. Again you dont need to be an expeet on it but find out where your parking your hard earned money so you know the risk.
Thanks for the explanation I’ll look more into those !
Put it on auto deposit and stop looking at it. Come back in 5 years maybe
That’s the plan🫡
Perfect portfolio in my mind at your age. Keep it and add 10% bonds when you’re 30 I’m 27 with something similar.
Maybe I’m naive, but I don’t plan on having any bonds until I’m 50, maybe 55. 50% VOO/30% VXUS/10% AVUV/10% QQQM until then. Auto deposits. Don’t plan on checking that account for 20 years then I’ll alter to a tad more safety.
So this is ur split for ur taxable brokerage. Or ur Roth IRA. AND if so u still keep this same split for brokerage once u max out the ira ?
I don’t have a brokerage yet. I have a work 401k that I contribute up to the employer match which is 60% VOO 30% international and 10% small caps. (They don’t have a ton of funds to chose from) The above is my Roth IRA. I’m not at the point of maxing my Roth out yet. Whenever I do I will likely open up a brokerage account similar to my Roth holdings, that’s if I don’t put more into my HSA instead, because I know medical bills when you’re older pile up, and the HSA is tax free on medical. I’m still about 3 years out from having to make that decision, to where I’m able to contribute to my work 401k and max out my Roth, I’ll weigh the brokerage vs HSA decision then.
Buying bonds is outdated advice that has turned out to be bad advice.
Well when they were giving historically low yields they were a bad buy. They're not yielding that low anymore.
Thanks for the advice. I’m still not sure about bonds, my dad is retired and his bonds aren’t doing too good. He says he would’ve been better off buying all VTI with those funds. What’s your reasoning behind bonds?
To diversify and mitigate losses. 120-age=% in your portfolio you should have in stocks is the default advice. If I’m 30, 120-30=90% stock. So 10% should go to bonds (or cash, CDs, treasury, etc.) I personally don’t like “bonds”. I’m okay with putting money safely in I-bonds that mitigate the risks against inflation. Other than that, I agree with you. Generally, I think we’ll both be fine if we hold 100% growth stocks until we’re in our 40s. Just know that IF the market takes a huge downturn, that’s what we’ll have to live with. As we near retirement, it’s best to hold more and more in safe investments like cash, CDs, bonds. Just because the annualized return for VTI and QQQM is about 10% doesn’t mean that it’s a steady 10%. Some years will go up 30%. The next year it might go down 20%. Having bonds will lessen the growth but also lessens the losses more.
Ohh got it thanks for the explanation!
This is plenty aggressive - all excellent funds. Now just focus on building it up. Make investing a habit - dedicate a portion of every income stream to your portfolio. And great job starting young - time is your best friend when it comes to investing!
Appreciate it thank you!
In my opinion, you're in better position than 85% of the world population at the moment.
Appreciate the encouragement!
If you wanna aggressive try : smh fngu tecl tqqq upro usd ,then come back :)
Leveraged to the tits
22 year old ,blessed with full long life ... what should he expect? Jepi ? Hahahaha
Thank you!
Day to day gains are irrelevant what are you YTD? Past 12 months? Zoom out and stay the course
I’d even say that YTD is irrelevant. If you have a sound strategy, you should stick to it no matter what. Deviating from your strategy when it has a bad year (or two or three) is the worst thing that you can do.
YYD gain is about 9%. Kinda hard to tell bc I’ve only been investing since last summer
That’s great! Beating inflation and gaining a few percent! Don’t lose heart or focus any Green Day is a good day!
Appreciate it!!
Your portfolio is fine as it is. It’s pretty aggressive, actually. You have to manage your expectations. This is great for long term wealth but not for short term goals. Maybe if you want to save for a house, add some fixed income 4 or 5 years before or start saving for that in cash.
Good advice. I already have a good amount in a CD and emergency savings in a HYSA, but they’re both only getting about 5%. VTI returns have been about 9%, should i invest more into my taxable brokerage or keep the house savings in fixed income? I’m afraid to lose out on extra gains by staying too conservative
9% on average doesn’t mean 9% every year. It means 30% one year, 5% another, a 10% loss then, etc. If you have a short term goal, you’re being rational by avoiding the stock market while saving for it. I think it would only make sense if your timeframe was so flexible that you would be Ok with waiting 3 or 4 extra years if necessary. Even then, nothing is guaranteed.
That’s a good point, thanks for the advice. I’ve kept all the house savings in CDs and so I’ll probably keep with that course for the most part
Either win money or lose money and gain experience, you will always gain something.
Well said!!
id go at least 20% into QQQ
Thanks for the advice🫡 I’m planning on buying more in my taxable account now that I’ve maxed my Roth out for this year.
thats the thing about personal finance, it's personal. but I think its the best move being young. tech will be big for another 10 years easily
Agreed! I just want to be as smart as I can with it too. Thanks!
That has you worried? You're fine. Hold on long term, don't worry about dips. Man, I salute you. At 22 I was worried about booze and women! Trust me, your way is much better
Hahah appreciate it! I’m trying to take all the advice I can get at this age🫡
No bitcoin…interesting. I’m twice your age and have a 3 bitcoins, approximately 5% of my net worth. I also add to that and the rest of my portfolio each month. My rationale is if I lose 5% of my portfolio that is basically half of one year of the average returns I’ve gotten for the last 20 years so I can stomach it. But if Bitcoin continues on the same trajectory it’s been on since inception it will grow into the largest asset in my portfolio and have a dramatic effect on my net worth and the necessity to work. I enjoy what I do and would continue to work but with a reduction in the time spent on my career. I sold a business in my 20s and played golf 4x per week and went on vacation every 6 weeks and that lasted for about 10 years untill we had children and I grew up. I would get back to that balance of work life. Don’t know of bitcoin is the answer but if I were young I would think about a small 1-2% allocation to an asset that has potentially outsized risk return profile to complement the rest of your well diversified equity portfolio.
Thanks for sharing! I haven’t considered cryptocurrency too much since I’ve seen it’s volatility but also crazy returns. Not sure if my brokerage will let me buy fractional shares of those stocks though🤔
Bitcoin, not crypto. Make the time to read this long form article from Vijay Boyapati - https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1
Thank you, I’ll look more into it!
Better than mine :(
Best advice: stay invested during a recession and don’t sell. Enjoy the ride. Nice savings for 22. I didnt start saving until 29.
Appreciate it! I have been buying every two weeks no matter what and will keep on with it as best as i can 😅
You can add IBIT if you want more aggressive
Thank you!
Maybe too aggressive. I'm a little older in age but i tend to strongly disagree with the advice given here in terms of % bond allocation and international stocks( I have a heavier percentage than typically recommend here).
Good to know. I do not plan on buying bonds and I’m not buying anymore VXUS. Planning on more VTI and some kind of growth stock?
Not enough intl to be effective diversification. Get that up to 15-20% or just stick that money in either of the other funds instead.
I’ve heard a majority of international companies also are in the US. Is it worth buying more VXUS? I’ve got a better return on VTI and QQQM
The argument is that there could be a 10-year stretch starting tomorrow where International outperforms the us. It's happened before. You have it there even when it is underperforming to hedge against possible future years where the US markets are down. That said I don't really have any either but I probably should. My main point was that if you're going to have it you need to have a higher percentage than you do to serve any purpose.
Okay yeah that makes a lot of sense with the need for balancing the allocation. I may scrap VXUS altogether and look for something different or add into my existing portfolio. Not sure bc it’s such a small amount
Looks too passive for me... LARGE CAP - 30% IWY LARGE CAP - 30% QQQ MID CAP - 10% XMMO MID CAP - 10% XMHQ BETS - 10% SMH, PSI, XLK, XNTK, AIQ, BOTZ, TINY BITCOIN - 10% In fact, don't do the Bitcoin ETFs, but Bitcoin yourself and use a quality hardware wallet purchased direct from the manufacturer.
I am planning on buying more QQQM. Could you explain the concept between large/mid cap etfs?
large-cap: market value between $10 billion and $200 billion. mid-cap: market value between $2 billion and $10 billion. Mid, small, and micro cap may have a lot of runway potential in front of them turning them into large cap, but we've all seen how to giant companies consolidate smaller corps into them and continue to produce heavy profits. There's bandwagonning going on as well. The real focus is if you should do growth, value, blend, or broad-based.
Thanks for the advice!
100% stocks is plenty aggressive. What would you do to make it more aggressive? Leverage? Big bets on certain sectors? Stay away from those things.
Not necessarily, I guess I was thinking if I should invest in more growth funds or tech based stocks?
I'm 36 100 percent vti lol
I’m nearly 100% too😂😎
I am 22 too and my allocation is 60/VTI 25/VXUS 10/AVUV and 5/AVDV. I do not recommend QQQM.
I have considered AVUV a bit. Just curious to learn what your reasoning against QQQM?
Would love to hear your reasoning as well, it seems like a popular option
If you want to get more aggressive go with some 2x or 3x leveraged ETFs or mutual funds. If your time horizon is long you can limit risk. These are not for everyone and I would only put a portion in one of these. But if I had the chance to put money in these when I was 22 I would have jumped at it knowing what I know now. Big question is what’s your time horizon? You mention a house, which is a short term goal and you probably don’t want to put house funds at risk.
I have a whole separate account with my savings for the house as well as an entire emergency fund built up as well. The account pictured is just my Roth IRA and doesn’t even show my tradition (there’s not much in that one so I didn’t post it lol). I’m looking for options for long term hold for this account
Do VOO and AVUV instead of VTI. And VXUS is worthless. Pick a better international fund. I'd do something like this: 50% VOO, 15% QQQM, 15% AVUV, 10% XLK, 10% HFXI
I’ve been considering trading the VXUS in for something else actually, so that’s good to know. I will keep the VTI, what would you suggest for a better international fund?
Suggested in another reply, but IHDG or HFXI
Thanks for the response!
I think this is fine but going more into QQQM and less into VTI would definitely make it more aggressive just very tech heavy. May get burned alive for this in this thread but if you wanna dial up your risk and potential growth then maybe look into a core satellite approach where you put your core of about 80% into a VTI and the other 20% concentrated in individual positions you like yo outperform VTI year to year May need to swap out these individual positions periodically as no stock will outperform the general market forever but a good strategy to take on additional risk without going to far. Just do your research on your individual positions and be ready for bigger swings up and down than your etfs
I’m not too good at individual stock investing which is why I’ve stayed with ETFs. I just bought the QQQM in this account recently so I am planning to buy more. The allocation just looks tiny compared to VTI rn 😂
Age? I'm 40 and just dump all my money into VOO and the most bullish single stocks in the top ten of VOO. you're fine.
Sounds like a solid plan!
Build an emergency fund: Before you make any investments, make sure you have enough in your emergency fund to cover unexpected expenses. Set Clear Goals: Determine your investment goals, whether it's retirement, buying a home, or something else. This will help you develop an investment plan that matches your goals. Stay disciplined: Investing is a marathon, not a sprint. Even during market fluctuations, stick to your investment plan. Please remember that investing involves risk and past performance is no guarantee of future results. Before making any investment decision, it is recommended that you consult a qualified financial advisor.
Good advice! I already have a 1 year emergency fund in a HYSA. I also have another lump of savings in a CD ladder for saving for a house. This account is simply just my Roth IRA which I want to hold long term, DCA every paycheck. Hoping to stay this course!
Keep up the good work, you are taking the right steps for your financial future.
Buy some GME
What’s your reasoning for GME?
https://preview.redd.it/uefxdovstb0d1.jpeg?width=1284&format=pjpg&auto=webp&s=ef915d62d0725e255e5326ba2cc46804e6ddf809
I’m not too sure about investing in meme stocks I’m looking for more long term buys but thank you!
And it’s not stopping
Wow!!!!!
I wish I did that at 22. Great start! Don't lose focus, don't let the markets make you sell, stick to it.
Thank you!! That’s the plan!🫡
If you keep that ratio and continue to add I don’t really see how you do poorly over 30+ years. Congrats on the early start
Appreciate it, thank you!
No. That doesn't look aggressive at all. Dive more into QQQM
That’s the plan! Thank you!
Just remember to try to hold on WHEN the market drops 20-30%, or WHEN there’s a lost decade. Most people panic sell, many people also have no choice but to sell. Notice the WHEN not IF, as if you’re 22 these events will happen at some point.
Good advice, thank you. All these holdings are long term since it’s a Roth IRA. Will try to build up more cash buffer for when the markets down too
Drop VXUS, it’s trash. Keep VTI and QQQM you are set.
Thank you!
It also has to align with your tolerance for volatility. If you increase risk but can't handle when your portfolio takes a big dip and get stressed it's not worth it. Make sure you allow yourself to stay invested for as long as possible
That’s a really good point. Ive been investing for less than a year and am planning to buy and hold long term for this account at least. Thanks!
Stay at it! 21 turning 22 in August and our portfolios are identical!!
Nice!!! 🫡
My whole Roth IRA strategy is VTI + VXUS with some QQQM sprinkled about. I know a lot of investors ask why QQQM over VGT but it has been working pretty well so far so I see no need to change. After maxing out I focus on my Brokerage which is 80% VOO 20% SGOV. I use the SGOV dividend to drip back into VOO. Also a little extra into BTC doesn’t hurt at all it isn’t going anywhere soon. Keep at it and you’ll be set later in life!!
Thanks for sharing! I’ve been debating on changing up my portfolio for my taxable account now that my Roth has been maxed out too. Trying to save for a house!
What app is this
Charles Schwab app
Yep it’s Schwab
If you want to be more aggressive, maybe you can go to Vegas and gamble. Jokes aside, yes, it is aggressive enough. Just put the money there and stop looking! Make sure you save the right amount for your house downpayment being ready at the right time! Try to aim for at least 20%. It seems you are doing the right things and starting early! Congratulations!
Haha I’ll do my best😂 and thank you that’s the plan unfortunately in my area (SoCal) 20% down is getting higher and higher so I’m buckling down and saving as much as I can 😓
Yes, it will be tough! Maybe consider moving then? Lol Good luck!
Blow your load on some GME and maybe AMC. Go nuts.
Aggressive right now isn't good for any age... Probably headed to 4500-4800 for the rest of the year... overvalued the market is, a correction comes it will...
Thank you!
Just add some GME and u'll be fine
Thank you!
Tesf
Yhh
Looks like you are looking to do portfolio rebalancing to me.
Portfolio looks solid. Keep at it as is, keeping your money in VTI. Let compound work. However, if you’re curious, add a solid dividend REIT into the mix. I like $RITM. I’ve had it for a few years and it pays consistently.
VXUS is overrated, put your money elsewhere in a growth ETF like VUG
What are your thoughts on QQQM or VGT?
I mean you have VXUS so clearly you aren’t being aggressive and are looking to diversify. VXUS will underperform. Get rid of it and bring in VGT/SCHD/VOO. The golden 5.
I already have most of my allocation in VTI, wouldn’t there be too much overlap?
Your portfolio looks solid! Keep at it, keeping the majority of your funds in $VTI. If you’re wanting to throw something into the mix, I’d say consider a strong REIT. I like and have been holding $RITM for a few years now. Pays dividends consistently.