A Slow and Steady Portfolio Rebalance Explained

Now that my 401K and Roth IRA are decent sizes, I realize it’s time to evaluate my portfolio and rebalance accordingly. For a while I had my entire Roth and 401K invested in target retirement accounts. I decided to do this until I felt a bit more comfortable with investing in general. Now that I do, it’s definitely time to change my investment strategy. I’m not going to do this all at once, instead I’ll do this slowly as I make my biweekly contributions.

My 401K has some fairly limited options so I have to balance it out using my Roth that is through Vanguard, using a weighted average of both my 401K and Roth retirement accounts, my current retirement assets are allocated as follows:

  • US Stock – 63.8%
  • World Stock – 24.0%
  • US Bonds – 8.4%
  • International Bonds – 1.4%
  • US Real Estate – 2.2%
  • Cash – 0.2%

I’m pretty happy with this allocation considering that I’ve pulled myself out of my employer’s target retirement account and created my own mix. I’m roughly 10% bonds and 90% percent stock. And my stocks are split 72% US and 28% foreign.

Goal #1

My first goal is to increase my US Real Estate holdings so that it comprises 5% of my portfolio.  I hope to have this goal accomplished by the end of the year.

Goal #2

My second goal is to get into the habit of evaluating my portfolio and investment strategy biannually. I think February and July are good months to do this. It’s highly probable that my real estate investments may grow at a different pace than my stocks and/or bonds, so it’s important that I do this.

Of course the general economic environment will also guide my investments. A market correction may lead me to pour more into the stock market, for instance.

Goal #3

I would then like to start investing in International Real Estate until it makes up 2.5% of my portfolio. Hopefully this goal will be accomplished by the end of 2018.

Goal #4

My fourth goal, is to have enough to purchase a Vanguard admiral share. I’m still investing in a target fund at this point. Once I have enough money to do so, I can then move into a world stock mutual fund and mutual funds for bonds. Until then, this system works well enough. I think it will be 3 years before I can get to this point.

I did some calculations and I will eventually have to balance out my 401K with my Roth by having my Roth be:

  • 43% International
  • 31% Real Estate
  • 19% US Stock
  • 7% Bonds


Paycheck Allocation

The promotion I received a few months back has been a definite game changer. I am no longer living paycheck to paycheck. I can’t believe how hard it is to live in DC on a $65K salary! But when you consider that the average apartment rent is $2,200 in the city, it makes sense. According to this article, one needs to make $83,104 annually to live comfortably in DC versus $53,897 in nearby Baltimore. I’m now pretty close to that “comfortable” threshold and I can totally feel the difference!

The interesting thing is my paychecks are actually smaller this year than last. This is because of my new goal to max out my 401K. I am still more at ease because I now have an emergency fund, and I know I can cut back on my 401K contributions at any time if necessary. Now that I’m more comfortable with where I stand, I changed how I plan to allocate my paychecks.

The Friday before I am paid, I have money from my main checking account distributed to my other accounts. This gives me a false sense of never seeing the money coming out of my checking account. The following is transfers occur:

  • +$195 – Roth IRA
  • +$65 – Savings Bonds
  • +$50 – Short Term Savings

Then on that Monday my paycheck is deposited. The remainder of my paycheck goes towards my monthly expenses and there is some left over to act as a cash buffer in  case I go over budget.

My plan is not to let my checking account/cash buffer get too high. So any time  my checking account gets to be over $2,500, I’ll be transferring the excess over to another account.