Personal Investment Policy

Created:

Updated:

For me, as of this writing, I’m both the client and advisor.

I started with the outline developed by The White Coat Investor.

My why

Section titled My why

I want to be able to cater to the most constrained with my time and knowledge. These folks may not be able to afford the fees for coaching, mentoring, and consulting. With that said, I need to ensure my survival; secure my own mask before helping others, so to speak. Hustle culture holds little interest for me. I’d rather trade value for money than time for the same.

I want to travel and fade into the background whenever I want without worrying where my next meal comes from.

Coast FI stack revisited April 16, 2022:

This adjusts my original target from FI by 52 to FI by 53. I’m hoping I can increase revenue m outside the day job.

Would you like support my work and goals?

Investments

Section titled Investments

Note: Each bullet is aligned to my financial character.

Asset allocation

Section titled Asset allocation

I have created multiple allocations based on the portfolio’s net worth using the Coast FI stack above:

This progression ensures I reduce volatility based on the net worth of the portfolio, not my age or calendar year.

I have a high risk tolerance and capacity; in part because I don’t think I’ll stop earning income and I’m content with my minimal lifestyle.

As of this writing I’m able to cashflow my lifestyle without needing assistance from the portfolio. I enjoy what I do most days, so, I don’t see my income dropping dramatically for the next few years at least.

Rebalancing the portfolio

Section titled Rebalancing the portfolio

I am of the mind that rebalancing should be minimal, if ever and use a hybrid approach.

Rebalancing, for me, means bringing the value of the holdings to within the specified range for each holding, not necessarily to the target. Therefore, if each asset class is within the specified range, the portfolio is considered in balance, regardless of underlying holdings.

  1. Decide which portfolio from above is the target; Mark 1, for example.
  2. Establish one or more rebalancing intervals and dates; I’ll start with annually around my birthday. (I’ve seen many suggestions—sometimes they even contradict one another and are all based on past performance, which doesn’t guarantee future peer. Further, if everyone rebalances on the same day, weird stuff can happen, so, random dates are good.)
  3. Choose the event-based criteria:
    • if the portfolio goes out of balance and you don’t hold a rebalancing token, receive one rebalancing token;
    • today’s date:
      • must be greater than the token’s creation date,
      • must be greater than the date of the previous executed rebalancing, and
      • must be greater than the rebalancing date following the creation date of the token; and
    • when rebalancing is performed, the token is spent (no longer in my possession).

This might sound complicated, and that’s kinda the point; I’m dissuading myself from doing a “full” rebalance out of emotion and a possible false sense of urgency. However, this method gives me flexibility in execution.

Let’s say it’s June 2020 and the portfolio goes out of balance; I receive a rebalancing token. July 2020 comes along; I’m able to spend the token to rebalance the portfolio using the valuations on that day and I decide to rebalance. August 2020 the portfolio is out of balance; I receive a rebalancing token, but I can’t rebalance again until July 2021. July 2021 comes along and the portfolio is in balance, so, I decide not to rebalance at that time; I retain the token. December 2021 comes along and the portfolio goes out of balance again and I decide to rebalance at that time; I have the token, December 2021 is greater than July 2020 and July 2021.

Note: These are guidelines and guardrails, not hard and fast rules. Further, sometimes restrictions in an account may cause me to change how I go about certain things.

For example, as of this writing, my 401k is out of balance and there is a dip in two of the three holdings. I’d like to take advantage of those dips. I’m limited by how much I can put into this account; therefore, I am selling the highest performing fund to buy the two dipping funds.

Personal portfolio

Section titled Personal portfolio

I’m in accumulation mode. I’m pursuing my Coast FI 1 number, therefore, I’m building toward the Mark 0 asset allocation. This portfolio has as its macro-allocations: cash and equities. I’m using four fund types to achieve this:

  1. Cap-weighted, total US equities fund; roughly 4,100 stocks.
  2. Cap-weighted, extended US equities fund; roughly 3,700 stocks. This helps achieve even distribution across small-, mid-, and large-cap stocks.
  3. Multi-factor fund of funds; roughly 550 stocks. This helps achieve even distribution across value, blend, and growth.
  4. S&P 500 fund; roughly 500 stocks. This is the fund found in most 401k plans I’ve been exposed to and helps tip the large-cap away from growth.

Because most of the funds are cap-weighted, cover most of the market, and are different, there will be overlap at the individual stock level, which is fine.

Emergency fund

Section titled Emergency fund

I see emergencies as having two qualities:

  1. the urgency and
  2. the impact.

For the most urgent emergencies, I will use debt and mitigate the cost for each specific type of emergency.

Liquid cash will be held in the allocation stated in the previous section and described in my personal budget.

If the emergency is such that loans and liquid cash are not enough, other options should be sought prior to using the portfolio to resolve the emergency.

Debt (and leverage)

Section titled Debt (and leverage)

Spending

Section titled Spending

Changes

Section titled Changes