April 1st, 2023 paycheck

Created:

For this paycheck, short-term assets were down the farthest compared to its target (not including the S&P 500 fund). I reduced my regular investment amount by about half; it wasn’t enough to place any orders. I put away for the future Roth IRA contribution in savings. I was able to reduce the amount going to the HSA by a couple of dollars due to contributions to date. I sent the standard percentage to the tax-prep account. And the suggested transfer to the runway.

It’s been a while since I discussed where each fund is compared to its target; the list above is an aggregate of the funds. Let’s talk fund allocations! (In a later section because it got longer than anticipated.)

I changed the future target mix in my 401k to the S&P 500 index fund to be 100 percent.

I received some dividends and was able to place some orders; only 2 market orders were executed.

Fund allocations

Section titled Fund allocations

This turned into a whole thing.

I’ll try to present this logically, but getting here was an iterative process of examination, realization, and rabbit holes.

At the fund level, the current fund allocation is as follows:

  1. 13 percent in the total stock market fund: Currently above the target and below its high guardrail, which automatically means it’s below the maximum.
  2. 11 percent in the S&P 500 fund: Currently above its minimum and below the low guardrail.
  3. 45 percent in the extended market fund: Currently above the target and below the high guardrail.
  4. 24 percent in the multi-factor fund: Currently below the target and above its low guardrail.

Refining The Universal Portfolio concept made me dig deeper into The Holy Grail of Investing concept, and I updated the financial concepts essay accordingly. While not directly related, I revisited my Coast FI stack and updated the investment policy to reflect the update (more on that below). I discovered the portfolio progressions didn’t match the Coast FI stack; stupid off-by-one errors, I blame 0-based numbering. I decided to rename the portfolios to align directly with the Coast FI stack:

  1. Mark 0 became Mark 1.
  2. Mark 0.2 became Mark 2.
  3. Mark 0.4 became Mark 3.
  4. Mark 0.6 was removed.
  5. Mark 0.8 became Mark 4.
  6. Mark 1 became Mark 5.

(In my defense, the Mark 5 portfolio was for when I achieved the FI number. But that wasn’t very clear, apparently.)

I’ll move to the Mark 2 targets once I reach the Coast FI 1 value in the portfolio. Right now, we’re still planted in the Mark 1 portfolio. This examination and improved understanding led me back to some of the tools.

My goals as of this writing, primarily when it comes to equities:

  1. Roughly an even distribution across small-, mid-, and large-cap equities (growth assets).
  2. Roughly an even distribution across value, blend, and growth (growth assets).
  3. Maintain 6 percent cash (short-term assets).

(Goals 1 and 2 are independent; therefore, roughly 33 percent for each set of 3, not 11 percent for each pairing.)

I looked at The Golden Butterfly portfolio when I first started down the risk parity approach to portfolio construction. I thought it was viable because it tends to satisfy the first goal. I didn’t go with it because according to the portfolio matrix comparison showed my portfolio ranked a bit higher. This was incorrect due to my understanding of the tools. Even though the Mark 1 portfolio performs similarly in most areas, my increased knowledge of the tool made me revisit the withdrawal rates chart for both portfolios.

The withdrawal rates chart for The Golden Butterfly shows a safe withdrawal rate and perpetual withdrawal rate of about 8 percent for a 30-year retirement. The withdrawal rates chart for the original Mark 1 shows a safe withdrawal rate and perpetual withdrawal rate of about 5 percent for a 30-year retirement. The rate of return and withdrawal rates isn’t a primary goal; however, there are two concerns I’m starting to have:

  1. The S&P 500 fund seems to be something I can’t get away from; can I make it part of the core funds used?
  2. Can I accomplish the goals with fewer funds?

I took the Morningstar data for a small-cap value fund and tested the equity portion of The Golden Butterfly portfolio in the spreadsheet:

  1. Value was at 34 percent.
  2. Blend was around 45 percent.
  3. Growth was around 20 percent.
  4. Large-cap was 36 percent.
  5. Mid-cap was around 29 percent.
  6. Small-cap was around 34 percent.

Even though blend is a bit high compared to 33 percent and growth is a bit low compared to 33 percent, this seems acceptable. To validate the spreadsheet, I ran some backtests with Portfolio Visualizer, comparing the as-is Mark 1 portfolio and The Golden Butterfly (adding 6 percent cash and reducing the short-term treasuries by 6 percent—both are short-term assets, according to The Universal Portfolio).

According to the backtests, performance was roughly the same, as expected, given it was primarily equities. However, Mark 1 did perform better during the 2021 runup before normalizing in 2022. The exposures were also roughly the same, as expected, given the numbers in the spreadsheet were very close as well.

The conclusion for The Golden Butterfly was that I could:

  1. achieve the primary goals,
  2. possibly increase the withdrawal rate,
  3. reduce the number of funds (while making the S&P 500 a core part of the growth assets),
  4. reduce the allocation to growth assets to 40 percent instead of 50,
  5. increase the allocation to short-term assets, and
  6. reduce expenses.

A 6-degree win. The 6-degree win turned into 6 milestone fund allocations. I’ll put off selling anything for as long as possible. In part because they’re all equity funds in what I’ll call the Mark 1.1 portfolio, so there shouldn’t be drastic performance changes. Further, I’m trying to avoid selling things in general. Finally, I don’t want to sell anything that’s down.

I used the spreadsheet to step my way toward being between the low and high guardrails for the 3 funds.

Milestone 1:

Milestone 2:

Milestone 3:

Milestone 4 increases the small-cap value and the S&P 500 while reducing the total market, the extended market, and the multi-factor funds.

Milestone 5 does the same thing.

Milestone 6 removes the extended market and multi-factor funds while increasing the small-cap value fund; at this point, there will only be 3 equity funds in the portfolio, and the mix will be similar to The Golden Butterfly portfolio.

The Golden Butterfly Portfolio uses 20 percent total stock market and 20 percent of small-cap value. Because it appears I can’t get away from the S&P 500 fund to get close to the same style distribution we end up with:

  1. 12 percent total stock market,
  2. 51 percent small-cap value, and
  3. 31 percent S&P 500.

Those numbers are just the growth assets portion of the Mark 1.1 portfolio. I’d still have 6 percent short-term assets in the form of cash.

How does this change the Mark portfolios?

Because we’re using The Universal Portfolio, it mostly stays the same for what we’ll call Mark 1.1 and Mark 2. However, it would change the others.

Let’s look at the “as of this writing” Mark stack.

Compare this to the new stack; we don’t change the names for the Mark 2 through 5 because they have yet to be released (can you tell I do software development, even as a hobby?). (The differences are emphasized.)

Mark 2 and 3’s low correlation targets stay at 0 percent. Mark 4 increases low correlation by introducing 10 percent gold (half of The Golden Butterfly’s 20 percent) and brings short-term assets to 10 percent by introducing 4 percent short-term treasuries. Finally, mark 5, from a Universal Portfolio perspective, becomes the variation of The Golden Butterfly. I say variation only because, at this point, we’re planning to modify short-term assets to include cash, and unless I can convince my employer to have a total stock market fund in the 401k plan, the S&P 500 will be there.

Of course, the world could change dramatically by the time any considerations for short-term treasuries and gold come into play.

Health and wellness

Section titled Health and wellness

Annual bloodwork came back clear, except the uric acid levels shot up to almost 7. I’m back to taking allopurinol. Frustrating.

I started doing some daily exercise movements again, except for the plank and the regular pushups.

I tried to do a regular pushup, and my toe was not thrilled the next day. So I’ll try a different tack with the medical profession for the next few visits and see how it works out.

Instead of describing symptoms as the lead-in, I’ll describe a goal. Then go into symptoms that cause me to be unable to achieve that goal.

  1. I want to be able to do at least one regular pushup every day.
  2. I currently can’t do that because, when I do, I become incapacitated for a week because my toe is fucked up.

We can treat the symptom all day, but if I can’t achieve a simple goal, then we need to figure out how to track and treat the disease, so to speak.