You could hear the frustration in his voice when speaking about how people ask about portfolio construction and what they own and why. Basically a lot of people own stuff for no good reason, but they won’t sell it.
*Hand in the air* I’m one of those people who owns things for no good reason. I’m guilty.
In the above linked blog post from him he talks about the zero budget portfolio. He wrote this on January 3, 2017 and the opening line is great and really got me thinking.
“Happy 2017…You’re probably going to fail this year!”
Luckily for me I didn’t fail on my New Years Resolution for 2017 which was to read more books. As I write this I think I am well over 40, I try to keep small reviews on them all but I haven’t updated that in a while. Anyway, I have succeeded there.
With 2018 fast approaching it is time for another New Year’s Resolution. I’m not a big “Resolution” guy. Really I’m not a big “setting stupid benchmarks” guy, but it is useful to set goals and the New Year is a great time to do that.
My 2018 Resolution is to have an investment plan, in writing, and follow it.
I recently read Meb’s book, “The Ivy Portfolio” and it was awesome. For a guy that is really bad at math it gave me an easy to follow investing framework. Using the zero-base budgeting and the Ivy Portfolio I’m going to revamp my portfolio and make it rules based. So here is what I am going to do:
I’m going to invest in a collection of Vanguard ETFs using the 12 month moving averages to determine when I buy and sell. The allocation will be 20% bonds, 30% international equity and 50% domestic equity using eight different ETFs. I even wrote a Python language script to pull the information and plot it for me. On the last day of the month after market close I’ll pull the information and the next trading day I’ll buy or sell accordingly. As outlined in the book, if the stock is trading above the twelve month moving average I can buy and if it drops below I have to sell. I’ll make regular monthly purchases per my allocation percentage until I hit the cap for the year. Dividends will be reinvested. Rebalancing will occur annually. When I sell a fund the money will stay inside their money market fund which right now yields around 1%. If nothing is a buy the money will stay in my high-yield savings where right now it earns around 1.25%.
The implementation will be a little difficult but once I get it going it will be easy to maintain and will take almost no time at all.
I’m sure there are dozens of other approaches but this one is simple and one I can easily follow. It will be inside my IRA so taxes aren’t a factor, and using Vanguard and their ETFs I can trade in and out commission free. The 12 month MA won’t trigger a lot of trading anyway, I think in the book it was 1.7 trades a year on his backtest.
This leaves my current holdings in the IRA on the chopping block, and some hard sales will be made. I get emotionally attached to the companies I own, which is actually kind of bad. I’ll limit myself to five that I can keep. Since it is in my IRA taxes won’t be an issue, only the trading commission I have to pay.
I’ll also be jumping back into my taxable account just to quench my thirst when it comes to doing dumb things with money. I like thinking I have something figured out and making bets on it.
So, there it is. My investment plan. I’m excited to get started. Now if you’ll excuse me I have to go have a talk with what I currently own and break them the news.