The Writer’s Coin

A lot of people are stressing out over their investments right now and they want to do something, anything about it. Well, the best advice is probably to do nothing—but that doesn’t help to scratch that itch, so you can do things like check on your asset allocation to make sure everything is where it should be.

It’s a very understandable reaction, so I decided to run my Roth IRA portfolio through Morningstar’s X-Ray tool to see what it had to tell me about my investments in that account. Here is the breakdown of my Roth IRA account:

• Vanguard S&P 500 Index (VFINX): 22%
• Vanguard Total International Stock Index (VGTSX): 18%
• Vanguard Mid Cap Index (VIMSX): 19%
• Bank of America (BAC): 12%
• Berkshire Hathaway (BRK.B): 29%

And here’s what Morningstar thinks about that allocation:

This first breakdown tells me that I probably don’t have enough foreign stocks in my portfolio. Originally, I wanted to have about 30% international stocks, but that isn’t the case due to the individual stocks I own in the portfolio.*

The middle box shows that I’m concentrated mostly in large companies, I own a few medium-sized stocks, and have no exposure to small caps. This is a bad thing. I wanted to buy the Vanguard Small-Cap fund but I’ve already contributed the full amount to my Roth this year, so I’ll have to wait. I also want to buy the REIT index through Vanguard but with their minimums for those index funds ($3,000), it makes it tough to juggle the allocation you want with the exposure you want while staying under the $5,000 limit of the Roth. Again, this is being built for the long haul, so no worries there.

These two boxes tell me which sectors I’m invested in and the type of stocks that I’m exposed to. I think I’m pretty happy with this part of the allocation. Looks like I have a little bit of money everywhere, although my exposure to financial services is pretty high. That has to do with both Bank of America, Berkshire, and the Index Funds. I probably own Bank of America alone in three different places. It may be worrisome to see that, but my BofA investment is actually one of the only things that has made me money this year. Go figure.

The second box has more that I like: aggressive growth and high yields. Since this is for the long haul, I have no problems taking added risks. I have time to let things settle and average out. Very little exposure to distressed assets and cyclical stocks when compared to the S&P.

There’s a few things to like about these two screens. The one on the left shows I’m doing a very good job of keeping my expenses down, which is key when you’re money is going to be in an account this long. That’s what I love about Vanguard: low expense ratios and great funds to pick from. It looks like I’m paying about $20/year to run my Roth IRA. Not bad at all.

Then the map just hits the previous point of not having enough international exposure. Not nearly enough invested in Latin America and other countries. This definitely needs to change. I still don’t know what my priorities are though: buy up the Small Cap and REIT funds first or tweak the allocation. We shall see.

These last boxes give a nice comparison of some key ratios with the S&P. I like how my yield and EPS growth look, even if the YTD returns in the last box are a little depressing to look at. Berkshire was actually bought way back at $3,400 or so and Bank of America was bought twice for an average price of $28, so I’ve actually done pretty well there. That’s the beauty of picking individual stocks when times get tough—you can actually make some money for your portfolio. The index funds, well, those will even out later on.

*By the way, for those of you that are interested: I have two Roth accounts. I have BAC and BRK.B in a Scottrade account and the Vanguard funds in a Vanguard account. Yes, this is totally legit and it works because owning individual stocks is much cheaper with Scottrade. With Vanguard there are all kinds of minimums that I don’t meet.

What I’ve Learned

I’m not exactly where I want to be right now in my Roth. It’s still a work in progress. Once I get all the fund exposure I want I’ll be able to start tweaking it to get it just right. And having the Scottrade account makes it easier because I can buy ETFs or single stocks that I believe will do well, so I get to play investment manager while still being pretty conservative.

It will probably be a couple of years and $10,000+ of contributions to get to where I want to be.

Tags: asset allocation, bank of america, berkshire hathaway, index funds, Investing, morningstar, portfolio, vanguard