Invest: What my portfolio looks like

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This post is a discussion of what I think a good portfolio looks like. Hopefully you’ll find this informative.

First of all, let’s get this out of the way – I’m a conservative. I’m not aiming to become a billionaire, and my financial plan revolves entirely around early retirement, and maybe space travel. So my investment choices generally tend towards more conservative assets, which are expected to provide more stable cash flows and allow for a higher safe withdrawal rate. 

Ballast portfolio

Ballast, which refers to the part of the portfolio that forms the foundation, is the first thing I’d build. This part of the portfolio should contain safe assets including US Treasury bonds and municipal bonds, etc. Consider the ballast portfolio a safe haven, where even if everything else tanks, this part of your portfolio still remains unscratched.

However, please remember these safe assets tend to perform poorly during quantitative easing, which is exactly what’s happening right now. As a substitution, an investor can consider 

  • Private real estate equity funds
  • Various short term bonds (of both government and corporate varieties)
  • Short term private notes

Also please remember that the main goal of the ballast portfolio is to provide a source of stable cash flow, from which to fund all other endeavors.

Stocks portfolio

A large proportion of one’s money should be put into stocks. In this stock portfolio, we can further divide all the money into 3 accounts:

  • Ballast-lite
  • Main
  • Gamble

The ballast-lite account, as the name implies, for safer, more conservatiev stocks and strategies. For example, 

  • Stable, conservative dividend stocks
  • Index funds with the wheel strategy

Like the ballast portfolio, the goal is for stable growth, with relatively controlled downside.

The main account is where I do what most people do (or should do) in the bulk of their portfolios – buy index funds and mostly forget about it. In this account, I also buy some blue chip stocks that I’ve done research on, and are willing to hold for the long term.

Generally, I buy the stocks outright, though for the single name stocks, I may use the wheel strategy to tamp down on volatility and squeeze out some additional yield.

The gamble account of my stock portfolio is where I do crazy things. This is a relatively small account, where I try out experimental strategies, or just bet on silly things (e.g., Tesla, meme stocks, etc.)

This is also the account I generally use when I’m uncomfortable about the market, and just want to hedge some of the exposure in the other accounts – in that case, I’ll buy some or even outright short in this account to counterbalance the stock exposures in the other accounts.

Target proportions

Ultimately, the goal is for the ballast portfolio to yield enough cash flow to support my lifestyle (with inflation adjusted), while remaining under 50% of my investable assets. When that happens, I’ll know that I can comfortably and safely retire.

The ballast-lite account is meant to provide additional spending money as a buffer, as well as for splurges – maybe I fancy a new flashy car, or to go on an exotic vacation, etc. The main and the gamble accounts are meant to provide for growth in the overall portfolio, as well as assets to leave to my offsprings.

In my stock portfolio, I generally keep around 30-45% in the ballast-lite account, 30-45% in the ballast-lite account, 30-45% in the main account, and everything else in the gamble account. The exact ratio depends on their recent performances and how I feel about the market – sometimes I forget to rebalance for months on end.

As I wrote in the beginning, this is a rather conservative portfolio – most people in their prime working years should probably have less than ~60-70% of their portfolio in “ballast”-like investments.

However, I’ve found that this suits me fine – I have a day job that pays reasonably well, and so, for my investments, I prefer surety to higher expected, but much more volatile, returns. If nothing else, it helps me sleep at night.