Passive Account Asset Allocation, January 2018

Most of my writing centers around activities in the active account by design. On the other hand, I consider the passive account the bedrock of my portfolio. If any thing, it provides a safety net in case I go batshit crazy in my active account. Like most other years, I have already completed my (backdoor) Roth and 529 contributions. I also took the opportunity to rebalance the portfolio. The asset allocation for 2018 is as follows:

For most of 2017, I was at the aggressive end of my range, where equity/FI/PM = 55/30/15. Of which the domestic/international equities were split 28/27. For 2018, the overall allocation categories stayed the same but I made domestic/international exactly 27.5% a piece. The REITs got subsumed into respective equity slices mainly due to the availability and size of various accounts.

To me the allocation itself is plain vanilla. If my whole portfolio were like that, I’d have nothing to write about all year. The headache lies in asset location as I juggle over a dozen different accounts between my wife and I. The passive account consists of most of our tax advantaged accounts: two Roth IRAs, two 401Ks, and one HSA. Lastly, physical precious metal bullions (taxable) are also included in this category. EM and REITs are only available in the Roth IRAs at Vanguard. It ended up being too much trouble to maintain the small slices of REITs. There’s no real rhyme or reason to the relative ration of 18:9.5, other than that it feels about right.

The 30% fixed income allocation remains the same for 2018. Once again, it’s entirely in stable value funds in the 401Ks. This ultra-safe approach counter balances the risk I take with leveraged closed-end funds (CEFs) in my active account. In 2017, this strategy paid off handsomely.

I’m a big believer in having a sizable precious metals allocation. That part of my portfolio construction can be traced back to the permanent portfolio and later the Golden Butterfly (see PortfolioCharts.com). In 2017, gold was up something like 13%, a slight drag vs. the 60/40 benchmark. But as I wasn’t making regular bullion purchases, the PM allocation drifted lower all year. As part of the annual rebalance, I bought Central Fund of Canada ($CEF) a close-end fund of both gold and silver bullion in my wife’s Roth. There is still a tiny amount of Newmont ($NEM) and the Junior miner ETF ($GDXJ) left from long time ago. I may finally be able to sell them this year.

My wife and I have two other Roth IRAs at Scottrade that falls under my active account. They house the Pimco multi-strategy CEFs that pay 8+%. So each year I have the option of adding to either the passive side or the active side (or any combination thereof) with the Roth contributions. Since return on the active account were so much higher in 2017 I decided to add to the passive side this year to even things out.

My investment policy statement (IPS) stipulates an annual review where changes to the asset allocation is allowed. I also have the leeway to perform a mid-year allocation change, but only if the new plan is already laid-out at the beginning of the year. Recent signs of stock market overheating notwithstanding, I’m still projecting a bubble peak in 2019. In other words, this AA is likely to stay another year.

None of the above is investment advice, the standard disclaimer applies.