My Personal Portfolio

Foreword

This is a discussion of how I think about my personal portfolio, and what I do with it.

I want to be absolutely clear here — this post is about me, myself and I, and nobody else. What I do for my portfolio may or may not be suitable for anyone else, especially you. I am not a trained financial analyst, financial planner nor financial anything — please consult a professional if you need help with your own financial planning and/or portfolio management.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Conservative overall portfolio

Firstly, let’s get this out of the way — I am a scaredy cat. I am not trying to become a billionaire — my financial plan resolves entirely around early retirement, paying for my children’s college degrees and leaving them enough assets to bootstrap their adult lives. So, my investment choices generally tend towards more conservative assets, which as we’ve discussed before, are expected to provide more stable cash flows and allow for a higher safe withdrawal rate.

Ballast portfolio

I’m not sure where I first heard the term “ballast”, but it refers to the part of the portfolio that forms the “foundation” or “fallback” — if everything else goes to smelly, this is the part that will likely remain, relatively unscathed. A long time ago (does anyone still remember pre-QE days?), this part of my portfolio was just US Treasury bonds and municipal bonds. They provide a very safe, but lower, yield, which I can generally depend upon.

However, with the advent of QE, these bonds yield too little to be meaningful, yet are priced so richly that even a relatively small increase in interest rates(1) will cause their current mark-to-market values to plummet. As such, they went from “safe, but lower yield” to “risky, and essentially no yield”. Not really what I would call ballast-material!

In place of government bonds, I have been trying various other assets to form the ballast of my portfolio. For now(2), I have settled on these:

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

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

Other than the ballast side of my portfolio, everything else is invested in stocks. In my stocks portfolio, I further divide into 3 accounts:

1. Ballast-lite
2. Main
3. Gamble

Ballast-lite account

The ballast-lite account of my stocks portfolio is, as its name implies, allocated in safer, more conservative stocks and strategies. For example,

1. Stable, conservative dividend stocks
2. Index funds with the wheel strategy(3)

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

Main account

The main account of my stocks portfolio 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/or squeeze out some additional yield.

Gamble account

The gamble account of my stocks 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 (I’ve bought and sold puts and calls on GME during the Jan-Mar 2021 madness).

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 puts 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 children.

In my stocks portfolio, I generally keep around 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.

Final word

As noted before, 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(4).

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.

This, again, may or may not be suitable for you. Please consult a professional advisor if you need help with financial planning.

Footnotes

1. Recall that the Federal Reserve can, almost unilaterally, increase short term interest rates at will.
2. As the market environment changes, I may tweak or even completely revamp the assets I hold as ballast. And I almost certainly will not be giving anyone a heads up before I do. Therefore, recall the disclaimer — please consult a professional advisor if you need help with financial planning.
3. The wheel strategy is where you start by having cash, and writing cash secured puts on the asset. If you don’t get assigned, then you just roll the puts over to the next period. If you get assigned, then you switch to writing stock secured calls. Essentially, this caps your upside, but provides a buffer on the downside before you suffer losses.
4. In my defense, I’ve found that I’ve consistently managed to squeeze out fairly reasonable returns from the “ballast”-like assets, generally to the tune of around 10%, which as we’ve discussed before, is what stocks generally yield over long periods of time anyway.