Portfolio: Making Changes

When the facts change, I change my mind​

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We ran the Portfolio Series last year.

The other day I got to thinking (it happens occasionally), and I realised it might be time to adjust my wife’s portfolio asset allocation.

A bit of context: my wife and I have separate accounts. I manage all of them and have a general overview of everything.

My wife’s portfolio consists of:

1. Cash

My wife has cash in personal accounts as well as her business account (she runs her own school) which has emergency funds of about six months’ expenses. We try and keep this for peace of mind after our experience after the 2011 earthquake, where we had to close the school for a couple of months. During that time, we had no money coming in but still had to pay rent, utilities, etc. This cash is 30-40% of my wife’s assets.

2. iDeCo

This is with Iwate Bank, which used to be a good option but is no longer competitive. I will be looking to transfer this account to SBI or Monex later this year. The current allocation is 50% international stocks, 25% high-yield stocks, 25% balanced fund (70% stocks).

3. THEO

My wife has a THEO account for the simplicity. Their interface is so easy to understand (you either put money in or take it out, basically) that even if something happened to me I think she’d find it easy to manage. The costs are too high though, and it doesn’t have a yield, so I am considering whether to keep this or sell it and move the money into the NISA/taxable account. It’s currently set to 「おまかせ」 so THEO manages the portfolio according to their take on my wife’s risk profile (I’m guessing this is based on age/amount of assets). This ends up being 43% stocks 39% bonds, 18% cash/commodities/REITs/etc. No rush either way.

4. NISA/Taxable account

This is where the change will be made. We’ve been treating the taxable and NISA accounts as one unified portfolio, with 50% in VT (world stocks), 20% in BND (US bonds), 20% in 1308 (Japanese stocks), 10% in 1345 (Japan REIT).

My wife is slightly older than I am and thus getting closer to retirement age. Stock markets seem to be richly valued right now, so I think it might be time to change this allocation and make it slightly more conservative/defensive.

I would like to have fewer stocks and more bonds in the account. The new target allocation will be 45% VT, 30% BND, 15% 1308, and 10% 1345.

We will not be selling to rebalance, but rather will use new contributions to adjust the portfolio. I guesstimate it will take about a year to reach the new allocation, unless something interesting happens in the meantime with the markets.

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You may think this plan is a bit fuzzy, and you would be right! I’m a great believer in good enough. For me, that means focusing on spending (a lot) less than we earn, and investing the excess (mostly) in things that aren’t stupid. I am not too bothered about endlessly adjusting things to save a further 0.01% in costs, or chasing hot new sectors to make slightly more money.

Our needs are modest enough and our saving rate high enough that we’ll probably be okay even with my lazy efforts at managing our money. I figure we have another 20-30 years of adding to our portfolio before we start drawing down.

How about you? Any changes to your portfolio on the horizon? Any comments/advice for me?

17 Responses

  1. Hi Ben,
    I’ve been using Monex’s Vision-Beta portfolio analysis tool as a free alternative to roboadvisors. No automatic rebalancing, but it will suggest an asset allocation and tell you how much to add to each individual fund to keep it in balance. I chose mutual funds without dividends because I’m not a big fan of paying unnecessary taxes. I don’t think it works with ETFs. It’s been great for me, so I plan to use it for my wife’s taxable investments from now on.
    Her NISA portfolio currently stands at 35% bonds, 10% REITs, and 55% other stocks (VT plus some extra Japan and emerging markets). Same for ideco. Like you, I’m thinking stocks are a bit pricey at the moment. I’m not sure whether to buy bonds or wait it out with cash.

    1. Sounds interesting! I am planning to move some of our accounts from Rakuten to SBI and Monex this year (for diversification purposes and just to see what the various companies’ offerings are like) so look forward to checking that out.
      That portfolio is spookily similar to my wife’s 🙂

      1. Same here. We’ve been spreading our investments around, though the NISAs are still with Rakuten. My favorite site so far is Monex, especially for buying US stocks. They use the Tradestation platform which gives you real time trading and allows fancy things like trailing stops. The only drawback is that you can’t settle in yen and changing money takes some time.

    1. My pleasure! To be honest, thinking things through enough to write about them and getting feedback makes this invaluable for me too 🙂

  3. Your thoughts on THEO are interesting. I’ve been paying into it monthly for over a year now but I also have mutual funds with Matsui Shoken’s roboadviser, as well as a NISA account.
    Masui charge about 0.3% if I’m right compared to 1% for THEO. However, I’m starting to think that it might be better to consolidate both accounts and just use the NISA.

    1. I’ve been in THEO for a couple of years now. The first year had a reduced fee as a launch offer, but now that I will be paying full price going forward I am not sure it makes much sense.
      I’m going to see how they deal with a crash and then make a decision, as the diversification and automatic rebalancing are things I don’t care to try to replicate in my own accounts.

  4. The change in portfolio allocation makes a lot of sense, especially since less risk ought to be taken as we age. Two very minor things that I noticed though.
    There is a small overlap between VT and 1308, which essentially means that she is overweight on Japanese stocks. Perhaps an alternative strategy is to also use this chance to further reduce the allocation on 1308 beyond 15%, whilst increasing the allocation on bonds or bond-like assets denominated in yen.
    The other issue is that it might be beneficial to further simplify the asset-mix within the portfolio, such that there is only 1 low cost index fund/ETF for global stocks, bonds, and REITs respectively. This might reduce any confusion and/or stress when she eventually takes over control of the portfolio in future.
    I myself am pivoting my portfolio towards the VT mutual fund recently launched by Rakuten, whilst maintaining a 100% stock allocation, due to its one-stop convenience =)

    1. Thanks Desmond! Good point about the VT/Japan thing. Perhaps it would be useful to just combine the VT and 1308 and treat them as one, just buying VT going forward.
      Any suggestions for a yen-denominated bond fund?

      1. 2510 is a JPY bond fund. It includes a lot of JGB, but also muni bonds and corporate bonds.
        I like 2511 (Intl. bond without currency hedge) and 2515 (Intl. REIT without currency hedge).
        These ETFs are new, and they don’t have much liquidity. So, buying too much of these could be a bit risky.

  5. One traditional rule of thumb is your age in bonds, so at 66, that suggests I should have a 66% bond allocation.
    While I’ve had a couple different bond ETFs in the past, and have sometimes tried to will myself into them to follow one of the portfolio allocations, above, the closest thing that I have now to bonds is a preferred shares ETF. I do know the basics of bonds (e.g., duration vs interest rates), and via different calculators can see their effect on long-term performance.
    Also, it seems that worldwide, economies are on the upswing. The US came in a little low last quarter, but the side now in power is clearly pro-growth. If that works out, interest rates will rise–tho who knows how much, and how much behind or ahead of the curve the fed will be.
    For the last couple years, there’ve been unfulfilled predictions about the end of the long bull mkt in bonds. I kind of wonder if 2018 might be the year that those predictions come true.
    For my US account, I’m about 70% equities, the preferred ETF is 4-5%, and the balance cash.

    1. I’m going with age -10 in bonds for my wife. I don’t own any. See if I am crying about that in a year or two 🙂

      1. Maybe I’m weird, but mainstream news articles about falling bond prices and rising yields make me want to buy some 🙂

  6. Hi Guys,
    I’m just in the middle of opening up a ideco account.
    It’s seems to me that stocks are way too high to be buying in at this time.
    What does everyone think of keeping the first year of my Ideco in mainly cash until prices come down?
    I know no one know what the market will be like in 6 months, but I’d prefer to buy low than at record highs!
    Cheers

    1. It is dangerous to make predictions. If you had done that last year (as many people were recommending) you would have missed out on the 20-30% gains in 2017. It is quite possible that this year will see a similar gain.
      It is also possible we could have a crash. However, even a large crash would only eliminate a year or two of growth.
      So it’s a tough call. Try to time the market, and you will come out as a genius or you will bitterly regret it. We just don’t know.