Since I have spoken extensively of different passive investments, I thought it was fair to say what I personally own in my portfolio. I have a few portfolios for different life goals, and I do my best to integrate ESG (Environmental, Social, and Governance considerations) across all of them.
My core portfolio
My core portfolio is my main financial independence portfolio. I want to use this one to reach financial independence in 15 years. It includes three index funds. Two of them track the US market, and one the rest of the world.
In this portfolio, I decided to exclude indexes that own companies with negative impacts, especially fossil fuel companies, and take into consideration also ESG factors. But please note that this is a personal choice to align my portfolio to my values, and if I only cared for financial performance, I would invest in the traditional market indexes that I just mentioned, the CRSP US Total Market Index and FTSE Global All Cap ex US Index.
I invest:
- 50% of the portfolio to track the broad US market. I have selected ESGV by Vanguard, which tracks the FTSE US All Cap Choice Index. It integrates ESG and limits my exposure to fossil fuel companies.
- 25% in another US index that is more weighted towards technology stocks with significant growth potential, and at the same time has limited to no exposure to fossil fuels. This is the Nasdaq 100 ETF. Its ticker is QQQ.
- 25% in international stocks, both developed and emerging markets. I have selected VSGX, also by Vanguard. It tracks the FTSE Global All Cap ex US Choice Index.
My portfolio is heavily weighted towards the United States (and technology). But since I live in the United States, I am fine with a US tilted portfolio that is quite exposed to the domestic economy.
I am paying slightly higher fees for these ETFs compared to broad market ETFs, as well as accepting lower liquidity. But so far it has not hurt my financial performance.
If you also wish to analyze your funds for Environmental, Social, and Governance factors (ESG) and check if they own fossil fuel companies or companies with other negative impacts, I recommend this free tool in the United States https://fossilfreefunds.org/.
My tax advantaged retirement accounts
In the United States, it is possible to set up tax-advantaged retirement accounts. You can set them up with your employer or on your own. I have both a 401(k) account and an IRA account.
My preference is for the Roth 401(k), but I opted for the traditional 401(k) because I may leave the United States in the future and not all countries recognize the non-taxable nature of Roth plan distributions. Through a traditional 401(k), it is also possible to do an early conversion to a Roth IRA in early retirement.
These are the accounts that I will not need for at least 30 years, so the risk-return profile is quite high. On the other hand, the investment choice here is extremely limited, so I cannot do much to integrate ESG considerations.
I invest:
- 63% in a large cap S&P500 index fund
- 8% in a mid cap S&P400 index fund
- 8% in a small cap S&P600 index fund
- 4% in a Fidelity Real Estate REIT. I have REITs in a non taxable account because they must distribute every year inicome that otherwise would be taxable
- 8% in an internetional index retirement account by State Street Global Advisors
- 9% in an emerging market index retirement account by State Street Global Advisors
Joint brokerage account
This is the account I share with my wife. It follows the same allocation of my core portfolio above
529 education plan
This is a USA tax advantage account to pay for our daughter’s college expenses. The amount that I contribute to it can grow tax-free. To set up this account I need to work with specialized providers.
I have this account at Wealthfront because it costs less than the other providers and I like their index fund methodology.
I don’t have much visibility on what the account owns unfortunately, I could only pick the desired risk-return profile and they do the portfolio for me (they also do it for traditional brokerage accounts).
My fun portfolio
I have another portfolio for active investing and stock picking. This does not constitute the bulk of my wealth. I manage it separately to pick individual stocks, active managers that I like, and some cryptocurrencies. In this portfolio, I only invest if I have something left out of my monthly budget.
I invest money that I can afford to lose, so I am fine with taking some extra risks.
I don’t want to share my asset allocation of this portfolio because it is very high-risk. It is also an allocation not reflective of the main message that I want to convey through this blog. But I am happy to share some of the individual investments.
One of the funds that I selected for this portfolio is an actively managed fund that targets companies for their positive impact on people and the planet, the Blackrock Global Impact fund. This fund goes beyond ESG and chooses companies because they are solving some social or environmental problems. To make the difference simple to understand, ESG companies clean their own mess (negative impacts), whereas impact companies address external social and environmental problems not caused by them (create positive impact). I am willing to pay the management fee of this fund because of the manager’s effort to select companies for their positive impact. You can read about the investment thesis of this fund here https://www.blackrock.com/uk/intermediaries/themes/global-impact-strategy-fund
I have also picked individual stocks in this portfolio, which I will describe in a separate post.
No bonds in my portfolio?
I don’t own bond funds since I have about 15 years before retirement and I will integrate bonds at a later stage. Having a smaller allocation to bonds, even just 10-15%, would considerably reduce the volatility of my portfolio without taking a major toll on financial performance in the long run.
But since I have a fairly high-risk propensity (and that I don’t need the money for more than a decade) I decided not to integrate bonds at this stage. I plan to start integrating them gradually in my portfolio when I am 10 years away from retirement, until reaching a 65% stock – 35% bond allocation at retirement. Most other retirees will have a more conservative bond allocation.
When I reach that stage, I will likely look for an index fund that includes Green, Social, Sustainability, or Sustainability Linked bond funds. But I have not selected any yet.