The “Gone Fishin’ in the Foundry” Portfolio

[This is the final installment of a series on investing. Here was part one and here was part two.]

Instead of giving up on the Gone Fishin’ Portfolio when I found out that one of the recommended funds is closed, I decided to “leave the nest” of blindly following the advice in the book and put my newfound investment knowledge to the test. I made a few changes (let’s call them “improvements”) to the recommendations in the book.

Here’s my new portfolio. It’s essentially the same as the one in the book, but without the closed fund*, and it wraps multiple International investments into one International index fund (fewer funds to worry about means an even easier time investing, at the cost of a slightly less-customized portfolio).

Asset Type Vanguard Fund (Symbol) Percentage
US Large-Cap (i.e. big companies) 500 Index (VFINX) 15%
US Small-Cap (i.e. small companies) Tax-Managed Small-Cap (VTMSX) 15%
International Total International Stock Index (VGTSX) 30%
Investment-Grade (i.e. low-risk) Bonds Total Bond Market Index (VBMFX) 20%
TIPS (bonds indexed to inflation) Inflation-Protected Securities Fund (VIPSX) 10%
Real Estate REIT Index (VGSIX) 5%
Precious Metals Precious Metals and Mining Fund (VGPMX) 5%

What’s that last fund? It’s an investment in precious metals, like gold! But it mostly invests in the companies that extract the precious metals, which tend to follow the ups and downs of the metals themselves, but also produce profits which make them a higher-yield investment.** So we’re back where we started, with a small investment in gold. Katie was right after all!

After the one-time hassle of setting this up, all I need to do is a yearly “rebalance”. Each investment will rise or fall in value, which will make the percentages deviate from the targets above. I simply sell the ones that are too high, to buy more of the ones that are too low.*** It should take about 30 minutes a year! I can spend the rest of the time going fishin!

PS: If any of the above terms seems like mumbo-jumbo, PLEASE read the book before doing any investing. I’m no financial wiz, and I was able to grasp it. So you will too. Also, feel free to ask investing questions. Love answering them!

* Should VWEHX open back up, I’d allocate 10% to it, and drop the short-term bond allocation down to 10%.

** Go back and read the quote from investment guru Warren Buffett if you don’t understand why this is the case.

*** AKA “sell high, buy low”. Alternatively, I can save up cash over the year and add value to the underperforming funds until everything balances out. Still “buying low” but removing the potential tax implications of selling assets.

The Gone Fishin’ Portfolio


[This is part 2 of a series on investing. Here was part one.]

I read a number of books on money and investing, each presenting what the author believed to be the BEST way to invest your money. But none of them were able to back up their claims with as much research as The Gone Fishin’ Portfolio.

The author, Alexander Green, first walks readers though the basics of money, which should be review if you’ve been a Foundry reader for a while:

  • the magical compounding effects of saving a lot of money early on
  • why not to “outsmart” or “time” the market when investing
  • why to not trust your investments to a “professional.”

With that out of the way, he gets to the interesting stuff: an investment plan that is based off nobel-prize-winning research on the importance of asset allocation, keeping fees/taxes low, and staying the course (no matter what the latest “news” is from Wall Street).

The author even makes it dead-simple by giving you the actual Vanguard funds that represent each investment. So I went to shift my investments around in Vanguard to match the advice from the book. Uh oh! Since the book was written, one of the funds was closed to new investors. So there goes that portfolio.

In the next post, I’ll explain how I modified the advice in the book to get around this little roadblock, and to make the portfolio even easier to manage.

Ok, fine! I invested in gold, sorta (Diversification 101)

This post continues the discussion on investing in gold, by segueing to investing in general. In a previous post, I explained why not to invest in gold, because I think it’s currently experiencing a bubble in valuation. Then a friend wrote a guest post with an interesting theory that the price of gold isn’t inflated, rather the value of the dollar has decreased.

In this post I’ll begin to explain why a bit of precious metals investment may actually be a helpful thing, as long as you’re spreading your money around to a diverse array of investments.

Living the lifestyle I write about on this blog is saving a lot of money (it’s also increasing my quality of life…go figure!). In the old days, when I was doing the standard “save 10%” thing (and then spending the other 90% whether I needed to or not), it was pretty straightforward how to invest it: a little into the 401k and some into a savings account for short- or medium-term goals.

Now that The Foundry’s savings rate hovers around 50%, we’re stashing a lot more money away for a rainy day. As such, I’ve been doing some research about investing and decided that the “rule of thumb” portfolio* isn’t going to cut it any longer. I need a portfolio that…

  1. performs as well as a stock-heavy portfolio (over decades).
  2. spreads money over many different types of investments, in a calculated way, to decrease risk.
  3. takes the guesswork out of the complex tax implications of each kind of investment.
  4. most importantly, is simple to manage (I’m talking “minutes per year”).

I read a number of books on money and investing, each presenting what the author believed to be the BEST way to invest your money. But only one author was able to back up his claims with research into nobel-prize winning investment theory, and present it in an easy to understand format.

Find out which book in our next installment on investing…

*  The rule of thumb being “invest your age in bonds and the rest in stocks.” So a 30 year old would have 30% of their investments in a bond fund and 70% in a stock fund. That way their portfolio gets increasingly conservative as they near retirement.

Why you SHOULD invest in gold [guest post]

This is a guest post from my friend Katie, at Oakhill Organics. She isn’t a “goldbug,” but she has some interesting counter-arguments to my last post about gold, the most interesting one is that we’re not seeing a gold bubble, but rather the crash of the value of the US dollar (which makes it look like gold is relatively worth more). This would make investment in gold a way to at least preserve the value of your stash.

Take it away Katie…

I haven’t personally invested in precious metals (we’re on the “100 acres of farmland” model — literally!), and I tend to think cigarettes, coffee, and alcohol will be most valuable “currency” when the shit truly hits the fan. BUT I’m not sure that gold fits the same “bubble” model as houses and tulips. The housing bubble (and most bubbles, including dot-com, etc.) are generally created by artificially low interest fueling unwise investment choices. If you have to pay a lot in interest, you really think through your borrowing choices — on the other hand, if it seems gravy and borrowing is easy-peasy, then why pause? (especially if there’s wide-spread hype)

I think the current bubble-about-to-burst is higher education. An undergraduate college degree has already lost a ton of value at the same time that the price of that degree has skyrocketed, and I think we’re going to see a day when a basic college degree is almost worthless (ESPECIALLY in comparison to the extreme debt loads people are acquiring to attain them right now — with a few exceptions, you literally can’t get a job out of college that would even begin to pay off a 100k debt).

Graphs don’t always tell the whole story. Gold and silver were the original historical currencies and have held their value amazingly well — really, they’ve just held their value, while the dollar has lost its value. Most investors of gold are not trying to increase their monies — they’re just trying to hold on to liquid assets in an era when interest rates are low and all other cash type investments are losing traction! Right now we have over $10k in the bank and only earn about $0.57/month in interest.

Not many people are concerned with the 100 year timespan for their investments — they want to have money in 5, 10 or 20 years — and they want it to increase in value to at LEAST keep up with the rate of inflation (impossible right now from what I can see for cash type investments — we feel great about investing in land and our farm). The stock market is no longer a safe place for these shorter-term holdings. I’m not an expert on this subject, nor even a real “believer,” but I do think it’s fundamentally different, especially since people are buying gold with cash and not with easy-to-get loans.

Should I stay or should I go?

One of the next recurring expenses I’ll be tackling is our crazy $150/month mobile phone bill. We use CREDO Mobile, so I get that warm-fuzzy liberal feeling of supporting a good cause, but it’s not that warm of a feeling. My blog idol, Mr Money Mustache, recently posted a how-to article on getting mobile service for $10 / month, using a prepaid plan.

So I’ve been shopping around for different types of plans, pre-paid and flat-rate. I haven’t made any decisions yet, but I did whip up this little spreadsheet that shows you how many months until you’d “break even” after switching to a cheaper plan. It takes into account the cost of a new phone and any early termination fees. Then it tells you the number of months before you’ll break even on a new plan:

https://docs.google.com/spreadsheet/ccc?key=0Am8qaK8Qf80edGh1RzJrZFVwSUZZYVcyaUJVQkpfdnc

Hope this is useful to other people as well!

Update: Technical Meshugana created a web-based/javascript version of the calculator! No need to load the big Google Spreadsheet page. Check it out:

http://www.techmeshugana.com/tools/wirelessroi.html

Frugal School: Junior Year

[Frugal School is my fun way of maintaining a book list. It has 12 books total, meant to be read one book per month. You can check out the introductory post about Frugal School, and see the entire syllabus.]

Junior Year – Getting Frugal

Welcome back to Frugal School. Hope you enjoyed your summer break. Did you get a job for the summer, or take it easy? Unfortunately, there’s no time for you to spend a year studying abroad in Frugal School! These Junior Year books consist of an overwhelming number of tips and tricks that will help many people make frugal choices. Do not read these without a solid foundation from completing the previous years.

tightwad Tightwad Gazette by Amy Dacyczyn
This book is the bible of frugal tips. Atheists can think of it as the yellow pages of frugal tips. Amy, the author, started a newsletter (via postal mail) in the 1990’s, filled with frugal tips from her family and other readers. Her family cut costs down so drastically that her and her husband were able to quit their jobs and live off the income from the newsletter. Just a few years later, they reached Financial Independence, and no longer even needed the income from the newsletter.
live cheap 365 Ways To Live Cheap by Trent Hamm
Trent is the writer of the very popular blog The Simple Dollar. His book contains a tip a day for transforming your lifestyle over the span of a year. Not only are the tips unique and helpful, but the tip-a-day format makes them easier to digest and implement. I think the title sells the book short, and it should really be called “365 Ways To Live Well” since many of his money-saving tips also promote wellbeing and happiness.
urban homestead Urban Homestead by Kelly Coyne and Erik Knutzen
What would a degree in Urban Frugalism be without a book on living self-sufficiently in the city? This book gives step-by-step directions for many of the things you’ll be doing in your own Foundry in the Forest: gardening, keeping chickens, canning/preserving foods, and (my favorite) bicycling.

Why you shouldn’t buy gold

One often hears of gold (and other precious metals) as a “safe” investment. On top of that, there’s a recent trend of doomsday people who’ve added a chorus of “when the SHTF, you’ll want gold!”* I’m more optimistic about the future of society, and I don’t directly invest any money in gold. In fact, if I had physical gold right now, I’d be selling it. Warren Buffett puts it best, when he says:

If you buy an ounce of gold today and you hold it a hundred years…you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farm land and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years. You could buy the Dow Jones Industrial Average for 66 at the start of 1900. Gold was then $20. At the end of the century, [the Dow] was 11,400, and you would also have gotten dividends for a hundred years. So a decent productive asset will kill [i.e. outperform] an unproductive asset.

I’m not as smart as Buffett, so I’ll explain the same concept using charts. Here’s the historical price of gold over the past few decades (adjusted for inflation):

“Damn!!!” You might say, “Gold be goin’ through the roof! I gotta buy me some of that,” and that is how it appears. But let’s compare this chart to a different chart. Here’s home values through 2007:

Everybody knows how that one ended up. And here’s the NASDAQ composite up through 2000 (i.e. the dot-com era):

Aka the dot-com bubble. Seeing a pattern? These are all bubbles! I’m sure if I pulled up a chart of Tulip prices in the 1600’s, it would look the same.

Gold is in a bubble right now. The blingy stuff isn’t intrinsically worth more now then it was 100 years ago. It still has the same value. It makes pretty jewelry and is useful in many applications due to it’s malleability. Heck, it might even be worth more in 5 years then it is today.

But investing in gold is just like jumping into any other bubble: you hope that people in the future will be willing to buy your stuff at a higher price then you paid for it. Not because it’s worth more, but because everyone else wants it too. Go back and re-read that last passage. If that describes any of your investments, you know it’s time to sell.

In a hypocritical twist, my next post will be about why you should buy gold…in a roundabout sort of way.

* If the shit hits the fan so hard that the dollar is worthless along with all other investments, I’m not sure what good a shiny metal is going to do you, unless it’s in the shape of a knife or bullet…