My Investment Buckets – An Overview
Many times on this blog, I have mentioned that my investing style is very much objective driven. I tend to follow the systemic approach. Whenever I think about my investments, I tend to look at from the full portfolio investments perspective. In addition, I also believe in continuous evolution, and hence I make changes as I learn more about any aspects of investing. Readers of this blog will find that I do not talk about mutual funds. That’s because I am not a fan a mutual funds.
In this post, I am providing an overview of my investment buckets. These buckets address my long term investment risk profile for 10+ years and beyond. This description is not related to asset allocation or diversification. The graphic below provides an schematic for overall perspective.
TIP Guy's Investment Buckets
Portfolio 1: Index-Based Fund (30%)
The objective of this first portfolio is to replicate the general market performance. I believe that in 10 years and beyond, the BSE SENSEX, NIFTY, and other indexes, will be higher than today. At the time of this writing I am not I am invested in any of the index based low cost funds. I am still evaluation and investigating the good investment vehicle. While I am waiting to make a decision, I am allocating regular cash to this portion of my target and the fund is getting accumulated in savings and CDs. My main issue here is a lack of good low cost index fund.
Portfolio 2: Opportunity Portfolio (20%)
This is my second portfolio which solely focuses on capital appreciation. These are mostly value-based investments. Here I invest in companies which I believe are undergoing short-term difficulties but are worthy of long term investment. Limiting myself to 20% helps me reduce the risk of over exposure in risky stocks.
Portfolio 3: Dividend-Focused Portfolio (50%)
The third portfolio is allocated to income producing dividend-based investments. The objective of this portfolio is to generate increasing passive cash flow and long-term capital appreciation. The total target allocation is 50% of my portfolio investments. All of the positions shown on my holdings page are all related to this part of my portfolio.
Majority of the discussion on this blog will be on my dividend-focused portfolio (i.e. Portfolio 3). Depending upon the relevance of a given topic or investment vehicle, occasionally, I may also discuss about my other two portfolio investments.
How do you define and maintain your investments buckets?
capital allocation, dividends, index investing, investing strategy, investment buckets
TIP,
I enjoy reading your post, very simple concepts and logical reasoning.
Can you provide a some kind of overview of how all these articles come together…
How does this help in your investments…
A deep explanation on your selection criteria on dividend growth investment will be fantastic for others. Do you have any idea to share the same?
Thanks, Sherin
http://investinternals.blogspot.com
Sherin:
Yes, I do plan on sharing my analysis process (i.e. selection criteria) for dividend stocks. I am working on examples. I plan to start posting my analysis in month of April. So stay tuned !!
Best Regards,
TIP,
I do not see any logic behind wasting time in writing such useless stuff. I would appreciate if you use your talent (Which you have more than rest) in evaluating businesses & finding opportunities regardless of their asset class or index based or value based..
Buffet never thinks about Index while buying Coke, or Gillette. he thinks business. We are those people who make simple things complex like you are doing here.
Take this comment in good spirit.
BuffetFan:
To begin with, thank you for stopping by, and taking few seconds/minutes to leave your thoughts behind. Yes, I take all comments positively.
We need to realize or perhaps put his success in proper context. Buffett ideology is more than mere value investing.
First: I think you are falling in the same trap as majority of us retail/individual investors. If you have read Buffett’s own comments (not views by other writers) then you will note that he is an advocate of index investing. Check out his own verbatim in various interviews or column’s, and you will note that he advises retail/individual investors to simply invest in low cost index fund and forget about it for next 10+ years.
Second: Agreed that Buffett thinks about business. But we fail to realize that Buffett has lived in an era of unprecedented growth in US economy (driven by baby boomers). Ever since 2000 the US economy has been floundering; he has not done anything worth a note. In Oct 2008 he proclaimed buy America, while at the same time in 4Q2008 he offloaded significant position of his holdings in landmark US companies. On one side he proclaims derivatives are weapons of mass destruction, while on other hand most of his investment in last year has been in derivatives. Don’t get me wrong, I admire Buffett, I have a lot of respect for that guy, and I am amazed by his humbleness. But it does not necessarily mean we individual investors have to do what he does. Buffett ideology has been built over last 30-40 years, which was altogether a different era.
Third: In this era, Buffett is hoarding cash of more than 25 billion dollars; he is investing in instruments which are not available to general public. Remember his preferred share at fixed 10% interest rate both in Goldman Sachs and GE! There is nothing wrong in it. He is doing what he is supposed to do. Make profit for his shareholders. So again, I like this value investing principles. Since he is not investing in common shares, does this mean there are no value in US market?
Again, Buffett ideology is more than mere value investing…..
Finally, I do plan on evaluating business (and hence equities). I will start posting those analyses from April 09 onwards. If you look at top of this page, you will find a ‘Menu with Stock Ideas’. Over time, that page will get filled with equity/business analysis.
Best Regards,
Hi Tip,
Most of the ppl don’t know buffet made money by sucking ppl’s blood. Almost in all insurance companies in US owned my him or having stake in that, he made money by rejecting poor ppl for there medical claims. Now thats the secret of Mr.warren buffet
by
Ganesh
Ganesh,
Thanks for adding into Buffett’s Myth. However, this particular observation goes into uncharted territory of business ethics vs. business practice. I will restrain myself from commenting on this because it is outside the realm of investment discussion.
Thanks for stopping by!
Best Wishes,
Hi,
Not sure why you need low cost index funds for tapping the growth potential of the index. What about the ETFs? Also, while you have not mentioned which indices you would specifically look into but I am assuming that it is Sensex/Nifty. Or do you intend to look into individual sector indices also?
Regards
Arka,
By low cost index funds, I meant any investment vehicle that tracks index (including ETFs). Thanks for pointing the error becuase it is not obvious and can give the impression that it is missing. I am looking into sector index also. However, which sector or which index will be based on my portfolio allocation. e.g. if I am invested in individual FMCG companies or consumer staples, then I will not look in those indexes. Similarly, if my family has gold jewelery or has some form of gold ownership, then I will not invest in gold index or gold based funds. And yes, the starting point would be some BSE (not sensex) index and NIFTY. I like SENSEX but it is too volatile for my financial appetite and I think it is not within my buy range (still around PE 20). I am still contemplating how to structure my index portfolio. It may be a while before I have any constructive viewpoint for posting it on my blog.
Thanks for stopping!
Best Wishes,
This is a good way to divide your investments in different type of investments with different parameters
Nice one .
Manish
http://www.jagoinvestor.com
Manish’s last blog post..How Panic BUY OR SELL happens in market !!
Manish,
Thanks.
Glad to see you calm & cool on my comment.
Things are not like you said. I am surely not falling in trap as you mentioned in your reply. I like to invest in select companies which i know. My disagreement was about what you have written and drawn figures about. There is no need to diversification/asset allocation if you could choose 5-10 companies. I am doing that with success. I do not play jargon like asset allocation, diversification & all. and this is what we should do in current days. because if you are projecting growth, & buying/selling accordingly then you are a trader. not investor. Rohit chauhan does investing well, You have seen his yesterdays Asian Paints review. he holds that for 8-9 years. He doesn’t bother about index, asset allocation. I liked that guy & his strategy.
I have read your articles, You are brilliant & your way of writing is like Rohits. I would love to visit your blog & get some knowledge. but don’t mind if i litter your space like this.
BuffetFan,
Thanks for good words.
If you look are just above the image. I mentioned this discussion is not about asset allocation or diversification. I am not a fan of diversification. However, I do like asset allocation.
(1) I think you should read this post of mine. http://www.theincomeportfolio.com/asset-allocation/portfolio-risk-management-more-than-asset-allocation/
(2) I also invest for long time, preferable 10+ years. Read one of my post on yield-on-cost. http://www.theincomeportfolio.com/strategy/measuring-progress-yield-on-cost/
And yes, no issues about leaving comments. As many as you want. I only remove spam and unprofessional language.
Regards,
Great info. I am glad to see the index based portion.
Once my 401k gets large enough to met the min. investment amount of each fund, I am converting it to a Vanguard “Lazy Portfolio”. Probably the Aronson portfolio but I might replace the Treasuries with the REIT fund (yield too attractive).
http://www.marketwatch.com/story/lazy-portfolios-floor-behavioral-finance-funds-2009-09-07
Tip Guy,
I am very surprised to see that no one here has asked you anything about your Opportunity Portfolio, do you have any plans of guiding all of us on Opportunity Portfolio like you have done with the Dividend-Focused Portfolio, I personally would love to see your thoughts on such opportunity stocks and their analysis.
Would we get to read about this?
By the way as you know i am a stater and fan of your blog, till now i was just thinking about Dividend-Focused Portfolio the whole time and after reading this i can understand how well you have put your long term goads in different section as per your risk appetite.
Vikrant,
I do not plan to discuss this. I still do not have good hand around it. And may be some day when I become a full time investor, then I will have more time to spend on this aspect. For now, I do not have band width.
I think the e-book, (which I think you should have by now), is truly how I follow my allocation. That e-guide book shows a better overall picture.
Best Wishes,
Any suggestion (blog) that covers opportunity folio, I have tried searching but could find one, i am aware that you read a lot hence asking?
check out Ninad Kunder’s blog http://investingvalues.blogspot.com/
Hi TIP Guy,
Asset allocation is something i have been researching for sometime now. Your asset allocation appeals to me. However can you throw some light on the thought process behind this allocation ? like if one were to ask you the question why 30% into ETF based funds ? why not more/less, what will be the answer ?
The reason behind asking such a question is to take help from your rationale and sort out my own thought process. Hope I was able to convey my question and it’s context properly.
Regards
Raja
Hello Raja,
FYI – These are not asset allocation. True asset allocation should not have co-relation or should have very low co-relation. These are equity investment buckets which are, in my view, co-related.
My overall asset allocations are kind of almost fixed, in the context of real estate, FDs, savings, bonds, equities, gold, etc. They are true asset allocation. I am set with them, and hence, I do not tinker with them. You can get the flavor of it in my ebook. It is much broader than what I discuss on TIPBlog.
The only question remains is about “equities” which I discuss on TIPBlog. i.e. (a) index ETFs; (b) MFs; (c) long term dividend based anchor stocks; and (d) opportunistic investing/trading. I do not use MFs.
When we are at the beginning, one needs to make a start at some point. These buckets that I described above are “starting point”. This was the framework/guidelines I had set and started out with. As I go down this journey, I plan on adapting and changing it accordingly. For example, see my comments on indexing in this progress update.
Your question reminds me, I need to update this post. I will do this shortly.
Message is; these numbers are starting point. They will likely change, but framework is likely to remain same. Hope it answers your question.
Best Wishes,
Thanks for the detailed answer
I am waiting for the e-book. Looks like it takes 24 hours to be delivered eve via email! I also realize I had mis-phrased the question. What i actually intended to ask how you arrived at these investment buckets. But i guess I have got the answer 
Eagerly looking forward to your reply on the question asked by me on the “Investing Strategy for NIFTYBeES ETF” topic.
Regards
Raja
Well this is a nice way , how one should divide his portfolio. I like the way you have classified your investments into different portfolio.
Nice information.