In the beginning of August, I made a pretty drastic change to my portfolio’s allocation. The main result of this move is that I’m now 40% in cash, with the rest of the portfolio spread across big tech, healthcare, energy, REITs, and consumer staples. I would have preferred to be 50+% in cash, but due to certain restrictions, I couldn’t quite get there. But this is close enough. Previously I was 100% invested in equities, so this was a pretty big move for me.
Unlike most of the people pursuing FIRE, I’m not in index funds but own individual stocks. I find that with a little work and the right opportunity, you can get superior returns. Some of my big wins have been in Apple and Microsoft, both of which I bought a few years ago when short term bad news made them bargains. Additionally, I focus my allocation on sectors rather how much I should be in stocks vs. bonds, large vs. small caps, domestic vs. international.
At the time, they made up 5% – 7% of my portfolio, which was a very reasonable amount for an individual stock. Over the past few years though, they’ve gained some 400% and 500% respectively. Along with more modest gains from other stocks, I found that my tech stocks were now making up a much larger percentage of my portfolio. Apple and Microsoft alone made up over 50% of my portfolio. That introduces a new risk, called concentration risk. It’s similar to putting all of your eggs into one basket. After the move, my portfolio looks like this:
Even though I’ve liquidated most of my tech holdings plus a few other stocks, 26% of my portfolio is still in tech stocks. Coincidentally, this mirrors the tech stock % in the S&P 500 (although to be fair, some stocks like Google are not considered tech by the S&P folks but rather communications services companies).
I’ve not abandoned tech at all, as I do believe that it’s the next revolution to drive us forward. Rather, this move was to get things back into balance. Since I also think we’re long overdue for a correction, I want to have cash on hand to move back in when the opportunity presents itself. I’m also a believer in the healthcare sector as I think it will continue to grow.
In future posts, I’ll discuss the individual positions I’m currently holding and what will make me move back into equities 100%. Stay tuned!
