I’m going to reveal something today that I never have before on EPF – or to anyone (other than Kyle), actually. This is more intimidating to me than sharing my net worth, even! In 2011, we had enough money to pay off my subsidized and deferred student loans, but instead of doing so we invested the money with a 2-3 year time horizon. Today I’m going to tell you exactly what we bought with that short/mid-term investment money.
I have held back on sharing this information until now for two reasons:
1) To those of you who know less about investing than we do: I did not want it to seem like we were giving investment advice or holding up our own choices as anything to emulate. Now that we’re divested from these funds, I feel more comfortable sharing what we did because it is in no way a recommendation for an investment going forward.
2) To those of you who know more about investing than we do: I didn’t want to expose our choices to criticism. We wanted to stay the course with these investments for the duration of our time horizon, so I didn’t want to see any commentary on what we should have bought instead that would make us reconsider. Not that I think what we chose was perfect by any means – in fact, I’m sure it deserves a lot of criticism. I just didn’t want to hear it! Maybe that is dumb, but that’s how I felt.
We chose what we thought was a very conservative asset allocation. While we were pretty confident that the market would continue to rise, we knew that with our short time horizon there wouldn’t be time to ride out any significant loss. We acknowledged that it was possible that our overall experiment could lose money, yet we still wanted to undertake it.
We had approximately $16,000 to invest at the start of the period. We split that money between $6,000 in cash, $6,000 in ‘balanced’ mutual funds (a mix of stocks and bonds), and $4,000 in stock mutual funds and ETFs. How did we come to this allocation? Feelings, I suppose! We wanted some significant cash in case the bottom fell out of everything. The balanced funds were to give us a lot of safety and likely a little return; I couldn’t choose one so I chose two. The stocks were just for fun and to test us.
Below is a table of the funds we bought, the starting and ending balances, and the annual rate of return for each over the period we owned it (8/1/2011 to 3/3/2015).
The Parnassus fund, in particular, was a consolation prize. In 2011 we explored a certain investing strategy that wasn’t cost-effective for us at the time. The Parnassus Workplace fund was the closest mutual fund to our desired strategy, so we put a bit of money into it even though it was outside of Vanguard and had higher fees. And yeah, the fund has done quite well! We have even more confidence about pursuing our idea now that we know how to make it cost-effective.
Taken all together, our annual rate of return on this money was 7.22%, which I think is pretty darn good considering the level of risk we perceived we were taking. Of course, the markets have gone bananas over this time period so our return was higher than it “should” have been. We have a bit over $4,500 to show for this experiment in addition to the lessons we learned!
We had expected to sell these funds and pay off my student loans in December 2014, but instead we decided to keep the money invested according to a new strategy and pay off the loans slowly using cash flow (until the interest rate rises). I’ll give you more details about the new plan in my next post in this series.
How do you choose funds to invest in? Would you invest money you wanted to use within 2-3 years or keep it in cash? If you have short/mid-term investments, how do you have them invested?