We’ve been blogging about saving and investing money for nearly three years now, and somehow we’ve never actually shared what’s inside our own portfolio. Oops!

I guess the main reason is that it’s really nothing special. We don’t have any super secret investments that helped us reach financial independence faster than anyone else can. Our early retirement mostly just came down to spending way less money than we earned and dumping the excess into simple, low-cost index funds.

But let’s take a look at what those investments are, how they’re split up, and what the numbers actually mean to us. Then, we’ll give you some tips on putting together a portfolio of your own!

Note: We are not financial advisors. We’re just a couple of bloggers honestly sharing what has worked for us. This article contains personal opinions for your consideration, not professional financial advice. Check out our Disclosures page for more information.

Our Portfolio: A Ship On the Open Sea

First, I’m just gonna list everything we own and why we own it. We’ll think about our portfolio as a ship on the ocean to make things a little easier to understand.

Photo of ship on the sea
  • Stock market index funds — The main engine of our ship: These help grow our money at a rate that should significantly beat inflation in the long run. Our primary holdings are VTI (for US stocks) and VXUS (for international stocks)*. These are the most important components of our portfolio (and you can check out our guide to investing in stock market index funds if you wanna learn more about them).
  • Rental real estate — A secondary motor made from spare parts: We bought our first home in 2016. When we eventually moved, our options were to sell it and buy an equivalent amount of stock market index funds in its place, or rent it out for income. Since the math worked out in favor of landlording, we gave it a try (even though we hadn’t really set out to become real estate investors). It’s gone pretty well so far!
  • Bond market index funds — Our ship’s ballast**: While stocks and rental real estate can generate high returns, they’re also volatile. To smooth out the ride, we hold bonds, primarily through BND.
  • Alternative investments — Design improvements we tinker with: Most investors know deep down that index funds provide the best long-term performance, effortlessly. But the urge to play with other ideas can be hard to resist. Some people trade foreign currencies, buy crypto, hoard gold and silver, stash artwork and collectibles, or speculate on individual stocks and commodity futures. To be honest, we don’t really recommend any of that stuff. Historically, this has been one of the lower-performing pieces of our portfolio. But, it can be kinda fun in small doses.
  • Our home and our bank accounts — Dead weight that we drag behind us: Everyone needs a place to live and some cash in the bank. There’s nothing wrong with a modest home and a healthy emergency fund. But the more of our portfolio that’s tied up here, the worse it’s likely to perform. Bigger homes come with higher insurance bills, taxes, and maintenance costs. And every dollar sitting in a bank account is losing ground to inflation.

Now let’s take a look at all of that stuff together:

Graph of total financial assets
All of our assets, expressed as percentages of our net worth***.

This chart is actually a little embarrassing to show, because we’re carrying a ton of dead weight right now in the form of an unnecessarily expensive beach condo (our current home). 🙃

When we decided to pay cash for it in 2020, it represented a smaller percentage of our assets. But apparently, we accidentally timed that purchase just right, and our home exploded in value (just dumb luck — not an event that’s likely to repeat itself).

Our only option to change our allocation now would be to sell the place and move somewhere less expensive. This is another problem with real estate in general: It’s difficult to rebalance (we’ll talk more about rebalancing later on).

“Can I Retire Yet?!”

Some people look at their productive investment portfolio (stocks, bonds, rental properties, etc.) as totally separate from the rest of their assets (home, cash, etc.).

This point of view is really useful if you’re trying to answer one specific question: “Can I quit my job and live off my investment gains forever?”

To do that, you should aim to have at least 25× your annual living expenses in investments alone. This assumes an allocation of at least 50% to “risky” stuff like stocks and rental real estate (because they produce higher returns, on average), with the rest in lower-risk instruments like bonds (as a measure of safety)****.

Here’s our current allocation, which is spread between a taxable brokerage account (the largest of our accounts), several IRAs (including both Roth and Traditional), an HSA, and a rental property:

Graph of investment portfolio breakdown
Cash and our home have been stripped from this graph, leaving only bona fide investments.

We’re 31 and 32 years old right now. Most twenty- and thirty-something investors lean toward slightly higher-risk portfolios, because we understand that if things go badly, we have plenty of time to make up for it. And with higher risk comes the potential for higher returns.

As you can see, we’ve got a healthy 73% in aggressive assets like stocks and rental real estate, while still maintaining some diversification into bonds.

The total value of our portfolio is around 25× our basic annual living expenses, so we’re financially independent! That means work isn’t mandatory any more.

Photo of Steven and Lauren at the beach

We quit our full-time jobs a couple years ago as we were starting to approach this milestone (which felt pretty great!), but we’re still not making withdrawals. Our portfolio actually keeps growing, because we fund our day-to-day life with a tiny bit of part-time freelance work. Call it “semi-retirement” if you want.

Remember: Reaching financial independence doesn’t mean you’re never allowed to earn another penny. It just means you don’t have to. For us, a work-optional life was the ultimate goal (and the whole point of building this investment portfolio in the first place).

How To Build Your Own Investment Portfolio

If your goal is financial independence too, having a clear investment strategy is a must. But before you start, it usually makes sense to pay off all high-interest debt (like credit cards) first.

Once you’re ready to start investing, it’s important to determine your personal risk tolerance and decide on an asset allocation you’re comfortable with. Choose a percentage for stock market index funds, a percentage for bond market index funds, and a fixed amount of cash to keep on hand for bills and emergencies.

The more you hold in stocks, the more volatile your portfolio may be — and the more growth you might expect in the long run, too.

For simplicity, consider using a single stock market index fund that includes both domestic and international stocks, like VT, which is an automatic combination of the two we personally invest in (VTI and VXUS).

Bonds are typically more stable, but don’t provide nearly as much growth potential. Some people aggressively hold ~100% stocks until they’re ready to retire early, and only shift some money into bonds at that time. Others (like us) hold a portion in bonds all along the way, for a slower and steadier path. Our bond index fund of choice is BND.

With that said, we only personally own bonds because we’re completely debt-free — including lower-interest debt like home mortgages. If we had any debt at all, we would pay it off before buying bonds. That’s because the interest you can save by paying off debt is almost always higher than the interest you can earn from investment-grade bonds!

As for cash, it probably makes sense to keep somewhere in the range of 3-12 months of living expenses on hand at all times (we actually hold a little more than that). You can’t have all your money tied up in investments. We keep our cash in a high-yield savings account.

Contrary to popular belief, it’s not necessary to own any real estate at all to become financially independent. There are plenty of early retirees who rent a place to live using the returns from other investments!

But if you want to own a home or a rental property, go for it! Or, if you’d like some exposure to the rental real estate market without having to actually be a landlord, you can consider a REIT index fund like VNQ as a replacement for a bit of your stock market holdings. Just understand that (like the stock market), real estate is a higher-risk investment option.

The key in all of this is to pick an allocation that you can commit to, through thick and thin. If you find yourself constantly wanting to change your holdings based on what’s going on in the market, you might be carrying more risk than you’re truly comfortable with.

As you continue saving money and adding to your portfolio, the goal should be to roughly maintain the same asset split over time — keeping risk constant at the level you’ve decided on. For example, if stocks rise sharply while bonds are flat, you can just buy extra bonds with your next paychecks until the ratio imbalance is corrected. This is known as rebalancing.

One legitimate reason to actually modify your asset allocation is a change in life circumstances. For example, if you’re retiring and planning to live off your investments, it might make sense to take a bit less risk from then on — so keep that in mind.

Building your portfolio doesn’t have to be complicated, but it is a big decision. If this article is the only thing you’ve read on the topic, make sure you do a bit more research before taking action. Click through the links on this page as a starting point, and seek out more information from a variety of sources.

Then, once you do feel more comfortable with the world of investing, get started! After all, time is your greatest asset.

— Steven

PS – We probably could have titled this article “Asset Allocation: How To Build An Investment Portfolio,” since it’s really just educational. But we’ve learned over the years that ridiculous clickbait titles SCREAMING our own accomplishments perform a lot better on social media. And since we’re definitely trying to trick unsuspecting strangers into gaining financial literacy, we went with that. Hope you’ll forgive us for it. 😅

* In case you’re curious, about 63% of our current stock holdings are US-based, and the other 37% are international. We may switch to just one capitalization-weighted global stock market index fund (VT) in the future, which would completely replace both VTI and VXUS. It’s just easier.

** This is a term I borrowed from the Stock Series by JL Collins — a great (and free) investing resource! If you read it, note that JL Collins recommends VTSAX (which is the mutual fund equivalent to VTI) and VBTLX (which is the mutual fund equivalent to BND). They’re basically the same things.

*** This chart’s slices add up to 100%, as you may have expected. But this is only true because we don’t carry any debt. If you have debt (like a mortgage), make sure you’re calculating the slices of your “total financial assets” pie as percentages of your net worth, which may result in a sum that’s greater than 100%. The further above 100% you are, the more risk multiplication due to leverage exists in your portfolio.

**** This is just a rule of thumb, not a law of nature. It’s generally intended for use with a portfolio of >50% stocks and the rest in bonds, but it’s probably fine to substitute a little debt-free rental real estate (or REIT index funds) in place of some of the stock allocation. If you’re doing leveraged real estate investing with mortgages, the math (and risk) is substantially different, and this rule may not apply as nicely.

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