As 2017 winds to a close, I am two full years into early retirement.  My balances are where I need them to be, with record gains outstripping my withdrawal rate.  Those ‘record gains’ are no making me nervous.  Logically it feels like almost everything is over-valued.

 

There’s a handful of folks saying it will all come crashing down soon, while the majority of pundits say 2018 will be like 2017, only ‘milder’.  I am betting on the former.  While adding another 20% to our portfolio value in 2018 is tempting, we don’t really need it.  I think there’s a very real possibility that sometime in the next eighteen months Mr. Market is going to correct downward by as much as a third.  That would sting.  

 

Specifically, I’m halving my position in DLS,which has been a strong gainer (28% in 2017) and was also my most expensive fund at 0.58%. I’m also throttling back on the US stocks, more sharply on the ‘Growth’ side and giving a little edge to ‘Value’; this is an attempt to put a little distance between high PE ratios and my portfolio.  I’m adding a healthy slug of cash. The cash will do two things for me, give me a ready reserve of living expenses so I’m not forced to sell in a down market as well as give me some ‘dry powder’ to take advantage of any downturns for bargain shopping.  I’m also adding a small position in Gold as a hedge.  I used to trade Gold prior to 2014, I got out because I was heavy in Oil and other commodities elsewhere in my portfolio.  We know how that panned out.

 

Since I’m using Schwab as a brokerage, I am primarily using their ETFs.  These funds are low expense, and as a bonus they trade for free in the Schwab universe.

 

Here is what I’m considering:

 

	Category	FundName	Ticker	Percent	Expense Ratio
US Equities 43%	US Large Cap Growth Stocks	Schwab U.S. Large-Cap Growth ETF (SCHG)	SCHG	8.00%	0.04%
	US Large Cap Value Stocks	Schwab U.S. Large-Cap Value ETF (SCHV)	SCHV	9.00%	0.04%
	US Small Cap Growth	SPDR S&P 600 Small Cap Growth ETF	SLYG	8.00%	0.15%
	US Small Cap Value	SPDR S&P 600 Small Cap Value ETF	SLYV	9.00%	0.15%
	ETF – REIT	Vanguard REIT	VNQ	9.00%	0.12%
Bonds 15%	Short Term Treasuries	Schwab Short-Term U.S. Treasury ETF	SCHO	6.00%	0.06%
	Intermediate Term Treasuries	Schwab Intermediate-Term U.S. Trsy ETF	SCHR	5.00%	0.06%
	TIPS	Schwab U.S. TIPS ETF	SCHP	4.00%	0.05%
International Equities 28%	Intl Equity	Schwab International Equity ETF	SCHF	7.00%	0.06%
	Intl Large Cap Value	SPDR S&P International Dividend	DWX	7.00%	0.45%
	ETF - Int'l Small Cap	WisdomTree International SmallCap Div	DLS	7.00%	0.58%
	Intl Diversified Emerging Markets	Schwab Emerging Markets Equity ETF	SCHE	7.00%	0.13%
Gold, Cash 14%	Gold	ETFS Physical Swiss Gold Shares	SGOL	4.00%	0.17%
	Cash		$$$	10.00%	0
				100.00%	0.14%

 

The result is very low expense with decent diversification and mostly free trades.  I hung on to the Vanguard REIT in lieu of Schwab’s SCHH, as the Vanguard just seems to perform much better, at least on a trailing basis. 

 

Wish me luck!