The Pinwheel Portfolio, My Path Towards Financial Independence

Category: Blog

  • The Pinwheel Porfolio is a portfolio designed by Tyler of https://portfoliocharts.com
    • 15% Total US Stock Market Index
    • 15% Developed Markets(Ex. U.S) Stock Market Index
    • 10% Emerging Markets Stock Index
    • 10% Small cap value US Stock Index
    • 15% REIT
    • 15% Long Term Treasury
      • My own substitution, in original version it is 15% Intermediate Treasury
    • 10% Cash
    • 10% Gold
  • Lately I have become increasingly enamored with the Pinwheel Portfolio(PP) thanks to the excellent research on https://portfoliocharts.com. In this essay I intend on writing why I think the PP is the right portfolio for myself as well as possibly others with similar life goals and in similar circumstances.
  • Portfolio Charts is a website based around a number of charts which visualize important characteristics of a chosen portfolio. That along with historical index data for every aset class, a tool for choosing aset allocations, and a number of preset portfolios. He has a blog component. Altogether it is an extremely powerful set of tools for analyzing how different portfolios would have fared over historical periods. His tool analyzes data from
  • I will be heavily relying on the tools given to me by https://portfoliocharts.comhttps://portfoliocharts.com to make my arguments. Along with providing my own commentary
  • Where I Am and What My Goals Are

    • I am fairly young, 25 with about 25K in savings
    • I have a modest salaried tech job in a MCOL city and I think fairly high earning potential over my career
    • I want to be financially independent in the next 10-15 years.
      • By financially independent I mean that money is no longer a concern for me and am able to live solely off my investments if need be. Though I doubt I'll be 'retired'.
    • Towards that end I intend on saving at least 50% of my income whenever possible
    • The question is what to invest in to maximize my chance of success
  • Why Not Just the Total Stock Market

    • The conventional wisdom I was given was that I should invest most of excess saving, outside emergency fund, into Total Stock Markets.
    • A Total Stock Market index gives you better returns than any other asset class. This is undoubtedly true
    • The problem is that because of the extreme volatility of stocks, I head a time horizon measured in decades, 30+ years, to be assured of those gains. There have been entire decades where the stock marke gave poor returns.
    • I want to be financially independent in 10-15 years. I would much rather give up a portion of possible portfolio gains in order to be assured that I'll reach my target goal in time.
    • If you are racing towards financial independence, you're time horizon is much shorter than the typically young professional who has 30+ years to be in the market before they retire.
  • The Alternative

    • The alternative probably does not look like what you expect. I am not making a binary arguement for low vs high risk
    • The alernative is to have many volatile assets that are loosely or negatively correlated. This ensures that losses in one sector will be at least partially counteracted by gains in another.
    • By adopting this strategy you can get almost as good of an average return, though not quite, as just TSM but with much less volatility
  • Personal Considerations

    • Emergency Fund

      • One should always have enough cash to last them 6 months in cases of emergency before they start investing elsewhere
      • I am fine with having my cash allocation of my portfolio be my emergency fund. Unfortunately this means that an outsized portion of my portfolio will be in cash until the rest of my portfolio grows in size.
      • I will store my cash in either a HYSH or Money Market, whichever is paying more. At this time Ally's HYSH is at 1.25 and they have a No Penalty CD at 1.3.
        • Since there rates are likely to fall over the next year I will put most of my cash in the CD so as to lock in that rate.
    • Long Term Treasuries

      • I modified the original Pinwheel to invest 15% in long-term instead of intermediate treasuries. Just as, maybe more, negatively correlated with stock market, higher volatility and returns. Overall makes the portfolio slightly more volatile with slightly better returns.
      • Part of me wonders if I should put any money in bonds until interest rates improve.