Thursday, October 5, 2017

Debt Portfolio Project

Mr. DebtFree here!  Ms. DebtFree wrote about her current situation with ~$95,000 in student loans previously in this post.  Now it's my turn to share my personal debt status!

While she is just taking her first steps towards tackling student loans, I am already five years down the road in my personal journey to financial freedom.  While good ol' Uncle Sam paid most of my school bills I still graduated with ~$13,000 in debt and almost nothing in the bank.  While slowly paying down these low interest rate loans, I also purchased a well-priced starter home on a short sale in 2014 for $143,000 at 4% interest.  This was done with $0.00 down --once again due to the generosity of Uncle Sam.  Quite the deal for serving just four years in the military!

My current debt situation is a remaining mortgage balance of $127,761.  While Ms. DebtFree is furiously eliminating student loan debt I plan on applying the same level of effort to the annihilation of my mortgage debt.  The goal is for us to be completely debt free within 5 years.

The Strategy

Outside of funding my 401k and Roth IRA each year, I will be applying any extra funds to a stock portfolio dedicated completely to the elimination of my mortgage debt.  When the balance of the portfolio (plus enough to account for long term capital gains taxes) equals the balance of my mortgage debt, I plan to liquidate the portfolio and ride off into the sunset debt-free!

The Portfolio

This portfolio will consist of various Vanguard sector ETFs.  For those not familiar with an ETF it is basically a bundle of stocks that you can buy and sell under a single stock ticker.  I prefer Vanguard due to the extremely low-cost products they offer.  You can check out a list of the available Vanguard ETF funds here. I promise these guys don't pay me anything, they are just one of the best in the business!

How It Works

Basically, each month I analyze the sector ETFs to search for areas where an entire sector is under-performing the rest of the stock market (I use ticker VTI as a reference).  I then buy a larger portion of these under-performers each month.  I consider both yearly and monthly under-performers in my analysis.  For example, looking right now at the Vanguard sector ETFs I can see that over the last 4 weeks real estate, consumer staples, and utilities are the lowest performing sectors I track.  Similarly over the last year, Oil (VDE), Consumer Staples (VDC), Real Estate (VNQ), and Utilities (VPU) are some of the lowest performers.  When I make my purchase later this month I will likely pick up a heavily weighted portion of these stocks.

Does this strategy work better than just buying VTI?  I have no clue!  I really just enjoy buying stocks this way and it seems to keep me motivated and engaged with my purchases each week.  Just buying the same simple ETF each week is too boring for me.

So there you have it!  Going forward I will keep this blog updated as I make purchases and grow my debt portfolio so that you can follow along in the fun.  Remember that I am not a professional investor in any way, shape, or form.  Taking investment advice from some random Engineer on the internet may not be the best idea so invest at your own risk, my friends!

You can check out my up to date portfolio here.

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