Grow Your Dough 2.0: Tweaking the Permanent Portfolio

I'm doing Grow Your Dough again! This year, I'm tweaking the permanent portfolio, while still focusing on dividends.

Last year, I participated in the Grow Your Dough Challenge with a number of other bloggers. We used $1,000 of our own money to make investments, and see who came out ahead. I didn't win (but I didn't too poorly, either), but I did see net returns, and I was able to get a creditable start to my income portfolio. I did get a little too involved in trading toward the end, and that proved to be my downfall. While I still wouldn't have even placed in the top few spots (the winners were just too far ahead), I could have come out better.

This year, we're doing Grow Your Dough again, but this time we're sponsored by Motif. We've each been given $500 to invest as we choose (although we were asked to invest only $475 and use the remaining as a cash cushion, I assume for fees and what-not). In addition to that, we all have affiliate accounts associated with Motif, so if you open your own account by clicking through from this site, I'll receive a commission, in addition to the $500 I receive from Motif. (Well, unless I do horribly and lose money. But let's keep our fingers crossed, especially since I'm off to a decent start as of January 9.)

Grow your dough

How Motif Investing Works

Motif is an interesting concept. You have the chance to essentially build your own bundle of up to 30 stocks. Once you have your Motif figured out, you get partial shares of everything in your Motif for one transaction fee.

You don't have to build your own Motif, though. It's possible to invest in someone else's Motif, and you still pay the same price per trade. Here are how the fees turn out in Motif:

  • $250 minimum per motif
  • $9.95 per motif trade, no minimum trade requirement
  • $4.95 per stock trade to customize stocks in a motif
  • No inactivity fees
  • No maintenance fees

All of us in the competition built our own Motifs, though. The idea is to see who can pick the Motif that wins. You don't have to fill it up with 30 stocks if you don't want to (and I didn't; I only have four), and you can even use ETFs, since they trade like stocks on the exchanges.

I'm really interested to see how dividends are handled within Motif, since, once again, my main focus this year is on boosting my dividend income. No, it's not going to be spectacular since I've only got $500 that I'm investing, but it's still worth trying for. I was pleased with last year, in which I ended up with close to $40 in dividends when all was said and done. That's not too bad, considering I started with $1,000.

Permanent Portfolio: This Year's Dividend Experiment

Not too long ago, I heard about the “permanent portfolio.”?Even though he didn't get into it while on our show, Andrew Hallam mentioned this portfolio strategy as part of his expat strategy for living as a global citizen when he came on the Money Mastermind Show. The permanent portfolio is also mentioned in his recent book, The Global Expatriate's Guide to Investing: From Millionaire Teacher to Millionaire Expat.

The permanent portfolio strategy is very straightforward. You allocate your portfolio equally (25 percent each) between:

  • Cash
  • Stocks
  • Gold
  • Long term bonds

I'm not following the permanent portfolio exactly. You can see my allocation below:

permanent portfolio allocation

As you can see, my allocation is more about exposure than straight investing directly in the assets. My exposure in this portfolio includes gold, high-yield corporate bonds (instead of long term bonds), stocks (I chose a high yield dividend ETF that covers stocks), and real estate in the form of a REIT. And, of course, I have cash in my account, outside the Motif.

Rather than using cash in my Motif, I have a REIT, which should provide me with dividends, and exposure to real estate, which is something I'm interested in — without actually buying property. I originally wanted to divide everything up 20 percent each and use a “cash like” money market ETF, but I was informed that what I'd chosen wasn't tracked by Motif, so I had to switch it out. In the end, I jut decided to stick with four investments.

I'm not following the permanent portfolio strategy exactly, but I am using some of the principles. The real challenge, though, will be not to fiddle with my Motif. It's what reduced my ROI last year, and I don't want to fall into the same trap.?I never have this problem with my retirement portfolio because I use Betterment and it's all taken care of. In this case, I'll have to check to see how things are going, and just looking at the portfolio regularly can really cause problems in terms of psychology, since it can worry you into making decisions that you wouldn't normally make.

What do you think of my Grow Your Dough portfolio this year? What would you do if you were given $500?

Also, you can see an updating leaderboard with the widget below. While I'm doing well as of writing this post, I have no idea if it will last. But we can hope! You can also click on the button at the bottom of the leaderboard to open your own account with Motif. Put together your own Motif, and see if you can beat me (it shouldn't be that hard).

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