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A personal investment portfolio revealed

Today, I reveal all. Try to contain your excitement.

Readers often quiz me about how I invest my money. Until now, I have been a little coy.

It isn't that I have anything to hide: I follow the same investment principles I encourage others to use. Rather, I have worried that readers will duplicate my precise investment mix when, in fact, it doesn't make sense for them, given their time horizon and tolerance for risk.

After almost a decade of writing this column, however, I figure it is time to loosen up and talk a little more about my own portfolio.

COUNTING ACCOUNTS: In addition to helping various family members, I directly handle nine pools of money.

For starters, I have college funds for my two kids. My daughter is two years from college, so I am gradually moving her college account out of stock funds and into a short-term bond fund. In a few years, I will do the same for my son, who is six years from college.

That leaves me with seven other accounts, where I am investing for the long haul. All seven accounts are invested entirely in mutual funds, mostly index funds. I think ordinary investors should avoid individual stocks, partly because it's so tough to pick the winners and partly because it's risky to have a sizable sum riding on a single company.

What are the seven accounts? There is my regular taxable account, my individual retirement account and both a money-purchase plan and a 401(k) plan at work. In addition, I manage three variable annuities, one each for my children and one for myself.

Surprised by the variable annuities? It is true that I am not exactly a fan, because the fees involved are often exorbitant. Indeed, I wouldn't buy a variable annuity unless it had rock-bottom annual expenses.

So why did I buy three of these turkeys? I purchased a variable annuity for myself because I was maxing out on both my IRA and my company retirement plans, and I wanted to sock away even more money on a tax-deferred basis.

Meanwhile, I opened variable annuities for my kids as a way of getting investment compounding on a grand scale. Think about it: My children are 50 years from retirement, which means they will get 50 years of tax-deferred growth. Yeah, I suspect they will remember their old man fondly.

COMMON GROUND: While I am happy to have all these accounts, it's a juggling act to maintain the right overall investment mix. To make things easier, I try to own three core holdings in all seven accounts. First, all include a total-stock-market index fund, thus locking in broad U.S. stock exposure at low cost.

Second, six of the seven accounts include a foreign-stock fund. (I would have a foreign-stock fund in the seventh account, but that isn't one of the investment options.) In each account, I typically target about 30 percent of the stock holdings for foreign stocks.

Third, all seven accounts include at least a modest investment in bonds or a stable-value fund, which provides a healthy yield while maintaining a steady share price. History tells us that a mix of 90 percent stocks and 10 percent high-quality bonds has generated roughly the same return as an all-stock portfolio, but with somewhat less risk.

How can the 90-10 mix match the all-stock portfolio's results? It has to do with the rebalancing bonus. By regularly tweaking a portfolio to keep stocks at 90 percent and bonds at 10 percent, you slightly goose performance, because you are forced to sell stocks when they are riding high and buy when they are suffering.

Taking my cues from that insight, I keep 10 percent of each kid's variable annuity in high-quality bonds. At age 41, I am more cautious with my own portfolio, earmarking 25 percent for bonds.

FRINGE PLAYERS: While I endeavor to own a total-stock-market index fund, a foreign-stock fund and a bond fund in all seven accounts, I also own other investments in each portfolio, depending on what options are on offer.

For instance, in my kids' variable annuities, I target 10 percent for real estate investment trusts and 10 percent for high-yield junk bonds. Meanwhile, I own a small-company foreign-stock fund in my IRA and an emerging-markets stock fund in my taxable account.

With these other investments, my goal isn't to pick the next hot sector. Instead, I am looking for additional diversification, with a view to reducing risk while hoping to snag an even larger rebalancing bonus.

For every fund in every account, I have a target percentage. Once a year, I aim to rebalance back to these targets. In doing so, I try to avoid selling investments in my taxable account, preferring instead to rebalance by directing new savings to underweighted areas.

MATTERS OF PRINCIPAL: With just 25 percent in bonds, my portfolio might seem aggressive. But you have to look at the total picture.

As I see it, having a mortgage is like having a negative position in bonds. Suppose you have $200,000 in bonds, which means other people owe you money. But you also have $200,000 of mortgage debt, which means you owe money to others. Overall, I would contend that your net bond exposure is zero.

Thanks to years of extra-principal payments, I have less than $25,000 of mortgage debt. Thus, my net bond position is fairly large. In fact, despite my 75 percent stock allocation, I consider my overall finances to be relatively conservative, especially compared with more heavily indebted homeowners.