Scott Builds Four Portfolios with Four Different Strategies ($40k Experiment)

19:43Mindy Jensen:Okay, Scott, we've done three portfolios. Now it's time for you to do your fourth. Scott tries to time the market portfolio. Tell me what you're thinking. Perfect. So I have prepared a thesis. I am an amateur investor. So this is going to be a good time to get feedback from the audience here. This is not a please invest in this portfolio. This is a thesis for feedback. And basically what I'm trying to explore with this fourth portfolio is I, along with I think a lot of other bigger pockets money listeners and maybe people in the FIRE community in general, want to invest primarily in the S &P 500, in the U.S.

20:19stock market. And the largest companies are a total market index fund. However, the current reality of stock market valuations is giving me pause. I feel very uncomfortable with the ratios from the stock market right now and can't justify having a large or very meaningful exposure to those companies, given how crazy in some cases the valuations are in the context of history. So let's look up a couple of these multiples here for context. One of my favorite places to go and look at this stuff is this website called Multiple. And you can go and look at some stuff here and you can see, hey, the Shiller price to earnings ratio, which is a inflation adjusted look back at earnings over the last 10 years.

21:03So it normalizes for spikes like COVID or those kinds of things, is at close to its all-time high here today at December 2nd, 2025. So it has been higher, but that was in 1999 before the famous dot-com bubble burst. It took about 15 years, 13 years for the stock market to recover from that point. Another thing to look at is the price-to-sales ratio. So revenue, there's things about, hey, companies should be more profitable than ever at this point. Margins are higher. It's aggregated in tech. but sales is a lot harder to gamify for companies. So the stock market has never, the S &P 500 has never traded above a 3.4 price to sales ratio.

21:45There are other ways to kind of look at this price to book value is at close to all-time highs or at all-time highs. There's a thing called the Buffett indicator, which is the total capitalization of the stock market to US GDP. And that's at well over 200 % here today in December 2025. And so all of these ratios are giving me a lot of pause in terms of, hey, do I really want to have a big portion of my portfolio in the S &P 500 at this point? I would prefer to. That's my goal. If we weren't at these crazy ratios, I could probably have gone my entire life potentially staying in the S &P 500 and just following the best practice of passive index fund investing and low fee diversified broad-based to index funds.

22:28So because of those dynamics, I'm wondering, is there another way to invest so I don't have to get exposure to the high valuations in those areas, but that I can rotate back into stocks if they ever get into a level that I am comfortable with, which would be merely two standard deviations above historical averages, for example. First, I want to caveat this by saying there are a lot of reasons why long-term historical averages are not very useful today. For example, interest rates are much higher throughout most of the 20th century than they are today. With lower interest rates, you should expect a higher priced earnings multiple for the market.

23:02A lot of the companies that are huge in the United States today, like Alphabet, Meta, and Tesla, these companies have global reach and have global expansion plans. And so their market capitalization should be higher in many cases than in the past. And there is reason to believe that the Buffett indicator of total market capitalization relative to GDP may not be as useful anymore. But I'm still worried, even with that, that these valuations are completely extreme. So I want to caveat that. So the question I'm asking is, is there a higher earning yield, lower volatility place to park capital, this$10 ,000, while I wait for the S &P's earnings to catch up or for the price of the S &P 500 to fall?

23:44Can I invest in a portfolio that I can hold forever? So it's not necessarily a timing play. There's a timing component to this or a set of rules that would trigger me back into my favorite investment, the S &P 500. But I could also, could I just sit here forever and still make sure that I have a very good shot at growing my capital and generating income that I can live off of? if the S &P 500 never is priced again at a level that I think is fair, right? This is something in the 25 times price to earnings ratio, a Shiller PE ratio, for example. So my hypothesis for this is going to be 30 % in bonds, 20 % in REITs in real estate, 30 % in value stocks, the AVUV that we talked about, and 20 % international value.

24:29So all this is, is owning bonds, stocks, and a little bit real estate while we wait for the large mega cap companies in the S &P 500 to become more fairly priced. So how am I doing so far, Mindy? What do you think so far?

24:42Mindy Jensen:I think your thesis makes sense based on where you're coming from. However, this is not a portfolio that I am doing personally. So I hope that answers your question. There you go. Yeah. Well, anyways, I'll briefly talk about these. And if you're interested, if anyone is interested, you can read the thesis on Bigger Pockets Money. We'll see how this goes. But bonds are going to be my insurance. I'm holding those bonds in this portfolio, that 30%. And I'm going to take that, I'm going to take 25 % of that or most of that and rotate it back into stocks and into VOO specifically if it hits certain ratios in the future.

25:17If it never does, I'll just keep them in bonds and continue to earn this yield for the duration of this portfolio.

25:22Mindy Jensen:How frequently are you going to be checking in on the Shiller ratio? I'll set up an alert and if it triggers based on my rule, I'll move. So I probably will rarely check, but in the event that there's a crash or years go by and earnings increase enough to create the ratio of price to earnings back into the ban that I've set, then it would trigger this move. VNQ is a Vanguard fund that owns REITs. There's actually an argument about what the best REIT fund is. Vanguard's VNQ actually has higher fees than a Schwab, for example, but I'm I'm comfortable with Vanguard at still very low fees, and this would have exposure across a variety of different real estate asset classes and geographies.

26:06We've already talked about AVUV and AVDV. These are value stock funds, both US and international, and they're trading at relatively low price to earnings ratios. When we talk about the stock market being very expensive, most of that expensive component, most of the high ratios of price to sales and price to earnings are coming from the Magnificent Seven or the 10 stocks that have the highest market cap. Those 10 stocks in the S &P 500 make up 38 % of the market capitalization of the S &P 500. So it's very, very highly concentrated. So this portfolio is moving away from that to other stocks that are, the stock market is not necessarily very expensive for these value plays here.

26:49In fact, it's actually trading below historical averages on a trailing 12-month or even forward price to earnings ratio in both of these funds. So what I'm doing here is this is not a permanent portfolio and it's also not short-term market timing, right? So it is, there's a long-term component to market timing here, but this is a cashflow forward, a portfolio that is investing in higher yield, relatively speaking, than what you can get in the S &P 500. And this portfolio is going to trigger, again, to buy the S &P 500, our favorite old-fashioned index funds here at bigger pockets money once certain rules are hit.

27:27So the first rule, there's two rules, very simple. If the Shiller price to earnings ratio is at or below 25, remember that chart I just showed you, that's at 40 right now, then I will move 25 % of the portfolio into VOO or VTI. And that 25 % will move from bonds to that I'll sell my BND portion and I will move that into VOO. So that's phase one. Phase two is if the Schiller PE ratio falls below 20 or the Buffett indicator falls below 125%, that's the market capitalization of the S &P 500 to US total GDP, or the S &P 500's price to sales ratio falls below 1.7, then I will move everything in the portfolio, recognizing capital gains or whatever, and triggering tax events, and put it all back into my favorite long-term investment, which is VOO.

28:21I don't have a trigger for selling VOO if it goes up again in the future. I may revisit that in this portfolio because there is a bit of active management to this. I may put in the inverse rules here to a certain degree, but that is the only trigger that I have in the portfolio right now. So this portfolio could sit in these four funds, BND, VNQ, AVUV, and AVDV forever. Or in the immediate future, if there was a crash, I could sell a portion, the bond fund, or all of the portfolio and move it into VOO based on these rules. What's your thoughts, Mindy?

28:53Mindy Jensen:My thought is at the end, you said you don't have a plan to move it back into this market timing portfolio that I'm calling this. If the HAPE goes above again, the Buffett indicator goes back up, the S &P price of sales goes back up, I would encourage you to do that now, because in the heat of the moment, you could act irrationally. Even you, Scott, could act irrationally. So during the calm, during the I'm not trying to make a decision right now phase, I would encourage you to think about what would happen. When does it hit that you make changes again? I think that's a great call. So I will bump that before I publish this.

29:35And what I'll probably do is I'll probably just invert these items here. So if the Shiller Cape gets above 25, I would then move, that's significantly above the long-term historical average, although way down from where we're at currently, then I might move back into this portfolio where only 25 % is in VOO and 75 % is spread across the other items here. But again, the point of the portfolio that I did here is what the heck is going on? The stock market is so far out of its historical range by almost every valuation metric that I can hear about that, hey, in this portfolio, I'm putting on the hat of somebody who's uncomfortable with that and really wants to be in the S &P 500.

30:19Just wants to be a passive investor, but just can't because of current all-time high valuations. That's what this portfolio is attempting to simulate here. And so I'd love a greater reaction from folks listening about how you think this does in accomplishing that goal or whether there's a better approach to doing that. But this is my approach to doing that by shifting out into four highly liquid, big funds that should allow me this option to move when these rules hit.

30:43Mindy Jensen:Okay. So Scott, you are saying all of this. I mean, look at this document that you wrote. I've got a copy of this document too. This is well thought out. just because I don't agree with your statement or your philosophy, I have to agree with your statement. The CAPE is whatever you said it was and the Buffett indicator is whatever you said it was. You're not making that up. Those are facts, but those facts don't bother me the way that they bother you. So I just, I think this is very well thought out and you have given a lot of consideration to this. Anybody who's listening, who's like, oh, well, Scott says I should do this, so I should do this.

31:20Mindy Jensen:This is not investment advice. This is what Scott is doing based on his personal experiences with stock market crashes, which are pretty few, and based on his, I don't want to say anxiety, but a little bit anxiety, like an anxiety light of where the market is currently trading at. So please do your own research, come up with your own theories. But Scott is doing this based on a lot of thought, not just because some guy from somewhere said to do this. So he's doing this. So I just I want to caution people from taking extreme action just because they heard it on this podcast that one time. Yeah, absolutely.

31:58This is not a portfolio that someone should emulate. I am not a professional investor. I am a podcaster that is really interested in this concept. I'm interested in beginning my very early journeys into investment theses, and I'm putting a very tiny percentage of my wealth into a portfolio, one of four portfolios I'm building today, into this thesis as a test to see how it performs against more tried and true portfolios from a real professional like Frank Vasquez or the great research that supports passive index fund investing. So this is entertainment purposes only. And with that said, I'm going to go ahead and transact in this portfolio here, and we're going to see how it does so you can all laugh at me.

32:35as the years go by. So first, we're going to do BND. This is the same fund we did for our stock bond portfolio earlier. We're going to put 30 % of this portfolio into BND, and we are now the proud owners, again, of BND in this portfolio. Okay, the second one is VNQ. This is Vanguard's real estate ETF. And again, there's two reasons for the Vanguard, the real estate component for this. First, it's a way for me to get this portfolio to get more diversification, another less correlated asset into the portfolio that is not just value stocks, right? So value stocks is really the core thesis of the portfolio here is shifting, avoiding these mega cap growth stocks that are trading at very high multiples and moving into value.

33:26Real estate is a way for me to get diversification away from that in this. I've also been noodling on certain asset classes in real estate, particularly better valued. But I figured that was beyond my skill to begin analyzing those. We had UC Escola on here a while back, the high yield landlord who puts in a ton of time and energy and attempting to analyze REITs or sectors in any way means I have to compete with him. So I don't want to be thinking about that. So, okay. So we're going to do a 2000 bucks, 20 % of the portfolio into VNQ. Then we're going to be done. Okay. Next up is AVUV, our old friend here for US small cap value.

34:02That's going to be 30 % of the portfolio or$3 ,000. And then the last one is going to be AVDV, which is Avantis International Small Cap Value. It's going to be our international exposure to value stocks. The same thing as we did in the risk parity portfolio. So that's the portfolio here. We are now in those four positions. We have no cash left over. We will reinvest the cash that comes into these periodically as we get distributions. And this portfolio should yield about 4 % from day one and be our highest yielding portfolio from a cash flow perspective on this. So if I was taking distributions and assuming they didn't stop, I would be able to distribute at 4 % from this portfolio theoretically without having to sell any positions.

34:43We'll see how that actually plays out.

34:45Mindy Jensen:All right, Scott, I think we should give updates based on where our portfolios are at the end of every quarter in our newsletter. So to our listeners, if you have not yet signed up for our newsletter, please do so at biggerpocketsmoney.com slash newsletter. And I do want to just thank our sponsor, Public, one more time for supporting Bigger Pockets Money and remind everybody that if you choose to use Public as your brokerage and you roll over accounts, either from your after-tax brokerage account or any retirement accounts, that they will do a 1 % uncapped match on there. And we like the interface.

35:20This is what I'm using personally. This is not just for the test portfolios, but for my personal brokerage is also through Public. these days. So if you are interested in learning more about public.com, you can go to biggerpocketsmoney.com slash public and or you can go to public.com slash BPM. Either one of those works and you can go check out and that will help you get all the instructions you need to set up an account and get the 1 % uncapped match for assets that you roll over to public.

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37:30Mindy Jensen:Thanks for sticking with us. Okay, Scott, I really appreciate you thinking about this and taking time to write down all of your thoughts and where you want to go. You have an investment philosophy for this particular portfolio. And I appreciate you sharing that with our audience. I know that some people will agree with you. Some people will agree with me. It's not like you're taking sides and one of us is more popular than the other. It's me. But I appreciate you taking this time, Scott. Do you think that your lack of long-term stock market experience with regards to the ups and downs of the stock market plays into your thoughts on this at all?

38:13You mean like not having been an investor in the 2008 recession and 2000 recession? I think so. I think that's absolutely true. I think that I may fear those drawdowns or a lengthy period of low or no returns, no capital appreciation at least, on a portfolio, maybe more than people who have lived through it because of my lack of experience being in one of those. So I'm probably much more cautious than the average listener of Bigger Pockets Money and many other investors that I know.

38:41Mindy Jensen:And that's fine. I think that everybody has to go through their first recession at one point. It's not exciting to see your stock portfolio keep going down and down. And then the next day it's down even more. How frequently do you think you're going to check in on these portfolios? Like you personally logging into public.com and look, oh, look at that. Look at that. Look at that. I think I'm going to check in a lot the next two months and then it's going to fade and we're going to revisit them infrequently over time here. I'll probably shut them down after five, five, 10 years at some point just to reduce complexity in my personal position.

39:12Cause these are my personal accounts, but I do, I do think it'll be a fun, a fun little, little thought experiment to see how these do over time. And one of the, one of the reasons why I wanted to do this today is last year, I talked about how I sold a bunch of stocks to reallocate to real estate and I bought two properties. You helped me buy both of those properties actually, Mindy. So thank you for that. And it's kind of impossible to, It'll be absolutely impossible, at least for the time being, to talk about how that does. Are those properties worth more or less now than I bought them for? What's the appreciation rate?

39:47I can do that with stocks. I can say, here's what the stock portfolio would have done. But I have no idea what the real estate portfolio is from an appreciation standpoint. Almost certainly, I'm down from a transaction if I factor in transaction costs on buying and selling them if I were to sell them again. But how is that going to perform? It's very hard to actually perform that counterfactual analysis on a move like what I made last year. This is one that I can actually now scientifically say, okay, at these points in time, this is how this portfolio is doing. This is how this portfolio is doing.

40:16And I can better understand the quality of the assumptions or at least the outcomes that go into these plays from an investment perspective. So that's one of the reasons why I'm excited about doing this. How can I hold myself accountable to my own investment decisions last year around selling out of stocks and moving into real estate? I won't be able to for years or decades really to understand the directional impact. And even then, if it's close, it may be hard to ever tell how good the move was or not. This one, I'll be able to tell exactly how the moves play out. So that's one of the reasons why I'm excited about this little portfolio challenge.

40:45Mindy Jensen:But that's financially you won't be able to tell for a while. What about emotionally? Because I remember this was really weighing on you at the beginning of the year. You did not like the P.E. ratio of the stock market. You didn't like how, in your words, it was overvalued. You felt like it was overvalued. How do you feel moving that money out of your stock portfolio and into real estate? You're great about it. I don't understand it. I don't. I don't. I understand real estate, right? Here's rents. They may go up. They may go down on it. But here's my property. It's there. It's going to charge as much rent.

41:21It's going to cost me about as much to upkeep. I can get that. I can wrap my head around it. I do not understand the stock market right now. I just don't. I don't get it. I don't understand why it's trading at these levels here. It's as expensive as it's ever been. And I could not, I would lose sleep every single night if I was 100 % in VOO like I was for a long time with my stock portfolio. So how do you sleep? You sleep pretty good though with that same allocation to a large degree, right?

41:45Mindy Jensen:I don't sleep well no matter what. But no, I don't, this does not keep me up at night. I just have insomnia. But no, I think that it is fine because I've been through the 1999-2000 stock market crash, the 2008 stock market crash, the COVID-V. I've been through, and there's a lot of other ones that like daily, the market is down for a long period of time. And over the course of the year, it's back up or whatever. So I've been through this and I get over it by just not checking in on my portfolio all that frequently. I don't want to look in and see, oh, I've got$10 ,000 today. And then looking a week later, oh, it's only 9 ,000.

42:22Mindy Jensen:That's not going to make my heart sing. So I'm investing for the long term. I just don't look. That's another big difference, I think, is the other component for this is I'm not investing for the long term anymore. I am now harvesting my portfolio to some degree and living off of it to a certain degree. And so that changes how I feel about this allocation to 100 % stocks. I need the portfolio in order to sustain my quality of life at this point. That's the difference. That's what fire is and always was about. And I can't do that if it's 100 % in stocks. I just won't. I cannot sleep if that is how it's allocated.

42:57Mindy Jensen:And I think that's valid. I think that anybody listening who is like, yeah, you know, Scott, that makes a lot of sense. Maybe your portfolio needs to change like Scott's portfolio has changed, in which case do your own giant thesis statement. Yeah. Or there's plenty of like very well polished portfolios out there. We should get Paul Merriman, Mindy here on BiggerPocketsMoney. We've talked to Frank Vasquez. There's 60-40 stock bond allocations. Bill Bengans got research on allocations. I think it's like 55 % stocks, 40 % bonds, and 5 % cash or something like that. Some portfolio like that. Please don't quote me directly on that.

43:32But there are researched portfolios out there. You don't have to build your own thesis. I am just a true nerd and like putting mine out there so that I can get attacked by people in the comments section of YouTube videos for all the flaws in it, which is great. It helps me learn. So please do provide feedback publicly or privately. at scottatbiggerpocketsmoney.com on this, and I look forward to hearing it.

43:51Mindy Jensen:All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Indy Jensen saying see you later, alligator. If you've been putting off life insurance, I get it. The old process was miserable. Phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you'd pay for. That friction is exactly why so many people who should have coverage don't. Here's what I believe. Most BP money listeners need term life, and the right move is to build a ladder. A few term policies of different lengths stack together so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent or you get closer to hitting your financial independence number.

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