Lazy / 3 funds portfolio with ETFs for European (ITA) people

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Lazy / 3 funds portfolio with ETFs for European (ITA) people

Postby eastreef » Sat May 18, 2013 6:18 am

Hello everyone,
First of all congratulations for this forum and thanks for your time. I am Italian, close to the 30's and approaching the investment world.
I've read a few books and found out the Lazy / 3 funds portfolio is what fits best with my way of thinking.

I am wondering if somebody in the forum already tried to put together 3/4 ETFs to make an EU localized 3-F portfolio. I'm unsure what indexes should I look at as most of them seem to be overlapping.

For the equity part, I looked at the ones most mentioned in the web, and looks like I should use a blend of:
1-Eurostoxx 600 (600 EU stocks)
2-MSCI world (stocks from developed countries)
3-MSCI EM
the problem is that 1 is already overlapping with 2, so I'm wondering if somebody already found a more indipendent mix.

For the bond part, I would prefer an area I should probably define with "investment grade, gov+corporate, EU based, short duration (around 3-5 years)".
Does somebody know an ETF that would fit?

Ideally, I prefer physical ETFs.

Thanks and have a great weekend.
eastreef
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby QBoy » Sat May 18, 2013 12:07 pm

I would recommend taking a more global view, rather than focusing on Europe, even though you are European. Here is a simple 2 fund portfolio:

VT for stocks (vanguard total world index).
GTIP for bonds (global inflation indexed bonds).

Given your age, I would put more in stocks than bonds, but that depends on your risk preference.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby Vagary » Sat May 18, 2013 1:53 pm

Are there tax benefits to holding assets in your own country/Europe? Are you concerned about the risk of the Euro being down when you start selling assets? Those are the only two reasons you would not completely follow QBoy's advice - investing globally hedges against economic downturns in your home country.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby madinvest » Sat May 18, 2013 2:06 pm

Hey I'm from Portugal, and I use a somehow different 3 fund-portfolio:

50% - MSCI World stocks
http://www.etf.db.com/LU/ENG/ETF/LU0274 ... _ETF_.html
or
http://lu.ishares.com/en/rc/products/IWDA

35% - Global inflation-linked bonds
http://www.etf.db.com/LU/ENG/ETF/LU0290 ... S_ETF_(EUR).html
or
http://lu.ishares.com/en/rc/products/IGIL

15% - Cash
I use a mutual fund that doesn't exist outside Portugal...so here, use whatever you have in your country. Or in alternative do 50%/50% 2 fund portfolio.


So far so good...a CAGR of 7% ;)
madinvest
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby hafius500 » Sat May 18, 2013 4:45 pm

Given that your World Equity Index strongly overweights one foreign currency (the USD) you could
- tolerate this allocation
- mitgiate the exposure to a single foreign currency by adding other, i.e. non-USD, regions (Europe, Asia, EM).

IMO your three-fund equity portfolio (World + Stoxx600 + EM) is a reasonable choice.
BTW, I think the Stoxx EUROPEAN index comprises 600 stocks. The EUROSTOXX index is smaller.

I think Italians can invest in both the iShares Stoxx 600 and the iShares EuroStoxx Index ETFs (read the websites of the ETF companies that are registered in Italy, the website of Morningstar Italy or the website of your stock exchange).
If your portfolio is larger and if you are willing to take higher risks, you could add value and small-cap ETFs (if such funds are available). I searched and found one value index fund that uses physical replication: the iShares EuroStoxx Total Market Value Large Fund. But I couldn't find a small-cap fund.

The BarCap Euro Aggregate Bond Index (e.g., iShares?, SPDR?) includes corporate and government bonds.
If you want a shorter duration, you could add a short-duration (corporate or government bond) fund.
If you don't want the BarCap index you can combine an iShares Government Bond fund (3-5 years) with a Corporate Bond fund.

The conventional opinion is that your bond portfolio should have a strong home bias (low currency risk).
But how safe are Euro bonds? If the Euro breaks up, every Euro bond will have currency risk for every investor.
prior username: hafis50
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby kolinz » Thu May 23, 2013 6:11 am

madinvest wrote:Hey I'm from Portugal, and I use a somehow different 3 fund-portfolio:

50% - MSCI World stocks
http://www.etf.db.com/LU/ENG/ETF/LU0274 ... _ETF_.html
or
http://lu.ishares.com/en/rc/products/IWDA

35% - Global inflation-linked bonds
http://www.etf.db.com/LU/ENG/ETF/LU0290 ... S_ETF_(EUR).html
or
http://lu.ishares.com/en/rc/products/IGIL

15% - Cash
I use a mutual fund that doesn't exist outside Portugal...so here, use whatever you have in your country. Or in alternative do 50%/50% 2 fund portfolio.


So far so good...a CAGR of 7% ;)


Hello,

How you handle with buying commission in Portugal ? What are commissions to invest regularly/monthly? I live in Latvia and there is 20 Eur commission to buy ETF via local bank brokerage. In long term it is 2400 Eur over 10 years of charge. And there no any option to invest with less commission in any other source here.

Thanks.
kolinz
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby madinvest » Thu May 23, 2013 7:42 am

2400 EUR? how did you made those calculations?

Here in Portugal it's 10 EUR (XETRA), and 5 EUR (EuroNext: Paris, Amsterdam, Lisbon, etc.)
To minimize costs of transaction, I put my monthly money in the Cash mutual fund (no transaction costs), and then for example, if stocks/bonds lose 20%/10% I rebalance. Of course if they keep going up for years, I rebalance once a year. But the idea is to accumulate in the cash mutual fund until stocks for example lose some percentage.

So even if I rebalance once a year in 2 ETF in Euronext, it's like 10 EUR/year. In 10 years, 100 EUR.

From Portugal or other country's in Europe, and if you rebalance a lot, it's probably better for you to open a brokerage acount in some international player like:

http://www.interactivebrokers.com/en/main.php
madinvest
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby kolinz » Thu May 23, 2013 9:21 am

madinvest wrote:2400 EUR? how did you made those calculations?

Here in Portugal it's 10 EUR (XETRA), and 5 EUR (EuroNext: Paris, Amsterdam, Lisbon, etc.)
To minimize costs of transaction, I put my monthly money in the Cash mutual fund (no transaction costs), and then for example, if stocks/bonds lose 20%/10% I rebalance. Of course if they keep going up for years, I rebalance once a year. But the idea is to accumulate in the cash mutual fund until stocks for example lose some percentage.

So even if I rebalance once a year in 2 ETF in Euronext, it's like 10 EUR/year. In 10 years, 100 EUR.

From Portugal or other country's in Europe, and if you rebalance a lot, it's probably better for you to open a brokerage acount in some international player like:

http://www.interactivebrokers.com/en/main.php


20Eur x 12 months x 10 years = 2400 Eur. 30 years already 7200 Eur. Adding to this 5% compound interest it is whole 16373 Eur. It is a price of normal car.

I mean to do in Europe what suggests J.Bogle in US - to invest monthly in IRA, without commission or with extremely low commission. And William J. Bernsteins - The Four Pillars of Investing also say this. The main idea of long-term investing make it monthly low-cost and automotive. I looked through all Europe brokers everywhere is commission starting from 5 Eur as you described. And I can't find wise decision. If I will re-balance once year I will loose year gained 5% average growth with ETF. I think they will keep go up for years and 5% it is what I expect or more. Cash Mutual Fund never give me clear 5% per year. Max 2-3%. Due to compound interest it is very significant amount of money in timing.
kolinz
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby JohnniNielsen » Thu May 23, 2013 10:29 am

Also to look into where the fund is domiciled, as withholding tax erode your total return. (think Ireland is best for Italian Investors but not sure)

Amundi has a ETF based on MSCI World Ex. Europe (FR0010756122)

Cranberger.com Global ETP database let you search according to domicile and go deep into the due diligence
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby madinvest » Thu May 23, 2013 12:17 pm

kolinz wrote:20Eur x 12 months x 10 years = 2400 Eur. 30 years already 7200 Eur. Adding to this 5% compound interest it is whole 16373 Eur. It is a price of normal car.

I mean to do in Europe what suggests J.Bogle in US - to invest monthly in IRA, without commission or with extremely low commission. And William J. Bernsteins - The Four Pillars of Investing also say this. The main idea of long-term investing make it monthly low-cost and automotive. I looked through all Europe brokers everywhere is commission starting from 5 Eur as you described. And I can't find wise decision. If I will re-balance once year I will loose year gained 5% average growth with ETF. I think they will keep go up for years and 5% it is what I expect or more. Cash Mutual Fund never give me clear 5% per year. Max 2-3%. Due to compound interest it is very significant amount of money in timing.


Of course not...a Cash mutual fund will give you maybe 2%. Maybe. I know what J.Bogle sugests, but in US you have brokers that don't take comission in the transaction.
So in Europe what I do is alocate my monthly savings in cash, and to mitigate that 5% I also use ETF that capitalize dividends, so I avoid the tax's and reinforce automatically my position in stocks.

Another good thing is that I can buy more stocks/bonds in a bad market, because I have more money in cash to do so.

It's not perfect...but we have to play with the cards that we have! :D
madinvest
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby pingo » Thu May 23, 2013 1:13 pm

OP, I'm sorry I don't have specific advice for your situation... :(

...but since none of my fellow members in this thread has even reached 100 posts, I wanted to jump in and offer a hearty welcome to all of you and to thank you for participating.

Welcome to Bogleheads, friends!

Best wishes.

:beer
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby kolinz » Thu May 23, 2013 1:18 pm

madinvest wrote:
kolinz wrote:20Eur x 12 months x 10 years = 2400 Eur. 30 years already 7200 Eur. Adding to this 5% compound interest it is whole 16373 Eur. It is a price of normal car.

I mean to do in Europe what suggests J.Bogle in US - to invest monthly in IRA, without commission or with extremely low commission. And William J. Bernsteins - The Four Pillars of Investing also say this. The main idea of long-term investing make it monthly low-cost and automotive. I looked through all Europe brokers everywhere is commission starting from 5 Eur as you described. And I can't find wise decision. If I will re-balance once year I will loose year gained 5% average growth with ETF. I think they will keep go up for years and 5% it is what I expect or more. Cash Mutual Fund never give me clear 5% per year. Max 2-3%. Due to compound interest it is very significant amount of money in timing.


Of course not...a Cash mutual fund will give you maybe 2%. Maybe. I know what J.Bogle sugests, but in US you have brokers that don't take comission in the transaction.
So in Europe what I do is alocate my monthly savings in cash, and to mitigate that 5% I also use ETF that capitalize dividends, so I avoid the tax's and reinforce automatically my position in stocks.

Another good thing is that I can buy more stocks/bonds in a bad market, because I have more money in cash to do so.

It's not perfect...but we have to play with the cards that we have! :D


We loose that 3% between 5% avg. with ETF and 2% in best case with cash if we do not invest monthly, but only in case when we think it is time to rebalance during year or at the end of year. It is common that better to invest monthly and rebalance yearly. In Europe this strategy do not works. Foollowing the same strategy holding ETF's and other amount of money in cash to feed EFT when needed. It is only option that I see will closely works to this form of investment in Europe and nothing to do with that.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby madinvest » Thu May 23, 2013 2:10 pm

kolinz wrote:
madinvest wrote:We loose that 3% between 5% avg. with ETF and 2% in best case with cash if we do not invest monthly, but only in case when we think it is time to rebalance during year or at the end of year. It is common that better to invest monthly and rebalance yearly. In Europe this strategy do not works. Foollowing the same strategy holding ETF's and other amount of money in cash to feed EFT when needed. It is only option that I see will closely works to this form of investment in Europe and nothing to do with that.



I'm confused about what you mean by loosing 3%/5%.
My portfolio:
50% stocks
35% bonds
15% cash
Compound annual growth ratio (CAGR) = 7%
if stocks go down 20% or bonds go down 10% I rebalance. If not I rebalance yearly.

Of course if I was 100% stocks, I probably would have a CAGR of 10%, but then I would not have anything to rebalance, when the market went down.


But hey...if you think that you're strategy works for you, you should folow it!
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby TO39 » Fri May 24, 2013 12:04 pm

madinvest wrote:
kolinz wrote:
madinvest wrote:My portfolio:
50% stocks
35% bonds
15% cash
Compound annual growth ratio (CAGR) = 7%
if stocks go down 20% or bonds go down 10% I rebalance. If not I rebalance yearly.




What if stocks go up 30 and bonds down 8? Doyou rebalance then? Just curious.

Also I don't see the need to rebalance yearly if you are using bands
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby stalflare » Sat May 25, 2013 4:46 am

Hi there eastreef, I guess we are both Italian nationals, or for a reason or another we invest in Italy... My pf right now is this one:

Db X-Trackers Ii Glob Sover Ucits Etf 1c - 35%
DB X-TRAC II IBX GLOB INF-LINK UCITS ETF - 10%
ISHARES MARKIT IBOXX $ CORPORATE BOND - 5%
LYXOR ETF FTSE EPRA/NAREIT GLOBAL DEV - 20%
DB X-TRACKERS MSCI WORLD UCITS ETF - 15%
DB X-TRACKERS MSCI EMERG MKTS UCITS ETF - 10%
Powershares Middle East North Africa - 5%
POWERSHARES EQQQ FUND - 5%

As it was highlighted in other discussions it might not look all that "lazy", I am considering to cut off the last two funds to get it to a 6 fund pf. Still far from the 3pf situation, but I feel that these instruments cover a wider asset allocation which might give a better stability to the pf without overlaps.
Don't know if this can help, it's just what I have chosen. Of course I am open to discussions/comments.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby eastreef » Sun May 26, 2013 4:07 pm

Hi stalflare, All

thanks for your comments.
For the sake of simplicity, I am going for something like this. As mentioned above, I consider this a sort of pilot on how I like the Lazy idea itself, so I did try to streamline the products number as much as possible (3)

Stock = 66%, Bonds = 33%
Eurozone = 66% - unless things I am not able to foresee now (both personal and macro), my life "should be in euro"...
Short term Bonds, as it's a pilot I may want to dismantle relatively soon (I accept the risk this brings re: stocks)

All in all:
1/3 EuroMTS Investment Grade Eurozone Government Bond 1-3Y
1/3 MSCI EMU
1/3 MSCI World ex EMU

Thanks,
eastreef
 
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby madinvest » Sun May 26, 2013 4:33 pm

TO39 wrote:
madinvest wrote:
kolinz wrote:
madinvest wrote:My portfolio:
50% stocks
35% bonds
15% cash
Compound annual growth ratio (CAGR) = 7%
if stocks go down 20% or bonds go down 10% I rebalance. If not I rebalance yearly.



What if stocks go up 30 and bonds down 8? Doyou rebalance then? Just curious.

Also I don't see the need to rebalance yearly if you are using bands


The idea is to rebalance with bands only..but if i made an extra money during the year, I buy more stocks and bonds (keeping the %)..so not really an yearly rebalance...more a reinforcement. Sorry about that mistake.

if stocks goes up 30%, bonds down 8%, I will rebalance. It depends of what happened to the 15% cash allocation..but yes, I'll sell stocks to buy bonds and keep the 50%/35%/15%.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby stalflare » Mon May 27, 2013 6:46 am

Hi eastreef,

I do not understand why you say that since you live in Europe then the bond allocation should fall mostly in this territory... If you have an inflation linked investment I could understand it, but normal bonds... Is there a specific reason? Just curious, in my approach I try to go wider in order to decrease the currency/area risk.
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby eastreef » Mon May 27, 2013 2:33 pm

stalflare wrote:Hi eastreef,

I do not understand why you say that since you live in Europe then the bond allocation should fall mostly in this territory... If you have an inflation linked investment I could understand it, but normal bonds... Is there a specific reason? Just curious, in my approach I try to go wider in order to decrease the currency/area risk.

Disclaimer: I am not an expert

I am ok to face currency risk on stocks to get exposure to the global economy, I'm not ok to get it "only" to buy debt as global forex is beyond my current understanding.

If with area risk you mean counterparty risk of eurozone countries, I can take your point, but I consider short inv. grade bonds something I am confident enough to buy (personal idea)

Ciao
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Re: Lazy / 3 funds portfolio with ETFs for European (ITA) pe

Postby Tomdc2012 » Mon Jul 08, 2013 8:39 pm

Check HSBC ETF, they have physical replication and some have very low ER (in France, HSBC propose a S&P500 ETF at 0.09%)
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