Portfolio advice

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Portfolio advice

Post by mikeguima » Wed Sep 12, 2018 2:05 pm

Hello everyone!

After a few years exclusively reading on investing, time has come for me to start building my own portfolio, now that I'm going to be able to contribute to it.

I'm 23 years old and come from Europe.

I still haven't settled on a portfolio that fully convinces me, but what I share below is an alternative I've been considering. I have a moderate risk aversion (not jumpy, but not very risk seeking either) and a moderate to long time horizon (have no plans for big ticket items so far).

I'm thinking of a portfolio with a reasonable allocation to riskier assets (60-70%) plus the remaining in mostly safer bonds and cash for protection. I'm avoiding significant asset exposure to my home country because my human capital will likely be completely related to it. I'm also trying to strike a balance between diversification and simplicity when it comes to the number of individual assets I hold in the portfolio, since I like simpler portfolios but don't want to compromise diversification at the same time.

Here's the portfolio I've been thinking of:

30% World Stocks (accumulating, 0.20% TER) - MSCI World
20% World Stocks Smart-Beta (accumulating, 0.40% TER) - Amundi Index Equity Global Multi Smart Allocation Scientific Beta UCITS ETF - EUR (C); exposure to several registered anomalies (size effect, value effect, momentum effect)
10% Emerging Markets Stocks (accumulating, 0.18% TER) - iShares Core MSCI Emerging Markets IMI UCITS ETF
10% Europe REITs (accumulating, 0.33% TER) - Xtrackers FTSE EPRA/NAREIT Developed Europe Real Estate UCITS ETF 1C
10% Euro Inflation Linked Bonds(accumulating, 0.25% TER) - iShares Euro Inflation Linked Government Bond UCITS ETF
10% Global Aggregate Bonds (accumulating, 0.10% TER)- iShares Global Aggregate Bond UCITS ETF EUR Hedged (Acc)
10% Cash

I'd like to ask you for your opinion and commentary on the portfolio above, so I can take them into account. Anything is appreciated!

Thank you very much!
Last edited by mikeguima on Sun Dec 02, 2018 12:36 pm, edited 1 time in total.

bloom2708
Posts: 5496
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Portfolio advice

Post by bloom2708 » Thu Sep 13, 2018 9:11 am

Welcome!

You are young and thinking about this. That is the biggest hurdle. Your savings rate (the higher the better) will determine your performance.

If I was 23, I would keep it simple and do this:

90% World Stocks (accumulating, 0.20% TER) - MSCI World
10% Global Aggregate Bonds (accumulating, 0.10% TER)- iShares Global Aggregate Bond UCITS ETF EUR Hedged (Acc)

I would keep an Emergency Fund of 6 months expenses in cash and enough in your checking account to pay the bills for a few months.

I would not keep 10% of my investments in cash. Invest early, invest often. Stay the course and revisit your bond allocation at 35 or so.

The other funds like REIT, Inflation protected, etc. I would not bother with those.

Hopefully others will counter my advice. Welcome again!
"A Stoic believes they don’t control the world around them, only how they respond--and that they must always respond with courage, temperance, wisdom, and justice." --Daily Stoic

Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Re: Portfolio advice

Post by mikeguima » Sat Sep 15, 2018 5:25 am

Thank you for the reply, bloom!

Setting a fixed allocation to cash or simply holding whetever necessary for emergencies and holding everything else in other assets (effectively separating cash out of my "real" portfolio) is one question I've also had, but I see cash as a balancing portion of the total portfolio which should increase as it increases.

As for 90/10, I feel that may be a little too risky for me. I don't think I'd feel comfortable holding 90% of my investments in very volatile asset classes.

The reasoning behind TIPS is to simply provide some inflation protection, although I think inflaton is unlikely to come about (unless it comes from the supply side). I may consider eliminating REITs, since I'm not fully convinced of their benefits when it comes to diversification.

Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Re: Portfolio advice

Post by mikeguima » Mon Sep 17, 2018 3:04 pm

Could anyone else give an opinion? :happy

Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Re: Portfolio advice

Post by mikeguima » Thu Sep 20, 2018 5:07 pm

No one? :(

Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Re: Portfolio advice

Post by mikeguima » Sun Dec 02, 2018 12:46 pm

Portfolio update

After a few months of additional research and thought, here's what my current target portfolio looks like:

60/40 riskier and less risky assets - down from 70/30, since I think 60/40 will be easier to handle in a downturn and should still provide reasonable returns over time

30% World Stocks (accumulating, 0.20% TER) - MSCI World
20% World Stocks Smart-Beta (accumulating, 0.40% TER) - Amundi Index Equity Global Multi Smart Allocation Scientific Beta UCITS ETF - EUR (C); exposure to several registered anomalies (size effect, value effect, momentum effect, low volatility)
10% Emerging Markets Stocks (accumulating, 0.18% TER) - iShares Core MSCI Emerging Markets IMI UCITS ETF
20% Global Aggregate Bonds (accumulating, 0.10% TER)- iShares Global Aggregate Bond UCITS ETF EUR Hedged (Acc)
10% Euro Inflation Linked Bonds (accumulating, 0.25% TER) - iShares Euro Inflation Linked Government Bond UCITS ETF
10% Cash (CDs)

I'm still open to any opinions you guys may have, but for now I think I'll settle with this portfolio :D Thanks for all the help!

blahblahsunshine
Posts: 31
Joined: Sun Jan 14, 2018 8:11 pm

Re: Portfolio advice

Post by blahblahsunshine » Sun Dec 02, 2018 5:50 pm

At your age the amount you save is more important than how they are allocated. If I was 23 I'd have my investments 100% in equities (total market or S&P 500). Long road ahead of you.

Flyer24
Posts: 663
Joined: Sun Apr 08, 2018 4:21 pm

Re: Portfolio advice

Post by Flyer24 » Sun Dec 02, 2018 5:58 pm

60/40 is way to conservative for a 23 year old. You should be 80/20 max. Some even suggest 100/0. You have plenty of time to recover from a downturn. A market drop is actually good for you. You are in the accumulation phase. A market drop allows you to buy more shares for your money. I believe you need to get a better understanding of how a young person gets into long term investing. Your mindset of being super conservative is more for a retired person who want to preserve principal. You need to focus on building shares and maximizing contributions.

Quick question. How do you think a bear market would effect you in the next 5-10 years? The answer for a young person is positive. Stocks would be on sale and you could rack up shares with your future contributions. It will eventually recover and your 50 year old self will be happy with all those shares.

desiderium
Posts: 765
Joined: Sat Jan 04, 2014 11:08 am

Re: Portfolio advice

Post by desiderium » Sun Dec 02, 2018 6:11 pm

The key advice about equity allocation is to base it on "need, ability, and willingness to take risks". Other posts focus on your age/ability to take risk and recover from losses. However, you need all 3 to be comfortable with your equity percentage. Another way of putting it, you need to be able to not flinch and keep buying in a scenario where equities drop by 50%.

If 60% is what your are comfortable with, it is a great allocation. See what happens over the next few years as the market gyrates. You will have more experience with this question.

The most important point is to keep saving

Good luck!

Topic Author
mikeguima
Posts: 120
Joined: Mon Aug 22, 2016 3:11 pm

Re: Portfolio advice

Post by mikeguima » Tue Dec 04, 2018 6:10 pm

Thank you for the feedback.

I personally believe the usual recommendations for people my age are too aggressive given my profile, for two main reasons:

1) I don't know what big ticket items I may need to purchase in the near future. In other words, if you ask me whether it's likely I'll need to resort to my investments to, say, buy a car or home within the next 10 years (it's usually said money one could need within 5-10 years should not be in stocks, given that may not be enough time to recover from a crash), I can't tell you whether yes or no. Therefore, I'm playing it on the safer side here.

2) People in Europe are not as keen on stocks (partly because of the social security system, which they take as granted, for better or for worse) as they are in the US, especially in my country. People here are generally very risk averse and hold their financial wealth mostly in the form of deposits (over 60% of financial wealth in my country is in deposits). What this means for me is added pressure not to stay as invested in stocks, since I'm afraid I may react stupidily if I'm losing money when everyone else around me isn't.

Post Reply