Help a student set his long-term investment strategy [Italy]

[B4fius]

Hello everyone.

I’ll try to fill the template but first I'd like to give you additional info about me.

I am a 25 y.o student living in Italy. I am finishing soon a 2-year master’s degree and in mid-March, I’m going to start my last internship (I hope) but yes, I still don’t have a full-time job, so this adds a bit of uncertainty to my investment plan.

I never invested as I did not have the liquidity and my parents covered my expenses of course.
However, in November 2019 I inherited around €50k which I started to invest in April 2020 (markets were still down).

My initial investment was 10K and my plan is to invest around 5-7k every year, based on my salary expectations. With salary progression, I think I may be able to raise my investment by 5-10% every year.

This below is what I think should be the core of my portfolio for years to come. It is my intention to only buy accumulating funds for now.

The only real problem I have right now is that I have too much liquidity that I do not know how to use.

I am open to all kinds of suggestions and recommendations, thanks, and please give me your view on my current portfolio as well let me know if you need additional info!

Country of Residence: Italy (tax on capital gains is 26% and 12.5% just for Italian government bonds)

International Lifestyle: No idea, maybe I’ll move abroad in the future (still Europe) but a higher chance of staying in Italy.

Currency: EUR.

Emergency funds: I have too much liquidity right now, around 35k.

Debt: None.

Age: 25

Desired Asset allocation: 100% equity but open to consider alternatives

Investment portfolio: 12k now

CURRENT PORTFOLIO

40% iShares Core S&P 500 UCITS ETF
expense ratio 0.07%

40% Lyxor Core STOXX Europe 600 (DR) UCITS ETF Acc
expense ratio 0.07%

20% iShares Core MSCI EM IMI UCITS ETF
expense ratio 0.18%

The rationale behind these 3 ETFs was that they are quite cheap, and I can decide to change the weights if I want. For example, I was thinking about increasing the weight of the emerging market ETF to 25% but not sure.

[tre3sori]

I can decide to change the weights if I want. For example, I was thinking about increasing the weight of the emerging market ETF to 25% but not sure.

Not sure, that's the problem with choosing a weight: what criterium to take to make the decision? GDP? P/E? ...?
Better stick to a single equity fund with a market cap weighted allocation.
Also compared to the extra risk, there is not much reward in going from 80/20 stock/bond or stock/cash to 100% stock.
So I would advise you to go with something like

80% Vanguard FTSE All-World UCITS ETF Acc/ iShares MSCI ACWI UCITS ETF Acc
20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Acc/ iShares Core Global Aggregate Bond UCITS ETF EUR Hedged Acc

or even
Vanguard LifeStrategy® 80% Equity UCITS ETF EUR Acc (new, not much AUM)
which does the rebalancing for you at a slightly higher cost.

[tobyy]

Hello everyone.

I’ll try to fill the template but first I'd like to give you additional info about me.

I am a 25 y.o student living in Italy. I am finishing soon a 2-year master’s degree and in mid-March, I’m going to start my last internship (I hope) but yes, I still don’t have a full-time job, so this adds a bit of uncertainty to my investment plan.

I never invested as I did not have the liquidity and my parents covered my expenses of course.
However, in November 2019 I inherited around €50k which I started to invest in April 2020 (markets were still down).

My initial investment was 10K and my plan is to invest around 5-7k every year, based on my salary expectations. With salary progression, I think I may be able to raise my investment by 5-10% every year.

This below is what I think should be the core of my portfolio for years to come. It is my intention to only buy accumulating funds for now.

The only real problem I have right now is that I have too much liquidity that I do not know how to use.

I am open to all kinds of suggestions and recommendations, thanks, and please give me your view on my current portfolio as well let me know if you need additional info!

Country of Residence: Italy (tax on capital gains is 26% and 12.5% just for Italian government bonds)

International Lifestyle: No idea, maybe I’ll move abroad in the future (still Europe) but a higher chance of staying in Italy.

Currency: EUR.

Emergency funds: I have too much liquidity right now, around 35k.

Debt: None.

Age: 25

Desired Asset allocation: 100% equity but open to consider alternatives

Investment portfolio: 12k now

CURRENT PORTFOLIO

40% iShares Core S&P 500 UCITS ETF
expense ratio 0.07%

40% Lyxor Core STOXX Europe 600 (DR) UCITS ETF Acc
expense ratio 0.07%

20% iShares Core MSCI EM IMI UCITS ETF
expense ratio 0.18%

The rationale behind these 3 ETFs was that they are quite cheap, and I can decide to change the weights if I want. For example, I was thinking about increasing the weight of the emerging market ETF to 25% but not sure.

Unless you think you are smarter than the market, it's better to use a market-cap weighted fund. A good candidate for the inheritance could be the Vanguard Lifestrategy 80 fund, it has a slightly higher expense ratio but it allows rebalancing without triggering any capital gain tax. Once you have a full time job, you can put up to 5.164,57 eur per year in a tax-advantaged account and anything above that threshold in the Lifestrategy fund.

[B4fius]

I can decide to change the weights if I want. For example, I was thinking about increasing the weight of the emerging market ETF to 25% but not sure.

Not sure, that's the problem with choosing a weight: what criterium to take to make the decision? GDP? P/E? ...?
Better stick to a single equity fund with a market cap weighted allocation.
Also compared to the extra risk, there is not much reward in going from 80/20 stock/bond or stock/cash to 100% stock.
So I would advise you to go with something like

80% Vanguard FTSE All-World UCITS ETF Acc/ iShares MSCI ACWI UCITS ETF Acc
20% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Acc/ iShares Core Global Aggregate Bond UCITS ETF EUR Hedged Acc

or even
Vanguard LifeStrategy® 80% Equity UCITS ETF EUR Acc (new, not much AUM)
which does the rebalancing for you at a slightly higher cost.

Thank you. Yes you're right, also I was thinking that since I don't want to rebalance my portfolio selling but just buying more of the "undervalued" ETF, there's no need to change the weights.

The ACWI is what I was considering as an alternative, but like all the other ETFs it is strongly US focused, almost 60% (ok the S&P is the best performer historically but since my horizon is so long I can't really decide).

Also, I just backtested the Portfolio I currently have vs iShares MSCI ACWI UCITS ETF (Acc).
In the last 18 years, my portfolio had a 5.8% CAGR and a 0.36 sharpe ratio vs ACWI 4.97% CAGR and 0.31 sharpe ratio, but I don't know how much indicative this can be. Apart from that, it's true that the ACWI has always performed better, especially in the last 10 years.

[tre3sori]

The ACWI is what I was considering as an alternative, but like all the other ETFs it is strongly US focused, almost 60%...

This image is some years old, but it still transports well the fact that there is a difference between market capitalization and revenue exposure: companies listed at US stock exchanges make money all over the world, not only in their home market.

[B4fius]

The ACWI is what I was considering as an alternative, but like all the other ETFs it is strongly US focused, almost 60%...

This image is some years old, but it still transports well the fact that there is a difference between market capitalization and revenue exposure: companies listed at US stock exchanges make money all over the world, not only in their home market.

Thank you.

Yes, I'm quite convinced now that I should switch to an ACWI for more efficiency (and autopilot).

The only thing is that I can't liquidate my current portfolio, I started investing when markets were significantly down so this would have a big financial impact (beyond taxation), quite bothering. I'll just stop investing in these 3 ETFs and just focus on one from now on, then I'll add a bond ETF as well.

[jg12345]

Bravo che pensi a queste cose cosi in fretta, I started too late!

Nothing to add!

do remember the 5400 eur in PIPs.

Please do let me know which one you choose for the piano individuale pensionistico, cheapest I see at the moment is moneyfarm (which is pretty sad as it's still quite expensive), but definitely cheaper than fondi pensione aperti

best of luck!

[Siaigi]

Once you have a full time job, you can put up to 5.164,57 eur per year in a tax-advantaged account and anything above that threshold in the Lifestrategy fund.

you can deduct from the tax return you have paid!

I'm not yet familiar with the Italian PIP mechanism but I made an appointment with the Moneyfarm consultant (thanks jg12345!)

Of course, with an annual average cost of 1.42%, I believe it is convenient to choose the "Linea Azionaria" in order to avoid consuming the capital invested on bond lines.

From the consultant I want to understand if there is the possibility of choosing the titles that you prefer.

Finally, there is also a tax advantage on the taxation of returns.