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

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Topic Author
B4fius
Posts: 3
Joined: Mon Feb 22, 2021 5:19 pm

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

Post by 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.
User avatar
tre3sori
Posts: 189
Joined: Wed Jul 24, 2019 3:13 am

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

Post by tre3sori »

B4fius wrote: Mon Feb 22, 2021 5:35 pm 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.
Let every man divide his money into three parts, and invest a third in land, a third in business, a third let him keep by him in reserve. Talmud | 35% Real Estate, 45% Stocks, 15% Bonds, 4% Gold, 1% Cash
tobyy
Posts: 9
Joined: Thu Feb 18, 2021 2:41 pm

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

Post by tobyy »

B4fius wrote: Mon Feb 22, 2021 5:35 pm 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.
Topic Author
B4fius
Posts: 3
Joined: Mon Feb 22, 2021 5:19 pm

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

Post by B4fius »

tre3sori wrote: Tue Feb 23, 2021 6:06 am
B4fius wrote: Mon Feb 22, 2021 5:35 pm 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.
User avatar
tre3sori
Posts: 189
Joined: Wed Jul 24, 2019 3:13 am

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

Post by tre3sori »

B4fius wrote: Wed Feb 24, 2021 4:20 am The ACWI is what I was considering as an alternative, but like all the other ETFs it is strongly US focused, almost 60%...
Image

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.
Let every man divide his money into three parts, and invest a third in land, a third in business, a third let him keep by him in reserve. Talmud | 35% Real Estate, 45% Stocks, 15% Bonds, 4% Gold, 1% Cash
Topic Author
B4fius
Posts: 3
Joined: Mon Feb 22, 2021 5:19 pm

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

Post by B4fius »

tre3sori wrote: Thu Feb 25, 2021 12:08 am
B4fius wrote: Wed Feb 24, 2021 4:20 am The ACWI is what I was considering as an alternative, but like all the other ETFs it is strongly US focused, almost 60%...
Image

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
Posts: 44
Joined: Fri Dec 11, 2020 1:03 pm

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

Post by 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
Posts: 72
Joined: Sun May 17, 2020 4:24 am
Location: Italy

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

Post by Siaigi »

tobyy wrote: Tue Feb 23, 2021 7:28 am 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! :shock:

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.
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