Looking for feedback on my portfolio

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Topic Author
ZenInside
Posts: 6
Joined: Mon Jul 19, 2021 1:40 pm

Looking for feedback on my portfolio

Post by ZenInside »

Hi,

I am looking for feedback on my portfolio.
I have no debt (no mortgage, no credit card), I own the apartment I am living in and a couple of other properties that I rent.
Age 42, married with one kid, healthy.

My allocation is:

VWCE - All-World -Acc - 0.22- 60%
VUSA - S&P500 - Acc - 0.07 - 10%
IUSN All-World Small Cap - Acc - 0.35-10%
REITS - O, STOR - 20% (This is the only area where I invest in specific companies). I normally would have allocated in bonds but with the inflation I find REITS to be more attractive.

I plan to add at least 20k EURO per year quarterly, to have some DCA.
jg12345
Posts: 123
Joined: Fri Dec 11, 2020 1:03 pm

Re: Looking for feedback on my portfolio

Post by jg12345 »

Welcome!

Since it's your first post, let me mention that reading boglewiki and the Bahrain chapter guide to investing are great starting points.

Not too bad of a portfolio to start a discussion.

1) 20% STOR does not make a lot of sense to me. There's at least two reasons: 1) it's single stock, hence the risk profile is very high, and you don't seem to be knowledgeable more than the market - hence, you're speculating. 2) you do not say you want to speculate and you specifically say that it's because bonds and inflation that you choose to invest there. Your bonds part is supposed to dampen volatility when stocks go down, and a single stock will most definitely NOT do that job. If you feel uncomfortable with bonds right now, then CDs could be an option. What's your country of residence? raisin.com could be someplace to start to find CDs if you're in eurozone

2) SP 500 is already included in FTSE all-world. Why overweight the US? I suggest 70% Ftse all-world and 0% VUSA.

3) For the bonds part, given that you invest in EUR, can we assume you will retire likely in a Euro currency country? If so, bonds should be currency hedged, hence in your case AGGH (global bond aggregate eur hedged). OR certificates of deposit are also a decent option at the moment.

4) 20% bonds at 42 is slightly aggressive but very acceptable if you are aware you're ok in being that aggressive and you need that stock % to reach your targets.
Topic Author
ZenInside
Posts: 6
Joined: Mon Jul 19, 2021 1:40 pm

Re: Looking for feedback on my portfolio

Post by ZenInside »

Thank you for feedback.
My location is Romania.

In REITS I currently have two positions, one is STOR and the second one is O and I am looking to add 2 more positions as i want to have a maximum of 4 positions in those 20%. I am looking at REITS as a diversification in my financial investment portfolio and my real-estate one. I also want to have some monthly dividends as income that I can decide to reinvest or do something else.

On top of this i think inflation will increase from the current values (~5% in US atm) and makes no sense for me to invest money in bonds and get returns of 1% per year. I mean between loosing 5% and 4% with bonds investment i prefer to take some risks and invest in REITS since these have not fully recovered from Corona and do provide enough dividends to protect my principal.

I do not need to allocate anything to bonds because, as I have mentioned, I do have a real-estate portfolio that generates some monthly income from renting that should give me some run if the stock market crash. If the economy will have a serious drawback + we lose our jobs + only 50% of the properties are rented, we will still have a 2-3 years runaway, which i think it gives enough safety for me.

I forgot to mention that me and my wife, each have 5 months of spending covered in bank deposits that acts as a rainy day fund (10k euro each because this is the average cost of living in Romania).

Regarding the overweight on the US market, you are right, but in all honesty i do think that US will still be the best place to invest your money for the next 50 years hence my decision to add a little but more on that side.
jg12345
Posts: 123
Joined: Fri Dec 11, 2020 1:03 pm

Re: Looking for feedback on my portfolio

Post by jg12345 »

1) I am assuming we are talking about buy-and-hold in the long term. Since you expect inflation will average 4-5% in the future (for how long? based on what?), and market expectations today stand at somewhere 2.3-2.4% (see https://fred.stlouisfed.org/series/T10YIE), then maybe ILB could be an option. they protect against unexpected inflation. In addition, be mindful that forecasting inflation is hard for central banks who work on that 24/7, hire economists from top unis, etc. so you may want to (should?) consider the fact that you actually do not know where inflation will go.

2) I am not so clear on the objective of that 20%, and I am surely missing something.
income objective: you have income from rented properties so it looks like you don't need extra-income from your portfolio.
ballast objective: you may want ballast in case of stock crash, and that would suggest bonds aggregate, or CDs, or ILBs. but given that you can live off rental properties, you say you do not need bonds in your portfolio. ok.
inflation protection objective: ILB would be likely best with this specific objective. as you know the returns are rather low at the moment (unless you believe inflation will be 4-5%...). then stocks (stocks are not automatically protecting from inflation but I believe stocks have historically had returns beyond inflation hence many people say equities protect against inflation). Finally, RE https://www.bogleheads.org/wiki/Real_es ... ment_trust
diversification objective: Ftse all-world is quite well diversified. note that it includes 2.9% of RE already. if you want to diversify with REIT, then a global REIT ETF (i'd say up to 10%, but if you want to get it to 20% it is not so completely off) would be a better option rather than 4 single RE stocks

3) On US overweight. The implication of "I believe US market will outperform" is that you know better than the market. I hardly believe anyone here knows better than over educated financial analysts equipped with all sorts of data, software, and models made by PhDs in quantitative finance at top global universities. If you are sure about the implication, or really feel like you need to have some tilt based on your personal knowledge/expectations, then go ahead. You may want to consider a lower tilt, say 5%.

These are just pointers. As usual, feel free to throw them away.
Topic Author
ZenInside
Posts: 6
Joined: Mon Jul 19, 2021 1:40 pm

Re: Looking for feedback on my portfolio

Post by ZenInside »

Thank you very much, the information provided is super valuable.

I decided to drop my US S&P ETF and move everything to the all world but for the time being I will continue to hold my REIT positions for a couple of reasons: I bought them at a discount and I still believe that these have 15%-20% upside in the following two years, part from recovery and part from internal growth. And if in these two years I will get extra 4% in cash per year from dividends it can be only sweeten the deal. Yes, my REITS are a speculation to some extent, though historically speaking the REITS tend to do pretty well.

If I will get wrong or not, we shall see. I have rebalanced my portfolio and currently this is my structure:

- VWCE - 70%
- IUSN - 3%
- T - 12% (I am stuck with this one until the spin-off will be made)
- O - 7.5%
- STOR - 7.5%

In all honesty at the money I have invested i tend to appreciate quite a lot the O and STOR dividends. And it gives me some liberty to decide where to allocate my dividends. My plan is to slowly exit T, at least the telecom company and maybe keep the actions in the newly created company and use the money from sell to increase my VWCE and IUSN positions.

I also have to mention that i make quarterly deposits.
Topic Author
ZenInside
Posts: 6
Joined: Mon Jul 19, 2021 1:40 pm

Re: Looking for feedback on my portfolio

Post by ZenInside »

Let me rephrase this properly.

My goal is to get 2k euro monthly inflation adjusted in 10 years as I currently have 42 years. This means that I will have to generate at least 33k eur yearly to be able to pay the taxes and also to increase the size of the principal to cover the inflation.

To achieve this goal there are a couple of constraints on my portfolio:
- Must have a value of 487k at the end of this period
- It needs to generate an average of 7% return annually
- I have to deposit 2500 EUR monthly.
- All the dividends I will have to reinvest.

To do that I have set this portfolio:
- VWCE -70%
- IUSN - 10%
- O - 10%
- STOR - 10%

I have back tested the portfolio but I had to replace VWCE with VTI in my simulations.

Back testing this portfolio between 2015 (due to STOR) to 2021 has shown a 13.28 CAGR.
Back testing the portfolio just with O at 20% between 2010 to 2021 has shown 14.20% CAGR
Back testing the portfolio with just VWCE and O between 2002 and 2021 has shown 10.91% CAGR. (worst year -31%, max drawdown 47%)
The last back test link is available here

I am quite confident in the third back test as it covered multiple economic problems: crisis, pandemics etc.
While I acknowledge that past results are not guarantying future ones statistically I found this structure to fit my goals.
XtremePWN
Posts: 33
Joined: Fri Aug 23, 2019 3:01 am

Re: Looking for feedback on my portfolio

Post by XtremePWN »

Keep it simple, 100% VWCE for the stocks portion
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Justfinance
Posts: 15
Joined: Tue Mar 23, 2021 5:09 am

Re: Looking for feedback on my portfolio

Post by Justfinance »

As you already own Real Estate directly would drop the REIT entirely … that‘s a least what I will do @ year end :sharebeer
Topic Author
ZenInside
Posts: 6
Joined: Mon Jul 19, 2021 1:40 pm

Re: Looking for feedback on my portfolio

Post by ZenInside »

If i will go fully with VWCE my CAGR will drop to 9.69%, considering that I will be in the accumulation phase i am not sure that the difference of 2.69% will be able to cover for the average value of the inflation for the next 10 years.

The REITS added gives me a steady cashflow income that allows me to invest depending on the market conditions. If the market is way up, as it is now, i will prefer to reinvest these dividends in REITS, otherwise I will use the dividends to invest in ETF's. Also from time to time there are bargains in the market and I would like to have some cash available to act on them. I am not fully passive investor and keeping my speculation within reasonable margins enforced by the amount of money received as dividends it something that I am comfortable with.
Valuethinker
Posts: 42745
Joined: Fri May 11, 2007 11:07 am

Re: Looking for feedback on my portfolio

Post by Valuethinker »

ZenInside wrote: Thu Jul 22, 2021 4:43 am If i will go fully with VWCE my CAGR will drop to 9.69%, considering that I will be in the accumulation phase i am not sure that the difference of 2.69% will be able to cover for the average value of the inflation for the next 10 years.

The REITS added gives me a steady cashflow income that allows me to invest depending on the market conditions. If the market is way up, as it is now, i will prefer to reinvest these dividends in REITS, otherwise I will use the dividends to invest in ETF's. Also from time to time there are bargains in the market and I would like to have some cash available to act on them. I am not fully passive investor and keeping my speculation within reasonable margins enforced by the amount of money received as dividends it something that I am comfortable with.
I am guessing your calculation of Compound Annual Growth Rate takes thes the historic returns of the fund (over what period?) and projects future returns to be the same?

That's not a good assumption. Sometimes markets surprise you (like the last 10 years) and do amazingly well. Sometimes they disappoint (2000-10). There are 15 year periods in the data where markets had a negative real return.* That's developed markets. Emerging Markets the picture is much, much worse than that (in terms of long periods of negative returns).

Whilst it's good to have an expected annual return in the back of your mind when you forecast future returns, for equities you have to accept that this is a total guess and no one has a plausible record of getting it right. Only in the very long run (30 years+) can we make statements like "stocks outperform bonds" -- and that does depend on which stock market one chooses, if one uses international data. But it's mostly true or "true enough". Unfortunately we have very little good data before say 1900, and so we only have 4-5 independent 30 year periods as data, at most.


* the 1970s in particular. The UK market dropped over 80%, after inflation, in the mid 1970s (73-75 from memory - the period of the First Oil Crisis, 3 day working week etc).

The 1930s is a different one. Because prices fell in some years, the real return is actually higher than the nominal return. So you had years (I am thinking of the US data) when stock market performance was disastrous, but prices fell too.
jg12345
Posts: 123
Joined: Fri Dec 11, 2020 1:03 pm

Re: Looking for feedback on my portfolio

Post by jg12345 »

ZenInside wrote: Thu Jul 22, 2021 4:43 am If i will go fully with VWCE my CAGR will drop to 9.69%, considering that I will be in the accumulation phase i am not sure that the difference of 2.69% will be able to cover for the average value of the inflation for the next 10 years.

The REITS added gives me a steady cashflow income that allows me to invest depending on the market conditions. If the market is way up, as it is now, i will prefer to reinvest these dividends in REITS, otherwise I will use the dividends to invest in ETF's. Also from time to time there are bargains in the market and I would like to have some cash available to act on them. I am not fully passive investor and keeping my speculation within reasonable margins enforced by the amount of money received as dividends it something that I am comfortable with.
I think the reason why many of us are suggesting to have 0% O/STOR and replace it with either VWCE or REITS ETFs (if REITS, to 10%) is that you state that:
1) you are happy speculating
2) you need your portfolio to reach xx% to reach retirement by xx age
These two statements do not seem to go well together as (usual recommendation is that) speculation is done with money that can go to 0US$ with little impact on your financial targets.

If a 100% VWCE+IUSN (or 90% stocks - 10% global REITS) portfolio is not enough to make your retirement target, then one option is O/STOR speculation. I cannot say whether other options are better/available in your specific case, but at least note other options which may have a better risk profile than speculating on 2/4 picked stocks (if your reply is that the O/STOR speculation risk profile is good based on backtests => see Valuethinker response): 1) saving more during accumulation period, 2) accept to spend slightly less during retirement, 3) retire a couple years later. If after considering all these, you still believe speculating O/STOR is the best option for you... I would probably disagree with the assessment but of course go ahead by all means.

And given that we are discussing retirement, some additional info in case you want to go a bit deeper:
- mrmoneymoustache is a decent forum for SWR
- vanguard nest egg calculator for montecarlo simulations
Soulforged
Posts: 7
Joined: Sun Jun 06, 2021 6:41 am

Re: Looking for feedback on my portfolio

Post by Soulforged »

I don’t know why people is so much about US tilt. S&P has outperformed World since the Japan crash and a lot of people prefer S&P rather than World. If you really think US will continue performing like that for the next 50 years, just follow your guts. In the end we are talking about minimal differences so I really think it is better to invest on something that gives you more mind peace.

Asking for support is a great thing but you don’t have to necessarily just follow others opinions, just read everybody’s comments and then take the decision you feel is correct.

For me investing as soon as possible is the right decision rather than few percentages in your portfolio.

Just my 2 cents.
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