Portfolio allocation - Romania

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Mindhacker
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Portfolio allocation - Romania

Post by Mindhacker » Wed Aug 21, 2019 8:53 am

Hi,

This is my current portfolio allocation and I would like more guidance on how to prepare it for the next economic turmoil that everyone whispers about:

- AGGH: 21%
- EMIM: 15% (-6.2% DIP)
- WSML: 8%
- IWDA: 56%

What have I done and what I am planning to do by the end of the year:
- all my profitable positions have a trail stop loss order to secure at least a share of the profit if things go bad;
- I will not touch EMIM anytime soon, but I will increase the amounts in IWDA and AGGH. I aim to be at 30% with AGGH by the end of this year. My thinking is that if things go bad I can sell some bonds to but the dip on IWDA. So a (30-70 bonds - equity).

I am 40 years old, I have 6 months of expenses saved in the bank (mix of EUR and USD) and I also have a couple of real estate investments that produce steady income. I have no debt and no cred cards.

Currently my allocation is 30% financial markets and 70% real estate.

Is there anything that I should tune in my asset allocation?

DJN
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Re: Portfolio allocation - Romania

Post by DJN » Wed Aug 21, 2019 9:09 am

Hi,
I will start you off with a few broad points:
* your allocation is more or less in line with the maxim of "your age in bonds".
* I wouldn't be adjusting your allocation because a piece of it is not performing right now. If you want to diversify with emerging markets then make that decision in your investment plan and stick with it.
* Your overall asset allocation choice are good.
* Your allocation to real estate is very high, is this your business? If the RE is providing good income and doesn't have any serious overhead and / or depreciation issues then ok but its a risky (lumpy) asset type.
I would suggest that you go through the full process of analysing your situation and prepare an investment plan etc. See: https://www.bogleheads.org/wiki/Buildin ... _portfolio and
https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.

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BeBH65
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Re: Portfolio allocation - Romania

Post by BeBH65 » Wed Aug 21, 2019 10:21 am

This seems OK.

A few comments on Trailing stops:
1- watch out: this might not work as you think; you might not secure your profits.
Example: it the price is now 123, you set a trailing stop at 100, but there are no buyers at 100 but only at 77 --> you will sell at 77.
2- this is a kind of market timing, how will you get the second decisions right? when will you buy again? most of the days with the highest rises are close to the days of losses.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Wed Aug 21, 2019 11:04 am

DJN wrote:
Wed Aug 21, 2019 9:09 am
Hi,
I will start you off with a few broad points:
* your allocation is more or less in line with the maxim of "your age in bonds".
* I wouldn't be adjusting your allocation because a piece of it is not performing right now. If you want to diversify with emerging markets then make that decision in your investment plan and stick with it.
* Your overall asset allocation choice are good.
* Your allocation to real estate is very high, is this your business? If the RE is providing good income and doesn't have any serious overhead and / or depreciation issues then ok but its a risky (lumpy) asset type.
I would suggest that you go through the full process of analysing your situation and prepare an investment plan etc. See: https://www.bogleheads.org/wiki/Buildin ... _portfolio and
https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
I have discovered this forum a couple of days ago and bought the first book from Jack B in the same days based on a friend recommendation. It seems that common sense is universal :).

By real estate is generating around 4.5% yearly after taxes just from the rent and while it is not what I am doing it was the way I have started investing (east European culture I suppose).

I tried to incorporate in my portfolio a "how fast I can access my money" contingency plan in the case of a personal/family emergency.

1) use the money from the bank (is enough? No?)
2) sell the bonds, no matter where the market is the value should be preserved to some extent (is enough? No?)
3) Make an assessment what to sell next depending on where the markets are: estate or stocks.

I plan to keep this approach for at least 10 years, with the caveat that starting with the 5th year I will focus on financial markets. The end result I am looking is to have an asset distribution of 50-50 (estate and financial) as in my mind is the best combination in the situation of a financial serious turmoil.

Regarding the stop loss, yes, it may sound as timing the market but we are in the 10th bull market and there are too many tensions around not to prepare for such events. If those orders gets closed means that the market dropped 5% and that is a sign that something is cooking. I can afford to wait a couple of years until I see a good price for re-entering, I am not rushing and not a fan of dollar average investing.

I am still learning and I am just trying to prepare for the worse to come and if I can benefit from the fall it can be a good boost or a good learning :D :mrgreen:

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BeBH65
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Re: Portfolio allocation - Romania

Post by BeBH65 » Wed Aug 21, 2019 1:53 pm

Mindhacker wrote:
Wed Aug 21, 2019 11:04 am
I tried to incorporate in my portfolio a "how fast I can access my money" contingency plan in the case of a personal/family emergency.
1) use the money from the bank (is enough? No?)
2) sell the bonds, no matter where the market is the value should be preserved to some extent (is enough? No?)
3) Make an assessment what to sell next depending on where the markets are: estate or stocks.
Having to sell from your portfolio at a bad time can hurt a lot.
An "emergency fund" can protect against that.
https://www.bogleheads.org/wiki/Emergency_fund wrote:An emergency fund is a cash reserve required to meet unanticipated needs for cash, such as medical bills, car or home repair, or job loss. The quantity of emergency funds is usually specified as an integer multiple of monthly expenses, e.g., three months to one year's worth of expenses. [1]

The goal of the emergency fund is to provide a cushion of liquidity [2] in the event of unexpected expenses or of a loss of regular income due to unemployment.

Emergency funds should be placed in a highly liquid, low risk vehicle (e.g., money market, bank savings account). [note 1]
Especially with a real-estate portfolio like yours, many things can happen. Think for instance that you need to perform an emergency repair to one of your real estate.

Consider building an emergency fund of 6-12 months expenses.

Mindhacker wrote:
Wed Aug 21, 2019 11:04 am
Regarding the stop loss, yes, it may sound as timing the market but we are in the 10th bull market and there are too many tensions around not to prepare for such events. If those orders gets closed means that the market dropped 5% and that is a sign that something is cooking. I can afford to wait a couple of years until I see a good price for re-entering, I am not rushing and not a fan of dollar average investing.
Allow me to challenge this:
- 5% is really not a lot. I think the market has made a 5% drop; this month, in May, at the end of last year, at the beginning of 2018, .... 5% drops happen a lot. On average there is a correction of -10% once per year, -5% a lot more.
- we already talked about the fact that your stop-losses will not be able to stop-loss at 5%. In bad times you might loose a lot more.
- when will you get in. Assume you dropped out in 2010, when would you gotten back in? You might have missed a nice bull market.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Thu Aug 22, 2019 12:07 am

To a good extent you are right, that's why these days I will do my research to understand how I can identify what is the right price for an ETF and I will make necessary adjustments. For the time being I have updated the percent to 10% using advanced guess-ology.

In my mind there are two ways of doing this:
- buy every quarter a fix amount of stocks, averaging
- keep the money when a buy opportunity occurs.

The second way may be confused with timing the market but in my mind is not because the moment of purchasing can make the difference between a year of growth or a wasted year. What I am trying to say is that I do not try to predict a market dip but rather to identify when an ETF is sold cheaper than it should be.

How do you decide when to buy?

glorat
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Re: Portfolio allocation - Romania

Post by glorat » Thu Aug 22, 2019 12:39 am

Mindhacker wrote:
Thu Aug 22, 2019 12:07 am
I was thinking that if I look at the top 10 fundamentals of the companies that make the index can give me a clue if the ETF is overpriced and I should wait or not.
If you have the ability to determine if an ETF is over/underpriced based on public information like top 10 fundamentals then you can become a billionaire like Warren Buffett
Mindhacker wrote:
Thu Aug 22, 2019 12:07 am
How do you decide when to buy?
The reality is that the average retail investor loses money trying to time the market because human behaviour comes into play and many hedge funds make money by trading the other side of predictable inefficient market behaviour

When I have money to invest, I buy a fixed $ amount on the next Thursday in the middle of the trading day. This avoids any human bias on my part.

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BeBH65
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Re: Portfolio allocation - Romania

Post by BeBH65 » Thu Aug 22, 2019 4:25 am

Mindhacker wrote:
Thu Aug 22, 2019 12:07 am
[...] I will do my research to understand how I can identify what is the right price for an ETF [...]

In my mind there are two ways of doing this:
- buy every quarter a fix amount of stocks, averaging
- keep the money when a buy opportunity occurs.

[...] What I am trying to say is that I do not try to predict a market dip but rather to identify when an ETF is sold cheaper than it should be.

How do you decide when to buy?
Many people on this site buy when the money becomes available. "Time in market beats market timing"

The price of ETFs is determined by bid and ask and reflects the bid/ask of the underlying assets. The price is where buyers and sellers meet. Many of these experienced market participants are used to arbitrate the price for pennies.
Not convinced that you will be able to find larger price differences.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Thu Aug 22, 2019 4:56 am

Based on our discussion this will be my approach for the following years:
- use 90% in quarterly investments (averaging)
- keep 10% within a quarter to spot good prices while I continue to learn. If no opportunities identified invest them with the next 90%.

In this way I will continue to learn, educate and experiment while I will keep deviations within reasonable limits.

XtremePWN
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Re: Portfolio allocation - Romania

Post by XtremePWN » Fri Aug 23, 2019 3:12 am

If you don't mind, Mindhacker, what bank/service are you using for investing in iShares ETFs? I am asking since I am also from Romania and I know it is hard to access those ETFs here

Laurizas
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Re: Portfolio allocation - Romania

Post by Laurizas » Fri Aug 23, 2019 4:27 am

Mindhacker wrote:
Wed Aug 21, 2019 8:53 am
- all my profitable positions have a trail stop loss order to secure at least a share of the profit if things go bad;
Read what experts say about market timing.
viewtopic.php?f=10&t=79324

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Fri Aug 23, 2019 4:39 am

Market timing in my mind refers to small adjustments between a range of +/- 5% or around those values. If the market drops 10% sorry that is not anymore market timing, is like you are on titanic, you see the iceberg and you don't want to jump because you don't want to time it.

Portfolio rebalancing suits the same purpose, right? When you think that stocks are overpriced you move some of you gains into bonds and vice versa.

I do not believe in totally passive investment, I am not that dogmatic or purist. Also these events are rare so I am not worried that I will loose a lot re-entering 1-2 days after I have done my research to understand what is going on.

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BeBH65
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Re: Portfolio allocation - Romania

Post by BeBH65 » Fri Aug 23, 2019 7:42 am

Corrections of the equity market are not rare. On average there is a 10% drop in the stock market once per year.

Make sure that you construct your portfolio taking into account the real volatility of the equity market. Also, be aware that you can not predict when this will happen. You have as much chance that the market will recover in the near future or that it will go into correction or deeper.

The people on the Titanic did not see the iceberg, neither do the investor.

How do you know that stocks are overpriced? Every seller found a buyer that found the price "right".

Rebalancing is bringing the balance back in your portfolio based in the predetermined split that you set when you choose your strategy.
Last edited by BeBH65 on Fri Aug 23, 2019 10:50 am, edited 1 time in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Mister643
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Re: Portfolio allocation - Romania

Post by Mister643 » Fri Aug 23, 2019 9:53 am

Hi,

I'm from Romania as well. Good to know other investors from my country. I do not like this portfolio because you have too much exposure on US and Japan (I would lower it for US and stick to 0% for Japan) and too much exposure on growth stocks. When everyone buys Bitcoins and growth you should either sell or stay away from the market.

AGGH - another useless product with a 10 year expected future real return of -0.5%. Why would you keep your money in any product which does not even cover inflation? At the very least, you can keep those funds in cash or cash equivalents. For instance Banca Romaneasca pays more than 1.1% for EUR deposits. You will win at least the same amount as your favorite AGGH which perhaps you have chosen because you heard it from others and have not thought about the process.

This is why the market is inefficient. People do random moves because they notice them from the others. Following the herd never has proven to be a good investment advice. I'd rather not invest than invest in IWDA, EIMI or AGGH. You should definitely avoid all blend ETFs, they are junkier than CDOs and MBS.

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Fri Aug 23, 2019 10:44 am

I am keeping AGGH for one simple reason: when the market goes down strongly, like 20% or more, the bonds tend to grow.

And when this will happen I will sell all my bonds and buy all the ETF's I can buy at a discount. As the economy moves in cycles I know that within 10 years or so such opportunity will occur. Patience is the name of the game for me.

This is how Barclays aggregate behave between a couple of big crysis: https://www.thebalance.com/stocks-and-b ... 013-417028

For AGGH the ytd is 6%: https://www.bloomberg.com/quote/AGGH:LN which is way above the 1%. In my personal case my AGGH position is at 3.4% ytd, but I recently bought another good share of those.

During all this time having those bonds will alleviate market fluctuations.

And I am not keeping more than 6 months of expenses in a bank in Romania. So I am following your recommendation to some extent.

Mister643
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Re: Portfolio allocation - Romania

Post by Mister643 » Fri Aug 23, 2019 11:13 am

You should be thinking about the future, not the past. With the current bond yields, good luck of getting those returns with AGGH (I think you have also not counted the few basis points which are the cost of hedging). You might rather buy gold, that's a bond.

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Fri Aug 23, 2019 11:18 am

What is your portfolio structure, I suppose you have something in mind and sharing it may inspire other people or ignite a healthy discussion.

I am here to learn so I am open minded.

Valuethinker
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Re: Portfolio allocation - Romania

Post by Valuethinker » Fri Aug 23, 2019 11:58 am

Mister643 wrote:
Fri Aug 23, 2019 9:53 am
Hi,

I'm from Romania as well. Good to know other investors from my country. I do not like this portfolio because you have too much exposure on US and Japan (I would lower it for US and stick to 0% for Japan) and too much exposure on growth stocks. When everyone buys Bitcoins and growth you should either sell or stay away from the market.
Value investors tend to like Japan - there's a lot of assets there at fire-sale prices. Growth investors tend to like America - the world's biggest & strongest companies.

You'd rather be overweight in Europe? Deutsche Bank? Italy?
AGGH - another useless product with a 10 year expected future real return of -0.5%. Why would you keep your money in any product which does not even cover inflation? At the very least, you can keep those funds in cash or cash equivalents. For instance Banca Romaneasca pays more than 1.1% for EUR deposits. You will win at least the same amount as your favorite AGGH which perhaps you have chosen because you heard it from others and have not thought about the process.
It is absolutely true that the expected yield on a global bond fund, hedged into Euros, is basically the Eurozone interest rate (say -1.0%?) + a credit spread.

As long as they are within the Eurozone deposit insurance limit (100k EUR) and so guaranteed, bank accounts in the EU are a better alternative although I can speculate about situations where the guarantee would not be made good, since it is a national guarantee, not an EU one.
This is why the market is inefficient. People do random moves because they notice them from the others. Following the herd never has proven to be a good investment advice. I'd rather not invest than invest in IWDA, EIMI or AGGH. You should definitely avoid all blend ETFs, they are junkier than CDOs and MBS.
I chide our American friends for referring constantly to 4 letter codes.

I'll be honest, I have no idea what those are, usually.

Mister643
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Re: Portfolio allocation - Romania

Post by Mister643 » Fri Aug 23, 2019 12:11 pm

Sure. I have two equity portfolios.

I. Ultimate Buy and Hold Equity Portfolio

10% iShares Core S&P 500 UCITS ETF USD Acc (US Large and Mid Cap Blend) - CSPX EUR Euronext/SXR8 EUR Xetra - TER 0.07%

10% iShares MSCI USA Value Factor UCITS ETF USD Acc (US Large and Mid Cap Value) - QDVI EUR Xetra - TER 0.20%

10% SPDR Russell 2000 US Small Cap UCITS ETF USD Acc (US Small Cap Blend) - ZPRR EUR Xetra - TER 0.30%

10% SPDR MSCI USA Small Cap Value Weighted UCITS ETF USD Acc (US Small Cap Value) - ZPRV EUR Xetra - TER 0.30%

10% iShares Core MSCI Europe UCITS ETF EUR Acc (Europe Large and Mid Cap Blend) - EUNK EUR Xetra - TER 0.12%

10% iShares Edge MSCI Europe Value Factor UCITS ETF EUR Acc (Europe Large and Mid Cap Value) - CEMS EUR Xetra - TER 0.25%

10% SPDR MSCI Europe Small Cap UCITS ETF EUR Acc (Europe Small Cap Blend) - SMC EUR Euronext Paris/SMCX Borsa Italiana - TER 0.30%

10% SPDR MSCI Europe Small Cap Value Weighted UCITS ETF (Europe Small Cap Value) - ZPRX EUR Xetra - TER 0.30%

10% iShares Core MSCI EM IMI UCITS ETF USD Acc (EM Small, Mid and Large Cap Blend) - IS3N EUR Xetra - TER 0.18%

10% iShares Edge MSCI EM Value Factor UCITS ETF (EM Small, Mid and Large Cap Value) - 5MVL EUR Xetra - TER 0.40%

Total Expense Ratio: 0.24%

II. All Value Equity Portfolio

20% iShares MSCI USA Value Factor UCITS ETF USD Acc (US Large and Mid Cap Value) - QDVI EUR Xetra - TER 0.20%

20% SPDR MSCI USA Small Cap Value Weighted UCITS ETF USD Acc (US Small Cap Value) - ZPRV EUR Xetra - TER 0.30%

20% iShares Edge MSCI Europe Value Factor UCITS ETF EUR Acc (Europe Large and Mid Cap Value) - CEMS EUR Xetra - TER 0.25%

20% SPDR MSCI Europe Small Cap Value Weighted UCITS ETF (Europe Small Cap Value) - ZPRX EUR Xetra - TER 0.30%

20% iShares Edge MSCI EM Value Factor UCITS ETF (EM Small, Mid and Large Cap Value) - 5MVL EUR Xetra - TER 0.40%

Total Expense Ratio: 0.29%

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Fri Aug 23, 2019 12:11 pm

I prefer to be overweighted on US and I am serious thinking to allocate something in an India all stock fund.

Has anyone looked into those?

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Fri Aug 23, 2019 12:28 pm

Thank you for posting your portfolios, some people may find inspiration in them, at least I did.

Being invested 35% in Europe and 35% in EM is too risky from my perspective. Maybe i am not mature enough as investor but for the time being I will stick with my strategy while I continue to educate myself.

XtremePWN
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Re: Portfolio allocation - Romania

Post by XtremePWN » Tue Aug 27, 2019 6:36 am

Mindhacker wrote:
Fri Aug 23, 2019 12:28 pm
Thank you for posting your portfolios, some people may find inspiration in them, at least I did.

Being invested 35% in Europe and 35% in EM is too risky from my perspective. Maybe i am not mature enough as investor but for the time being I will stick with my strategy while I continue to educate myself.
I have a question, how do you manage dividend taxes? You have to declare them and pay separately the 5% tax for them or they are automatically deducted?

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Mindhacker
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Re: Portfolio allocation - Romania

Post by Mindhacker » Tue Aug 27, 2019 11:29 am

All the funds are with accumulation, this means that for Romania I will have to pay the taxes at withdrawal.

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