Personal Investment Strategy Advice

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Topic Author
raul777
Posts: 5
Joined: Wed May 15, 2019 9:26 pm

Personal Investment Strategy Advice

Post by raul777 »

Looking for knowledge sharing / investment advice for personal investments:

Current Portfolio: €937K

Cash €182,149.47 (19.5%)
Savings Account Cash €140,431.98 (15%)
Wealth mgmt firms €140,480.17 (15%)
Stocks €184,437.09 (20%)
401K / Retirement €174,008.19 (18%)
Real Estate €110,000.00 (12%)
Other €5,743.79 (0.5%)

Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
- Plan is to keep working; but in areas where money is not the sole driver / one does not make a lot of money.
- Current Lifestyle: €60K post-tax per year for family expenses (break-even at the EOY); number likely to grow by 25%
- Roadmap to post-tax annual earnings of €25K for the next 20 yrs (because of my partner's job)

Investment Goal:
- Ideally, be able to provide the post-tax annual €35K (€60K annual living costs - €25K partner's salary) for the next 2 decades via my investments
- To grow wealth long term (long term = age 60 in mind i.e. in 27 yrs)

Priorities:

1. 10/15/20 yr growth perspective
2. Flexible around time of market exit w. investments
3. €750K mortgage payment due, 10-yr fixed, €2300 / month sort of payment

Questions / Thoughts:

1. Looking at my portfolio: looking to invest / relocate funds from "cash & savings accounts" which is very high in my case (yes, cultural reasons for playing it so safe lol). These two account to 35% of my money; looking to reduce this to around 10-15% cash / savings accounts. Thoughts?

2. Looking to move out of wealth mgmt firms completely i.e. 15% of my wealth. Thoughts here?

3. Need specific advice on portfolio diversification / distribution.

4. Need advice on global vs. EU vs. US

5. Need advice on stocks vs. bonds

6. Need advice on ETFs vs. MFs vs. indiv. stocks

Thank you in advance!

Love and energy to all!
Topic Author
raul777
Posts: 5
Joined: Wed May 15, 2019 9:26 pm

Re: Personal Investment Strategy Advice

Post by raul777 »

Note: I live in Germany and plan to stay here for a while.

Just checking in: Any takers for my questions?
Laurizas
Posts: 515
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: Personal Investment Strategy Advice

Post by Laurizas »

raul777 wrote: Thu Aug 05, 2021 6:33 am 1. Looking at my portfolio: looking to invest / relocate funds from "cash & savings accounts" which is very high in my case (yes, cultural reasons for playing it so safe lol). These two account to 35% of my money; looking to reduce this to around 10-15% cash / savings accounts. Thoughts?
This question is connected with question No 5. I would say start with this
https://retirementplans.vanguard.com/VG ... -W7JL-U0J5
raul777 wrote: Thu Aug 05, 2021 6:33 am 2. Looking to move out of wealth mgmt firms completely i.e. 15% of my wealth. Thoughts here?
It is only 15 percent. Why do you have it in first place? I would move out.
raul777 wrote: Thu Aug 05, 2021 6:33 am 4. Need advice on global vs. EU vs. US
This section of the forum recommends global fund, but there are many discussion in "Investing - Theory, News & General" section of the forum search.php?keywords=international&terms ... mit=Search

You should read older posts because your questions are nothing new and form you own opinion.
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Personal Investment Strategy Advice

Post by Valuethinker »

Laurizas wrote: Mon Aug 09, 2021 4:35 am
4. Need advice on global vs. EU vs. US
This section of the forum recommends global fund, but there are many discussion in "Investing - Theory, News & General" section of the forum search.php?keywords=international&terms ... mit=Search

You should read older posts because your questions are nothing new and form you own opinion.
One thing to be understood in these debates is 90%+ of Bogleheads are Americans.

Both John Bogle himself and Warren Buffett have told investors that they only need to invest in US stocks - the S&P500 or equivalent.

There's a bit of American Exceptionalism that lurches into play then, about why the US market is superior to all other markets (and why, despite a general belief in market efficiency, that does not imply that the relative valuations of international v US indices have adjusted to reflect better corporate governance, etc). When I am feeling devlish I tweak the American tail on this one ;-).

The result is very long and pointless debates which convince neither side, but are interesting exposures of different cultural and cognitive biases.

From the perspective of the other 10% of us here, it would be a mistake to underweight USA (about 60% of global developed market index). However there's no good reason to overweight it, either.

We avoid Home Country Bias (that's a much studied academic term) in our own portfolios. It makes no sense if you live in the UK say, to have more than 5% of your equities in UK stocks (ie about its world weighting). Or if in Canada more than 2-3% in Canadian stocks (particularly given how poorly diversified the CDN market is -- 80% financials + natural resource stocks (mostly oil & gas). By extension, there's no reason to to overweight anyone else's index.

This is separate from currency risk, and that's often confused. Just because a stock is priced in CAD, doesn't mean it hedges against all exchange rate risk. Indeed some UK stocks (BP - British Petroleum) adjust their dividend levels for the GBP/ USD exchange rate.

Generally we just let currency risk ride on equity funds - we don't hedge. We have home equity in our home currency (most of us). We have state pension rights. And we generally hold our fixed income investments & bank accounts in our home currency. The argument is that in the long run the buying power will equilibrate (the currency with higher inflation will devalue relative to the one with lower inflation). Purchasing power is maintained without the cost of hedging.
jg12345
Posts: 421
Joined: Fri Dec 11, 2020 12:03 pm

Re: Personal Investment Strategy Advice

Post by jg12345 »

raul777 wrote: Thu Aug 05, 2021 6:33 am Looking for knowledge sharing / investment advice for personal investments:

Current Portfolio: €937K

Cash €182,149.47 (19.5%)
Savings Account Cash €140,431.98 (15%)
Wealth mgmt firms €140,480.17 (15%)
Stocks €184,437.09 (20%)
401K / Retirement €174,008.19 (18%)
Real Estate €110,000.00 (12%)
Other €5,743.79 (0.5%)

Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
- Plan is to keep working; but in areas where money is not the sole driver / one does not make a lot of money.
- Current Lifestyle: €60K post-tax per year for family expenses (break-even at the EOY); number likely to grow by 25%
- Roadmap to post-tax annual earnings of €25K for the next 20 yrs (because of my partner's job)

Investment Goal:
- Ideally, be able to provide the post-tax annual €35K (€60K annual living costs - €25K partner's salary) for the next 2 decades via my investments
- To grow wealth long term (long term = age 60 in mind i.e. in 27 yrs)

Priorities:

1. 10/15/20 yr growth perspective
2. Flexible around time of market exit w. investments
3. €750K mortgage payment due, 10-yr fixed, €2300 / month sort of payment

Questions / Thoughts:

1. Looking at my portfolio: looking to invest / relocate funds from "cash & savings accounts" which is very high in my case (yes, cultural reasons for playing it so safe lol). These two account to 35% of my money; looking to reduce this to around 10-15% cash / savings accounts. Thoughts?

2. Looking to move out of wealth mgmt firms completely i.e. 15% of my wealth. Thoughts here?

3. Need specific advice on portfolio diversification / distribution.

4. Need advice on global vs. EU vs. US

5. Need advice on stocks vs. bonds

6. Need advice on ETFs vs. MFs vs. indiv. stocks

Thank you in advance!

Love and energy to all!
Since you are pretty new in terms of post, I'd suggest taking some time to read boglewiki, and SimplyFI guide developed by the bogleheads Bahrain chapter. Once that is done, I believe you will be much better placed to ask yourself the right questions.

1- on this forum we usually suggest keeping 6-12 months as emergency funds. some people count emergency funds as part of their bonds/safe assets allocation, some don't.

2- Do it. No other thoughts.

3- For the stock part, Vanguard FTSE all-world (acc) EUR or MSCI ACWI should be perfect for you. For the bonds part, Ishares core global aggregate hedged to EUR (or similar ETF) should work for you. You can find those ETFs on boglewiki. In this way you are globally diversified.

4- see point 3 and valuethinker post. Usually here we suggest no overweight of EU or US or any other country.

5- What kind of advice exactly? Usual rules are 100 or 110 or 120 minus age (the higher, the more aggressive you are) should be your portfolio % allocated to bonds, and the rest to stocks. Final choice will depend on a) your risk appetite, b) your required returns. Another helpful thing is to have an investment policy statement where you set out rules for yourself (read more on boglewiki)

6- Here we suggest using low-cost ETF as the main tool for passive, buy-and-hold (better said... buy-and-forget) investing.

It is unclear whether your 60k include mortgage cost or not, it is unclear whether real estate is your first home or not.

For financial independence/retire early, a rule of thumb for safe withdrawal rates is 4%. Assuming your whole wealth is invested, using the 4% rule, taking 900k, and requiring 35k per year... you're just about there before tax, likely not enough after tax (I am not sure about capital gain tax in Germany). It's possible that other forums (mrmoneymoustache, and other others) focused on FIRE discuss the topic better than here.

Hope this helps!
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Personal Investment Strategy Advice

Post by Valuethinker »

raul777 wrote: Thu Aug 05, 2021 6:33 am
Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
For financial independence/retire early, a rule of thumb for safe withdrawal rates is 4%. Assuming your whole wealth is invested, using the 4% rule, taking 900k, and requiring 35k per year... you're just about there before tax, likely not enough after tax (I am not sure about capital gain tax in Germany). It's possible that other forums (mrmoneymoustache, and other others) focused on FIRE discuss the topic better than here.

Hope this helps!
I don't think there is any way that, at current Eurozone interest rates, a 36 year old can retire at 4% "Safe Withdrawal Rate" pa.

That's a number which is stretching it, at current interest rates, at 60. Let alone 36.

What happens if we hit a 15 year bear market in equities?
jg12345
Posts: 421
Joined: Fri Dec 11, 2020 12:03 pm

Re: Personal Investment Strategy Advice

Post by jg12345 »

Valuethinker wrote: Mon Aug 09, 2021 12:57 pm
raul777 wrote: Thu Aug 05, 2021 6:33 am
Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
For financial independence/retire early, a rule of thumb for safe withdrawal rates is 4%. Assuming your whole wealth is invested, using the 4% rule, taking 900k, and requiring 35k per year... you're just about there before tax, likely not enough after tax (I am not sure about capital gain tax in Germany). It's possible that other forums (mrmoneymoustache, and other others) focused on FIRE discuss the topic better than here.

Hope this helps!
I don't think there is any way that, at current Eurozone interest rates, a 36 year old can retire at 4% "Safe Withdrawal Rate" pa.

That's a number which is stretching it, at current interest rates, at 60. Let alone 36.

What happens if we hit a 15 year bear market in equities?

Let me clarify: 4% is only a rule of thumb, and I suggest you, OP, get to know more about the topic of safe withdrawal rate. It is very unlikely that it'd work in your current situation (i.e., portfolio size, age, desired age at retirement, expenditure per year, tax), as both me and Valuethinker stated.

The point on "what happens if we hit a bear/bull/sideways market" is better addressed using Montecarlo simulations. Again, something that may require a bit of learning and understanding. Vanguard Nest egg calculator does that. OP, you can find it online and it's easy to use - possibly less easy to understand it fully. There may be other nest egg calculators online.

Two points to consider:
- A bear market will affect your retirement plans more if it happens at the beginning of draw down period.
https://www.ajbell.co.uk/news/first-bea ... -investors
- One point that I find problematic about all Nest egg calculators is that they do not assume any tax, which may or may not be fine in your case; you can adjust that by increasing the annual post-retirement expenditure if you believe you'll pay CGT/income tax when you withdraw or receive dividends from nest egg.
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Personal Investment Strategy Advice

Post by Valuethinker »

jg12345 wrote: Tue Aug 10, 2021 8:32 am
Valuethinker wrote: Mon Aug 09, 2021 12:57 pm
raul777 wrote: Thu Aug 05, 2021 6:33 am
Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
For financial independence/retire early, a rule of thumb for safe withdrawal rates is 4%. Assuming your whole wealth is invested, using the 4% rule, taking 900k, and requiring 35k per year... you're just about there before tax, likely not enough after tax (I am not sure about capital gain tax in Germany). It's possible that other forums (mrmoneymoustache, and other others) focused on FIRE discuss the topic better than here.

Hope this helps!
I don't think there is any way that, at current Eurozone interest rates, a 36 year old can retire at 4% "Safe Withdrawal Rate" pa.

That's a number which is stretching it, at current interest rates, at 60. Let alone 36.

What happens if we hit a 15 year bear market in equities?

Let me clarify: 4% is only a rule of thumb, and I suggest you, OP, get to know more about the topic of safe withdrawal rate. It is very unlikely that it'd work in your current situation (i.e., portfolio size, age, desired age at retirement, expenditure per year, tax), as both me and Valuethinker stated.

The point on "what happens if we hit a bear/bull/sideways market" is better addressed using Montecarlo simulations. Again, something that may require a bit of learning and understanding. Vanguard Nest egg calculator does that. OP, you can find it online and it's easy to use - possibly less easy to understand it fully. There may be other nest egg calculators online.

Two points to consider:
- A bear market will affect your retirement plans more if it happens at the beginning of draw down period.
https://www.ajbell.co.uk/news/first-bea ... -investors
- One point that I find problematic about all Nest egg calculators is that they do not assume any tax, which may or may not be fine in your case; you can adjust that by increasing the annual post-retirement expenditure if you believe you'll pay CGT/income tax when you withdraw or receive dividends from nest egg.
Sorry for misunderstanding the point you were making.

I get really worried around here when people start quoting the "4% Rule". There was never any such rule (technically I suppose it is a "heuristic" or "rule of thumb").

And under current interest rate conditions there's no way it can be accurate unless the mortality credit is high (ie from a relatively late age).

It's a quite sobering reality that at 65, those of us who are middle class and European, have a decent chance of making it to 95. And our (female) spouses perhaps even 100.
jg12345
Posts: 421
Joined: Fri Dec 11, 2020 12:03 pm

Re: Personal Investment Strategy Advice

Post by jg12345 »

Valuethinker wrote: Tue Aug 10, 2021 10:27 am
jg12345 wrote: Tue Aug 10, 2021 8:32 am
Valuethinker wrote: Mon Aug 09, 2021 12:57 pm
raul777 wrote: Thu Aug 05, 2021 6:33 am
Life scenario:
- 33 yrs old, looking to quit intense work in 3-4 yrs (around age 36).
For financial independence/retire early, a rule of thumb for safe withdrawal rates is 4%. Assuming your whole wealth is invested, using the 4% rule, taking 900k, and requiring 35k per year... you're just about there before tax, likely not enough after tax (I am not sure about capital gain tax in Germany). It's possible that other forums (mrmoneymoustache, and other others) focused on FIRE discuss the topic better than here.

Hope this helps!
I don't think there is any way that, at current Eurozone interest rates, a 36 year old can retire at 4% "Safe Withdrawal Rate" pa.

That's a number which is stretching it, at current interest rates, at 60. Let alone 36.

What happens if we hit a 15 year bear market in equities?

Let me clarify: 4% is only a rule of thumb, and I suggest you, OP, get to know more about the topic of safe withdrawal rate. It is very unlikely that it'd work in your current situation (i.e., portfolio size, age, desired age at retirement, expenditure per year, tax), as both me and Valuethinker stated.

The point on "what happens if we hit a bear/bull/sideways market" is better addressed using Montecarlo simulations. Again, something that may require a bit of learning and understanding. Vanguard Nest egg calculator does that. OP, you can find it online and it's easy to use - possibly less easy to understand it fully. There may be other nest egg calculators online.

Two points to consider:
- A bear market will affect your retirement plans more if it happens at the beginning of draw down period.
https://www.ajbell.co.uk/news/first-bea ... -investors
- One point that I find problematic about all Nest egg calculators is that they do not assume any tax, which may or may not be fine in your case; you can adjust that by increasing the annual post-retirement expenditure if you believe you'll pay CGT/income tax when you withdraw or receive dividends from nest egg.
Sorry for misunderstanding the point you were making.

I get really worried around here when people start quoting the "4% Rule". There was never any such rule (technically I suppose it is a "heuristic" or "rule of thumb").

And under current interest rate conditions there's no way it can be accurate unless the mortality credit is high (ie from a relatively late age).

It's a quite sobering reality that at 65, those of us who are middle class and European, have a decent chance of making it to 95. And our (female) spouses perhaps even 100.
no worries at all! my retirement plan indeed reaches 96 y.o.

Can you elaborate on how low interest rates matter when thinking about SWR, retirement, etc., for my and possibly OP's information? Is it because it pushes up inflation expectations (while stock market returns are largely uncorrelated to inflation)?

Thanks!
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Personal Investment Strategy Advice

Post by Valuethinker »

jg12345 wrote: Wed Aug 11, 2021 4:01 am no worries at all! my retirement plan indeed reaches 96 y.o.

Can you elaborate on how low interest rates matter when thinking about SWR, retirement, etc., for my and possibly OP's information? Is it because it pushes up inflation expectations (while stock market returns are largely uncorrelated to inflation)?

Thanks!
The only "safe" plan, is the annuity that lasts for the rest of your life (longevity insurance).

At age 65, in the UK, with a spouse aged 60, £100k premium will buy about £2k pa for the rest of your life (50% survival benefit for spouse), inflation indexed. About £4k flat.

Those insurance offers are driven by:
- your expected lifespan - keeps rising, particularly for annuity holders (who live longer than the average)
- the return the insurance company gets on the offsetting assets (the insurance policy/ annuity is a liability on their balance sheet, so the offsetting investments are the assets)

The 2nd factor is driven by what assets an insurer is allowed to hold against an annuity by the regulators. Post 2008/9 these are pretty conservative. Something in the EU called Solvency II comes into play.

Historically that was government bonds. But these largely pay negative yields. Even the Italian ones don't pay much positive yield.

But even corporate bonds are now over 45% of US investment grade corporate issuers are BBB (ie 2 notch downgrade would make them junk/ high yield - which would then not be accepted as assets by the regulator).

Back to our problem. Since the history of stock market performance shows there is *no way* to predict returns, you have to plan for a period of negative returns, particularly at the start of your retirement period.

Hopefully that will not be the UK market in the mid 70s, which managed a real return of c -80% (inflation was over 20% so the nominal return was better) in one 2 year period.

But you could easily have a 1966-1980 (US stock market gave about -40% real returns). Or a 1929-1944. Or even just 2000-10 with its 2 brutal bear markets.

One hedge against this is to hold lots and lots of inflation-linked bonds. But index linked gilts (UK govt) right now pay a -2.5% return. That's right, a guarantee, if held to maturity, of losing -2.5% of your money in real terms every year. Now we know why annuity rates are so low!

People talk here that equities are an inflation hedge. They are not - particularly during periods of rising inflation. What they do do is give the possibility of high real returns in the long run, which will therefore beat inflation.

Many of us are richer due to rising financial markets in the last few years. But in terms of our actual retirement spending, we are not richer - depending on how we choose to hedge.
jg12345
Posts: 421
Joined: Fri Dec 11, 2020 12:03 pm

Re: Personal Investment Strategy Advice

Post by jg12345 »

Thanks, very helpful. I see your point better now!

I have to admit I did not factor in my calculations a bear stock market for 10-15 at beginning of my drawdown period. I have however decreased significantly the expected stock market return from their historical average - to factor in some conservatism/possibility of bear market at the wrong time.

OP,
might be helpful if you will develop a proper retiring plan, which will likely show the plan of retiring on 900k at age 37 with expected expenditure at 35k per year will not (or at the least, very unlikely) work
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: Personal Investment Strategy Advice

Post by Valuethinker »

jg12345 wrote: Wed Aug 11, 2021 12:34 pm Thanks, very helpful. I see your point better now!

I have to admit I did not factor in my calculations a bear stock market for 10-15 at beginning of my drawdown period. I have however decreased significantly the expected stock market return from their historical average - to factor in some conservatism/possibility of bear market at the wrong time.

OP,
might be helpful if you will develop a proper retiring plan, which will likely show the plan of retiring on 900k at age 37 with expected expenditure at 35k per year will not (or at the least, very unlikely) work
The answer, which is much discussed here, is to flex your consumption/ cash needs, with portfolio performance in retirement.

The problem is "time waits for no man". If there are things you always meant to do, then the early years of retirement, when if you are lucky you have your health, are the time to do them. They can be quite expensive (travel in particular).

Retire at 37? Having to plan for 60 years of further life. That's a very long time to cover without earned income.
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