Feedback on EU portfolio build for long term investment [Spain]

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Topic Author
Gato
Posts: 4
Joined: Thu Sep 03, 2020 4:44 pm

Feedback on EU portfolio build for long term investment [Spain]

Post by Gato »

Hello fellow bogleheads,

I'm an investor from Spain who is creating a portfolio for a long term investment (minimun 20 years without taking out the investment). I'm risk tolerant up to a certain point. Probably I won't lose my job as I'm a public server, so taking this into account I have built the following portfolio with mutal funds (in Spain there is no taxation for transfering from one found to another). I would start with a few thousand € initial investment and then I would add additional participations of a few hundred each month. I'd be grateful to read your feedback!

60% Vanguard U.S. 500 Stock Index Fund Investor EUR Accumulation
https://www.morningstar.es/es/funds/sna ... F0GBR04G0F
40% Vanguard 20+ Year Euro Treasury Index Fund EUR Acc https://www.morningstar.es/es/funds/sna ... F000001GFI

The main idea of this portfolio is attaching to the US Stock index, as has historically a good return percentage, but reducing volatility with euro treasury long term bonds. The low correlation between the two of them could support the US 500 stock index in bad times.

What do more experienced bogleheads think?

Thanks in advance!

PD: I have already read Rick Ferri's Asset Allocation, The Boglehead guide to investment and the non-US bogleheads's wiki. I came so far, so now I need your advice.
Last edited by Gato on Fri Sep 04, 2020 6:47 am, edited 1 time in total.
TedSwippet
Posts: 3166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Feedback on EU portfolio build for long term investment [Spain]

Post by TedSwippet »

Welcome.
Gato wrote: Thu Sep 03, 2020 4:54 pm 60% Vanguard U.S. 500 Stock Index Fund Investor EUR Accumulation https://www.morningstar.es/es/funds/sna ... F0GBR04G0F
40% Vanguard 20+ Year Euro Treasury Index Fund EUR Acc https://www.morningstar.es/es/funds/sna ... F000001GFI
What makes you so certain that US stocks will outperform (and not under-perform) for the next two decades or more?

Holding only US stocks might be sort-of okay for a US based investor, but for a non-US one, there is a lot of currency risk and a fair bit of concentration risk in this. Something much more global would I think provide better balance.
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BeBH65
Posts: 1697
Joined: Sat Jul 04, 2015 7:28 am

Re: Feedback on EU portfolio build for long term investment [Spain]

Post by BeBH65 »

In addition.

Yes a Euro Treasury fund will not have currency volatility, also the quality of the bonds is high; however it will go up and down when intrest rates change.
The fund you highlighted has a duration of 21,75. This means that it will drop with 21,75% if the intrest rate augments with 1%, and it will take approx. 21,75 year for you to break even again. Within the Boglehead community intermediate bond (with a duration of 6 to 9 years) is prefered.
Do you have access to a fund with quality Euro bonds with a lower duration?
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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tre3sori
Posts: 121
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Re: Feedback on EU portfolio build for long term investment [Spain]

Post by tre3sori »

This sample portfolio does not have country or duration bets:
60% Vanguard FTSE All-World UCITS ETF (USD) Accumulating (VWCE)
40% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating (VAGF)
Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve. Talmud | 34% Real Estate, 43% VGWL, 16% VAGE, 5% 8PSG, 2% Cash
Topic Author
Gato
Posts: 4
Joined: Thu Sep 03, 2020 4:44 pm

Re: Feedback on EU portfolio build for long term investment [Spain]

Post by Gato »

TedSwippet wrote: Fri Sep 04, 2020 3:10 am Welcome.
Gato wrote: Thu Sep 03, 2020 4:54 pm 60% Vanguard U.S. 500 Stock Index Fund Investor EUR Accumulation https://www.morningstar.es/es/funds/sna ... F0GBR04G0F
40% Vanguard 20+ Year Euro Treasury Index Fund EUR Acc https://www.morningstar.es/es/funds/sna ... F000001GFI
What makes you so certain that US stocks will outperform (and not under-perform) for the next two decades or more?

Holding only US stocks might be sort-of okay for a US based investor, but for a non-US one, there is a lot of currency risk and a fair bit of concentration risk in this. Something much more global would I think provide better balance.
Well, you're right, nothing. As you can't assure that with a global diversified equity, you'll reduce the risk. In fact, During the last 10 years global equity has been reducing earnings and increasing volatility in portfolios. It seems that there is a high correlation between US equity and global equity, except in especific short periods. Does the increased volatily pay the risk in return? I'm not sure, but I'm open to more opinions. Of course there is currency risk, but how much of that risk really reflects back on portfolio performance?
BeBH65 wrote: Fri Sep 04, 2020 3:22 am In addition.

Yes a Euro Treasury fund will not have currency volatility, also the quality of the bonds is high; however it will go up and down when intrest rates change.
The fund you highlighted has a duration of 21,75. This means that it will drop with 21,75% if the intrest rate augments with 1%, and it will take approx. 21,75 year for you to break even again. Within the Boglehead community intermediate bond (with a duration of 6 to 9 years) is prefered.
Do you have access to a fund with quality Euro bonds with a lower duration?
Yes I have access to this two funds:

Vanguard Euro Government Bond Index Fund Investor https://www.morningstar.es/es/funds/sna ... F0GBR04SGN
Vanguard Euro Investment Grade Bond Index Fund Investor EUR Accumulation https://www.morningstar.es/es/funds/sna ... F0GBR04UHB

However, there is so much little information about european fixed income in boglehead's guides that I'm not sure how does it work. I've been looking the historical graphs of the 20+ euro treasury long bonds and it seems it has a pretty balanced correlation/risk relation. It seems that european rate interest will be very low during the next years.
So, do you think that medium term bond fund is a better choice?
tre3sori wrote: Fri Sep 04, 2020 5:45 am This sample portfolio does not have country or duration bets:
60% Vanguard FTSE All-World UCITS ETF (USD) Accumulating (VWCE)
40% Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Accumulating (VAGF)
My main hold back with a global diversified portfolio it's that you may dilute your earnings as you increase your risk, taking into account that global equity has higher volatility. But I'm learning here, maybe a global diversified equity was the right choice during the 2000-2009 breakdown and most of bogleheads guides were written during or short after that period and that's why they recomend global equity? Would'nt that be "retrospective market timing"? I'm not the only one who has thought this, right?
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