Beginner investor from Lithuania seeking advice

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Topic Author
buf
Posts: 5
Joined: Tue Oct 08, 2019 1:47 am

Beginner investor from Lithuania seeking advice

Post by buf » Tue Oct 08, 2019 2:13 am

Country of Residence: Lithuania

International Lifestyle: Not planning to move anywhere else.

Currency: EUR

Emergency funds: Three to six months of expenses, but it is generally not part of my asset allocation.

Debt: Only mortgage of 18000 EUR with 1.6% interest rate.

Age: Almost 30

Desired Asset allocation: 70% stocks / 30% bonds

Goal: Retirement and (early) financial independence

Current savings: Will start with a 2500 EUR initial deposit and then continue with 300 EUR per month and gradually increase the amount.
_______________________________________________________________

Hi everyone,

A few months back I came across a blog about investing that introduced me to FIRE, Bogleheads, Mustachianism and other concepts/movements/communities surrounding this whole financial independence and investing thing.
I instantly realized that this type of investing is a perfect fit for my personality and lifestyle.
I've started developing my investment plan (lazy portfolio) by following various advises and rules of thumb seen on wikies, blogs, forums, etc.
  • First up was asset allocation. This was easy - bond allocation is equal to my age, I'm almost 30 so 30% of bonds.
  • Next up - equity split into local and global. Now this is a little trickier. Since Lithuania's global market share is basically non existent I decided to follow above mentioned blogger's advice and consider the whole Europe as local. The rule of thumb for equity split is 50% global and 50% local (for US), so for Europe I am planning to go for roughly 65% global and 35% local.
  • Next - bonds. The rule of thumb is to go all-in with local bonds. However I've seen that general advice floating in the forums is to lean more heavily on global diversification and/or avoid European bonds altogether for a while due to negative yields. So in light of that I've decided to decrease home bias a bit by adding one global bond ETF and go with 35% global and 65% local bond split.
So based on above criteria and after doing a little bit of research I came up with the following porftolio:

Equity ETFs
49% iShares Core MSCI World UCITS ETF USD (Acc) (IWDA) (ter 0.20%) (70% of all equities)
14% iShares Core MSCI Europe UCITS ETF EUR (Acc) (IMEA) (ter 0.12%) (20% of all equities)
7% iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM) (ter 0.18%) (10% of all equities)
Bond ETFs
16% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (AGGH) (ter 0.10%) (53% of all bonds)
14% Xtrackers Eurozone Government Bond UCITS ETF 1C (DBXN) (ter 0.15%) (47% of all bonds)


All ETFs are accumulating to avoid paying 15% tax on dividends.

_______________________________________________________________
Questions:
1. What do you think about the decision to regard the whole Europe as local/home? What other possible options are there for investors in small countries? I've considered going with all global portfolio but this current setup seems and feels more stable.

2. What do you think about the equity and bond splits into global and local? Do these percentages make sense, especially in regards to home bias?

3. What about the actual portfolio setup? Do you see any viable alternatives to current ETFs?

4. Do you have any other suggestions?

_______________________________________________________________

Looking forward to your responses!

DJN
Posts: 509
Joined: Mon Nov 20, 2017 12:30 am

Re: Beginner investor from Lithuania seeking advice

Post by DJN » Tue Oct 08, 2019 5:35 am

Hi,
1. I would suggest that your allocation should be as near as achievable to global diversification in stocks and choose a world stock ETF.
2. For stock split see 1. above. For bonds portion why not just use one of the well known global bond ETFs. AGGH, EUNA or equivalent.
3. Why not go for two ETFs one for bonds and one for equities.
4. Save as much as possible.
See here: https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
Yah shure

Topic Author
buf
Posts: 5
Joined: Tue Oct 08, 2019 1:47 am

Re: Beginner investor from Lithuania seeking advice

Post by buf » Tue Oct 08, 2019 8:06 am

Hi,
1. I would suggest that your allocation should be as near as achievable to global diversification in stocks and choose a world stock ETF.
2. For stock split see 1. above. For bonds portion why not just use one of the well known global bond ETFs. AGGH, EUNA or equivalent.
3. Why not go for two ETFs one for bonds and one for equities.
4. Save as much as possible.
See here: https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
1. That would mean keeping only IWDA right? Now that I look at it again, 35% for Europe might seem a bit arbitrary and overly biased on home (if regarding Europe as home).
2. Yes, that's a reasonable option and also simpler/lazier (as far as keeping it simple goes). That 65% for European bonds now seems arbitrary too.
3. This was the main reason why I decided to create a post here. I could not decide whether to go with global diversification option (with 2-3 ETFs) or with an arguably safer option of small Europe bias (with 4-5 ETFs). So far most (if not all) of the answers (your response, PM response and other posts in other similar topics) suggest going with the global diversification option and 2-3 ETFs portfolio.

Also even my asset allocation of 70/30 was challenged and nudged towards more aggressive approach (age-10) - 80/20. Main reasons for this are:
  • I will ONLY invest surplus money
  • I am not planning to withdraw anything until retirement (minimum 15 years)
  • I am not in risk of losing and/or not finding a job (STEM jobs are in GREAT demand here)
What about adding emerging markets to equity part for potentially greater return? Example: IMEA. Not sure what part of equity should this one take tho.

All in all now I am leaning towards the following porftolio:
Equity ETFs
84-92% iShares Core MSCI World UCITS ETF USD (Acc) (IWDA) (ter 0.20%) (80-90% of all equities)
8-16% iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM) (ter 0.18%) (10-20% of all equities)
Bond ETFs
20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (AGGH) (ter 0.10%) (100% of all bonds)

How does this sound?

4. yep, that's part of the plan :)

DJN
Posts: 509
Joined: Mon Nov 20, 2017 12:30 am

Re: Beginner investor from Lithuania seeking advice

Post by DJN » Tue Oct 08, 2019 8:55 am

Hi,
good plan.
I would keep everything very simple including the % allocations to the nearest 10.
- 70% World stocks
- 10% EM stocks
- 20% AGGH
And then save even more!
I assume that your tax position is understood vis a vis accumulating.
Can you contribute to a pension with commensurate employer contributions?
DJN
Yah shure

User avatar
BeBH65
Posts: 1555
Joined: Sat Jul 04, 2015 7:28 am

Re: Beginner investor from Lithuania seeking advice

Post by BeBH65 » Tue Oct 08, 2019 1:09 pm

Hello Buf,

Welcome to the forum.
You have already received good answers, here are some additional points.
buf wrote:
Tue Oct 08, 2019 2:13 am
  • First up was asset allocation. This was easy - bond allocation is equal to my age, I'm almost 30 so 30% of bonds.
this is indeed a rule of thumb. It actually depends on your need, ability and willingness to take risk. (see wiki)
  • Next up - equity split into local and global. Now this is a little trickier. Since Lithuania's global market share is basically non existent I decided to follow above mentioned blogger's advice and consider the whole Europe as local. The rule of thumb for equity split is 50% global and 50% local (for US), so for Europe I am planning to go for roughly 65% global and 35% local.
Actually, I prefer to consider it: 50% US 50% non-US. As the US is 50% of the world market this basically means just hold the whole world at market cap. ( see also Stock_asset_allocation_for_non-US_investors

  • Next - bonds. The rule of thumb is to go all-in with local bonds. However I've seen that general advice floating in the forums is to lean more heavily on global diversification and/or avoid European bonds altogether for a while due to negative yields. So in light of that I've decided to decrease home bias a bit by adding one global bond ETF and go with 35% global and 65% local bond split.
Either is good. Choose one. Simplicity is one of the BH principles.

So based on above criteria and after doing a little bit of research I came up with the following porftolio:

Equity ETFs
49% iShares Core MSCI World UCITS ETF USD (Acc) (IWDA) (ter 0.20%) (70% of all equities)
14% iShares Core MSCI Europe UCITS ETF EUR (Acc) (IMEA) (ter 0.12%) (20% of all equities)
7% iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM) (ter 0.18%) (10% of all equities)
As your amounts are not big, focus on the first one for now to limit the purchase costs
Bond ETFs
16% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (AGGH) (ter 0.10%) (53% of all bonds)
14% Xtrackers Eurozone Government Bond UCITS ETF 1C (DBXN) (ter 0.15%) (47% of all bonds)
Choose one.
Last edited by BeBH65 on Wed Oct 09, 2019 2:30 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

glorat
Posts: 279
Joined: Thu Apr 18, 2019 2:17 am

Re: Beginner investor from Lithuania seeking advice

Post by glorat » Tue Oct 08, 2019 7:46 pm

The rule of thumb for equity split is 50% global and 50% local (for US), so for Europe I am planning to go for roughly 65% global and 35% local
That rule of thumb is so US centric and non-US investors are at risk of misapplying this guideline for their own home bias.

I'll make a separate detailed post on this but my short advice is to keep it simple until you're fully informed and have your equities go 100% global by market cap

Topic Author
buf
Posts: 5
Joined: Tue Oct 08, 2019 1:47 am

Re: Beginner investor from Lithuania seeking advice

Post by buf » Wed Oct 09, 2019 6:30 am

I would keep everything very simple including the % allocations to the nearest 10.
Makes sense, will do just that.
I assume that your tax position is understood vis a vis accumulating.
Yes, reinvested dividends are not taxed.
Can you contribute to a pension with commensurate employer contributions?
Unfortunately, no. This practice is rare here and only few employers offer such benefits.
Welcome to the forum.
Thanks! Really glad to finally join this community :)
That rule of thumb is so US centric and non-US investors are at risk of misapplying this guideline for their own home bias.
Indeed. I fell into the same trap as well.
_______________________________________________________________
Thanks everyone for the answers and suggestions. It really helped me to finally come to a plan that I feel comfortable with and confident in.

These are the changes I made to the initial plan:
  • Desired Asset allocation: went from 70% stocks / 30% bonds to 80% stocks / 20% bonds
  • Portfolio was narrowed down to:
Equity ETFs
70% iShares Core MSCI World UCITS ETF USD (Acc) (IWDA) (ter 0.20%)
10% iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM) (ter 0.18%)
Bond ETFs
20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (AGGH) (ter 0.10%)


After completing this questionnaire https://personal.vanguard.com/us/FundsInvQuestionnaire several times by changing a few values here and there the results varied from 100/0 to 80/20, solidifying this new asset allocation choice.

And even https://boglebot.com/ gave identical portfolio setup the one above:
  • IWDA iShares Core MSCI World: 70%
  • EIMI iShares Core MSCI EM IMI: 10%
  • AGGH/EUNA iShares Core Global Aggregate Bond (EUR Hedged): 20%

User avatar
alpine_boglehead
Posts: 359
Joined: Fri Feb 17, 2017 9:51 am
Location: Austria

Re: Beginner investor from Lithuania seeking advice

Post by alpine_boglehead » Wed Oct 09, 2019 3:27 pm

Congratulations on the simple plan, it sounds good. One minor thing is that you might consider paying off your mortgage at an accelerated rate (if that is possible) instead of putting money into bonds - 1.6% is likely above what you can expect from EUR-hedged bonds.

Topic Author
buf
Posts: 5
Joined: Tue Oct 08, 2019 1:47 am

Re: Beginner investor from Lithuania seeking advice

Post by buf » Fri Oct 11, 2019 1:25 am

alpine_boglehead wrote: Congratulations on the simple plan, it sounds good. One minor thing is that you might consider paying off your mortgage at an accelerated rate (if that is possible) instead of putting money into bonds - 1.6% is likely above what you can expect from EUR-hedged bonds.
Thanks! Excellent advice, will definitely consider it.

Valuethinker
Posts: 38964
Joined: Fri May 11, 2007 11:07 am

Re: Beginner investor from Lithuania seeking advice

Post by Valuethinker » Fri Oct 11, 2019 8:26 am

buf wrote:
Tue Oct 08, 2019 8:06 am

3. This was the main reason why I decided to create a post here. I could not decide whether to go with global diversification option (with 2-3 ETFs) or with an arguably safer option of small Europe bias (with 4-5 ETFs).
Other way. The European bias (in your equities) makes your portfolio less diversified and thus less safe.
So far most (if not all) of the answers (your response, PM response and other posts in other similar topics) suggest going with the global diversification option and 2-3 ETFs portfolio.

Also even my asset allocation of 70/30 was challenged and nudged towards more aggressive approach (age-10) - 80/20. Main reasons for this are:
  • I will ONLY invest surplus money
  • I am not planning to withdraw anything until retirement (minimum 15 years)
  • I am not in risk of losing and/or not finding a job (STEM jobs are in GREAT demand here)
The correlation between equity and bond returns is not 1.0. That's the diversification gain. The loss in performance going from 80% equities to 70% is surprisingly small. The reduction in volatility is however significant (for most people).

Most of the studies were done with US Treasury Bonds and the S&P 500. AFAIK they hold true across all markets, though.

We are not kidding when we say that a bear market (-50% quickly like 2008-09 or -35% slowly like 2000-03) really has to be experienced. When you wake up and have lost half your retirement savings ...

There are a lot of 100% equity threads, here. That's a typical sign of a late stage bull (upwards) market.

There's a thread by poster Sheepdog along the lines of "I can't believe I am thinking this" - really a sort of diary of experiences and emotions in late 2008- early 2009. It's worth a read (from the start).

We read a lot of threads here about investors who got scared at some point, crashed out, and have now missed the market rises since. It's easily forgotten but the Eurozone crisis (Greece) of 2011/12 gave fears that the Global Financial Crisis would be repeated. And believe me, if one takes too close a look at Italy then one could start getting scared again ...

(for those who prefer more excitement, poster market timer 's entire thread about being leveraged (borrowed) into the crash of 2008-09 and going down c. $250k negative net worth, and then clawing it back.)

What about adding emerging markets to equity part for potentially greater return? Example: IMEA. Not sure what part of equity should this one take tho.

All in all now I am leaning towards the following porftolio:
Equity ETFs
84-92% iShares Core MSCI World UCITS ETF USD (Acc) (IWDA) (ter 0.20%) (80-90% of all equities)
8-16% iShares Core MSCI Emerging Markets IMI UCITS ETF (EMIM) (ter 0.18%) (10-20% of all equities)
Yes but don't overcomplicate this. Make EM either 10% or 15% and developed markets the other 90% or 85% and be done with it. The effect on your final portfolio value (as long as you periodically rebalance) will be de minimis. If your rebalancing bands are +/- 2.5% you really won't notice. (in tax exempt accounts you can rebalance as often as you want, in taxable accounts rebalancing is a careful game of matching losses to capital gains to minimize tax - every national tax system varies on this but the rule of thumb is not to rebalance too often).
Bond ETFs
20% iShares Core Global Aggregate Bond UCITS ETF EUR Hedged (Acc) (AGGH) (ter 0.10%) (100% of all bonds)

How does this sound?

4. yep, that's part of the plan :)
There's really only one thing which determines your portfolio risk. Your bond-equity split.*

Don't get distracted by anything else.

* your degree of exposure outside your home currency (i.e. to exchange rate volatility) has similar properties, if not of the same magnitude. But, by and large, most of us hold equity funds which are not currency hedged, and bond funds which are. In addition we have jobs, home equity & government pensions which will be paid in home currency, thus tilting us towards home currency in any case.

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