Holistic Allocation - stocks vs. bonds [Israel]

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Topic Author
TLV_London
Posts: 17
Joined: Sun Oct 04, 2020 11:40 pm

Holistic Allocation - stocks vs. bonds [Israel]

Post by TLV_London »

I'm in the process of moving over my workplace pension fund over to a self managed one. I'm 46 and my pension will be available at age 60. Right now 70% of my monthly savings goes to my pension and 30% to my personal portfolio that I hold with IB.

Due to the tax advantages of the pension fund, I believe it's best to hold 100% VWRA (Vanguard Global Fund) in my pension and make up the difference in my taxable personal portfolio (the pension currently holds 30% bonds which will be sold when moving over).

When moving the pension over to self-managed and buying 100% VWRA my holistic portfolio will have an allocation of 90% equities and 10% bonds. The question is this - a) is my strategy wise, and b) should I simply sell off part of my VWRA units that I hold in my personal portfolio and replace with bonds to correct to a more modest allocation. I believe I"m in still in the wealth accumulation stage so maybe it wouldn't hurt to have 90% in stocks? I'm also pretty comfortable with riding the storm.

A few things to take into consideration. I'm unlikely to retire before 60. I also don't live in the States, so the setup is slightly different here in Israel.
Valuethinker
Posts: 49030
Joined: Fri May 11, 2007 11:07 am

Re: Holistic Allocation - stocks vs. bonds [Israel]

Post by Valuethinker »

TLV_London wrote: Sat Mar 25, 2023 6:52 am I'm in the process of moving over my workplace pension fund over to a self managed one. I'm 46 and my pension will be available at age 60. Right now 70% of my monthly savings goes to my pension and 30% to my personal portfolio that I hold with IB.

Due to the tax advantages of the pension fund, I believe it's best to hold 100% VWRA (Vanguard Global Fund) in my pension and make up the difference in my taxable personal portfolio (the pension currently holds 30% bonds which will be sold when moving over).

When moving the pension over to self-managed and buying 100% VWRA my holistic portfolio will have an allocation of 90% equities and 10% bonds. The question is this - a) is my strategy wise, and b) should I simply sell off part of my VWRA units that I hold in my personal portfolio and replace with bonds to correct to a more modest allocation. I believe I"m in still in the wealth accumulation stage so maybe it wouldn't hurt to have 90% in stocks? I'm also pretty comfortable with riding the storm.

A few things to take into consideration. I'm unlikely to retire before 60. I also don't live in the States, so the setup is slightly different here in Israel.
2022 was a year when holding bonds did not protect the portfolio, much if at all.

Most of us find we are not so brave when it comes to high equity allocations and bear markets. Losing 30% of your portfolio either slowly and painfully (2022 but less than that; 2000-03 about -35%) or sharply (-50% in 2008/9, -25%? in March-April 2020) is just a harrowing experience.

So I tend to suggest that everyone should hold at least 20% in bonds. Certainly US Treasury bonds right now are a lot higher yielding than they were.

It's really down to your risk tolerance, and unfortunately you only really know what that is when it hits the fan-- how you react. I know that I react by freezing, rabbit in headlights. So the rebalancing bonus does not particularly help me.

Another important factor is your tax position. That drives a lot of investment decisions: avoiding realising capital gains when you can, the effective tax rate on interest and dividend income, etc.

You are on the right track - a single fund (I don't know the ticker codes) which tracks the world index. Maximal diversification.

Are you risking US estate tax by holding a US domiciled ETF? (genuine question: I do not know - as a UK investor no one can sell me US-listed ETFs).

As you get closer to retirement you want to hold more bonds - most likely.
Topic Author
TLV_London
Posts: 17
Joined: Sun Oct 04, 2020 11:40 pm

Re: Holistic Allocation - stocks vs. bonds [Israel]

Post by TLV_London »

Great answer. I have to say that my risk appetite is pretty high. The thought of the market dropping 30% doesn't really concern me all that much - especially seeing as I have at least another 15 years or so until I retire. I think I'll start dollar cost averaging into my private IB account and just bonds for the time being.

As for the exchange I trade on - it's LSE and I make sure that I only buy Irish domiciled funds in order to escape the US inheritance tax penalty.
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