Feedback on a first-timer investor's portfolio

Hi fellow Mustachians,

This is a very critical post for me, as I’ve done my research and I’m ready to invest very soon with a long-term portfolio. But, before committing to do it, I’m very eager to listen to your feedback.

A few words about me and my personal financial situation, before jumping to the numbers. I’m 35y old, stable job with a good salary, no kids, no mortgage, no debts, relatively low monthly expenses. Risk profile: high. Total savings: ~200K. I’m planning to create an emergency fund of 20K and invest the rest in one shot. Afterwords, I’m willing to invest ~4K each month. I’d like to invest only in the stock market - No bonds, no crypto, no precious metals, no CDFs. 99% ETFs, 1% cash.

And now my idea of pure ETFs portfolio:

Total world: 45%
One ETF between:

  • iShares Core MSCI World UCITS ETF, or
  • iShares Edge MSCI World Momentum Factor UCITS ETF, or
  • Xtrackers MSCI World Quality Factor UCITS ETF

US: 15%
One ETF between:

  • Vanguard S&P 500 UCITS ETF, or
  • iShares Core S&P 500 UCITS ETF

Emerging markets: 10%

  • Amundi MSCI Emerging Markets UCITS ETF (Acc)

Switzerland: 10% (Homeland bias: The country I’m living in)

  • iShares Core SPI (CHSPI)

Europe: 10% (Retirement bias: The part of the world I’m planning to retire to in the future)
One ETF between:

  • iShares Core MSCI Europe UCITS ETF, or
  • Vanguard FTSE Developed Europe UCITS ETF

Japan: 5%

  • iShares MSCI Japan ETF

"Bets": 5%

This is a section of the portfolio dedicated to a few promising, rapidly growing yet more speculative sectors of the market. I intend to keep this section small and monitored on a regular basis. It will potentially subject to change, as the risk of a bubble here is more concrete. I can already foresee that many of you might disagree, but I’d like to have this kind of section in my portfolio :slight_smile: Market sectors that I’d like to invest in:

  • Green economy
  • eSports
  • Batteries

I reckon that it’s a quite complex portfolio and I wonder If it would be too much hassle to rebalance it periodically?

Also, I’m specifically looking for feedback on the allocation/percentage but also eager to get your thoughts on everything that stands out to your more experienced eyes.

Thanks a lot in advance for your support, it really means a lot to me!

Way too complex, just go with a World ETF (including EM) like VWRL (or VT) and invest 5% in bets if you want

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Thanks for the feedback, @wapiti
In your opinion, what are the issues of a handling a complex portfolio, apart from a challenging rebalancing? Also, is a one-for-all ETF portfolio a good enough strategy in terms of diversification?

I guess there’s the classic, what’s your motivation for such a complex allocation vs. VT (or just replicating it)? Maybe tried finding good arguments for it, not just gut feeling or “bias” (note that CH companies don’t have that much to do with the CH economy).

Couple more comments:

  • you’re underweight EM (because MSCI world doesn’t have EM)
  • you’re underweight small caps
  • probably the extra US+EU+JP are somewhat cancelling it out, with MSCI World, so it’s bit odd

Also don’t forget your pillar2 will have a big CH bias, and your unvested equity might be a significant single stock exposure (that still kinda follows the US large cap performance).

And finally, really really make sure you’ll sleep well the day your portfolio is down 30 or 40%. 100% equity can work for some, but it’s still pretty bold (and the worst thing will be to panic when it’s down). It’s not easy.

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One issue is that you’re making a bet against the market by overweighting or underweighting some areas. Another is that it’s a lot of stock to keep track of, investment should be boring less chances of wanting to continually fiddle with it :wink:

(I say that but I also have 4 ETFs instead of just VT, I find it a bit more fun but I know it’s not really worth it)

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Thanks a lot for your feedback, @nabalzbh!

I’ve made this choice after reading a few posts by a well known Swiss financial independent blog about the opportunity of having a “homeland” bias in your portfolio, especially when you live in a place with a solid economy like Switzerland. Do you disagree with this assumption?

I’ve planned a 10% allocation on EM (Amundi MSCI EM UCITS), do you think it’s not enough?

I see. Do you have any recommendation on small caps ETF?

Not exactly sure what you mean by that? Care to explain more?

Thanks a lot!

Assuming you are referring to bonds, after doing some research and double checking a few well-known sources, I really see little point in investing in bonds in 2021, as:

  • the public debt is spreading all around the worlds after the pandemic and chances that national governments will repay the debt are quite low
  • only a few US government bonds currently have a positive interest (~0.45) while the vast majority of European bonds for example have negative interests, including Swiss bonds.
  • Rebalancing
  • Transaction cost
  • Tax declaration is more complex

More ETFs don’t mean more diversification. See VWRL has a package contening all other ETFs you have mentionned

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MSCI World is like 65% US, 8% Japan, 20% or something for Europe.

Why are you planning on having additionally two separate ETFs for US (S&P 500), two for Europe and one for Japan?

@San_Francisco I think you’re missing the “or” :slight_smile: I’m planning to have only one ETF per area, so one ETF for US, one for EU and one for JPN. I’ll edit the post to make it more clear.

Why bother with

…then?

Except for Canada and Australia (both of which would be small to negligible amounts anyway), you’re already covered by the geographic ETFs (US, Europe, Japan)

Also, Emerging Markets are like 10% of all-world ETFs.

…whereas the rest of your portfolio basically is a developed markets ETF. The allocations are very, very similar, so as not to make any meaningful difference. And then…

…you’re allocating 10% to Emerging Markets.

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I use pillar2 and cash currently to cover the “stable/less correlated to equity” part. (Because currently if you’re a retail investor cash has better return that chf bond risk adjusted)

The main goal for me is to lower volatility while preserving wealth.

(That said I disagree on the repayment part of your reply, if you think major economies will default, you’ll need a different plan)

Edit: didn’t reply to the other points, but that’s because others did :smiley: I can touch on home bias if nobody does (check who the major companies in the swiss stock market are, and which countries they make their revenue)

Edit: not a reply to @San_Francisco but to the OP, I must have clicked on the wrong button, apologies. /Edit

I’m generally one for advocating a conservative approach to investment and asset allocations that allow you to hold through storms and thunder but since you’re thinking about an agressive allocation, want to be out of the workforce in as little time as possible and presumably have a sizeable salary that should allow you to cashflow expenses and low level surprises:

Have you thought about leveraging your portfolio? (Low interest lombard loan (with IB) with a relatively safe leverage level (say 1.2)) Your idea (almost 100% stocks) may be one of the only two that could make sense with leverage (the other one being a derisked portfolio then pumped up with leverage)?

I’d not advise it, but I’d not advise being 99% stocks either (I’d add cash, real estate and a tiny bit of precious metals). I’d be curious to know if you’ve considered it (leverage) and, if so, why you have discarded it.

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It boils down to this:

You basically get all of that as an all-in-one solution with VWRL/VWRA. In one fund.
Just add an additional 5% Switzerland for your intended home bias and you’d be set.
With much less complexity.

It doesn’t make sense to split your allocation into 6 different funds when you can get the same result with just two. The difference would be negligible.

5 Likes

Thanks @San_Francisco Let me try to summarise this. Your suggestion would be to go only with MSCI World and disregard the other geographic-based ETFs, as EM, Europe and Japan would be already covered by MSCI World? Am I understanding your words correctly?

Exactly. With your choice and allocation of geographic ETFs, you had (though maybe not consciously) pretty much replicated MSCI All-World - that you could invest in with just one fund.

I’d take that as a “baseline” and invest as much in it as your overall desired allocation allows.
You can then adjust and add a specific “bias” towards certain markets through individual ETFs.

I think it’s absolutely fine to take a bias in overweighting certain markets. And it can make sense to invest in geographic ETFs (I do) - if you want to deviate substantially from MSCI All-World.

Side note:

Almost half (46%) of SPI is just three stocks: Nestlé, Novartis and Roche. That is a lot of concentration. Also, while may be based in Switzerland, these companies are making only a small fraction of their sales in Switzerland. And as mentioned above by nabalzbhf, your 2nd pillar (or third pillar) will likely have a Swiss bias as well.

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Don’t confuse MSCI World with MSCI All-Country World (aka ACWI)…

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So this could be my counterproposition:

All-World: 85%-90%

  • iShares MSCI ACWI UCITS ETF, or
  • Vanguard FTSE All-World (if not U.S.-based VT)

Europe: 10-15%

  • iShares Core MSCI Europe UCITS ETF, or
  • Vanguard FTSE Developed Europe UCITS ETF

Switzerland: 5% (only if you insist and/or don’t have that bias elsewhere)

  • iShares SMIM ETF, or
  • UBS ETF (CH) SPI® Mid

Haven’t worked out the exact numbers on this, but should give an idea for a 2- or 3-fund ETF portfolio.

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Wouldn’t SPI offer a better diversification?

SPI = 47% for the big three (which are already included in the Europe bias).
If you meant SPI Mid, indeed seems so. In this you would have beat in editing my post above and adding it anyway. :wink:

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