Feedback on my portfolio plan to FIRE

Investing / Portfolios
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Hey,

So I would like to FIRE in about 15 years. I work in Switzerland and would move to a cheaper EU country after FIRE.

Info about investments in Switzerland: There is no capital gains tax here, pension accounts either pay monthly after retirement or if you withdraw it all you pay taxes (dependent on the size of the retirement account) at withdrawal.

The pension contributions are fixed, while my saving rates will vary, so in the following parts when I talk about % of my portfolio I will mean my savings, not including the pension. The pension is around 7-8000 CHF atm, could go up later on, I just started working. First few years of my career this will be about 20% of my savings, this is invested by pension funds, relatively safe and lower yield.

As for my own savings, I plan to use more risk at the start, rebalance after 5 and 10 years, after 10 years I plan to rebalance more frequently into bonds, depending on market conditions possibly yearly until year 15.

So, start: I plan to have a long term buy and hold account (75% of total), where 45% would be a mix of SPY and QQQ ETFs, and 30% would be single stocks with good growth prospects and healthy balance sheets that I believe could outperform the market. I would use 10-15% leverage and/or selling covered calls to have some extra income. Interest rates on the Swiss IBKR are around 3% atm but they were 1.5% before the covid rate hikes, so the leverage is relatively cheap and 10-15% is considered safe to not be margin called. The remaining 25% would be a shorter/medium term account, where I buy leveraged ETFs after bigger market downturns, buy stocks after dips and hold until recovery, speculate/arbitrage on M&A plays etc.

After 5 years, I would reduce the single stock pick of my long term account by 10% and put it into VT. Depending on the performance of my short term account, it will also be reduced by 0-10% and rotated into SPY/QQQ.

After 10 years I would reduce the single stocks by another 10%, and again, depending on performance the short term account could drop to 5%. Current allocation: 20% VT, 50-60% SP500/QQQ, 10% single stocks, rest is short term account.

After this, depending on if we are on a bull run or a bear run I would start buying bonds. The final allocation would be: 40% US T-bill bonds, and depending on which country I retire in ( different Capital gains and dividend tax) the remaining 60% would be a mix of VT and SCHD.

One thing I’m really not sure about is how to allocate the ETFs, I definitely would like to aim at the returns of SP500-NASDAQ, but not sure if there any point going 50/50 due to the high % of similarity in the holdings, or should I just go all in on QQQm. Or something else that’s better?

Apologies for the long post and all the advice is appreciated.

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What’s your required/wanted portfolio size in 15 years?

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Well, technically I can FIRE from around 1.2m, but would like to have some leeway and maybe have a bit higher spending after retirement, so it just depends how much I am able to take this 9-5 office life. 1.8-2million is the maximum tho, after that I will definitely retire if I would hit that number within the timeframe.

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FWIW, reading this gives the impression you want to gamble (concentrated, leveraged bets) and then invest once you reach your goal.

It’s also possible to reach FIRE without this (and that was the original idea of FIRE), you can simply control spending/save/invest and mathematically depending on the saving rate, you’d reach your goal.

Recency bias is fairly powerful, and planning to invest in what recently beat the broader market can be a sign we might be subject to it. Might also be a good idea to run a few scenario, e.g. how will you react if the US/tech lags VT for the next 10y? (imagine a Trump presidency, some tech regulations, etc.)

If you’re convinced your plan will be beat the market, what makes you want to switch away from it over time? (why not keep generating the extra returns?)

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I don’t really like calling anything other than a bond/total world market portfolio gambling tbh. I would say holding 5000 companies, 95% of which are not good ones to hold is a risk in itself.

We can backtest more than a decade VT will not outperform the Nasdaq nor the SP500. I’m not sure how far back it’s worth to check, since imo what happened in 1920-1930 is not really relevant to today.
I just don’t think EU and emerging markets will have a chance to outperform the US markets, I mean the US has 3 companies that is bigger in market cap than the entire exchange of Germany, UK etc., US companies pay high salaries, can get the best talent, have the infrastructure etc.

But in terms of being less diversified, it is more volatile, I agree, but that extra volatility comes with extra returns. I want to switch after FIRE to reduce the volatility.

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S&P 500 already includes most of QQQ companies. So if you prefer US market, you can simply use S&P 500. Otherwise you are going to be overexposed to Mega 7

Regarding the fact if US will outperform the rest of world or not, I recommend reading some reports from well known institutions about their long term capital market assumptions. This is not to convince you one way or another. But just to share a resource which gives more information

I am linking here Vanguard but there are similar ones from JPM, Blackrock etc.

Personally I do not know which region will outperform. It doesn’t actually matter. I am simply assuming all equity returns to be 4-5% above inflation over 10-20 year period.

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Even not talking about their overlap, this decision is the result of recency bias.

Greetings, Mr. Buffet.

So, you borrow money to increase your market exposure and then sell calls for premium to decrease your exposure?

And what do you do in case of 10 years bull market?

Are you planning to move to US?

Verdict:

  1. Too complicated.
  2. You are not investing, you are playing. Any adjustments to your portfolio here and there tend to decrease your returns.

If you are excited about your investment portfolio, you are doing it wrong. Investment should be so boring that you have to put reminder not to forget to invest newly arrived money. Find a hobby/sport instead. Hiking and skiing would be an obvious choice.

Or, even better, educate yourself and find a better paid job. How much you earn will affect your wealth much more than any investment games.

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I don’t care about recency, I don’t see other regions doing well from a macro standpoint.

Worked out the past 4 years.

It’s never a straight line, every bull market has corrections and smaller crashes.

I don’t need to move to the US to buy their bond.

I just refuse to believe that holding an overdiversified portfolio that returns 4-5% a year (barely above bonds) is the best way to go.

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Do you mean you picked single stocks and they outperformed well the last 4 years or that Warren Buffet did it and it worked out the last 4 years?
Do you have the skills and time to identify these stocks?

Sure, but will you be able to buy at the right moment? You only know in hindsight that it was a correction or a small crash, could as well be a huge crash or a long-term sideway market. You’re trying to time the market.

No you don’t, but holding unhedged bonds in foreign currencies introduces currency risk. You should hold bonds in the currency you are spending in.

Barely above bonds? CH bonds don’t even produce half of these returns. And don’t use US bonds as a comparison as inflation is way higher in the US.

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your strategy can be summarised into following segments

  1. US broad index funds
  2. individual stock portfolio to outperform .
  3. Use of leverage to use market timing

#1 -: sounds good. It’s just focussed on one country. But as long as you are okay with that risk, it’s personal choice. Many investors in US do exactly that. People who don’t live in US might like to diversify regionally though.

#2 -: I believe you are over estimating your ability to outperform. Now it’s always possible to do so but it does take a lot of analysis and work. However if you just end up picking some well known companies , most likely you will be fine in long term.

  • If a lot of hedge funds cannot beat market then I think your base case assumption should be to match S&P 500 performance at best. Anything else is bonus. But you should also be fine if your returns are below market.

#3 -: I would caution you. This in my view is the most difficult thing to achieve. Market timing is basically trading and a huge majority of traders lose money.

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Yup. Nobody can teach you not to use leverage, so I don’t bother. I was the same. You only learn that for yourself when getting thoroughly burned by it and realise there’s more to it than borrow money and make more money :smiley:

Anyway, you have a plan and 15+ years ahead of you which already puts you ahead of many people. Good luck!

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There are many first hand accounts of investment journeys in this forum. It’s an extremely valuable resource that you may want to check.

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Finance Theory would predict (expected returns) depressed returns for the next decade, specifically for the US market/S&P500/QQQ. Due to historically high CAPE ratio.

So with your time horizon betting everything on that, is questionable at best.

Going all world from the start will have the highest chance in that timeframe to achieve what you want.

Dont fall to the fallacy of recency bias/performance chasing. You cannot ever match past returns, as they are in the past.

Leverage in that timeframe can also backfire, although some smaller amount of (cheap) leverage can make sense. But it starts to make more sense when adding uncorrelated assets like alts/bonds with leverage. Or use stacked funds like RSST/RSSB.

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I may be an oddity, I sit somewhere between the “'murica fack yea” crowd, overweighing the US myself, and at odds with that crowd because I feel their arguments (not talking about the OP) are tired, lazy, and based on exceptionalism. Also having an equal distance from the ex-US zealots like u/cruian in r/bogleheads, whom I find terribly boring.

The only thing I’d consider blatant past performance chasing is QQQ, it’s such an arbitrary index, and falsely called a “tech index” when it’s not. If OP wants tech then they can get tech, NASDAQ100 is just a random selection.

Aren’t all 100 NASDAQ100 stocks in the S&P500? They can indeed use a VOO equivalent, or VTI to capture the whole US market, or a dedicated tech ETF if they want to overweigh tech.

Yeah, well, they do say that, Ben Felix’s been saying that for 4-6 years and it’s aged like fine milk while the “'murica, fack yea” crowd, ignorant as they may be, are laughing all the way to the bank so there’s a point where arguing against results stops making sense. We’ve long been past a point where it’s mathematically impossible that an investment in VXUS 10-15 years ago will ever catch an investment in VOO made at the same time. I personally don’t want to face THAT opportunity cost in 10-15 years hence I decided to overweigh the US, 75/25. In my opinion there’s just no drivers for it to happen in developed markets, and emerging markets are total basket cases for me to put any money in them.

Perhaps in 20 years from now the US will STILL be dominating, and economists/financier/journalists be coming up with “explanations” about why. Maybe they will come up with the “Corn Pone” or the “O, Say Can You See” Factor, who knows. Economics and finance are not sciences anyway, they’re somewhere between counting beans and phrenology.

OP, I think your plan has a lot of past performance chasing baked in, you’re more likely going to be just fine getting a broadly diversified low cost index fund like VWRL/SSAC/VT, and if you want to overweigh the US because people there are willing to lose their health to make money to look more like Kim Kardashian - while you’re safely away from the madness here in Europe - then get VTI or VOO/VUSA and call it a day, you’ll be fine. Better a bird in hand than two in the bush.

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Expected returns =/= unexpected realized returns.

These things have huge error bars and are only true on average and are measured in decades, not years.

But what is true is that we are one additional standard deviation more expensive since then.

Do you really think it can outpace that even further?
These things get more accurate the more extreme they get.

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I really don’t know, I agree with you, my data-driven mind also agrees in principle, but psychologically I had struggled with my one fund “portfolio”, and decided to make it into a 75/25 US weighted portfolio (about 1.5 years ago), after which I slept like a baby :wink:
Whether it’ll pan out or not, nobody knows, but I’d rather own a mistake I made in good faith and with full information than “what it could have been”.

Edit: of course you can argue, and will be right, that my point about VXUS being mathematically impossible to catch VOO is also based on past performance, and is likely referring to a time where VOO was 40-50% lower than it is today (with correspondingly lower CAPE), while buying it TODAY assume that in x number of years it WILL be 40-50% higher STILL. You’d be absolutely right to say that, yet I made the decision to overweigh the US 100% consciously and cognizant of the above.

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Which is fine. Some overweight can be ok, completely omitting ex-US (in a significant manner which I would say is right around 25%) would be pretty foolish though imo.

There is also some very significant tax advantages for US securities in US funds for us CH investors. No (effective, if full da-1) withholding tax on dividends and a lot lower dividends overall additionally.
That gives you around 0.5-0.75% tax advantage total, at current dividend yields (I analyzed that for mutliple funds in a spreadsheet once), over ex-US holdings.

Only other funds that have similar or better tax consequence are swiss domiciled funds/securities holdings swiss securities.

That essentially prevents me from unerweighting it significantly :sweat_smile:

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Yes most likely there is 100% overlap. But since they have different metrics to include or exclude, there could have been a one of two stocks missing

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Exposure to US equity

I have no way to know what will happen. For me the purpose of investing is not always the best return. It’s having a regionally and industry diversified portfolio which can generate returns of 4-5% above inflation and can weather all sorts of events and scenarios.

There is absolutely nothing wrong in having 100% US portfolio. But I just don’t want to be linked to US completely.

But just to comment, I am actually underweight US :wink: as my exposure is only 50%. This happened by itself because I wanted to be overweight CH and IN.

Caution

I think investors have a tendency to link quality of a company with expected returns from that company’s stock. Similarly we also link quality of economy with expected returns from country’s stock market.

These are not the same things. Because return needs to generated from future earnings growth and valuation expansion / compression.

In my view future “extra” returns (outperformance) comes from events that were not planned or expected. So by saying US will continue to outperform assumes that such events will keep happening “positively” in United States. It happened with zero interest rates, it happened with AI , but how long will this continue to happen?

It’s possible. But it is not certain.

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My feedback is that it depends how much you are able to save each year :blush:

For example
8k/yr added to a pension might be worth 140k in 15 years
(assumed return: 2% p.a. Update it with more accurate numbers depending on your employer)

To have 1.1M equities would mean saving 60k CHF per year [EDIT: 40kCHF per year my error apologies] assuming an average 7% return

I would put your attention on this first since it is what you can control. As a second priority you can try your luck to optimise the return rate by going overweight on a market or taking a bit of leverage

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