Is this portfolio too risky?

Investing / Portfolios
#1

Hi everyone, it’s been great reading your stories and getting inspired, and I’m hoping you could help me assess whether my own portfolio idea is reasonable or too risky.

I’m a 28yr old Swiss resident with Swiss spouse, and I’m a US citizen - so like the “Frustrated American Novice” I’m essentially confined to investing through IB. My goal is long-term: retirement savings. Another constraining aspect is that SRI is non-negotiable for me. I realise this carries extra risk and higher costs (for unclear societal benefit), but this is a risk/cost I am willing to take on. If my portfolio seems a bit convoluted, it’s not because I’m trying to beat the market, but because I’m working within these constraints.

First choice portfolio (name, ticker, market, ER and launch year)
48% Vanguard ESG International Stock ETF, Global Ex US, 0.15%, expected to be launched in Sept 2018
24% iShares MSCI U.S.A. Small-Cap ESG Optimized ETF (ESML), USA, 0.17%, 2018
18% iShares 1-3 Year International Treasury Bond ETF (ISHG), Global, 0.35%, 2009 OR SPDR Bloomberg Barclays Short Term International Treasury Bond ETF (BWZ), 0.35%, 2009
10% NuShares ESG U.S. Aggregate Bond ETF (NUBD), USA, 0.20%, 2017

Second choice portfolio - longer established equity ETFs but higher ERs and ETF closure risk likelihood according to ETF.com
48% iShares MSCIU.S.A. ESG Select ETF (SUSA), USA, 0.25%, 2005
24% iShares MSCI Global Impact ETF (MPCT), Global, 0.49%, 2016
Same bond ETFs as above

The logic behind the two equity ETFs is that I would like to support socially conscious funds like ESML and MPCT, but I realise that doing so means less diversification. My thinking is to balance these “riskier” funds with more secure stalwarts, like the new Vanguard ETF and long-established SUSA.(Not positive I settled on the best ratio here either).

The logic behind the two bond ETFs is that I had trouble finding a ESG bond ETF that meets all of my criteria, so the compromise is to invest partially in an ESG bond (NUBD) and the rest in an ETF exclusively for treasury bonds (ISHG or BWZ).

Although I’m willing to assume more risk to invest responsibly, my fear is that this is just too much, especially given how many of the ETFs in the first portfolio are new this year. Does this seem balanced and stable enough that it still fulfills the mandate of a good three/four-fund portfolio? Or is this a recipe for losing my retirement?

*Edited to fix one of the portfolio components

#2

You won’t loose your retirement. You have to just embrace the fact that during a crisis the equity part of your portfolio might lose half of the value and it might take few years to recover in worst case. If you’re ok with this risk, you can go ahead with bigger equity part of your portfolio and/or overweighting small-caps (or EM or value). If you’re not ok with this, you should not overweight small-caps and/or decrease the equity part of your portfolio.

You can’t say objectively if it’s “balanced and stable enough” because it depends on your risk/return tolerance.

#3

Thanks for your response! Everything I’ve read indicates to trust the index even in the slumps, and since I have lots of time I’m ok with this risk I think. My strategy is essentially matching my fixed income investment ratio to my age, so that by the time I’m 10 years from retirement most is out of equities. It’s fund closures that make me nervous, and consistently and significantly underperforming the market as a result of insufficient diversification.

#4

I don’t think it should be such a big problem. Burton Malkiel in “Random Walk Down Wall Street” (btw, highly recommended) writes that benefits of diversification (in one market!) end with about 60+ stocks. The trick is to diversify across different markets (internationally and across different market cap sizes) - unless you want to concentrate the risk to bet on superior performance of a particular market. It depends on your investment philosophy and strategy.

#5

That’s considered obsolete due to higher correlations these days, rule of thumb nowadays i hear is like a couple of hundred

With financial data being easily available these days you can do your own simulation tho