For the past two years, I’ve been following a consistent investment strategy, where my free cashflow (100%) is allocated on a monthly basis as follows:
48% into:
80% VWRL
20% CHSPI
12% into:
VIAC Global 100%
40% into my pension fund to close a gap (last time this year).
Recently, I’ve been feeling somewhat overexposed to US tech through my VWRL investment based on actual valuations. I’m considering opening a new ETF position with VHYL and transferring a portion of VWRL into it. Additionally, I’m thinking of shifting my future investments from CHSPI to VHYL.
What are your thoughts on this approach?
My investment horizon remains around 15-16 years until I reach FIRE.
I did exactly the same, shifting ETF investments from 100% into VWRL to currently and temporary 100% into VHYL (with long-term target of 50%/50%). I did it because of the very high valuations of the tech sector, and because I wanted to have a higher dividend yield.
Note that with your >15 year investment horizon this is statistically not advised based on past performance. You are trading a bit of return expectation for less volatility and phycological comfort.
Thanks a lot for your view - I absolutely know that this is not advised… however, VHYL might still bring more return than CHSPI + I can always move it back to VWRL if markets significantly drop… I think it is key to just stay invested overall… but I do not feel so comfortable with the valuations these days…
To me it seems like picking a theme versus the market. Theme being dividend . There is nothing wrong but I think it’s important to understand the reasoning rather than the decision.
Quick question -: I understand you feel VWRL is overvalued. But how did you conclude that VHYL is fairly valued/under valued ?
Are we mainly talking about PE ratio? Or something else?
Just because the TOP 10 holdings are mainly US Tech companies (20% of the portfolio) where gains were driven by the AI hype… so I would reduce the exposure to that.
Everything is overvalued by my liking, it’s a question of how much. And VWRL and VHYL have drifted apart quite a bit in recent years (of course in other words: VWRL outperformed VHYL quite a bit). But looking at this, I think it is sensible to question the very high US tech exposure VWRL means by today:
Somewhat off topic, maybe should go into a separate topic (Suggestion: “What is active/passive investing)?”:
Hey, so, OP and everyone replying, how do you ladies and gents believe in that you are not stock-picking? Or at least sector and market picking? Ok, at the very least: “macro adjusting” your portfolios with this kind of “feelings-based” rebalancing?
I am mostly not exposed to US tech by choice and have expressed that view by deliberate handpicking of my stocks portfolio.
You seem to do something similar, but since you’re broad index investors, you tilt your portfolios by having picked indices, but over- and underweight some to others?
Shouldn’t you just pick MSCI World and be done with it? If not that extreme: maybe mix 2 or 3 indices with slightly different exposure and leave them passive as they value adjust? Perhaps re-balance based on some pre-set rules but not interfere with the composition because you feel “US Tech companies up much!”.
Why would you change your strategy after feeling overexposed or underexposed to X, Y, and Z? Isn’t that active investing?
I am not critizing your approach … nor am I trying to spark a flame war about ETF investing versus, well, I was going to say “active investing”, but then again aren’t you already an active investor if you shift around your ETF weights based on your own inklings? Maybe you’re semi-active investors? Willing to mostly put up with indices put together by index providers (with a mostly rule based composition, but occasionally also active).
I am genuinely curious about the thought process and your justification for pursuing this “index rebalancing” approach based on … let’s admit it: personal feelings/perceptions about the market’s current valuation of different sectors and industries … no?
Apologies in advance if I read this in the completely wrong way.
In my view, the thought is sensible and part of a meaningful risk management. The only remark however is that whenever we deviate from Global Market Cap - we take a bet.
Instead of one big bet VHYL beeing for yourself the better invest than VWRL… i would diversify that bet a bit and enter a few, equal weighted bets of smaller size.
Therefore - how about investing 1/3 of your VHYL capacity into VHYL, 1/3 into Invesco World Equal Weight and 1/3 into DBX or Invescos MSCI World ex US?
Most index investors are somewhat active in my view. They just don’t believe in their skills to pick stocks. But lot of us/them have confidence in our skills to pick countries/ideas. Let’s call it „actively managing the portfolio allocation using index funds“
Having said that, it doesn’t mean that our skills are going to deliver what we think we are planning to achieve. But hopefully these thought processes keep us engaged and motivated and most importantly away from self destruction (by picking stocks without having any real knowledge)
In the end as long as following is happening. It’s alright and it’s better than „not investing“
diversify
Low cost
Tax efficient
Simple
consistent
Long time horizon
Humility
Fun fact -: we always say past returns shouldn’t be used to determine future. But we always judge active fund managers based on their past performance and we believe in index funds based on past performance. I know there is also a scientific theory behind this but it’s all based on past.
I fully agree that this is not fully passive investing, but I am not sure what your point is? I mean, everything we decide, including to remain passive, is a decision. And every decision is formed by both facts and a certain level of those pesky human feelings.
Choosing a Global Market Cap strategy/ETF and nothing else is also both a decision and an active selection. Even with that simple approach you exclude the vast majority of China, one of the largest and strongest growing markets of past decades.
And I am with @TeaGhost regarding risk management: You should always periodically review what you are doing, check if something significant has changed (in that case I believe the AI hype and valuation impact is such a thing), and review if it would be sensible to adopt accordingly. I would never recommend to truly just go VT/VWRL no matter what.
You are already saying that “this is not fully passive investing”, but “everything we decide, including to remain passive, is a decision” - is that active … or not?
I am not trying to challenge you, I just have difficulties understanding what “passive” actually means and whether it’s really only a spectrum from robo-rebalancing to hard core stock-picking, and “macro-adjusting” (as I would label the behavior eminent in this thread) is somewhere on that spectrum.
My point would be on the (seemingly) common belief that passive investing is better (better returns) than active investing? Which is where we come full circle. If you believe in your risk management of, say, believing or not believing the AI hype, and you adjust your portfolio accordingly, aren’t you by definition an active investor?
I think we are having the same opinion but drifting off into semantics here. True passive investing, as you seem to use that term, doesn’t exist, even VT/VWRL only has an active component. The available spectrum still goes from VT/VWRL only, to a tailor-made strategy, to holding a single share only. Given that spectrum, I think it is fair to call everything consisting largely of ETFs a passive investment strategy (even with sector and regional bias within the ETFs), especially if it’s a buy-and-hold approach without regular ETF rotation.
I don’t share the belief that passive investing is uniformly better, but, I strongly believe that passive investing is much better for the average retail investor.
Again, I believe your too technical with semantics. Changing from 100% VWRL to say 50% VWRL and 50% VHYL is most certainly not making you an active investor. Not even by the common definition in which active investing aims to beat the market, which, as I stated in my initial answer, is not to be expected with this move.
@1742
I am fairly sure that this change of strategy - for the reasons given - is an attempt to beat the market (in this case it would be an attempt to beat it in an upcoming downturn of US tech).
No. When you invest 100% equities and now realise you were „overexposed“ to US Tech and adjust your asset allocation accordingly… this is no attempt to beat the market. It’s the Moment you realise that you currently invest beyond your risk capacity.
The situation is quite simple - you can’t sleep well at night with 100% VWRL, so you reduce your risk until you again can sleep well at night again. Moving some shares to VHYL reduces the (by the OP perceived) Portfolio’s risk. Remember that Risk Capacity was emotional and therefore was allways a matter of perceived risk, bot not mathematically calculated one. The valid question is whether the reduction was efficient (or more efficient than going from 100/0 to 90/10; but thats another story). But what is clear is that at least for the OP, the move reduces the risk AS PERCEIVED by him, so its a valid move.
Things only become market timing if OP in a few years again increases his Portfolio‘s risk.
Remember that both down markets and full blown market rallies teach us what our true risk capacity was. Many people start over-confident and then reduce it. In this spirit, I think it was absolutely fair to introduce some VHYL, but as well e.g. some Equal Weighted Shares, Geographic Re-Balancing (ex-US), Sector Strategies (Consumer Staples), REIT, Bonds or Gold. The only thing I wouldnt do here was to opt for an active Strategy like Small-Cap Value (show me a SCV Fund/ETF with Portfolio Turnover Ratio equivalent to Market Cap Weighting; they are all either fully active or rule based semi- active strategies).
IMHO when you expose yourself to the market risk through an All-World ETF like VWRL - which is as close to the market as it gets - you aren’t “overexposed” to US Tech, you just get the tech-exposure based on current market cap.
When you deviate your strategy away from a market portfolio (but stay at 100% equity), you usually expect to get a better return (cause why deviate, if you’re happy with the market return). Unless your goal is to reduce volatility permanently, in which case you would also have to be fine with the possibility of a lower rate of return.
→ I absolutely think it’s a valid move, if it reduces the risk perceived to OP and more so if it even let’s them sleep better.
I mostly agree with the first sentence, less so with the second. Are you sure active investors want to beat the market?
For me an active investor is someone who tailors a strategy according to a goal, be it to reliably live off dividends, or to protect a large portfolio even if Martians invade Earth, being fine mostly beating inflation.
Edit: remembered another discussion here where I related a couple of multimillionaires I know, who wouldn’t ever think to index. They are far more aggressive, to the point of being more traders than investors: using options strategies, shorting etc, and knowing that the source of their wealth is having founded, lead and sold companies, it is reasonable to consider it unthinkable for their characters to be followers (ie index investors).
For me there’s a much more meaningful difference between investors and traders, than active vs passive.
Aren’t we ALL here due to past performance of…securities vs cash…saving vs spending?
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