My target portfolio

Investing / Portfolios
1

a) i’m currently ‘fire-d’ (tough to call any plan actually safe) with the goal to withdraw my current expenses semi-annually as well as to ideally keep my current net worth, both adjusted for inflation.

b) i’m currently heavily underweight equities and hoping to scale in at better prices within a year or two. i’ve been a stock picker for the last few years but planning to be way more passive.

c) i’m currently most bullish on / comfortable with usa and switzerland. i currently don’t love the risk/reward of most emerging countries (politics, currencies) or shrinking countries.

d) i don’t like too much weight on large caps only. i also don’t want a lot of securities lending.

e) my current target allocation looks like this:

equities 66% / bonds 33% / cash 1%

f) my current target portfolio looks like this:

stocks
us: spy 12%, mdy 12%, qqq 6.5%
ch: spmcha 12%, chspi 6.5%, chsri 6.5%
eu: uimr 6.5%
individual: 4%

average ter: 0.18%
average div yield: 1.75%
biggest sectors: industrials 15.9%, technology 15.2%, financials 14.6%, health 13.6%
biggest co’s (via etfs): apple 1.7%, nestle 1.6%, roche 1.6%, microsoft 1.4%, lindt 1.3%

bonds
chf only (chcorp 10% / rest is individual, corp & pfandbrief)

let me know if there are suggestions, comments, questions, thanks.

1 Like
2

At the stage you’re at, are you sure that increasing equity allocation is the right move?

That could increase volatility a lot, so it depends what your safety margins are, if you’d consider gaining some income again in case of a bad sequence – but a bad sequence might mean uncertain economy meaning hard to find a job.

2 Likes
3

well, rn it’s basically 33/66 instead of 66/33, so definitely going to increase. i think/hope 66/33 isn’t too aggressive if the bonds cover ~15 yrs of current expenses (?)

4

What is your spending as % of your net wealth?

5

~2% (slightly higher next ~5 yrs, lower afterwards)

6

This is not advice but I think you are almost certainly fine to go with more equities than today. You are likely to keep accumulating more wealth than you spend

Have you tried modelling portfolios and your spending in portfolio visualizer ? I find it helpful

2 Likes
7

i’ve done some modeling, not excessively though. you’re right, this might even be too conservative. i think about 66/33 as a ‘median’ strategic allocation with tactical adjustments (or delayed rebalancings) in both directions. i’m not as risk averse to not go for 80/20 for some time, for example. i may go totally ‘passive’ at some point, but for now i still like to at least have some opinion on markets etc.

1 Like
8

I’ll not say anything about the allocation but there may be some optimisation potential regarding TER independently of that.

SPY (TER 0.09%, AUM 364B) and VOO (TER 0.03%, AUM 280B) track the same index.
MDY (TER 0.23%, AUM 20B) and IJH (TER 0.05%, AUM 69B) track the same index. While it doesn’t track the same index, VO is a US mid cap ETF with a TER of 0.04% and 53B AUM.
QQQM is basically the same fund as QQQ with lower TER (0.15% vs 0.20%) but with lower AUM and potentially higher spreads.

Also, why CHSRI, which is the only Socially Responsible of your funds (or inversely, why not all Socially Responsible)?

3 Likes
9

i try to avoid sec lending if possible, that’s why i chose the higher cost etfs for those.

chsri is to smoothen/reduce the weights of nesn, rog & novn (plus it’s non-sec lending too).

10

I am so used to seing security lending everywhere I wasn’t even aware there were still funds that didn’t do that. Thanks for opening my eyes, it’s worth it for me to take a closer look on these.

1 Like
11

Ah yes, I thought that was your current allocation and you wanted to be more aggressive. Esp. with lots of runway that’s probably fine (maybe run some simulation with some heavy market crashes tho)

2 Likes
12

does that mean it’s too conservative or too aggressive in your opinion? hehe

1 Like
13

Too many funds. :wink: I would take one Developed Markets one and maybe one Developed Small Caps one (not much choice, there), then either one global CHF hedged bond fund or laddered individual bonds, but that’s very personal and I could see a US + CH strategy work out, though it is concentrated (global world ETFs are also very concentrated in the US, afterall).

I feel like I can’t speak about the conservativeness/agressiveness of the allocation since that is personal and, most importantly, I am way too far away from the withdrawing phase of my financial life to know how it feels to have one’s assets loose considerable value without the prospect of new inflows.

66/33 would be in the range of what seems could work, 33/66 would probably be too conservative, though there are a lot of things that a 2% withdrawing rate can make work.

3 Likes
14

thank you - yep, it’s many funds considering the concentration level. (and yes, every ‘[all] world’ index investor is fine with 60-70% us/ca). i totally understand as i’m also pro simplicity. just to maybe make it a bit more reasonable: a) i get more dividend tax efficiency with us funds for the us part. now add the large/smid objective and we’re already at four funds needed, hehe. b) i’ve been a stock picker (with crazy concentration levels from time to time, btw) and can enjoy some tweaking here and there to better fit my criteria. c) i’m not heavily concentrated on a single fund issuer (25% ubs [of which 12% lending], 24% spdr [no lending], 16.5% ishares [6.5% lending], 6.5% invesco), which is more a feature than a bug.

agree - as mentioned, 66/33 is a strategic guide (with room for tactical tweaks) and it’s a (re)start. just like i might reduce my ch exposure significantly in a few years, the number might be 50/50 or 80/20 in the future.

1 Like
15

Congratulations on your achievements! I don’t think you have posted your net worth value, but judging from the fact that you want to live on 2% of it, it should be significant.

First some straightforward things.

  1. With this portfolio size you can go for the direct indexing, meaning you buy yourself most stocks included in an index. You don’t have to pay TER and it solves your issue with the securities lending. Of course you can also exclude stocks on individual basis.

Now, MSCI Switzerland Index:
With 43 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in Switzerland.

SMI has 20 components, SMI extended (I think it’s called) 50.

MSCI Switzerland IMI
With 121 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in Switzerland.

Not impossible to replicate. There is also absolutely no tax advantage for you to hold Swiss stocks via a fund.

Direct indexing can be also done with US stocks, although in this case you would need to buy at least few hundred stocks, there is no tax advantage of individual stocks as compared to US funds and US funds (well, simple ones) are very cheap.

I wouldn’t recommend direct indexing with European stocks. Withholding taxes will be a nightmare, and as far as I understand, Ireland and Luxembourg funds are actually more tax efficient than individual stocks held by a Swiss investor. So, buy European funds for European stocks. A logical split would be:

  • Individual Swiss stocks
  • European ETF/fund on MSCI EMU or similar index
  • UK stocks probably direct indexing (no withholding taxes)
  • Sweden, Denmark as a fund if you insist.
  1. The dividend yield of MSCI Switzerland IMI is 2.83%. There is a high dividend index of Swiss stocks (SPI® Select Dividend 20 Index), CHDVD replicating this index has a dividend yield of 2.73%. Something is wrong here obviously, but doesn’t matter. By focusing more on dividend distributing Swiss stocks and excluding for example certain big banks, which CEOs prefer using company’s income to pay bonuses to themselves instead of distributing it to shareholders, you can push the dividend yield even higher. This is already more than your targeted 2%, it means that you don’t even have to sell any stocks.

(To be continued)

2 Likes
16

thank you - i did/do consider some sort of ‘direct sampling’, but: a) it’s way more work. b) i probably won’t have (much) lower costs due to the whole rebalancing/replacing needed. and knowing myself, i’ll do much more than needed, which brings back another aspect: higher risk of being taxed as a pro (i might’ve been lucky recently). but yeah, it’s still an option.

re div yield: i don’t want to chase higher yields. a) higher-yielding stocks, on average, are lower-growth / lower-quality. b) it’s tax-inefficient.

17

I ran a Monte Carlo simulaion in “Portfolio Visulizer”

Inputs: 1M USD Net Worth, spending 2% or 20k USD/yr, increasing with inflation

In 30 years it gives the following end values for each portfolio (real values, inflaton adjusted):

67% equity 33% bonds: 50th percentile NW 2.4 M USD
33% equity 67% bonds: 50th percentile NW 1.7M USD

In both cases there is a <1% chance of failure.

If you model sequence of return risk with worst 3 years first it gives a 7% chance of failure (running out of money) in 30 years with the 67% equity portfolio. So, you would need to adjust your spending should the market keep performing badly for the next 3 years. It gives 2% chance of failure with the 33% equity portfolio.

1 Like
18

it’s somewhat important and also fun (or scary) to simulate different scenarios, yep. simply ‘not running out of money within 30 yrs’ isn’t sufficient to call it a success in my case, of course, hehe. bottom line is always there’s no 100% safety looking forward, one still needs to find the individual ‘sweet spot’, though.

1 Like
19

I find it weird, the dividend yield of, for example MSCI ACWI IMI Index (= VT) is currently already around 2.2%. And no, without a specific focus on high dividend stocks. Could it be that you somehow missed dividendd and interest paid out?

1 Like
20

Probably the model withdraws 2% fixed on the starting portfolio balance, whereas dividends are ~2% of the value after the crash. I’m not sure I would want to live off of 2% after a 70% drop in equity markets…