My target portfolio

Investing / Portfolios
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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.

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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.

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What is your spending as % of your net wealth?

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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

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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)?

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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.

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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)

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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.

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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)

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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.

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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?

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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…

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2 observations:

a) “Sequence of return risk = worst 3 years first” is very pessimistic for a 30 year period

I think this is equivalent to having 2003, 2008 and 2022 in succession. This causes the 10th percentile output to show 65% drawdown after 3 years. I cannot see the results for percentiles below this

b) The simulation spits out expected return for inflation 2.5%: so higher than current 2.2% dividend yield

Thanks for the question it helps my thinking and planning :slight_smile:

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Another -70% from here would be quite special

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A post was merged into an existing topic: Portfolio after retirement [2022]

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I have been playing with the idea of a ‘bond tent’ lately. In your case, if you have another revenue stream starting in 5 years (pension?), you could aim to reach your final asset allocation at this date. Adding something like a bond ladder for the time in between, with a bond value of roughly the future income maturing each year, would smooth the risk profile for the before & after of your drop in withdrawal rate.

In any case, a withdrawal rate of ~2% after the market had a decent dip seems rather safe.

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I expect so, but the time to make a decision is still a few years out and I’ll probably fine-tune things a bit more. My current IPS aims at an 80/20 overall allocation, that drops to 50/50 at retirement:

bond tent

I’ll revisit when we get closer. It is quite possible that 1st pillar will look very different by the time we reach traditional RE ages, and a more conservative allocation is needed.

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What 5 RE Funds do you have on your radar? If you don’t mind sharing? I still struggle to find good RE Funds with direct holdings. The rock solid funds with good propperties generally are the ones with indirect ownership :frowning:

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This was the first I’d heard about these tax benefits, could you point to any more info about these?

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Imho, with just 2% spending there’s no risk in being 100% global market cap portfolio:

https://rationalreminder.ca/podcast/229?format=amp

Still, I’d recommend looking into the concept of risk parity investing for retirement portfolios. Goal’s to maximize SWR and minimize total portfolio volatility by allocating to historically uncorrelated assets.

Also, I’d highly recommend you listening to the following podcasts:

Episode 120 and episode 351 of the BiggerPockets Money podcast:

“Are FIRE Naysayers Bad at Math? Yes. with Michael Kitces”

“Does the 4% Rule Hold During 2022’s Stock Market Crash?”

→ congrats, enjoy the rest of your work-free life, go out and play, don’t waste your time here :stuck_out_tongue_closed_eyes:

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