What about this portfolio allocation?

Hi all,

I’m in the process of building my Long Term portfolio in the hope of getting retirement in France in 14 years. I’m currently 40 yo and our plan (my wife and me) is to base ourselves in south of France when our child will be fully grown.

We now have 80k € to invest in this portfolio and we plan to invest on a period of several months.

After reading so many articles and forum threads (Thanks MP for that !) my reflection process leads me here

  • 50% Stocks Global World on VT
  • 10% Stocks Swiss on SMIM
  • 10% Stocks EM on VWO
  • 10% Stocks Europe Pacific on VXUS
  • 10% Bonds in Euros (don’t know which product yet)
  • 5% REIT on SRFCHA
  • 5% Stocks small caps world on VSS

With this allocation I hope to cover most major “dimensions” like domestic, international, currencies, developped, emerging, stocks, bonds, large and small cap. Am I missing something ?

What do you think of this portfolio ? I’d love to read your comments please !

I think I’ll start to invest on VT only and see how it goes but are the direction and products look good for your expert eyes ?

Thanks for your help guys

Tout de bon !

My question is : Why ? Why more swiss companies ? Why more emerging markets ? etc.

For your real estate part, I wouldn’t buy that product. Yes it gives more diversification but it includes some funds that are way too expensive (Solvalor 61 has an agio of 45% compared to the 31.12.19 NAV).

Why VWO and VXUS when it’s already part of VT? Don’t overcomplicate things, just buy 70% VT.

I wouldn’t bet on small caps in general, so I wouldn’t buy VSS. Small Growth had pretty poor returns over the last 50-100 years (1-2%/year). If you are going for small cap, use Small Cap Value ETFs like VIOV (for US) or AVDV (for exUS).

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10% SMIM means more than 1% of your total investments in Partners Group.

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Never heard of them, is that bad lol?

VT has 2-2.5% in big tech companies like Microsoft Apple Amazon Alphabet and Facebook.

Did you compute how much you would need? Are you planning on a much higher saving rate than before? (e.g. to get to 1M, you’d need on average 70k per year, with compounding the later years would be able to generate more, but that’s still significant).

Maybe consider opening a savings account in EUR, at least you’d be guaranteed to have positive returns.

(otherwise like others said, it’s probably too complicated, a 5% allocation won’t change your return significantly but complicate your portfolio).

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Without going into the specifics of whether a domestic bias is a good way…

Given your premise of planning to retire in France, I really believe the “domestic dimension” should mean French for you, not Switzerland.

On practical side, everything that consists of more than 3 funds is a pain in the butt. to manage. I barely can keep up with my VT+KBA+cash portfolio.

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Thanks you all for the feedbacks

OK

I agree that is a bit too much

I thought that putting all the eggs in one basket was a bit “risky” even if VT reflects total market, isn’t there any risk about a single ETF… ?

I agree

I saw that in many portfolios a part was allocated to REIT, or bonds in order to lower volatility. When I take a look at almost every portfolio on this website https://portfoliocharts.com/portfolios/ , almost all of them have a part in bond or reit or gold. Your advice is to go full stock ?

I appreciate all your comments, that’s a way for me to improve my knowledge and avoid making mistakes.

To be honest I’m a bit lost about all this. I hear someone say white and the other say black.

So to be fully transparent, here are mode information about our plan, may be it could help

  • We are both 40 yo
  • Our plan is to retire by 54
  • Our capital today is
    • 65k€ in various stocks (stock picking since the recent crash but I have to sell those stocks in order to buy ETF)
    • We have 175k€ cash
  • We own 2 flats in France that give us a revenue of around 800€ after taxes
  • Every month we are able to invest
    • 1130 CHF that will be invested in 3A VIAC (not opened yet)
    • 2200€ that will be invested in our long term portfolio
    • 1500€ is saved in order to buy our future house in France (so it will be for rent til we’re 54 and will get us back let’s say 600€ a month)
  • As we’re going to leave Switzerland before official retirement age I do not count on our 2nd pillar

That is the situation.

I’ve estimated our future expenses once retired to 3.5k€ and based on a withdrawal rate of 3.5% to be pessimist I actually need to have around 1M capital before retiring.

Honestly I do not know if my plan is realistic and affordable.

My thoughts are the following ones
3500 per month - 800 (flat renting revenue) = 2700 € a month that I need to finance with my investments = 32400 a year so I’ll need a capital of 925 000€
925 000 / 175 months til retirement that is 5 285€ a month that need to be invested. Today we have an investment ability of 3100€ a month that will probably grow through the years.

The investments we made will start to provide a new revenue source but in which “scale” ? I do not know. How can I take into account these revenues across those 14 years ?

By the way thanks again guys for your comments !

Cheers

On the one hand, you might have reasons why you’d want to overweight Switzerland (I’m not calling it “domestic” for this paragraph) rather than France. Strength of the Swiss Franc, Switzerland not being in the EU, less government bureaucracy and red tape.

On the other, you might also have reasons why you’d want to overweight France over Switzerland. More export-competitive currency, the fact that they industries that Switzerland hasn’t (they might be building more nuclear reactors, airplanes, whatever).

But what purpose does overweighting “domestic” serve?
Well, none, per se.

Except one maybe, that I can see: To provide protection against an appreciating domestic currency and/or an appreciation in domestic asset (and consumer) prices. Especially when the country in question is a smaller one.

To illustrate that point:

Let’s assume, you’re going to put all your money into that today. French equity make up less than 3% of the index and fund as of today.

Now suppose the French overtake would somehow experience a huge equity and/or investment boom in the coming 14 years (think: Japan in the 1980s). Maybe emerge as the leading economic power house in the Euro zone. Or maybe they’ll leave the Euro, reintroduce the French Franc, and that skyrockets, to gain 50% against other leading currencies (like CHF, EUR or USD).

France might become increasingly more expensive to live. And your “foreign” investments (outside of France or the French Franc) worth less and less, compared to the new French Franc or French prices, when you’d convert them for retirement expenses 15 years down the road. And as 97% of your investment would be non-French, that would be a problem (though slightly mitigated, as the French share of the index and markets would again overtake today’s 3% a bit in the meantime).

Domestic equity will somewhat protect against losing purchasing power in that one country, with its inevitable home bias.

If you’re set to retire in France, you should thus consider France as “domestic” for that purpose.

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To give a personal example:
When I came to Switzerland roughly 15 years ago, I was a non-working spender.
I remember receiving about 1.55 CHF for each EUR I transferred into my Swiss account.
Today it’d only be about 1.05.

Had I been heavily invested in EUR assets (like real estate, property) and counted on their income to retire early in Switzerland, that might have thrown a big wrench into my plans.

With that, you’re probably already somewhat well-invested in that “domestic dimension”.
Pretty much renders moot my statements above (for you personally) :wink:

(I hadn’t had a chance to read your 22:28pm post before drafting my last post above)

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What? Why? That money will still be yours once you reach “official” retirement age.

And you can get the non mandatory part out when leaving.

Yes, the money will still be mine but as I undestand I won’t be able to get the capital once (and if one day) I’m 65.

As of today I’ve worked 12 full years and I have 182 kCHF on this second pillar with a projection of 1 500 000 (I don’t know how the hell this is possible but that’s what is written on my insurance statement) for regular retirement date (which I hope to never attain)

I read that the monthly amount would be sssoooooo small that I do not want to count on it. But may be I’m wrong. Any Idea how could I compute how much I’ll get as revenue for this second pillar ?

I could try to take (1 500 000 - 182 000) / 25 theoretical remaining years to work multiplied by 14 actually remaining years to work that would give me 738 080 CHF but this calculation seems very doubtful as I don’t get (1 500 000 - 182 000) / 25 = 52720 CHF a year on this second pillar… And even if I have let’s say 500 000 CHF on this second pillar. How does it work ? I do not get anything til I have 65 and then I get a certain amount each month ?

On the AVS site https://www.ahv-iv.ch/fr/mémentos-formulaires/estimation-dune-rente-escal I cannot even compute the amount cause it’s impossible to set a retirement date to 54 years lol

That is my understanding - yes.
You should probably be able to opt for a (lower) lump sum instead of “annuities”/monthly.
Edit: or as SF under claims - if it will be placed within vested benefits, you would lump sum it.

My company provides me with “tentative” calculations for 65, and then projection for each year of earlier retirement (only until 61 or so).
I guess they don’t calculate counting on people retiring 20 years earlier. :grin:

I don’t personally know of any calculators online, but you could try to somehow project.

Also, IMO even if it’s 500/month it is not

“The insured may also request that a quarter of their assets be paid out as capital. (…) The pension fund may also rule that all old age, survivors’ or disability benefits may, upon request, be paid as capital, even if the sum is more than one fourth of the assets.”

Federal Social Insurance Office

So it depends on the pension fund’s rules.

Note that it will not be in the pension fund’s interest to (against your will) “force” you to monthly pension payments, as the - (“politically” set) applicable conversion factor of 6.8% is widely regarded as unsustainable with current life expectancies and rate environment (low yields in mandated investments).

Also note these rules will only be applying as long as you’re insured with the pension fund and retire there. If you quit your job early and “look for a new job but don’t find one” or just choose not to take up a new job, the benefits will be transferred to a vested benefits account.

…and from a vested benefits account you’d easily get your lump sump payment - once you’re at least 60 years old or not subject to mandatory occupational insurance in the EEA/EFTA.

There isn’t even a provision in law for receiving monthly pension payments from such account (as opposed to pension funds). That’s why some people without a job (or without one that will provide mandatory pension fund coverage) are quite desperate to find a job with pension fund coverage approaching retirement - as they’d otherwise be unable to get the monthly pension payments.

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