Building my long term ETF portfolio

[g2perk]

Hi, I am a 24 years old Portuguese resident. My next 4-5 years of income will come from a Ph.D. scholarship, 1065 a month. So I got a pretty secure and fixed income that can help plain in the short term.

My goal is long term passive, 30-40 years maybe. If I can achieve financial independence before that great.

I saved 5k from my first high paying part-time during this year. I plan on dropping from 500-800 during my 4-5 Ph.D. years, I also plan on getting real estate sometime after I finish the Ph.D. Hence the 500-800 range, I'm probably going to drop 500 on a portfolio and 300 on savings account for the down payment (PPR in Portuguese or probably a bond idk yet).

After my PhD I think I can secure a 2k+ a month job.

My current allocation of a 5k starting investment

IDWA - 75%

IUSN - 15%

EMIM - 10%

No bonds for now as I think I can take the risk for my age.

I don't like posting a "rate my portfolio" but... I'm a new investor and I am currently learning.

What do you think, any tips and resources?

 

[lovingsheep429]

@g2perk First of all, congratulations on taking the first steps towards financial security.

The best investment you can make at this point is to take the time to educate yourself by researching the topic using quality sources. There are several great books available, but the ones I'd recommend right now at this point in time is Ray Dalio's "Big Debt Crisis" and Jeff Booth's "The Price of Tomorrow".

Both of these provide the reader with a big picture of the current economic paradigm and forecast how the Western governments monetary policy is likely to lead to the US dollar falling as the world's reserve currency. It's difficult to pinpoint reliably when the big disruption periods will occur, but given your investment time frame, it is all but certain that it will happen in your life time.

The big takeaways from my reaserch for the average investor are the following:

- reduce currency exchange risk by either diversifying over several currencies or picking locally-hedged products. In other words, pick ETFs that are denominated in EUR or are EUR Hedged.

- approach diversification with an equal-weight rationalization. Both the Vanguard All-World or a combination of IWDA + EMIM allocate about 60% to US equities plus and additional 5 to 7% into countries with dollar-indexed currencies. That means your exposure to the US Dollar is overweighted. Consider diversifying into a combination of ETFs that give you similar exposure to all markets (something like 20 to 25% in US, 20 to 25% Europe, 20 to 25% Asia EMs and about 10% to Japan).

- Consider including a commodities ETF. Most people look at the historical returns of commodities in justETF and get immediately discouraged with the last 10 years. That's because we experienced the longest bull market in history, and historically investments in commodities behave exceptionally well on periods of deflation. If the forecasting of the next few years is to be trusted, commodities are due for a big increase in price , particular precious and easy metals. Including a small percentage into commodities ensures a part of your portfolio will provide returns when everything else is underperforming

- Avoid bonds since they are yielding a net negative interest.

Here's an example of a portfolio that obeys to the aforementioned rules:

Amundi EM Asia ETF - 30% (about half of this ETF is allocated to China, so you basically have 15% in China and 15% on the rest of Asia. Since this is a synthetic fund based in Luxemburg, hedging to EUR is automatic.)

iShares MSCI Europe SRI (Acc) - 20% (the reason behind SRI is the fact Europe is further pushing for environmental policies, making it more likely more and more companies will be part of this index in the future)

IShares MSCI Japan SRI (Acc) EUR Hedged - 10% (see the Europe explanation)

Any ETF tracking the S&P500 that's EUR Hedged - 25%

ComStage Bloomberg Equal-weight Commodity ex-Agriculture EUR hedged UCITS ETF - 15%

----

I realise this is quite a complex portfolio and one that doesn't seem to make much sense for most people around here. The basis for this example was taken from extensive research and the humility to divert towards the most knowledgeable minds in the world of finance. But don't take my word for it. Again I recommend you take the time to "do your homework" and educate yourself.

 

[eucatastrophe]

@lovingsheep429 Which commodities ETFs (precious metals) would you recommend?

 

[lovingsheep429]

@eucatastrophe Any ETF that excludes Agriculture and livestock will do. As far as I'm aware, there are only a couple ETFs who track Easy and Precious metals, one from BNP Paribas and another from L&G, but both have less than 50 million AUM.

 

[eucatastrophe]

@lovingsheep429 Thank you!

 

[resjudicata]

@lovingsheep429 What do you think of this etf combo:

50% VWCE, 25% IUSK, 25% AMEI?

 

[lovingsheep429]

@resjudicata The ratios are all over the place. VWCE has All-World coverage, so it doesnt make much sense to pair it with ETFs that track the same asset class. IMHO, the more you are willing to pay attention to your investments on a regular basis while studying the markets and reading a lot, the more specific your strategy should be.

If on one hand you want a "hands-off" approach of regular investments and maximum simplicity, go with VWCE and nothing else. Your returns are likely to be average at best, but that's the price you pay for ease of access and instant automatic diversification. Theres nothing wrong with opting for this route. A simple portfolio is more suitable for people who prefer to dedicate their time and energy to other aspects of life, like self-improvement, your job, family, hobbies, etc.

On the other hand, if you're willing to put in the time and energy to study the markets, educate yourself and read a lot, you'll be geared with the tools to further specify your investment strategy and increase your rate of return. Most people don't fit this profile. And there's nothing wrong with that.

One of the biggest mistakes people make is to invest in assets they dont really understand, but saw somewhere they were suppose to be good. The reason why VWCE is a good amateur investment is well established with solid literature and extensive study. If you don't understand the reasoning behind the allocation I provided in my previous response, then by all means go with something else. But don't try to outsmart the system by making up allocation that make sense in your head without validating them first with quality sources.

As the old saying goes: "The best investment you can make comes way before you touch the money you want to invest." So educate yourself.

 

[resjudicata]

@lovingsheep429 Damn you burned ma haha, thanks! I love the quote at the end, I am fulltime entrepreneur, I dont have actually time to watch markets and everything, will make more money in business, so will go full VWCE

 

[lovingsheep429]

@resjudicata Didn't mean to "burn" you

The fact you are willing to admit you won't be paying much attention to your investments is something many people lack the discipline and humility to accept. Knowing who you are and how you want to spend your time is crucial. So congratulations on being humble. Don't let that discourage you from investing and keep investing for a long time.

 

[jessika28]

@g2perk 100% stocks makes sense given 30+ years time horizon. I wouldn't bother too much with small caps given large and mid caps represent the vast majority of the returns, and if you want to simplify further I would go with an all world ETF.

If you want to go iShare, I would look for their Core ETFs which are a little cheaper, so iShares Core MSCI World (0.2% vs 0.5% TER) and iShares MSCI EM UCITS ETF (same 0.18% TER as the one you picked). Adding both would give you 0.18% fees which is really competitive.

Currently emerging markets are about 12% of world cap (divide MSCI EM market cap by AWCI market cap, it evolves over time) so you got that about right too.

You can then tilt your portfolio (countries, sectors, factors...), but I would suggest further research (books are great) rather than asking on Reddit. Your foundation looks pretty solid.

Another big part of it is tax efficiency, I don't know what that looks like in Portugal but I would look into it. Pensions may be cheaper, accumulating vs distributing ETFs might be taxed differently, and so on.

 

[g2perk]

@jessika28

If you want to go iShare, I would look for their Core ETFs which are a little cheaper, so iShares Core MSCI World (0.2% vs 0.5% TER)

This is the IWDA I already have right? Am I missing something?

You can then tilt your portfolio (countries, sectors, factors...), but I would suggest further research (books are great)

Got any recommended literature?

 

[jessika28]

@g2perk I would start with The Four Pillars of Investing. And you are right, that’s the Core variant, was mislead by the banner on the website that only mentioned iShare MSCI World.

 

[resjudicata]

@g2perk What’s the PhD in?

 

[g2perk]

@resjudicata Computer Science specialized in Machine Learning

 

[resjudicata]

@g2perk If you are willing to relocate to Switzerland you can make 5 to 10 times that amount of money + a few thousands every year while you do the PhD as internships. PM if interested

 

[g2perk]

@resjudicata pM sent, would like to know more about those opportunities

 

[michaela1800]

@resjudicata Not the Op, but would like to know more (I PM'd you)

 

[shaundwturner]

@g2perk Looks interesting. Where are you taking it?

 

[g2perk]

@shaundwturner NOVA University of Lisbon, Portugal

 

[jakeman23]

@g2perk As a Portuguese in the field, the best you should do is investing on getting out of the country and increase your income many times !