First, this sub has been a gold mine of information for a starting investor so a big thank you for everyone for that! It's very US-centric though so let's have a little discussion from an European point of view this time. Our systemic situations are very different and that affects our investment decisions in a major way as I will explain further below.
Second, I'd like to share the ETF setup I ended up with after around a year of research and trial and error. I'll explain my criteria for choosing these ETFs and some strategies. I'm genuinely interested to see your setup and hear your comments, too!
The ETFs I ended up with:
- Xtrackers Stoxx Europe 600 UCITS ETF 1C | DX2X
- iShares Core MSCI EM IMI UCITS ETF USD (Acc) | (EUR) | IS3N
- iShares Core MSCI Pacific ex-Japan UCITS ETF USD (Acc) (USD) | CPXJ
- iShares Core S&P 500 UCITS ETF USD (Acc) (USD) | CSPX
My criteria:
- Must represent a large geographic area
- Must be a broad index of different sectors
- Must be low-cost and passively managed
- Must be big enough ( > 1 billion USD) to be stable
- Must be accumulating, i.e. does not pay out dividend
- Shouldn't overlap with the other ETFs in my portfolio, but rather complement them if possible
My allocation:
- DX2X: 15 %
- IS3N: 25 %
- CPXJ: 15 %
- CSPX: 45 %
The allocation is roughly based on global market cap and growth potential.
Background that lead to this choice:
I just turned 30 and make slightly above the average wage in my country. I started investing about a year ago, putting a few hundred euros of disposable income from each paycheck into all kinds of exotic ETFs and even an American REIT. The rest of the disposable income goes to a special state-sponsored account for first home savers/buyers with 1% interest + 4 % at the time of closing the deal. My target is to end up with a portfolio worth a few hundred thousand by the time I'm 60. This portfolio I would turn into assets that will yield high dividend or interest. Now, at this point, I hear our American friends wondering and saying hold up! Why would you want dividend income only close to or at retirement age? And how about your 401k and retirement fund, a few hundred thousand won't be enough!
- Well, in my country (Finland) we do not have tax-sheltered retirement accounts. You pay high tax for dividends, so you'd rather have them in an accumulating fund that automatically reinvests the dividends without paying taxes (if/when the fund is based in Ireland or Luxembourg). Then you'll only pay tax for capital profits after selling the assets. This is a more efficient strategy in the long run than having dividends paid directly to you.
- In my country we have a peculiar system of mandatory retirement insurance. A certain amount (around 7 %) of your pay is automatically transferred to an insurance company as a tax-like fee. Your employer selects the insurance company. You have no control of what happens to that money. The insurance company invests the money. The idea is that the more you pay, the bigger retirement allowance you will get... But you are at the mercy of the companies and politicians who control them tightly with legislation and regulations. The upside of this system is that everyone is guaranteed a minimum retirement allowance. If this sounds like socialism to you, well... It probably is. So, any passive income I can generate goes on top of whatever retirement allowance I end up receiving.
So in order to improve my quality of life later on, I've started saving up. After a year of learning to invest, I got rid of my exotic ETFs and the REIT (which, surprisingly, did really well) and focused on these 4. I know it's 100% stocks, but with the above things in mind my risk tolerance is pretty high and I'm in it for the long run. What's your view, would you change something? Do you see value in more specific ETFs for long term investors?
Submitted March 26, 2019 at 12:32PM by zainfear https://ift.tt/2JQxh10
