Crafting my long term investment portfolio
Starting point
I was reading tons of information about Artificial Intelligence to prepare my new article of the Weekly Meditations newsletter, when suddenly came to my feed an insightful post published by Francisco Martínez Márquez , a LinkedIn Top Voice on investments and financial advice, currently working at Andorra's well known financial institution Andbank : https://www.dhirubhai.net/posts/francisco-martinez-marquez-asesor-financiero_msci-world-como-benchmark-de-una-cartera-activity-7152624329187303425-SjEx?utm_source=share&utm_medium=member_desktop
Suddenly, I had an epiphany and recalled one of my top priorities since 2024 started, establishing a long-term investment strategy by creating a well defined portfolio. The goal is to create a plan and stick to it with low effort, automating my monthly or quarterly contributions.
This idea came up to me when I decided to sell my ETF holdings at the end of 2023, as the US market was approaching to all time highs and my portfolio has experienced a year of good returns of around 15%. This decision was reinforced by a growing sense of caution in the news regarding the potential for an imminent recession approaching, as well as the CNN Fear and Greed Index's showing a valuation of 80 points, "Extreme Greed" level. The index is again at this level, with a valuation of 77 points, at the end of January 2024, https://edition.cnn.com/markets/fear-and-greed
Following the advice of Francisco Martínez Márquez , a subject matter expert on wealth management, it is very important to evaluate the portfolio risk and return, by comparing it to a well diversified index return and volatility such as the MSCI World Index.
Please find another interesting post from Francisco Martínez Márquez , about diversifying correctly in current days: https://www.dhirubhai.net/posts/francisco-martinez-marquez-asesor-financiero_grifols-bitcoin-finanzas-activity-7151158460670238720-pVS2?utm_source=share&utm_medium=member_desktop
Before starting to craft your portfolio, the first thing is to evaluate your own risk-tolerance level. This is necessary to understand how your portfolio should be composed, because a higher risk tolerance will imply to hold assets with more risk or volatility, but also with a higher potential of returns.
A commonly known asset allocation rule, is that you have to subtract your current age to the number 110, resulting in the percentage of stocks that you need in your portfolio. So, for example, if I am currently 40 years old, I will need a 70% of my portfolio in stocks, and a 30% in bonds.
However, this is just an investment common advice. Your risk tolerance and your investment goals will be the ones that will determine your final portfolio allocation.
Personally, I have a high risk tolerance, I love to gamble occasionally in the roulette, playing poker or betting in sports, but this is another thing that can bring us to several interesting articles about probabilities. Also, I want to note that my objective is to invest in the long term (+10 years). So, I will opt for holding a 100% of my portfolio in indexed funds.
An important point is that indexed funds offer several advantages over ETFs, particularly in Spain. There are no capital gain taxes when you transfer between funds. So, you can rebalance your portfolio, moving from one fund to another, and adapt to changing market conditions without worrying about tax consequences. Additionally, indexed funds replicate indexes, so they are well diversified, have low commission rates and offer consistent returns vs. funds actively managed by an Asset Manager.
The platform selection
To execute my plan, I have decided to download MyInvestor , a well-known app from a digital bank that has a wide range of different investment possibilities with very low commissions. Additionally, the Chief Investment Officer Ignasi Viladesau, CFA is a classmate from school when we were young. So, this is the perfect match for me in terms of trust in the bank, the team, its platform, and also with the wide range of products available and costs transparency.
The investment strategy
I am quite afraid about the possibility of a market downturn if inflation do not gets better. According to the news, the FED and the ECB are considering to start cutting interest rates this summer, which could lead to a decline in stock prices if finally this deadline is not met, and they have to delay this rates cut until year-end when inflation could be more under control. For this reason, I am thinking to start investing slowly, just because we are right now in S&P 500 all-time highs. So, I want to be more careful and make my portfolio grow slowly at this moment in time, and if market start falling I will start to accelerate my investments.
My plan is to make consistent investments in my portfolio in a monthly or quarterly basis during 10-years, but the questions are:
Conclusion
After, receiving advice from expert friends in the matter and according to my analysis of investing long-term in indexed funds, the best approach is to choose a well-known fund that replicates the index correctly, with low TER commission, well-diversified and if I want to have exposition to other regions invest in other similar indexed funds with holdings in those regions.
I'm planning to stick to a consistent investment strategy, gradually adding money to my selected funds over time. Following the recommendations from the Vanguard Perspectives report, I'll allocate a small percentage of my investments on Emerging markets and Europe, in addition to the US. The US has been outperforming Emerging markets the last 14 years, some experts expect a reversal in this trend in the following years, but we have to be cautious not to lose the good momentum of the US stocks that continues over time. If some of these tendencies changes, I will start to recalibrate the allocation of the portfolio by contributing more to Emerging or EU.
Finally, my plan is to invest in the following funds with the indicated allocation percentage of my total portfolio holdings:
领英推荐
40% - Fidelity MSCI World Index Fund P-ACC-EUR - IE00BYX5NX33
30% - Fidelity MSCI Europe Index Fund P-ACC-EUR - IE00BYX5MD61
20% - Fidelity S&P 500 Index Fund P-ACC-EUR - IE00BYX5MX67
5% - Vanguard Emerging Markets Stock Index Fund EUR Acc - IE0031786696
5% - Fidelity MSCI Japan Index Fund P-ACC-EUR - IE00BYX5N771
What do you think about this portfolio allocation?
Please feel free to comment and discuss my strategy. Happy to receive all your inputs.
Hashtags
#wealthmanagement #longterminvestment #portfolio #assetallocation #financialplan #investmentstrategy #welldiversifiedportfolio #diversification #risk #volatility #investmentplan #investing #markets #perspectives Fidelity International , Vanguard , BlackRock , iShares , Pictet Group , Pictet Asset Management , Pictet Wealth Management , Amundi , Amundi US
Sources of information
Fidelity MSCI World Index Fund P-ACC-EUR - IE00BYX5NX33
Fidelity MSCI Europe Index Fund P-ACC-EUR - IE00BYX5MD61
Fidelity S&P 500 Index Fund P-ACC-EUR - IE00BYX5MX67
Vanguard Emerging Markets Stock Index Fund EUR Acc - IE0031786696
Fidelity MSCI Japan Index Fund P-ACC-EUR - IE00BYX5N771
Coordinador de seguridad y salud en fase de ejecución
7 个月Warren Buffett loves it
Asesor Internacional en Gestión Patrimonial e Inversiones (CISI & MiFID II) | Experto en Macroeconomía y Activos de Inversión | +25 a?os de Experiencia Profesional | Te ense?o a alcanzar la Antifragilidad Financiera.
10 个月Interesting asset allocation Alejandro Farré Talking about "diversification", how about adding some uncorrelated asset and maybe other assets considering the new business-cycle? There are great opportunities to enhance the performance of any portfolio. ??
Asesor Financiero de inversiones | Experiencia en Banca Privada | Linkedin Top Voice
10 个月Thank you Alejandro Farré for the mention. The most important thing is to define the investment profile and assign a market benchmark. For the former, define the investment time horizon and current asset balance, and determine the capacity for periodic savings. Finally, and most difficult due to its subjective component, determine the risk aversion. I share the protocol outline to follow: link to protocol schema. From there, and to build the investment portfolio, select the best investment vehicles if optimizing the portfolio from a tax perspective and direct investment is not a preference. In passive management, choose those with the lowest tracking error; in active management, select funds with a sufficient history to evaluate the manager's value contribution and future confidence in their management.