investing

How to build your ETF portfolio: the two-ETF strategy

High Risk high gains is very often just high risk. My FIRE strategy exists from mainly buying two ETFs as you might have seen in my monthly portfolio updates. Its quite a boring strategy actually, you usually know what to buy, and even though you read in the newspaper what the next big stock could be, you still buy the same old tracker every month. Even worse both my trackers are accumulating, so no seeing my dividends increase every year!

But there is a fun part, if you are in the accumulating part following this boring, simple strategy will also make your portfolio, on average, grow faster then other strategies. Read further bellow why I feel this is.

For those who don’t know what ETF is, ETF stands for exchange traded fund, it is basically a tracker that just tracks a certain index. It is all computerized so stocks within this ETF change based purely on the tracker with no human interaction. It can track the SP500 index for example. You have two kinds of ETFs, distributing and accumulating. Distributing hands out dividends and are therefore usually more motivating to buy, as you can see your income steadily increase.

Two ETFs you can buy

SPDR MSCI WORLD UCITS ETF

This is an accumulating ETF that tracks the performance of large and mid-sized equities in developed markets globally. Development countries are generally considered safe havens for

When we look into the factsheet we can see what stocks SPDR MSCI WORLD UCITS ETF contains.

As you can see bigger companies take up a higher % of the index. Thats infact how ETFs work, they will never have the same % of every company in their portfolio, instead they will have a bigger % of the biggest company, and the smallest company will only have a very small share. Indirectly I am participating in Apple, Microsoft, Amazon, Facebook, Alphabet, Testa and johnson & Johnson.

And in this way purchasing SPDR MSCI WORLD UCITS ETF gives you stocks in a dozen of sectors and over 23 developed countries. While you might say some of these sectors grow much faster then others currently, like Information technology, it is still good to be spread out as you never know how the next crisis will affect a certain sector.

So great diversification! But what do I like most of all about SPDR MSCI WORLD UCITS ? Costs! With a mere 0.12%/year this is about 10-20 times cheaper then actively managed funds.

iShares Core MSCI Emerging Markets IMI UCITS ETF

As I second ETF I like iShares Core MSCI Emerging Markets IMI UCITS. iShares Core MSCI Emerging Markets IMI UCITS is also accumulating, it tracks not the developed market but the emerging markets. As you could see on the above graph (cumulative index performance) it has performed very similar to the MSCI WORLD index, although you could see its a lot more volatile.

As you can see its mainly China that is boosting the iShares Core MSCI Emerging Markets IMI UCITS ETF, but also big upcoming economies like India and Brazil. These merging markets are becoming more and more important in the world, and their steep rise cannot be overlooked, especially because China is predicted to be the world n2 economy by 2024. India will be the third and Brazil will hold the 8th spot.

As you can see the emerging Markets will hold almost half of the top 10 spots! Especially the jump into the pack of India is quite remarkable. They went from emerging market economy to a top player. Although you might still see a different imagine if you look at per capita since China and India both have high populations, but its still great progress for those countries.

You would be insane not to grab a very easy opportunity to be part of this market and making Shares Core MSCI Emerging Markets IMI UCITS ETF part of your portfolio. Of course these countries do not have the 200 year old Democracy that US and some European countries have. So the risk is higher, but the gains might be well worth it.

What else do I like about Shares Core MSCI Emerging Markets IMI UCITS ETF? Costs! With only 0.18% costs /year it is one of the cheapest ways to invest in the big emerging market economies.

Why accumulating ETFs?

Distributing ETFs give out dividends every quarter (or more/less depending of the ETF). Its quite motivating to see your dividends increase every year and build up a passive income stream that way. But when you are in the phase where you are still acquiring wealth you would only be re-investing this money again in stocks. That would lead to extra costs to purchase these stocks. Additionally some countries, such as my own (Belgium) are taxing dividend income. Where accumulating ETFs are only taxed at the very end when you sell them, at only around 1%, compared to a yearly 30% tax on the dividends.

That’s why your portfolio will grow faster when you buy accumulating ETFS.

There is one exception (at least in Belgium), that is if you buy dividend stocks. Then there is a tax free part of up to about 600 EUR of dividends. Not very high if you want to build a large diversified portfolio.

How to balance between them?

Right now its commonly accepted that a good balance is about 85% SPDR MSCI WORLD UCITS ETF / 15% iShares Core MSCI Emerging Markets IMI UCITS ETF, so the developed markets still play the biggest role.

A third ETF you might consider: iShares MSCI ACWI ETF

If you don’t wan to balance between SPDR MSCI WORLD UCITS and iShares Core MSCI Emerging Markets IMI UCITS then you might want to consider a third option: the MSCI ACWI tracker. This Index tracker tracks both the developed countries and the merging markets in one tracker. So you don’t need to worry about balancing between them. I am actually considering to add this tracker to my portfolio also as a third tracker. At the beginning its quite easy to balance yourself, but balance will become harder without selling ETFs.

The tracker is also accumulating, so that means lower costs and taxes.

As you can see the global coverage of iShares MSCI ACWI ETF is amazing, tracking a huge amount of countries worldwide, although it does include some rather questionable countries such as Argentina, but they don’t take up much or any space at all on the tracker since it only tracks the bigger companies.

When looking at the division US and US companies hold a very tight grip on the top. However if predictions come true China should start playing a bigger role here, I think it will be interesting to look at this tracker again in one year and see how the percentages moved.

Why did I not purchase iShares MSCI ACWI ETF yet?

While I firmly believe in the iShares MSCI ACWI ETF, there is one downside for this convenience and that is cost. The ETF costs about 0.32% yearly and that’s quite a lot higher then SPDR MSCI WORLD UCITS ETF (0.12%) and iShares Core MSCI Emerging Markets IMI UCITS ETF (0.18%). So about triple the SPDR MSCI WORLD UCITS ETF and that is withholding me from purchasing this ETF for now. But I wouldn’t be surprised if a cheaper alternative hits the market the coming years, so its for sure something to keep your eyes on.

What does iShares or SPRD stand for?

The trackers are actually just called MSCI ACWI, MSCI Emerging Markets and MSCI WORLD. There is different exchange traded fund families that offer different types of ETFs. They then put this in front of the tracker name. It does vote confidence when a tracker is from a famous fund family such as iShares or SPDR. iShares was created by BlackRock and SPDR (pronounced “Spider”) was created by Standard & Poor’s.

Another very famous one with some good tracker is Vanguard, if you live in the US then I would consider their SP500 index fund tracker which is low cost and is performing very well.

What about other ETFs?

I believe it would be wrong to say that this is the only possible strategy. Infact I believe there is a lot of great ETFs outthere, and for sure a few of them have outperformed the ones I mentioned. I just like the low cost, low taxes, geographical and sectorial spread they deliver. I do believe if you just buy one ETF and stick to that thats already a lot better then getting individual stocks. Just be aware that the more limited the ETFs are the more vulnerable you are in case of recession.

For example the Invesco Dynamic Leisure and Entertainment ETF tracks the Dynamic Leisure and Entertainment Intellidex Index and holds a small basket of 32 stocks. While it has performed outstanding before 2020, at the Corona epidemic this ETF suffered much much more then any other as it lost almost 70% of its value going from 52$ to 17$.

While now somewhat recovered at 38$ it does show that if you choose your ETF to limited in sector or region you expose yourself at a big risk.

But as I said it doesn’t mean there is no great other ETFs outthere. One I also really like is ETFs based on the SP500. I used to have one of these in my portfolio and it performed great and you can even find them with a costs of only 0.05% per annum! I only sold them because I felt I would be greater diversified with SPDR MSCI WORLD UCITS ETF, but everyone can see it has performed pretty amazing the last years and especially if you have US nationality you should consider making this part of your portfolio.

Is it now the right time to buy ETFs?

Well some would say you missed the big drop of the market in March, and then was the time to buy, and some would say the market is overheated and a recession year could be coming up in 2021.

Perhaps, the thing is these are all things people say every single year. Its just more spectacular to say we are expecting a crash then saying I am expecting a modest but steady rise over the next years. Just keep in mind you are buying for the long term, you need to expect not to sell what you buy for another 10 years at least, and at that point it doesn’t matter if the crash comes next year or in 5 years, because in the long run you will have a modest steady rise.

So I would say the time to buy is right now. Now while statistically its better to put everything you have in the market right now, it’s probably not so good in case another recession comes. While in the long run you will recover you might get demotivated quickly. That’s most people recommend to invest a steady amount every 1-2 months. If you have a large amount of cash on your bank then you could decide to invest a larger amount then you usually would every month spread over about 24 months for example. This way you give yourself the chance to gently get to know the world of stocks and avoid panic when the market drops the first months you invest.

How can you buy ETFs?

You can buy all these stocks with brokers. There is a ton of them globally, one famous one that I use is DEGIRO. DEGIRO sells both SPDR MSCI WORLD UCITS ETF and iShares Core MSCI Emerging Markets IMI UCITS ETF. DEGIRO has low costs, good support and great UI and user app. But there is more such as Keytrade bank, or even your local bank might sell them (although they usually have high costs attached to them).

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Peertopeer

Eight reasons why I moved out of peer to peer investments

I realized I never actually went deeper into my reasons for fully leaving peer to peer. So here are my reasons why I decided to cease investing in peer to peer and only invest in real estate and the stock market.

#1 Its not actually passive

What I realized that with some sites you need to keep a constant eye out for negative news messages about the LO’s you invested in. Sometimes you can read in the news a Loan Originator is going bankrupt, and a few days later it gets suspended from the secondary market. You will want to sell your loans off from that originator before this happens.

#2 It’s hard to distinguish between scams and honest sites

While I do feel some peer to peer sites are easier to spot as scams some are much harder. Sites where the projects don’t match up, or where Loan Originators are kept a secret. I was invested in Kuetzal, Envestio and Monethera. While I got out in time out of Monethera and Envestio I was not able to get out of Kuetzal in time. Looking at it back now of course I should have spotted Kuetzal as a scam.

But other sites were much harder to decide on if they are scams or not. Take Grupeer who went into default for me for example. Are they a scam? Even up to this day after not paying for 90 days they keep up appearances. In any case they were listed on explorep2p which usually only listed credible peer to peer sites.

#3 There is a high liquidity risk on most p2p and p2b sites

Some of these sites have a secondary market but that does not necessarily means it functions correctly. When shit hits the fan and everyone wants to get out, even a secondary market will not help. Some sites don’t have this at all, and they offer investments for 24 months. That’s a very long time to wait when things go wrong.

#4 Investors money might not be separated from the company’s money

When I asked to wire the money on my virtual Grupeer account in March, Grupeer answered me that due to delays in transfers from the Loan Originators they could not transfer it. BUT it was already on my account. That means that the company money and investors money was all together in one big pool. And I am sure that Grupeer was not the only p2p site doing this. It’s not regulated, so they are not required to do it. We need to trust in the goodwill of the p2p site.

The mail I got from Grupeer that made me suspect that investors and company money were not separated

#5 You are also investing in Startups

Most p2p and p2b sites around are actually small companies. So in a way you invest in Startups. Statistically you should know that a startup in the Finance industry has a 42% chance to fail, so this is already a huge risk you are taking just by wiring money. In theory you still have a claim on the loan you invested in directly with the business or loan originator. In practice its quite hard to recover that stake as you have no collateral.

So forget about all these blogs that say you need to diversify! You really shouldn’t, you should be investing in the biggest p2p sites only and stay away of the smaller sites run by a handful of people.

#6 They don’t need to start off as a scam to become one

I’m sure a few of the p2p sites are starting off with the idea that they would set up an honest system. However when the company gets in trouble its quite tempting to start using investors money as your own, or create fake loans or loan originators to get extra funding for your site. Of course that’s not legal, but the temptation is there and there is no regulation to check if they are behaving as they should.

#7 I lose to much sleep over it

When the stock market crashed 30% in February / March 2020 because of Corona I never lost one night of sleep over it. While when Kuetzal stopped functioning, I remember in December 2019 I was awake all night. Even though I had 20 times more in the stock market. The idea that I fell for a scam was just extremely painful.

#8 It feels that even peer to peer loans are P2B loans

On some platforms where you can invest in many different loans, my original thought was that if the LO ever stopped paying I would still have a claim to the loan. After a few Loan Originators got into troubles because of Covid, its very clear that my claim is not on the person that I actually took the loan from but on the Loan Originator itself. So instead of investing in 1000’s of loans I was actually just investing in 30-40 businesses.

Conclussion

In conclusion I no longer feel comfortable to put my money into peer to peer. For me the high risk / high reward has mostly turned out to be high risk. Normally next year there would come some European regulation. This could actually be good for the sector in the long run, but mostly for the investors who will feel more confident simple rules (like keeping investors money seperate), are being followed.

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Uncategorized

Your first steps on the stock market: DEGIRO Quick User Guide for beginners

In order to help you if you are new to either the stockmarket or DEGIRO I have written a small guide to help you get started. While its meant for beginners I believe it can also contain some good tips for the more advanced user.

In January 2020 I made the decision to move from Keytrade to DEGIRO as a broker. The low fees appealed to me. I noticed that its not yet clear to everyone how you can actually trade stocks / ETFs and funds on DEGIRO, so this entry guide will allow even the absolute beginner to start on the stock market.

disclaimer “Investing involves risks of losses”

DEGIRO Sign up process

The very first thing you will need to do is create an account (if you haven’t already). You can sign up for DEGIRO here. DEGIRO allows you to sign up from multiple countries. If your country is not in the list but you live in the EU then I suggest to pick a country where you speak the language. For example I live in Belgium and I signed up on the site of “Nederland”, and that works perfectly. Remember the account is 100% free. You only need to pay a small fee when you start to trade. I found that for the trading I do, DEGIRO is the cheapest stockbroker. I will explain this part further on.

Once you click on your country you will enter the sign up screen:

Click there on “Open a free account now”.

DEGIRO has a waiting list, the crisis has drawn a lot more people to the stockmarket. Don’t worry DEGIRO is processing the waiting list, but it can take some time for you to have an active account. Remember stock trading is for the long term, so don’t panic if it takes a while to sign up.

Once you filled in your details go to your mailbox to activate your account

In the email you just got click “Complete your registration” to activate the account

You then go to a page that says Email address verified

Click Login and type there the username and password that you entered before.

At this point you will know your place in the queue. At some point 30.000 people tried to sign up, so that means that 6431 is not a bad place.

Updating your profile

Once you are accepted, one of the first things you should do is to make sure all your personal information is correct.

To check that hover over the usericon at the lower left and click “Profile” (on the screenshot its in Dutch but its on the same location everywhere).

When you click there you come on your personal information page.

The first thing you need to update there is “Personal information” (Persoonlijke informatie on the screenshot).

In that Area you will be able to update your adress.

The second area that is important is the area just bellow that, where you can set your bank account. If you set your bank account then any amount of money that you write from your bank account to DEGIRO will be automatically added to your DEGIRO account. I noticed that this is a smooth process and takes only a few hours.

What I also highly recommend to do is to check out the “Security” Area. There you have the chance to set two-factor authentication.

Using two factor authentication is highly recommended. In this case you will need to download an app called “Sophos Authenticator” on your phone. You can just download this free app from the Apple store or Play store.

DEGIRO will present you with a QR code. Once installed just select scan QR code. This menu pops up if you click the three dots in the top right screen.

Then a camera will pop up and you just point it to the QR code that DEGIRO has supplied you.

From this point on you will see a DEGIRO icon on your app. That means that every time you login you will need to write whatever number is displayed there. That also means that only if a User has both access to your phone and your password they can access your account, making it impossible to hack your account from the outside since they would also need access to your phone to get in.

DEGIRO Pricing

Before starting with investing you might want to know how much it will actually cost you to invest.

First its good to know that the tariffs are very similar across the EU, with some minor differences. In the Netherlands I noticed they are slightly cheaper but the difference is quite small.

You can compare the fees with other brokers for Ireland here for example or for the Netherlands here. You can also find a cost calculator on that page if you want to know it exactly.

Generally I found the pricing of DEGIRO to be really competitive. Bellow is an example of the pricing in Ireland for stocks and ETFs (DEGIRO is at the left, you can see a comparison with some other brokers)

Stocks Pricing

For ETFs there is even a list of ETFs you can purchase once a month for free (conditions applicable, read those here). If you only invest small amounts like 25 EUR / month then this could be an option for you. You can find a list of all free ETFs here.

However keep in mind that they will come with a higher yearly cost. So make sure you check the yearly cost. There is a few on the list where the yearly cost is reasonable. One example would be the ISHARES MSCI WOR A, with only a 0.24% cost. Its a good ETF because you are covered worldwide which will lower your risk. Its also located in Amsterdam what should be good for Taxes. If you can invest higher amounts per month there is also ETFs that are not free that will be cheaper actually. In the next chapter I will suggest one. If you decide to buy an ETF with a purchasing fee, it could also be worth it to save up two months before purchasing.

I would advise against buying funds since they usually come with very high yearly costs up to 3%! This will be a big cut in your profit. I would also stay away from more futuristic investments such as options or the futures market. The majority of the people do not make a profit there.

Your first purchase on DEGIRO

Transferring money

Transfering money is quite simple. You just need to transfer from the bank account you coupled to your DEGIRO account in the last chapter.

At the top right you normally see an icon to book money in and out.

When you click on that you should see the option to transfer money manually. This is the option you should use.

When you click on it you will get the bank details of the account you need to write to.

I suggest you first try with a small amount (1 EUR) and test that it works. Once it works you can transfer a larger amount. Remember you can only transfer money from the account you have added in DEGIRO.

On the same screen you have the option to book money back to your bank account, should you need it in the future. It can be interesting to also test this option and write the 1 EUR back to your bank account.

Get the right information on the ETF you are interested in

If you already have a stock or ETF in mind then I suggest to search for that stock. If you haven’t then go to the search box and enter SPDR MSCI WORLD UCITS. This is an ETF that invests in the top stocks in the top developed countries. I will show you how to get this information from the ETF itself.

When you search for this ETF you will get two results. One is in USD and the other in EUR. Lets choose the one in EUR so we do not expose ourselves to a currency risk.

Once you click on the ETF you will end up on the overview page of the ETF. If you like to see how the ETF performed in the past you can play around with the buttons bellow:

  • YTD = how it performed this year
  • 1D how it performed the last day (standard)
  • etc

First we would like to get more detailed information about this ETF. We want to know for example how much the yearly cost is, if it

For that click on the documents tab on your screen.

Once you are there you can click on the download button to go to the documents:

I noticed that there is no direct link to the document but once you are on ssga you can search for the ETF

In the top right type SPDR® MSCI World UCITS ETF and click the first one that pops up.

Now you are at the overview page of the ETF.

We can for example read the desciption of the Index:

The Index captures large and mid cap companies across Developed Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country. Securities are weighted by market capitalisation.

If we scroll down (or click on “Holdings”) we can see the Geographical weights, so you should realize that this ETF is focusing more on the developed countries.

Other things you can see is what stocks it exactly invests in currently and what sectors they are in. The thing with ETFs is that a bigger stock such as Microsoft and Apple will also carry a bigger weight. A much smaller stock that is at the bottom. Apple for example has 3.35% weight, while the smallest stock (HEICO Corporation) at position 1579 only has weight of 0.000068%.

Now scroll further down and open the document called KIID

Click on KIID

This is actually an overview of the ETF in a standard format. Apart from some general information you will be able to see the yearly cost and the risk factor.

In this case the fund has only a 0.12% yearly cost and that is why it is one of my favorite ETFs.

We can also see that the ETF is not handing out dividends. How? Because it does not have Acc (=accumulating) in the name. If you are in a country where they have taxes on dividends then you want to avoid Acc ETFs. If it does not matter for taxes then I would go for Acc ETFs since its always encouraging to slowly see your dividends go up over time. Should you receive dividends you will also be able to see in this file how often you get the dividends. Usually this is quarterly but there is some ETFs that give it yearly or monthly.

Dividends are a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

Your first purchase on DEGIRO

Now that you are armed with more knowledge about the ETF or stock you want to purchase its time to do the actual purchase.

You can do that by going back to the ETF in DEGIRO and click the green button that says “Buy” (or “Koop” in Dutch)

In the next screen you will need to then set how many stocks you want to purchase and at what price:

I usually will set the purchase price a bit higher then the actual price. The system will still buy at the lowest possible price but then you are sure it will go trough fast.

You need to enter the max purchase price in the box next to Limit Order. Under the box limit order you need to enter the number of stocks or ETFs you want to purchase. The system will then calculate the max purchase price

For example I have entered the following and the system has calculated that it will cost me MAX 985 EUR, but most likely I will pay less.

Remember unless you chose a free ETF you will need to save 5-6 EUR for taxes and fees from the DEGIRO. Once you click on “Place Order” you will find out exactly how much the costs for DEGIRO is.

I can also see the impact on my free space, so I can actually see that I could have actually purchased 3 stocks more.

Once you are ready confirm your purchase, you will then have placed an order on the market. If you put your limit high enough, it will be purchased really fast.

Checking your current wallet

Now that you have some stocks in your wallet you can click on Portfolio to find out how your stocks are doing.

In my case I can see that I currently have an 8% loss, but we need to keep in mind that this blog was written during the corona crisis. At the height I was actually at a much higher loss in March 2020 as stocks had dropped 30%. Its good to note I have not lost one night of sleep over this drop as I know that ETFs cannot go bankrupt and if you pick one that is spread over multiple countries and sectors it will always reward in the long term. Always invest for longer periods. Five years is really the minimum but preferably you should be investing for a horizon of at 20 years. The stock market goes up average per year 6-7%. Also remember: the best time to invest was yesterday. The second best is today.

Conclussion

If you are new to investing I really hope this was a good overview for you. Please let me know in the comments if there is anything else you would like to know or if there is any place I can improve. And if you like to know more about investing then leave your email so we can stay in touch.

Financial Independence · investing

How to build the perfect ETF portfolio

Why you should stay away from funds

I started seriously investing in the stock market in 2016. My first steps was a regular transfer (500 EUR / per month), to a managed funds called Keytrade Funds. The funds promised nice returns in the longer term. I picked out 6 funds in total (mostly stocks and one bond fund), and invested 500 EUR every month. What I liked was that I removed the emotional aspect here. Sometimes a month went by and I did not look at my investments. In 2018 when the stock markets had a larger loss, I did not really care.

But looking at it longer term, I realize that not one of these funds have managed to outperform the regular stock markets in developed countries in Europe and North America. No wonder since most of them charge 1-2.5% costs, and that is a HUGE deal especially when markets are just increasing 6% per year. Thats 1/3 of your profit you donate to them. And they are not able to outrun any index. Booo!

Time for change!

Avoid high risk Stocks

In the beginning of 2019 I started experimenting with stocks instead. Stocks I invested in mainly were Galapagos stocks. I saw them go up from 118 EUR to 165 EUR (when I sold them). The problem was that investing in one stock seemed incredibly risky. I watched the stock go up or down almost daily thinking if now would be the right time to sell or buy more. Eventually I sold them when the market went into a small dip in the summer. I was not able to switch off my emotions and it didn’t seem like a good alternative for funds, even if the stock I picked performed excellent (and still is btw).

What about Peer to Peer lending?

As you have seen I am experimenting with peer to peer lending as well. These experiments are not finished and peer to peer lending will still have a spot in my portfolio. The main downside is the high taxes (30% in Belgium) that you cannot avoid, and added risk caused by lack of European regulation.

The taxes would be fine if that would mean that after taxes you would still have a gain of about 7%, but that is hard to tell right now.

What I can say is that I absolutely love peer to peer, perhaps just because its new and volatile, so it will keep a place in my portfolio. If the stock market would start to drop at some point, the money in peer to peer can help me leverage the advantages of a sudden drop.

In a later blog I will be deciding on what exactly my peer to peer portfolio should look like.

So I will not go deeper into peer to peer right now as there will be room another time to discuss this component. Stay tuned for my perfect peer to peer portfolio in a later blog!

Meanwhile if you want to discover peer to peer by yourself check out my Mintos or Grupeer review to see some platforms I like!

Other investments

I am ignoring real estate you have (that should play a role in your portfolio) or money market (emergency fund) who could also be in your account. I am also ignoring a pension fund that you might not control. But here I just want to focus on assets that are right now more liquid then a pension fund or real estate, but that you still want to hold on to for a long time (I’m talking decades). You should not be touching this fund until you have reached Financial Independence so you can retire early.

So lets talk ETFs!

The next thing I had my eyes on was an ETF at first glance ETFs seemed boring. They just followed an index and there was not much action.

But by now I realize an ETF has a lot of advantages. Because it “just” follows an index there is no emotion attached. Furthermore those indexes usually contain hundreds of stocks worldwide! This gives you a HUGE diversification. If you focus on one stuck even if there is just a 0.1% chance the stock goes bankrupt, that means you will lose all your money. If you manage to spread it over hundreds of stocks you will just follow the general trend of the market. And as we all believe (or we would not be reading about FIRE), the general trend is up.

Taxes are important!

The first tracker I bought was the SP500 tracker from Vanguard. An excellent stock that has performed very well for me. The only downside is that it pays out dividends. And dividends are taxed at 30% in Belgium! Ouch!. Even tough the dividends are only at 1.81, and dividends are sexy its not very cost efficient.

One more thing that is important is that there is no or almost no bonds in the tracker. Bonds are taxed in Belgium so should be avoided. Again check the local tax rules of your country to find out if this is the case for you as well. Generally I do not like bonds anyway. For me peer to peer is the part of my portfolio in bonds, as its reasonably liquid (I can get everything out in about a year, and about 8% per month), and has a better performance then bonds.

Apart from dividends the second thing to look at is domicile of the ETF. Domicile is important because also the country where your ETFs are hosted could be charging you taxes! Countries like France or Germany are to be avoided for example. My preference is Ireland as domiciled as its completely tax free!

Building the perfect portfolio

Based on our above requirements I have selected the following portfolio that I will be working towards with these properties:

PortfolioBaseDividends?CostTax?
SPDR MSCI
World UCITS
ETF (SWRD)
IRNo0.07No
IShares Core
MSCI EM IMI
UCITS ETF (CEMU)
IRNo0.12No
IShares Core
EURO STOXX 50
UCITS ETF (CSX5)
IRNo0.1No
IShares Core
S&P500 UCITS
ETF (CSPX)
IRNo0.07No
Peer To Peer
lending
EUInterestNone30%

 And when we visualize it I have come to the following division:

[visualizer id=”1922″] 

Note that if dividends were not taxed so high I would choose a different approach, but right now I look mainly at market diversification and tax efficiency.

Lets look into a bit more detail to the ETFs I have picked.

SPDR MSCI World UCITS ETF (SWRD)

Why get this ETF?

As you can see this will take up 58.7%(!) of my Portfolio.

But wait…what about diversification? The MSCI World Index tracks hundreds of large, mid and small cap stocks over different sectors over 23 developed countries, mostly North America and Europe, but also some in the pacific like Australia and Japan.

If diversification is important to you (which it is to me!), you can’t really get more divers in the developed world then this tracker!

What about costs? Usually World trackers come with a high cost base. Until this ETF came out a similar tracker of iShares had the best cost base. You will be surprised this tracker actually only costs 0.12% per year.

What about Taxes? Since this ETF invests all dividends back into the ETF there is no dividends, and that means if you live in Belgium, no local taxes! In the current tax climate at least. As you might know tax climates turn with the wind, but I always say go with what you know now. What about taxes in the country the ETF is domiciled? Well if you have noticed all trackers I have chosen are in Luxembourg or Ireland. And they charge no local taxes! So all your profits are tax free! Check the tax laws of your country to find out if its better to have dividends or no dividends.

Historical performance

Its a new ETF so we cannot say much about the historical performance, however iShares has a similar ETF that tracks the same index.

Since the cost is lower on the SPRD World ETF we will have a slightly better performance then its nearest competitor, the iShares tracker. As you can see it gained 253% in the last 10 years!

IShares Core MSCI EM IMI UCITS ETF (CEMU)

Why get this ETF?

For diversification its important that you also have a presence in the rest of the world. MSCI EM is an index for the emerging economies.

The tracker actually has a great track record and has given very nice profits in the last 30 years.

Just like the previous tracker the cost is very low, and the tracker is tax free!

Historical Performance

The last 5 years this ETF has gained 46%. Not that huge compared to the S&P, but still there is a lot of potential to be had here.

IShares Core S&P500 UCITS ETF (CSPX)

Why get this ETF?

The S&P500 is one of my favorite index. I am already invested trough the Vanguard SP500 tracker. The only difference is that the cost is a bit lower on this tracker and there is no dividends (=no taxes).

I realize there is a certain overlap with my world tracker, but the SP500 is such a good tracker that it could not be missed in this portfolio! Still because of the overlap I decided to limit it to a mere 4%.

Historical Performance

As you can see it gained 140% in the last 6 years. Of course we have been in the largest bull run in the stock market history, so the only thing it proves is that it has performed well the last years.

IShares Core EURO STOXX 50 UCITS ETF (CSX5)

Why get this ETF?

As Im European and I love Europe, a good European tracker could not be left out either! Again there is an overlap with the World tracker but I generally think having more large European / American companies in the portfolio will have slightly better results in the long run.

Still in the interests of diversification I kept the EURO STOXX 50 at only 8.8%

Historical Performance

With a 43% gain in 5 years the performance is not as strong as its counterpart the SP500, however 2019 has shown a similar performance as the SP500, and there might be some untapped potential in this index!

What about Vanguard?

I absolutly like Vanguard trackers, most have a good cost basis and all give great dividends. But it all comes down to the taxes. If the taxes would not matter I would absolutely invest much more in Vanguard and at the very least mix my portfolio with dividend trackers. But as we know taxes matter, a 30% cut on your dividends really is a big deal. I do have Vanguard in my current portfolio and I will keep it but long term it will start to take up a lower % of my portfolio.

Automate investing!

If you find a way to automate this cost efficient then you should absolutely do it! The next crisis will come and you want to avoid that emotions will prevent you from making investments. This portfolio is not meant to have an excellent 2020 with perfect results, its made with the belief that the world economy will further improve the next 10-20 years and by this portfolio you will be able to take advantage from that. If there is a crisis or two along the way it will not matter, as you are in this for the long run.

Avoiding stocks will make your portfolio less volatile, but that doesn’t mean it will be easy watching your portfolio take a drop of 50% or worse. The best thing you can do is not to look at it and keep investing if it happens. And the easiest way to do that is by automating your investments.

Put your (my) money where your mouth is!

Or more exactly I should put my money where my mouth is. I realize my portfolio is a long way from my perfect portfolio. As a first step today I have posted a letter, cancelling all my investments in funds (apart from retirement funds as I cannot actually cancel these). When you read my monthly portfolio update you can see that these funds, also known as keyplan, take up 21K of my investments.

This 21K I will put into SPDR MSCI World together with my monthly investment (I invest 2500 EUR / month), it will bring me a bit closer to my perfect portfolio. I keep my fingers crossed that the bank will process it before I do my monthly portfolio update. But in case they can’t then it will just take one month longer before it shows.

Your oppinion matters!

This is a perfect portfolio…perfect for me, but perhaps not perfect for you. Let me know in the comment section what you would change / improve or why you would do something different and perhaps next time I suggest a portfolio your suggestions will be included!

Interested to see me work on modifying my portfolio to match my perfect vision? Follow me and join me on a roadtrip to Financial Independence!

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The market is collapsing and I’m losing everything | What the 2008 crash can learn us today

October 10 2008

I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That’s fine until today. Today did it. I am just starting to be scared so that I won’t tell my wife what happened today…stocks down…bonds down…I’m down. Our retirement funds are sucking down the drain. I lost today alone a year’s worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
I am 25% capitulating tomorrow, maybe 50% to money markets….maybe all.

This is not me. I will see tomorrow.

This is exactly what was written in an old post I came across at bogleheads. It is a reminder that even if you reached Fire that does not mean that the market cannot collapse and this could have a high impact on you.

Its easy to say that these examples show that you more then ever need to hold the course, but at the same time, the people who were heavily invested in 2008 did not knew that. As far as they knew the market went down today 5%, and it would go down another 5% and then another. In total the market went down 90% over a period of just 18 months.

In comparison, in the 1929 crash the market went down a similar amount, but over a period of 3 years.

As far as they knew the entire bank system could collapse!

Fifteen things the 2008 crash can teach us

Lesson 1: Do not put all your eggs into one basket

I was just out of university and did not had much investments. I was invested mainly in three stocks, two of which were bank stocks. One fully crashed, to never recover, and one crashed 60-70% and did recover. Bank stocks were considered a safe investment at he time. We were told there is so much mechanisms put into place that a bank cannot crash. It can.

While I was very low invested at he time it really did scare me, and did not make me return to the stock market for a while. When I did return I was not eager to buy stocks anymore. I first focused on funds, believing this would be a safe spread investments. Later I added ETFs to the basket. I did learn my lesson. Investing in one stock is not for me.

Lesson 2: stay the course

People who decided to sell, and did not return to the stock market have regretted up to this day. The market had a huge rebound, such as we haven’t seen in a long time.

When the market collapses, do not throw away your habbits to regularly invest

Lesson 3: automate

My early days of investing was mainly to find something I liked, and when I did I transferred some cash, bought the stock, and following it every day, waiting for the right time to buy.

What I should have done is automating my investments. That way when the stock market collapses you actually can use the collapse as leverage to regrow your portfolio faster to its normal levels. Automate and hold the course!

Lesson 4: Ignore your investments for 2-3 years

This might seem a bit contradictory. You may want to take action, reshuffle, re-invest, get out those bad stocks.

But if you followed point 1 and 2, you know you will have your investments spread and automated.

When the entire world is on fire seeing your investments in red all the time is not fun. You might get emotional (just like the guy in the start of this blog) and do something you will regret.

What you need to do is hold the course. Your investments are automated and spread out, so its okay to take a moment and focus on other things. Why not start a blog about a different topic?

Lesson 5: Do not give financial advise to Friends

Remember I told you about the Stock that crashed I invested in? I actually told my friends that I invested 1500 EUR in this stock, and advised them to do the same. Lucky they didn’t!

I still do tell friends about my investments when they ask. But I will always add that investing is risky and its at their own risk. Especially the case when I do decide to invest in one stock (oops, yes it happened this year – but I am already back out now), and when I buy high risk investments such as Startups or Peer to peer lending.

Lesson 6: its going to get worse before it gets better. But it will get better.

Those who have stayed the course, and kept investing their monthly amount, and did not panic sell, recovered after just 2-3 years. And any year after that is pure profit.

In the latest 20 years alone there have been 13 (small) bear markets, and 3 much bigger (including the banking crisis, the debt crisis, and the dot com bubble). And yet the markets have always recovered and are higher then ever.

Lesson 7: pin down your thoughts

Blogging, vlogging, keeping data in your excel, keeping a dairy.. it is much more motivating to pin down your thoughts when your portfolio is on a 7 year strike of only going up. But when its in red all the time how can you still give any financial advise? Fire is further away then ever and that is what your blog is about?

Keep in mind that while the fun is gone, writing down your thoughts is more important then ever! It will prove vital knowledge for you and others when the nightmare is over.

Lesson 8: follow this blog

When the storm hits, I will be here to report on the front line, so follow me and face it with me!

Lesson 9: no you cannot see the storm coming

Stock prices have reached what looks like a permanently high plateau … I expect to see the stock market a good deal higher within a few months. – Irving Fisher (a few days before the 1929 market crash)

Nobody could see the 2008 collapse coming. When the storm hits you, it comes out of a black fog so you can’t see it, and it comes so fast that you can’t prepare for it.

Only a really really small percentage of people manage to time the market, and since its such a small number its probably caused more by luck then by being some wonderchild who can predict the market as if this person has a glass orb.

You can’t see it come, but one thing is certain, it will come.

Lesson 10: nobody will tell you when the market hit rock bottom

Just like you can’t time when a stock market crash is coming, you cannot time when the stocks will go back up. That’s why Lesson 2 and Lesson 3 are so important., and the rise will be just as steep as was the fall. When people talk the most about that the crisis is over that’s when its about to drop hard!

Lesson 11: have some cash reserves

If you are living on a passive income remember to keep some cash reserves that can keep you going for a few years. Like that if one of your income sources suddenly drops away then you have something to fall back to.

Some recommend an “emergency fund” of a few years, but its might be better to have really enough to use for 2-3 years in case the stock market collapses.

Lesson 12: diversify

Its similar to Lesson 1, but where lesson one is focusing on the stock market, it can be good to have alternative incomes. Think of p2p lending, real estate and side hustles. Read my portfolio to get some ideas on what you could purchase!

Lesson 13: it’s always a good time to start investing

Even at the all time high before the 2008 crash, the market then is still much lower then it is today. If you could buy in 2008 at this all time high during the crisis people would say you were crazy. If you could do this today you would buy instantly as much as you can!

So its never to late to get in. Get in now, invest, and hold the course!

Lesson 14: you probably will forget some lessons!

In theory these lessons all make sense. If you follow them you can cut out emotion and trust on what has worked for over 50 years. But that’s easier said then done when you are losing 70% of your assets in a few weeks. Remember to come back to this blog when this happens.

Keep breathing. Re – read. Automate, and take a step back. Go do some sports, and pick up a new hobby

Lesson 15: final advise from sheepdog

I would like to close with some final advise. Sheepdog who made the original post at the top did not sell his stocks in the end. He did had to sell some bonds, and many years later he has this to say for those who are open to listening

When I started that conversation on 10/9/2008, I was in a bind, as you can read in my comments, but I did learn something and perhaps other retirees or near retirees did as well. When a person must take distributions to meet expenses, and I do monthly, an adequate “cash” account should be maintained so that they don’t “have to” sell at market lows. Keep a sizeable cushion. I am doing what I said I would do…..I maintain the “cash” account from which I take distributions at a minimum of 3 years of needs. I sell stocks and bonds every few months to keep it up. When the next big downturn occurs, and it will, I will not have to sell any investments for at least 3 years. I won’t get caught again.

So it looks like Sheepdog turned out to be okay afterall. He eventually also told his wife, but many many years later.

But the main thing is…he kept the course (something he always advised on the forum he uses before 2008), and did not had to sell any stocks he had purchased. His final words here might just be the most valuable lesson of all!


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