What should you have in an investment portfolio?
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I’ve had a few comments asking what my investing portfolio looks like, what’s in it, and how I have things allocated.
Well to be honest, it shouldn’t really matter.
My portfolio is based on me, my goals and where I am in life. It won’t be super helpful for anyone else. You’ll need to do that research (or just compare roboadvisors) and ask those questions yourself!
But that would make quite a boring post, so lets take a look anyway 😉
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If you haven’t already, I strongly recommend checking out my monster guide on investing in Switzerland. It covers the background on this topic in a lot more depth, and gives you the foundation to start working out what portfolio is best for you, and how it aligns to your goals.
Again, your goals are different to mine. So take some time working out where you are and where you’re going with your investing.
Once you have this ‘north star’ with your investing, you’ll be able to better understand the risk you can afford to take, which will directly impact the structure and makeup of your portfolio.
My simple portfolio
So, here’s how it looks roughly:
Nothing too fancy.
Again, I’ve worked through my own process to get to this approximate allocation. And not just a pen and paper process of working out a budget and target retirement age, I’ve had to live this portfolio.
What does it mean to ‘live’ a portfolio?
Good question, I’m glad you asked.
Simply, it means how much risk you are comfortable with. You can read all the blog posts and investing books you want, but until you’ve seen how it performs, and what happens to your emotions when the stock markets sink, you won’t know which is the right portfolio for you.
Here’s an example of the average annual return from 1926 to 2015 by allocation, and the worst single-year return:
You haven’t lived it yet. You need to learn what portfolio setup you are comfortable with, and that’s a very personal choice.
When I first started, my stock allocation was dialled right back. Scared of messing up and not wanting to ‘lose it all’ I held loads of bonds. For months I watched my account crawl along and generate a tiny half percent return.
I was starting slow and steady that’s for sure!
All the calculators and books said my stock allocation should be a lot higher, but I needed to feel that process, live with the portfolio, and slowly increase it as I gained confidence.
As the stock allocation increased, so did the volatility (and my CHF balance) of my account. A bad month I was down 3%, which made me sweat. But after a while that started to feel ok. Again, I built up to that feeling of ‘ok’.
As my perspective changed to the longer term, the stock allocation increased as I lived through the dips and climbs. For years, my resilience grew against the short term noise.
Fast forward to Jan 2020 and to my allocation of 80% stocks. Covid-19 sends a shockwave through the world. Markets plummet over 30% in a week. My nest egg follows suit.
I’m living with a ‘high risk’ portfolio, and I feel ok.
My ‘risky’ portfolio allocation has just gone through one of the worst market downturns since the 2008 financial crisis. My perceived risk tolerance didn’t get shaken (quite the opposite, I bought even more stock) and my investing mentality scored another little confidence boost.
Had I started with this allocation years ago, the story would’ve been very different.
> Related reading: 7 Finance Bloggers share their top investing tips
Lets dig into each segment of my portfolio in a little more depth.
You need stocks to grow your wealth. Stocks are the engine of my portfolio and in the years to come, will accelerate the effects of compound interest. But of course, with more stocks comes more risk and you’ll increase your chances of seeing significant drops in value.
This is my day to day living & emergency fund, and everyone should have one. Anywhere from 2-6mths expenses. Again, depending on your circumstances you might have more, or less.
Steady job at a reputable company? Maybe just 3 months worth of cash.
Self employed? Make it 6 months.
Some could argue 10% is too high an allocation for CHF sitting in a bank doing nothing. And they might be right. But look out the window – people are losing jobs and these are uncertain times. And yet life goes on – Cars breakdown. Tax needs paying. The boiler needs a service. Kids want to learn how to play the keyboard. You get the idea.
In addition, cash covers any side business hustles I want to move into – from buying websites, to putting more resource into this blog, I need the cash available to make that happen.
Having 10% cash ensures life is covered, and I’m not touching the stock allocation of the portfolio.
Last year, I actually had around 10% bonds, but recently I’ve moved a little more into cash. This amount of bonds are pretty close to holding cash – but it brings a little more in interest, around 2-3%. It’s important to note these are corporate bonds, and not government bonds – which in Switzerland are negatively yielding at the moment.
I use a simple Vanguard ETF for this, and you can read more about bonds in my investing basics article.
Lets clarify my definition of the ‘fun’ allocation of my portfolio, and why it’s only 5%.
Firstly it’s things like P2P platforms (e.g. Mintos), Crypto (e.g. Bitcoin) day trading (e.g. eToro) and stock picking.
There is a reason this forms only 5% of my portfolio – because these are risky places to hang out, and you need to take care. Sure, the potential upside is big with double figure % returns well above the stock market average of 7%, but there is also a big risk.
Personally, I would never have a higher allocation of my wealth held in these places. Mentally I’m comfortable if that 5% ends up being worth 0 CHF. Which it might. It’s the risk I’m willing to take for the potential returns. But no more than 5%.
Why won’t I have a larger amount invested here? For three main reasons:
- Risky as hell
There is plenty of research and history which shows how the vast majority who day trade and pick stocks do not make money in the long term. And you can’t ignore that data.
We’ve all seen how crazy the price of Bitcoin can be too. I wouldn’t be comfortable, or be able to sleep, if I needed to check the prices everyday.
It takes a lot of discipline and self control to avoid blowing up your account, which unfortunately is very easy to do with leveraged positions and the draw of high returns.
- Access to my funds
A number of these platforms, especially in the P2P space might not be regulated, and have their banking offshore or in eastern Europe.
And not based in Switzerland.
Which on the surface can make business sense to serve a global market and optimise for tax – BUT – this also means they do not fall under Swiss jurisdiction, and your assets are not insured. Think carefully how much CHF you move into these places.
History tells us to take precautions.
- Sharky waters
I’ve tested a bunch of different platforms over the years, and while there are lots of legit and regulated companies out there, there are also a lot of scams and crappy services that prey on the folks looking to gamble and ‘get rich quick’.
I’ll only ever use and test regulated and licensed platforms, and will never respond to an Instagram/Google ad or cold call pitching double figure returns. And you shouldn’t either.
If you want to trade stocks or currency, do it with a licensed and regulated broker in your country. The big name firms. Not the cold calling company who are regulated in the Vanuatu islands, and have bank accounts in the British Virgin Islands.
You must do your own homework on these places before you commit to sending them your identity documents and transferring any money. There are way too many horror stories if you don’t do your due-diligence.
Based on the above reasons, you could ask why do I even allocate 5% of my portfolio here?
Well, it’s manageable in moderation. And, because it’s fun. Finding stocks and testing new platforms is interesting, and with a good strategy has resulted in generating some supplementary returns over the long term.
But remember – I’m able to include a ‘fun’ allocation now, after years of ‘not so fun’ discipline and plain ol’ index fund ETF investing.
All the other pillars in my portfolio are in place to enable a few % for this fun hobby. No debt. Pensions getting funded. Emergency cash buffer etc etc.
I say this not to brag. But there are other priorities as a new investor to address first before you start experimenting with the fun stuff.
Your portfolio sucks, Mr. IH!
No real estate? Gold? Classic cars?
Nope, not for me right now. But things change and allocations will move around – and that’s important. Make sure your portfolio isn’t set in stone and you are in a position to make changes.
What are some other examples of investing portfolios?
As you can imagine, there are thousands of variations of portfolios. You can really get lost down the rabbit hole. And not to mention all the specifics within these portfolios, there are many more thousands of ETFs, fund and asset classes you can use to build out a portfolio.
Some of that is outside the scope of this blog post, so lets focus on a few of the more popular portfolios.
The 3 fund portfolio
The 3 fund portfolio was made famous by the Bogleheads book, and employs a very simple approach. Typically it will include a domestic stock market (such as the US) an international stock market (a global fund) and a international bond fund.
They can also be split and allocated in different ways depending on your risk profile, but the core 3 funds remain.
The 4 fund portfolio
The 4 fund portfolio is essentially the same as the 3 fund, but with the addition of a small allocation towards REITs (Real estate) typically in the form of an ETF, in order to diversify the portfolio.
The Coffee House portfolio
Made popular by Bill Schultheis’ book The Coffeehouse Investor, this portfolio contains 7 funds and a mix of large established and undervalued companies, small companies, international stock and real estate. Balanced out by a healthy dose of bonds.
Show me more!
As I mentioned, there are hundreds of variations – but if you want to check out some of the most popular, have a look at PortfolioCharts.com if you really want to geek out. There you can see the performance over time, allocation values and much more data than my pencil drawn pie charts 🙂
Stocks & bonds will form the base of your portfolio, with some additional real estate and precious metals likely also being in the mix. As we’ve discussed, the allocation of these is based on your risk profile and will change over time depending on your age, employment status and many other factors.
Continue to educate yourself and start experimenting with an allocation that works for you.
Thanks for reading
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I’m a British expat who’s been living in Switzerland for the last 10 years. I’m a digital marketing professional by day, and anonymous investing blogger by night. I cover investing basics, robo advisor reviews and epic how to guides. You can call me ‘Mr. IH’ for short, and read more about me here.