The name of my game is index investing, passive index investing. Once that is settled, there is only 1 question left: what trackers will I use? There are a lot of sample portfolio’s out there, going from a simple 1 tracker portfolio to a sliced and diced 12 (or more) tracker portfolio. What would be the wise thing to do for me? Here are my rules: I want world coverage, I want it to be simple as hell and it needs to be tax optimized. Lets break it down.
I want world coverage
The goal of my tracker portfolio is to match the global evolution of the stock markets. This means I want exposure to the main developed economies in US, EU and Asia. Next to that, I want to get some EM as well. Frontier is optional.
The world is also constructed out of large caps, medium caps and small caps. Somehow, all these need to find a place in my portfolio.
I want it to be simple
Simple means that it should not take a lot of orders to build up the portfolio or a lot of buy/sells to re-balance the portfolio.This basically excludes anything more than 3 or 4 trackers. More than that means potentially a lot of smaller orders each month. This is not simple and not cost efficient.
Simple means that I do not need to have a perfect economy weighted or market share weighted or equally weighted world index. A rough sample of the world is fine.
Simple also means I do not want to bother with dividends. Accumulate all that can be accumulated.
It needs to be tax optimized
Living in Belgium, this brings us to accumulating trackers based in Ireland. The trackers should not be registered in Belgium.
Accumulating: In Belgium dividends are taxed, capital gains far less
Not registered in Belgium: they have the least stock market tax to pay when you buy and sell
Why Ireland: This is a tax heaven for the financial industry.
You can read more details on nomorewaffles breakdown on this. This post inspired my asset allocation.
What about bond vs stock allocation?
I consider myself lucky, I do not go for bonds now. I have a portfolio that acts as stabilization to my overall portfolio. Next to that, my investment time frame for this part of the portfolio is about 29 years. This means I can go 100pct equity now.
Besides that, I consider bonds too risky right now. Interest rates are more likely to go up than to go down. I will consider bonds later.
My current asset allocation
Looking at my personal situation and the desires that I have for my portfolio, I started some research. I came up with the below portfolio that is perfect for me.
- IWDA – 70pct: This delivers the vast majority of world wide exposure to large cap stocks. I find it too much US biased. This will be corrected by adding some EU and EM. I also need some medium and small cap.
- CESL – 20pct: Adding some EU to the mix and also some diversification into small caps.
- EMIM -10pct: EM was missing till now.
At the time of conception, using the fact sheets from the asset manager, this gives the following exposure to the world (almost 100 pct: rounding error)
- US – 42,5 pct
- EU – 35,6 pct
- EM – 10 pct
- Asia and other – 11,9 pct
Now that this equation is solved, I can set my investing in auto gear and invest each month in one of the trackers above. I will not buy each month equally as this will create unneeded work and unneeded transaction costs.
The portfolio should be rebalanced each year in April. With each buy, I decide what needs to be bought in order to approximate the wanted asset allocation.
If you do your own research, what portfolio is bets for your specific needs?