Author Topic: My investment statement policy  (Read 3219 times)

Kilbim

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My investment statement policy
« on: June 18, 2016, 07:51:11 AM »
My investment policy or better, my personal wealth management policy.
This is my first time doing this, I tried to inclued everything wealth-related.

Please give me your feedback :)

(note that I am from switzerland).

1. Emergency Fund
Emergency fund is what allows me to invest and live safely, knowing I have something to fall back to without needing to resort to debt (debt is EVIL).
Emergency fund is established at 8 months of full living expense (e.g. not reduced), when job is secure.
When job is not secure (term contract, difficult company situation, ecc.) emergency fund is established at 10 full months.
In the case the EF runs under the established amount, it shall be replanished as first priority and all saved money will be put in to the EF, postponing other investments.
Full living expenses will be re-assessed when important life-events occur (getting married, children, moving city, ecc.)

2. Location of financial assets
Financial assets are located (I am swiss investor):
-   In 2 pillar (fixed retirement asset)
-   In 3a pillar (variable retirement asset)
-   As cash (EF) (mixed asset)
-   ETF or mutual funds with low fees and low costs of investing (mixed asset)

3. Risk tolerance and risk strategy.
My risk tolerance is at this moment unknow (first investment), but expected to be average. As I fear investing in a lump-sum and get immediate bad returns, I will always apply a DCA strategy to all my investment. My investment veichle will also take into account this, as the higher fees it might incur I might pay to be able to apply DCA over small investment will in the end repay themself by preventing me from acting stupid out of fear. By investing with DCA I am protecting myself (although not fully) from the physcological fear of seeing my investment going down straight.
My risk tolerance is around 40-60% stocks, rest bonds.
My risk tolerance will be re-evaluated each year, and in case of important life events.

4. Investment objectives
The main objective is to accumulate wealth, for retirement and for down-payment in a house.
Time horizons are 2053 for retirement and 2031 for the house.

5. Assets allocation
Money will be invested according to the % allocated (according to my possibilities) for investment of my income-after taxes. The allocation takes into account: fixed expenses; retirement; holidays; saving for big expenses (car); free cash flow (various) and investments.
Invest money monthly with DCA.

Variable retirement assets
Overall stock allocation for variable retirement assets will be:
30-40 years old: 45
40-50 years old: 25
50-65 years old: 10
65+ years old: 5
Allocation balance will be reached by investing more or less in different third pillar accounts:
pillar 3a bank account (fixed income) vs pillar 3a fond (stock/fixed income mix)
Pillar 3a fond: keep fees as low as possible, more than 0.7% p.a. is not acceptable.
Priozation of Pillar 3a bank vs pillar 3a fond: untill 35 yo always prioritize 3a fond.

Cash
In addition to EF, some cash will be held in the bank account to accomodate for “life”:
30-35 years old: 7% of target EF
30-40 years old: 13% target EF
40-50: 24% of target EF
50-65: 35% of target EF
65+: 39% of target EF
Wedding: as wedding is planned in a short-term period, remember to keep money for it as cash, in savings account.

ETF or mutual funds:
Bonds: 35-45% (Total bond market: 0-35% / Swiss bonds: 65-100% )
Equities: 65%-55% (Total US stock market: 40-55% / Swiss equities: 4-7% / International market: 40-55%
Real estate: 0%
Natural resources: 0%
Keep fees as low as possible. target is 0.5% p.a. maximum; more than 0.65% p.a. is not acceptable.

priorization of assets
EF> 30% pillar 3a fond > 50% ETF > 30% pillar 3a bank > 50% ETF > 50% pillar 3a fond > 30% pillar 3a bank > remaining pillar 3a fond > remaining pillar 3a bank >

foreign currencies
A single foreign currency should never be more than 45% (total only counts in ETFs; pillar 3a fonds aren't calulated in; also, a pillar 3a fond in foreign currency - if it even exists- should be avoided at all cost)
If it need be, to balance this out, bonds in foreign countries can be exchanged with bonds in CHF, trying to avoid buying more of a bond I already have, but including a new one.

6. Other
Aim at maximum diversification and wide-market coverage.
For stocks, aim at world coverage, do not give too much importance to home (=swiss) assets.
Avoid overlapping of same-nature investment veichles (i.e. avoid overlapping of ETFs); if possible avoid overlapping over different-nature investment veichles (ETFs overlapping with 3a pilar funds).
In 3a pillar funds aim at world-coverage (and avoid swiss-only).
Nothing justifies a single company being worth more than 10% in an asset (so avoid ETFs or index funds doing this).



Missing anything important?

 


« Last Edit: October 25, 2016, 09:54:44 AM by Kilbim »

Heckler

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Re: My investment statement policy
« Reply #1 on: June 18, 2016, 08:33:39 AM »
Missed anything?   Knowing your risk tolerance.   You've taken a conservative allocation, which is a good assumption if you don't know your risk tolerance, but I have a late 30's coworker who was 90% bonds since the 2008 market crash, and he is quite pissed at himself for seeing how well his 10% stocks faired while his bonds stayed flat. 

Kilbim

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Re: My investment statement policy
« Reply #2 on: June 18, 2016, 08:38:29 AM »
Missed anything?   Knowing your risk tolerance.   You've taken a conservative allocation, which is a good assumption if you don't know your risk tolerance, but I have a late 30's coworker who was 90% bonds since the 2008 market crash, and he is quite pissed at himself for seeing how well his 10% stocks faired while his bonds stayed flat.

I did various tests,  I am always around 40-60% stocks.
Other than that I have no "real world" knowledge of my risk tolerance.
Anything else I could do to know better?

Heckler

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Re: My investment statement policy
« Reply #3 on: June 18, 2016, 08:39:29 AM »
And you mention ETFs or mutual funds, but don't list what fees percentages you are willing to pay.  Watch out for funds with service charges (front end load, deferred service charge).  Paying 4-6% for the honour of giving someone your money is not acceptable.  Paying 1-4% of your total portfolio value is also not acceptable. 

Heckler

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Re: My investment statement policy
« Reply #4 on: June 18, 2016, 08:40:57 AM »
If you did several tests, then you know your risk tolerance as best you can today.  State that and what it is.  Then reevaluate it in a year. 

Kilbim

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Re: My investment statement policy
« Reply #5 on: June 18, 2016, 08:45:34 AM »
I added about risk tolerance and about fees, although for fees my policy was "as low as possible, giving all possibilities".

markbike528CBX

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Re: My investment statement policy
« Reply #6 on: June 18, 2016, 09:20:10 AM »
Well stated IPS.

RE: stocks at 65  yrs = 0%

Remember that 65 does not equal dead.  You could have 30+ years left.

Even though my lifespan is likely to be 85, I'm planning on making it to 95 ( my wife's reasonable expectation ).

Switzerland is not immune to inflation (swiss franc no longer gold standard, - FYI for non-swiss readers).  Bonds are not as safe as claimed.

While I disagree with the allocation (should be more stocks), I applaud your conservatism  as a 1st time investor.   It is easy to talk big stock % before a dip/crash. Until your first 20% dip, I'd be cautious about radically modifying your IPS.  Re-evaluating after a year might not give you that much more information than you have right now.

It is not a Policy if it is changed on a whim OR a fixed schedule.
« Last Edit: June 18, 2016, 09:31:45 AM by markbike528CBX »

Grog

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Re: My investment statement policy
« Reply #7 on: June 20, 2016, 05:23:23 AM »
Good IPS. It's clear that without never having invested anything is good to not jump in and burn but to take steps and see how it goes. At least so you can learn something about yourself without getting burned.

phil.rynn.9

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Re: My investment statement policy
« Reply #8 on: June 21, 2016, 06:28:00 AM »
My investment policy or better, my personal wealth management policy.
This is my first time doing this, I tried to inclued everything wealth-related.

Please give me your feedback :)

(note that I am from switzerland).

1. Emergency Fund
Emergency fund is what allows me to invest and live safely, knowing I have something to fall back to without needing to resort to debt (debt is EVIL).
Emergency fund is established at 8 months of full living expense (e.g. not reduced), when job is secure.
When job is not secure (term contract, difficult company situation, ecc.) emergency fund is established at 10 full months.
In the case the EF runs under the established amount, it shall be replanished as first priority and all saved money will be put in to the EF, postponing other investments.
Full living expenses will be re-assessed when important life-events occur (getting married, children, moving city, ecc.)

2. Location of financial assets
Financial assets are located (I am swiss investor):
-In 2 pillar (fixed retirement asset)
-In 3a pillar (variable retirement asset)
-As cash (EF) (mixed asset)
-ETF or mutual funds with low fees and low costs of investing (mixed asset)

3. Risk tolerance and risk strategy.
My risk tolerance is at this moment unknow (first investment), but expected to be average. As I fear investing in a lump-sum and get immediate bad returns, I will always apply a DCA strategy to all my investment. My investment veichle will also take into account this, as the higher fees it might incur I might pay to be able to apply DCA over small investment will in the end repay themself by preventing me from acting stupid out of fear. By investing with DCA I am protecting myself (although not fully) from the physcological fear of seeing my investment going down straight.
My risk tolerance is around 40-60% stocks, rest bonds.
My risk tolerance will be re-evaluated each year, and in case of important life events.

4. Investment objectives
The main objective is to accumulate wealth, for retirement and for down-payment in a house.
Time horizons are 2053 for retirement and 2013 for the house.

5. Assets allocation
Money will be invested according to the % allocated (according to my possibilities) for investment of my income-after taxes. The allocation takes into account: fixed expenses; retirement; holidays; saving for big expenses (car); free cash flow (various) and investments.
Invest money monthly with DCA.

Variable retirement assets
Overall stock allocation for variable retirement assets will be:
30-40 years old: 45
40-50 years old: 25
50-65 years old: 10
65+ years old: 0
Allocation balance will be reached by investing more or less in different third pillar accounts:
pillar 3a bank account (fixed income) vs pillar 3a fond (stock/fixed income mix)
Pillar 3a fond: keep fees as low as possible, more than 0.7% p.a. is not acceptable.

Cash
In addition to EF, some cash will be held in the bank account to accomodate for “life”:
30-35 years old: 5% of target EF
30-40 years old: 10% target EF
40-50: 20% of target EF
50-65: 30% of target EF
65+: 35% of target EF

ETF or mutual funds:
Bonds: 35-45% (Total bond market: 25-35% / Swiss bonds: 65-75% )
Equities: 65%-55% (Total US stock market: 40-55% / Swiss equities: 4-7% / International market: 40-55%
Real estate: 0%
Natural resources: 0%
Keep fees as low as possible. more than 0.5% p.a. is not acceptable.

6. Other
Aim at maximum diversification and wide-market coverage.
For stocks, aim at world coverage, do not give too much importance to home (=swiss) assets.
Avoid overlapping of same-nature investment veichles (i.e. avoid overlapping of ETFs); if possible avoid overlapping over different-nature investment veichles (ETFs overlapping with 3a pilar funds).
In 3a pillar funds aim at world-coverage (and avoid swiss-only).
Nothing justifies a single company being worth more than 10% in an asset (so avoid ETFs or index funds doing this).



Missing anything important?

 
Very thorough and well thought out.  One thing I would add is a benchmark portfolio that meets your risk return objectives so that you can you can track your progress and ensure your investments are meeting your ultimate goals.

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Kilbim

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Re: My investment statement policy
« Reply #9 on: June 21, 2016, 10:48:16 AM »
Very thorough and well thought out.  One thing I would add is a benchmark portfolio that meets your risk return objectives so that you can you can track your progress and ensure your investments are meeting your ultimate goals.

Thanks.
How would you go about that? I don't quite get it..



edit:
I also edited my IPS:
5. Asset allocation > Variable retirement assets > changed 65+ stock allocation. Added priorization of pillar 3a bank vs pillar 3a fond
5. Asset allocation: renamed "cash" to "free cash flow" (makes more sense)
5. "free cash flow" slightly increased % to my EF (5%->7%, and so on)
5. "free cash flow": money for wedding should be kept as cash.
- Added priorization of assets (order in which to invest assets, in case target goals can't be made)
- Added "foreign currencies"
« Last Edit: June 21, 2016, 11:11:00 AM by Kilbim »

phil.rynn.9

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Re: My investment statement policy
« Reply #10 on: June 22, 2016, 01:59:38 AM »
Very thorough and well thought out.  One thing I would add is a benchmark portfolio that meets your risk return objectives so that you can you can track your progress and ensure your investments are meeting your ultimate goals.

Thanks.
How would you go about that? I don't quite get it..



edit:
I also edited my IPS:
5. Asset allocation > Variable retirement assets > changed 65+ stock allocation. Added priorization of pillar 3a bank vs pillar 3a fond
5. Asset allocation: renamed "cash" to "free cash flow" (makes more sense)
5. "free cash flow" slightly increased % to my EF (5%->7%, and so on)
5. "free cash flow": money for wedding should be kept as cash.
- Added priorization of assets (order in which to invest assets, in case target goals can't be made)
- Added "foreign currencies"
Once you establish your risk tolerance and what you are hoping to achieve you can create a benchmark that you wish to beat.  For example, based on your asset mix (yours is a bit complex) you could simply strive to beat a 2055 target retirement life cycle fund. 

You could also perhaps strive to match the s&p 500.

The point is, if you have established a benchmark and you are consistently under performing then your portfolio needs tweaking.

Also, if you can't beat your benchmark by actively managing your portfolio it might make sense to just simply passively invest in index funds that match your benchmark.

Phil


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Kilbim

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Re: My investment statement policy
« Reply #11 on: June 22, 2016, 05:31:24 AM »
Oh, I see now. This is very smart, thanks Phil! I'll update the IPS accordingly.

Kilbim

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Re: My investment statement policy
« Reply #12 on: June 22, 2016, 01:48:55 PM »
Very thorough and well thought out.  One thing I would add is a benchmark portfolio that meets your risk return objectives so that you can you can track your progress and ensure your investments are meeting your ultimate goals.

Thanks.
How would you go about that? I don't quite get it..



edit:
I also edited my IPS:
5. Asset allocation > Variable retirement assets > changed 65+ stock allocation. Added priorization of pillar 3a bank vs pillar 3a fond
5. Asset allocation: renamed "cash" to "free cash flow" (makes more sense)
5. "free cash flow" slightly increased % to my EF (5%->7%, and so on)
5. "free cash flow": money for wedding should be kept as cash.
- Added priorization of assets (order in which to invest assets, in case target goals can't be made)
- Added "foreign currencies"
Once you establish your risk tolerance and what you are hoping to achieve you can create a benchmark that you wish to beat.  For example, based on your asset mix (yours is a bit complex) you could simply strive to beat a 2055 target retirement life cycle fund. 

You could also perhaps strive to match the s&p 500.

The point is, if you have established a benchmark and you are consistently under performing then your portfolio needs tweaking.

Also, if you can't beat your benchmark by actively managing your portfolio it might make sense to just simply passively invest in index funds that match your benchmark.

Phil


Sent from my SM-G925V using Tapatalk

Edit: oks, I thought I understood, my now I am not convinced xD

Should I benchmark only my ETFs, or factor in my other real investment (pillar 3a fond. pillar 3a bank is just a bank account which gives you some interest and you can deduce from taxes)?
And, if I should calculate everything, how do I sum performance of the two? XD

Also, say I decide to benchmark my ETFs only. It doesn't make sense to my to benchmark them with the S&P500, since that is only stocks, and I have a mix of bonds and stocks.. or?
And if I benchmark with something too similar to my portfolio, it doesn't make sense either, since I am benchmarking with the same exact portfolio.. so I am not sure about this...
« Last Edit: June 22, 2016, 02:00:36 PM by Kilbim »

phil.rynn.9

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Re: My investment statement policy
« Reply #13 on: June 24, 2016, 11:00:59 AM »
Very thorough and well thought out.  One thing I would add is a benchmark portfolio that meets your risk return objectives so that you can you can track your progress and ensure your investments are meeting your ultimate goals.

Thanks.
How would you go about that? I don't quite get it..



edit:
I also edited my IPS:
5. Asset allocation > Variable retirement assets > changed 65+ stock allocation. Added priorization of pillar 3a bank vs pillar 3a fond
5. Asset allocation: renamed "cash" to "free cash flow" (makes more sense)
5. "free cash flow" slightly increased % to my EF (5%->7%, and so on)
5. "free cash flow": money for wedding should be kept as cash.
- Added priorization of assets (order in which to invest assets, in case target goals can't be made)
- Added "foreign currencies"
Once you establish your risk tolerance and what you are hoping to achieve you can create a benchmark that you wish to beat.  For example, based on your asset mix (yours is a bit complex) you could simply strive to beat a 2055 target retirement life cycle fund. 

You could also perhaps strive to match the s&p 500.

The point is, if you have established a benchmark and you are consistently under performing then your portfolio needs tweaking.

Also, if you can't beat your benchmark by actively managing your portfolio it might make sense to just simply passively invest in index funds that match your benchmark.

Phil


Sent from my SM-G925V using Tapatalk

Edit: oks, I thought I understood, my now I am not convinced xD

Should I benchmark only my ETFs, or factor in my other real investment (pillar 3a fond. pillar 3a bank is just a bank account which gives you some interest and you can deduce from taxes)?
And, if I should calculate everything, how do I sum performance of the two? XD

Also, say I decide to benchmark my ETFs only. It doesn't make sense to my to benchmark them with the S&P500, since that is only stocks, and I have a mix of bonds and stocks.. or?
And if I benchmark with something too similar to my portfolio, it doesn't make sense either, since I am benchmarking with the same exact portfolio.. so I am not sure about this...
You could compare each fund in your portfolio to a benchmark, but I personally think simpler is better.  I would select a benchmark that closely resembles my overall goals.  I.e. What are your goals for your portfolio?  What return are you hoping to achieve?  What is your risk tolerance?

Why are you actively managing your portfolio vice passively investing in say a life cycle fund?  Perhaps you are trying to beat the return you could get from such a fund, or perhaps you are trying to match the return while reducing your risk.  Once you know what you are trying to accomplish, you can determine how you wish to evaluate your performance against an appropriate benchmark.

HTH,
Phil

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