Financial independence, but in pricey London
This if the fifth and final post setting out my Investment Policy. My Investment Policy Statement is here, and I have set out the detailed reasoning behind it in four prior posts here, here, here and here.
The key questions I haven’t tackled so far is how and when I trade.
Continue reading “My IPS, 5 of 5: Rebalancing and other considerations”
As I set out when explaining my Investment Policy Statement, I am a big believer in diversification. But I also know that you should only invest in what you know, and you can’t know everything; as Warren Buffet put it, “Wide diversification is only required when investors do not understand what they are doing.“. How to strike a balance between having enough skin in the game when I have conviction, and having enough diversification to allow me to sleep at night?
An investment here, an investment there, and pretty soon you’re talking a lot of holdings
My own investment portfolio, which is a mixture of ETFs and direct holdings, and which covers a range of countries, contains more than 200 underlying holdings (see graph below). (Note: I say underlying holdings because I hold some securities in multiple accounts. I consolidate my overall picture every month into one spreadsheet which aggregates by underlying holding).
This is the fourth of five posts laying out my Investment Policy Statement in detail. This post examines my target allocation.
In post two I already explained how my allocation splits my investment portfolio by geography (UK:US:Oz:Other) and by asset class (equity: fixed income: cash).
My geographic breakdown roughly follows the ‘matching principle’, under which I want my portfolio to mirror the countries I spend my life in. I live and work in the UK. I spend about two months of each year abroad on holidays, roughly one third in Oz, one third in the rest of the EU, and one third further afield (definitely including the USA). I can imagine spending more time in either the EU (France? Spain? Italy?) or in Oz.
I modify my geographic breakdown based on where the best stock markets for me are. This brings the USA up a lot. The USA not only accounts for about a third of global markets, but I trust its regulations more than most others’. Also it has well over half the world’s interesting tech stock capitalisation; I quite like tech stocks, and if they paid dividends i’d like them even more. One final factor is that I find the fixed income ETFs and high yield equities available in the USA far more interesting and varied than those I can find elsewhere. Until recently I could find a UK-tradeable Australian fixed income ETF at all, for instance. So the UK gets 55pc, the USA gets 25pc of my portfolio, Australia gets 6pc. Non-english speaking markets get ‘the rest’. I am definitely light on the European and Asian markets and should probably reduce my UK weight; 50pc weighting would be easy enough. But for now I have not done this.
I am pretty aggressive in my appetite for risk, and fortunate enough to be high enough net worth that I hope I could cope with quite a drop in net worth. So equities get a high weighting. Right now this is 80pc.
This leaves two obvious questions:
Continue reading “My IPS, 4 of 5: Target allocations”
