2 Comments

  1. Damiete
    oktober 5, 2019 @ 12:47 am

    Hello Saska,

    I really enjoyed your blogpost. However, I don’t agree that bonds should be taken out of a portfolio.

    As much as your points are very good and valid and your goal is growth, your earlier asset mix of 73% shares and 27% bonds is good, however you can be more aggressive to grow your portfolio with 80% shares and 20% bonds.

    Setting up a portfolio should be divided in two ways – 1. “Growth/Risk” basket and 2. “Secruity” basket.
    In the steps to rebalance and diversify your portfolio, using a “Risk-parity” method aims to provide a hegde against “bullish” seasons

    Yes, you said you are young and time will eventually even out the bullish years, but why wait for a storm to pass and your Growth/Risk baskets gets low? Be reminded that generally stocks are 3X more risky than bonds.

    Generally, it is understood that some asset class perform better than others is certain times of the market. An example of “Secruity” basket asset class is gold. Generally, gold moves opposite to the stock market, which means – when the stock market is in red, gold is in green and vice-versa. So gold just comes in as a defense.

    Finally, the goal is to as much as possible not loose money and protect your investments no matter the financial atmosphere per time is. I personally think setting up a portfolio based on how risk affects your investment and rebalancing when necessary is beneficial than 100% focus on growth.

    Reply

    • Saska | Finance Monkey
      november 7, 2019 @ 11:28 am

      Hi Damiete,

      Thanks for your comment. Indeed, focussing on not losing any money can be a good strategy. However, I’m investing in ETFs which are comprised of large baskets of stocks. This reduces my risk within the stockmarket itsself. As for an allocation between stocks and bonds, I prefer to focus solely on growth, as when looking long-term, stock markets have shown higher growth rates than bonds. Thus when you think about an investment horizon of 40+ years (10+ years to reach FIRE and then 30+ years in FIRE), to me it makes more sense to invest solely in bonds and with that ride the harsh waves of the stockmarket. Investing in gold is in my opinion the worst thing that you can do with your money. Looking long-term, gold prices have hardly shown any increase, so it would just be throwing away money as inflation kicks in.

      Mind you, I’m no financial advisor, so everybody should adjust their portfolio to match their risk-appetite, needs and expectations.

      Reply

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