As a follow up to my last blog post, I am sometimes asked what assets I hold, and my plans for the future. So here goes. 2 months ago, I was 80% in equity markets and 20% in government bonds. Now I am 90% in equity bond and 10% in government bonds. I don’t own any property and don’t plan to unless it is for personal reasons, to buy just 1 family house.
As many people reading this know, stock prices fell about 1 month ago, and I took the opportunity to increase my holdings, by decreasing my holdings in government bonds, and buying falling stock prices at lower prices. Therefore, my holdings are 90%-10%. Around 30% of my assets are linked to the UK, 40%+ to international markets and 30% to emerging markets.
Some context here. I am from the UK, the pound has fallen and FTSE has increased less than other markets recently and I am not near retirement. If I was 10 years away from retirement, I would look to hold 30%-35% in government bonds, and decrease my holdings in emerging markets to 10%.
So what are the advantages of this strategy? It isn’t speculative, it is liquid so I can sell and buy easily, it is diversified and long-term. It is a fact that markets outperform bonds and other assets in the long-term, but are more volatile. In a sentence, they are more volatile, but produce more long-term.
When markets go back up, I will use some fresh cash to bring my holdings back to a 80:20 or 75:25 ratio, and then again rebalance when the next stock price sell-off happens (bond prices tend to rise when markets fall).
What’s my long-term goal? To get to a stage where I can sustain myself with passive investments. A good guide is the 4% rule. It is safe to take $12,000 a year ($1,000 a month) out of a $300,000 portfolio to make sure inflation doesn’t erode the portfolio, $3,000 a month out of a $900,000 portfolio , $6,000 a month from a 1.8M portfolio and so on. Nobody knows what is around the corner, which is why people should be focused on diversifying their wealth and income as soon as possible.