What do I do with my own money?

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.

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