Investment Principles in Practice

portfolio-chartIn the previous post I have explained my investment principles, now let’s see how we can implement them in practice. Following two main principles, I want to keep it simple and of course I want to diversify my assets. I am focusing on 3+1 main asset categories: stocks, bonds, real estate and cash. Also within these assets I want to further diversify in order to spread the risk. Let’s see how!

Investing in Stocks

Personally in the equity section of my portfolio I want to see 30 individual companies (the dirty thirty 🙂 ) with solid background and regular, preferably regularly increasing dividend payments. Such companies are mainly US multinationals, but I also want to add some strong European companies both for regional diversification and also (since I live in the Netherlands) to be a bit less impacted by the EUR/USD exchange rate. In addition in a smaller scale (this will represent maximum 5-10% of my overall equity assets) I am planning to add some ETFs investing in emerging stock markets.

Investing in Bonds

With the current low interest rates it is very hard to find bonds that are likely to have a good return without too much risk. I am not that worried though as in the first couple of years of my early retirement investing plan I am planning bonds to represent only a small part of my portfolio. Right now I’m more looking into bonds from the emerging markets and if US or European government bonds were added any time soon, they would definitely be short term bonds due to the fact that in my opinion sooner or later interest rates will start to rise.

Investing in Real Estate

It is difficult to start your investment portfolio including real estate without having too much overall impact on the real estate market. Remember diversification? If you invest in a property which worth EUR 150k, even if you start with a portfolio worth EUR 50k, the real estate element will be 75%. Talking about one single property, this much weight is too high for me now, nevertheless one or two rental properties could be a healthy element of a larger portfolio.

It is not impossible though to invest in real estate in an early stage and you can still keep the overall weight under a reasonable percentage. My solution is investing in real estate investment trusts (REIT), furthermore we also own a garage at the center of a major European city. This currently generates a safe and regular monthly return in a really good percentage comparing to the purchase price. Plus the heater never goes wrong and I do not have to repaint it every time a new tenant comes 🙂

Cash

This is something must to have, just in case anything unexpected happens. Also this is the only element of the portfolio that is not linked to a certain percentage of the overall portfolio value, rather than to a few months (4-5) living expense.

 

As of 1st September 2016 our portfolio is made up of the followings:

Piechart

As you might see this is still an early stage weight. The 19% cash is a way to high portfolio allocation, but we definitely want to have a cash cushion amounting to a few months average expenses. As the months are passing by and new investments are being added to the portfolio, the weight of cash is going to be gradually reduced.

Looking at the details of the various assets:

Stocks:

Company Weight  Purchase value EUR   Current value EUR   Value Change EUR 
AT&T 6.9% € 1,522 € 2,017 € 495
Cummins 5.8% € 1,417 € 1,690 € 273
IBM 4.9% € 1,332 € 1,425 € 93
Emerson 4.9% € 1,463 € 1,417 € -46
Cisco Systems 4.8% € 1,326 € 1,410 € 84
ADM 4.7% € 1,269 € 1,374 € 104
ABN Amro 4.6% € 1,424 € 1,337 € -87
Valero 4.3% € 1,240 € 1,241 € 2
HCP 4.2% € 977 € 1,235 € 258
Royal Dutch Shell A 3.8% € 1,069 € 1,101 € 32
AES 3.7% € 899 € 1,083 € 184
Phillips 66 3.6% € 1,068 € 1,055 € -12
Western Digital 3.6% € 1,055 € 1,046 € -9
Target 3.2% € 955 € 944 € -11
CF Industries 3.2% € 1,047 € 933 € -114
Ameriprise 3.1% € 847 € 907 € 60
Qualcomm 2.9% € 610 € 848 € 239
Unilever 2.8% € 768 € 825 € 57
Banco Santander 2.7% € 1,293 € 792 € -501
Kinder Morgan 2.7% € 468 € 784 € 316
Prospect Capital 2.6% € 567 € 772 € 205
Apple 2.3% € 805 € 666 € -139
Lockheed Martin 2.2% € 410 € 654 € 244
YUM Brands 2.2% € 547 € 651 € 103
EXXON Mobil 1.9% € 512 € 547 € 35
NextEra Energy 1.9% € 519 € 542 € 23
Colgate Palmolive 1.8% € 504 € 533 € 29
K+S AG 1.7% € 586 € 494 € -92
VISA 1.5% € 445 € 435 € -10
Sanofi 1.4% € 483 € 414 € -68
Total € 27,426 € 29,172 € 1,746

Bonds:

ETF Name  Purchase value EUR  Current value EUR  Value Change EUR
PowerShares Emerging Markets Sovereign Debt Portfolio € 953 € 962 € 9

Real Estate: EUR 13,000

Cash: EUR 10,000

Total: EUR 53,134

So still a long way to go, but you must start from somewhere, right? In the future –besides of some other articles- I will provide monthly updates on the portfolio status and the changes made to it. Hope you guys will keep following! Do you have questions or comments? Both are more than welcomed!

 

Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on early retirement.

 

 

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