This is the final chapter of the Perfect Portfolio series and it is time to summarize the findings of the previous posts (Part 1, Part 2, Part 3, Part 4, Part 5, Part 6). First of all one important thing needs to be noted: analyzing history can be very helpful for having reasonable expectations for the future. Nevertheless history is never a guarantee for the future. Keeping this in mind, I’m going to describe the way I imagine my portfolio for the next years or even decades. This is quite a long term so future me (hopefully already enjoying his years of his early retirement with the family) will surely be very interested reading back the thoughts of 2016 Roadrunner and check back how could he stick to the original plan that was put in words during a long train ride on a rainy mid-October day.
Wealth Accumulation Phase
Like most of the people I don’t have a huge fortune on my bank account, so I need to build up that nest egg over the years. It’s gonna be done in a relatively long and boring way: saving and investing. I’m expecting this period to last for roughly 12 years (plus minus a few years depending on Mr. Market).
In terms of the stock-bond allocation I will be loaded with stocks. Even though history says that the longest long term returns could be achieved with a 100% equity portfolio, we also saw that the performance curve flattens more above 80%, while the volatility increases more dramatically. Because of this reason I am planning to keep around 90% of my portfolio in stocks and 10% in bonds. I do not consider it as something set into stone; a +-5% deviation from this plan is acceptable.
As a further breakdown of stocks, I’m planning to keep my Dirty Thirty investment in individual stocks, and I’m hoping that at least 70% of the list will remain unchanged comparing to today. In addition to individual stocks I am planning to add a low cost index ETF to cover the broader market, furthermore a more exotic ETF for an international exposure. In terms of the ratios, I’m planning the Dirty Thirty to represent about 50%, low cost index ETF 40%, “exotic ETF” around 10% of my equity assets.
Besides of stocks and bonds, I am also interested in real estate. I will dedicate a separate series of this topic later on. During the wealth accumulation phase I’m planning to have two rental properties besides of the garage I already own. Considering the recent environment of cheap mortgages, I’m planning to purchase the first rental property within a year.
By the end of the wealth accumulation phase I’m expecting to have around EUR 600k in equities and bonds and receive a yearly 25-30k passive income from dividends, interests and rental fees.
Wealth Consolidation Phase
I am expecting this phase to last for about 5 years. I will slowly weight the portfolio towards a more conservative equities to bonds ratio (from the initial 90-10% to 60-40%). During this time the value of the portfolio will increase from EUR 600k and by the end it will hopefully hit the magic EUR 1 million (which seems so far-far away now). By this time I should receive a yearly EUR 50k in passive income from dividends, interests and rental fees.
Years of Financial Independence and Early Retirement
By the age of 50 I will hopefully achieve this goal. The portfolio will be around 50-50% between stocks and bonds. I am hoping that future Mr. and Mrs. Roadrunner will be able to live from the passive income that the portfolio and the two rental properties generate. In addition a 2-3% withdrawal rate per year would be more than acceptable in order to ensure that the portfolio secures our expenses for the rest of our lives.
Well, this is the plan. Have I found the perfect portfolio during each stages of this journey? Time will tell. Even though it might not be the perfect one (or not the perfect one for everyone), based on lessons learned from the past it looks like a good one at least. How about the timeline? Depending where you look it from you might see it even too optimistic or too conservative. For me it looks like a realistic one on paper.
What do you think? Have you gone through the same path? Are you still on the way? Are you just planning to start? Are you applying similar principles or totally different ones? I would be more than happy to hear your opinion!
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