e-Residency Company Investing [LHV Bank] + All Weather Portfolio!

Investing is important for any entrepreneur. Period.

It’s something I have procrastinated on for quite some time. In fact, several months …

What should I even invest in?
Is NOW the right time, or should I wait?
Should I save more before investing?

Does any of this sound familiar?

I think most people have these (or similar) questions on their mind and essentially push off investing – sometimes indefinitely.

Today, I want to share with you my thoughts and help you eliminate the complexity of investing. I am not a financial adviser and this is just my take on the subject.

Complexity is the enemy of execution.

Complexity is the enemy of execution

I’ve found this to be 100% true in ALL areas of life – whether it’s starting an online business, getting in shape or investing.

If something seems too complicated, we don’t take action.

By keeping things simple, we can move ahead faster.

If you are reading this, you are probably interested in investing.

You understand that there’s no point keeping all of your funds in a checking account where you get 0.01% interest.

If you don’t invest, you don’t keep but actually lose* money due to inflation!

Inflation Buying Power

*To clarify, you don’t actually lose money, your purchasing power simply goes down, which means your money is worth less. That’s why it’s so important to invest to counteract inflation.

YOUR STARTING POINT
(MOST IMPORTANT!)

Before we get into the details (what to invest in), it’s important to understand the purpose of investing.

Think of investing as a tool, such as a knife.

  • If you don’t know what to use the knife FOR, it’s useless.
  • If you don’t know HOW to use the knife, it can be outright dangerous.

Before you start investing, you need to do some groundwork. This can feel a lot of mental effort, but the good news is, once that groundwork is done, putting a plan into action is a piece of cake.

What’s your endgame?

Yes, what’s your endgame? Obviously, the point of investing is to make money work for you, but there are many different approaches to the game of investing.

  • What’s your time horizon?
  • How much risk are you COMFORTABLE in taking?
  • How much risk do you NEED to take?

These are some of the basic questions you need to answer prior to investing.

Time Horizon

Simply put, when do you need the money? How much time do you have? Do you plan on retiring in 5 years or can you keep the money in an investing account for a few decades?

Typically, the more time you have, the better. You are able to sit out a bear market whereas a crash right before you ACTUALLY need the money would be a disaster.

Risk Willingness

How much risk are you wiling to take? Are you okay with a 40, 50 or 60% drop in the value of your assets? OR would you panic and be tempted to sell?

Also, keep in mind, you should ideally re-balance your portfolio once every year.

Are you willing to buy more of a certain asset class after it has dropped by a large percentage? KNOW YOURSELF!

Need For Risk

The need for taking risk(s). Even if you are willing to take a lot of risk, is there an actual need for it? Say you have 500.000€ to invest and realistically, that will turn out to be 6 million euros when you retire 40 years from now.

Does it make sense to take A LOT more risk
to end up with 15 Million?

Sleepless nights, risking to lose it all – is that worth it just to end up with 15 instead of 6 million? Sure sounds nice, more money is always better.

BUT the additional money is probably only going to make a marginal difference in the quality of your life.

With 6 million in the bank, you can probably do everything you want – so why take the additional risk?

These are just some examples, but you get the idea. All three factors are related to each other.

Step 1 – What To Invest In?

You can come up with your own investment strategy or simply model successful investors.

One popular investment strategy is the All Weather Portfolio by Ray Dalio. You can use this as a starting point.

All Weather Portfolio Ray Dalio

This portfolio supposedly protects you against the worst-case scenario and has a pretty impressive track record over the last 80+ years.

The structure looks as follows.

  • 40% Long-Term Bonds
  • 30% Stocks
  • 15% Intermediate-Term Bonds
  • 7.5 % Gold
  • 7.5% Commodities

You can change the percentage of each position if you want to take more or less risk and are okay with higher volatility.

Step #2 – Making The Investment

Once you have come up with your own portfolio percentages, you have to look at specific items to invest in.

Each bank offers different stocks and investment opportunities and you’re limited to those.

If you’re with LHV Bank, putting the All Weather Portfolio into practice could look as follows (I will go into more detail below):

iShares All Weather Portfolio

Here are more details for each position.

55% Bonds (Ticker IUST)

Bonds make up 55% of the All Weather Portfolio (40% Long-Term, 15% Intermediate-Term).

Instead of buying individual bonds, you can invest in an ETF that contains bonds of varying term lengths.

That way, you only need to invest in one ETF and keep things simple.

ETF Bond iShares

As you can see, the ratios are way off.

The long-term bonds (20+ years) should be at 80% if we were to duplicate the All Weather portfolio.

However, we need to work with what’s available (at LHV) and this is the best option.

Perfection is unattainable, thrive for good enough.

30% Stocks (Tickers SXR8, IS3N, EUNL)

Diversification is the primary goal here. Also, it’s probably not ideal to invest in ETFs that have the same/similar companies included.

Although – as I’ll explain below – that not always possible if the MSCI World is part of the portfolio.

For example, you can choose the following ETFs:

  • iShares Core S&P 500 UCITS ETF (500 Largest US Companies)
  • iShares Core MSCI EM IMI UCITS ETF (Emerging Markets)
  • iShares Core MSCI World UCITS ETF (1,649 companies worldwide)

As you can see, with this ETF combination, you are investing in the same companies (probably) twice.

I would guess that some of the 500 largest US companies are also part of the MSCI World and the same would apply to select companies of the EM ETF.

7.5% Gold (Ticker SGLN)

Physical gold IS part of the All Weather Portfolio but it’s not something I am interested in at the current moment.

You’d need to pay for storage, security and more. As such, I have decided to limit myself to a Gold ETF (for now).

Holding physical gold makes sense only if you decide to invest a large amount or have a place to store it (inexpensively or for free).

Here’s a gold storage provider located in Singapore, which I have tested. I’ve bought a 1g Gold bar worth 56€.

Gold Storage Singapore

The costs for storing that 1g Gold bar was more than twice it’s value!

Gold Storage Fee

If you want to hold physical gold and invest a small amount only, perhaps store it at home, otherwise invest in a gold ETF.

7.5% Commodities (ETFS Energy)

Not mentioned in the spreadsheet screenshot above, the ETFS Energy ETF would be one option of investing in a commodities ETF.

The only thing I dislike about this particular ETF is the high management expense ratio at 0.49%.

ETFS Energy

There is another commodities ETF which I saw listed on the LHV website (Lyxor Commodities); while the management expense ratio is slightly lower (0.35%), I didn’t like that the fund is heavily invested into the finance & IT industry.

Summary

  1. Figure out YOUR STARTING POINT
  2. Determine your portfolio percentages
  3. Pick the ETFs/stocks (based on availability at your bank)
  4. Re-balance portfolio once per year (based on point 2)

Set & forget!

In the meantime, enjoy life, work on your online business and let the money work for you.

Still confused and want me to help you start/plan your investments? Setting up your personalized investment strategy is also part of my course/mentorship program.