Belgium - Emergency/safety fund portfolio - Roast me

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Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Hi Guys,

I'd like to hear your opinion on the emergency/safety fund I'd like to create.
Let me first give you some basic info:
I'm from Belgium, 40y, so my 'home' currency is the euro.

Important elements here to know are some fiscal rules in Belgium (simplified):
- On equities there is no capital gains tax to be paid
- When choosing accumulating funds, there is no 30% withholding tax to be paid
- On accumulating bond funds 30% capital gains tax is to be paid (losses do not serve as credit)
- Limited access to ETP's (only UCITS)

The following portfolio setup is based on the simple Permanent Portfolio from Harry Browne.
25% stocks
25% Long term bonds
25% Cash/Short term bonds
25% Gold

I took this one as a base because I love the simplicity which allows good back testing and the fact that this back testing shows max drawdown of 13% and worst year 5% for the last 35 years. So making some profit with a strong focus on safety is my main goal.

Some dangers at the (far) horizon and which I tried to integrate slightly:
- Inflation
- US/EUR bonds might see a difficult future because of low yields
- US government losing it's safety status

So:

25.0% | VWCE | Vanguard FTSE All-World UCITS ETF USD Accumulation (EUR)
12.5% | DTLA | iShares $ Treasury Bond 20+yr UCITS ETF USD Accumulation (USD)
12.5% | CYBE | iShares China CNY Bond UCITS ETF Accumulation (EUR Hedged)
12.5% | ITPE | iShares $ TIPS UCITS ETF Accumulation (EUR Hedged)
12.5% | IB01 | iShares $ Treasury Bond 0-1yr UCITS ETF Accumulation (USD)
10.0% | SGLN | iShares Physical Gold ETC (USD)
05.0% | SPLT | iShares Physical Platinum ETC (USD)
10.0% | 00XJ | WisdomTree Agriculture (EUR Hedged)

Allow me to go deeper into the different choices and don't hesitate to roast me :-D

25.0% | VWCE | Vanguard FTSE All-World UCITS ETF USD Accumulation (EUR)
This one is quite obvious. Good worldwide spread but let me know if you have other ideas.

12.5% | DTLA | iShares $ Treasury Bond 20+yr UCITS ETF USD Accumulation (USD)
In general you'll see that I'm still pointing to a lot of US bonds. Many people don't. Why is that? I think short term, they are still considered as the number 1 safe haven. 20+ years treasury is the school example as a hedge for a falling market. It served its purpose again in March 2020 and I think short term it will continue to do so.

12.5% | CYBE | iShares China CNY Bond UCITS ETF Accumulation (EUR Hedged)
The Permanent Portfolio dedicates 25% to long term bonds. I chose to split this in the long term US bonds and upcoming China bonds. Besides the US, China is the next super power and gaining strength.

12.5% | ITPE | iShares $ TIPS UCITS ETF Accumulation (EUR Hedged)
Here we arrive at the 'cash' part with TIPS (inflation protected bonds). I have a hard time to understand this product (and its dangers, maybe someone knows more?) but as the chances of deflation are minimal this product should theoretically be a good cash type investment.

12.5% | IB01 | iShares $ Treasury Bond 0-1yr UCITS ETF Accumulation (USD)
Filling the gab of the 12.5% short term bonds. It's performance is/was pretty stable.

10.0% | SGLN | iShares Physical Gold ETC (USD)
In respect to the original setup 10% gold. Still 15% to go.

05.0% | SPLT | iShares Physical Platinum ETC (USD)
Platinum has a strong correlation with Gold. However it tends to perform better as a protection against inflation. It's also more volatile though.

10.0% | 00XJ | WisdomTree Agriculture (EUR Hedged)
This is the last 10% of the '25% gold part' as a safety net for inflation. It's focused on agricultural commodities as we already touched metals (and also in other of my activities I touch industrial metals). In general I don't like these so much but I see them as a temporary solution (couple of years?) as it's clear that agricultural commodities have been in a downtrend for the last 10 years with only the last year seeing a recovery. There might be decent potential as counter actor for inflation.

That's it. I hope you can find some ideas in it but I'm totally open to hear your critical thoughts.

Thank you!
tobyy
Posts: 34
Joined: Thu Feb 18, 2021 1:41 pm

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by tobyy »

Henri111 wrote: Tue Apr 27, 2021 9:03 am I took this one as a base because I love the simplicity which allows good back testing and the fact that this back testing shows max drawdown of 13% and worst year 5% for the last 35 years. So making some profit with a strong focus on safety is my main goal.

Some dangers at the (far) horizon and which I tried to integrate slightly:
- Inflation
- US/EUR bonds might see a difficult future because of low yields
- US government losing it's safety status

So:

25.0% | VWCE | Vanguard FTSE All-World UCITS ETF USD Accumulation (EUR)
12.5% | DTLA | iShares $ Treasury Bond 20+yr UCITS ETF USD Accumulation (USD)
12.5% | CYBE | iShares China CNY Bond UCITS ETF Accumulation (EUR Hedged)
12.5% | ITPE | iShares $ TIPS UCITS ETF Accumulation (EUR Hedged)
12.5% | IB01 | iShares $ Treasury Bond 0-1yr UCITS ETF Accumulation (USD)
10.0% | SGLN | iShares Physical Gold ETC (USD)
05.0% | SPLT | iShares Physical Platinum ETC (USD)
10.0% | 00XJ | WisdomTree Agriculture (EUR Hedged)

Allow me to go deeper into the different choices and don't hesitate to roast me :-D

25.0% | VWCE | Vanguard FTSE All-World UCITS ETF USD Accumulation (EUR)
This one is quite obvious. Good worldwide spread but let me know if you have other ideas.

12.5% | DTLA | iShares $ Treasury Bond 20+yr UCITS ETF USD Accumulation (USD)
In general you'll see that I'm still pointing to a lot of US bonds. Many people don't. Why is that? I think short term, they are still considered as the number 1 safe haven. 20+ years treasury is the school example as a hedge for a falling market. It served its purpose again in March 2020 and I think short term it will continue to do so.

12.5% | CYBE | iShares China CNY Bond UCITS ETF Accumulation (EUR Hedged)
The Permanent Portfolio dedicates 25% to long term bonds. I chose to split this in the long term US bonds and upcoming China bonds. Besides the US, China is the next super power and gaining strength.

12.5% | ITPE | iShares $ TIPS UCITS ETF Accumulation (EUR Hedged)
Here we arrive at the 'cash' part with TIPS (inflation protected bonds). I have a hard time to understand this product (and its dangers, maybe someone knows more?) but as the chances of deflation are minimal this product should theoretically be a good cash type investment.

12.5% | IB01 | iShares $ Treasury Bond 0-1yr UCITS ETF Accumulation (USD)
Filling the gab of the 12.5% short term bonds. It's performance is/was pretty stable.

10.0% | SGLN | iShares Physical Gold ETC (USD)
In respect to the original setup 10% gold. Still 15% to go.

05.0% | SPLT | iShares Physical Platinum ETC (USD)
Platinum has a strong correlation with Gold. However it tends to perform better as a protection against inflation. It's also more volatile though.

10.0% | 00XJ | WisdomTree Agriculture (EUR Hedged)
This is the last 10% of the '25% gold part' as a safety net for inflation. It's focused on agricultural commodities as we already touched metals (and also in other of my activities I touch industrial metals). In general I don't like these so much but I see them as a temporary solution (couple of years?) as it's clear that agricultural commodities have been in a downtrend for the last 10 years with only the last year seeing a recovery. There might be decent potential as counter actor for inflation.

That's it. I hope you can find some ideas in it but I'm totally open to hear your critical thoughts.

Thank you!
An 8 funds portfolio does not exactly fit my concept of "simplicity". That said, the problem I have with the permanent portfolio is the following:

1) Gold is supposedly there to protect against inflation. But historically it is terrible as an inflation hedge .There have been decades in which gold had a negative real return. The same can be said for Platinum, it had a negative real return from 1980 to 2000.

2) A portfolio with similar characteristics (return/volatility/maximum drawdown) can be obtained by choosing an appropriate allocation for assets with positive expected real returns, stocks and bonds. See this comparison between a 20/80 portfolio and the permanent portfolio. Notice that the allocation to equities is similar in the two portfolios.

My emergency fund is in a 20/80 one-fund portfolio.
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Hi Tobyy, I get your point and I agree that the simplicity of the permanent portfolio got lost. The idea was to respect the structure behind it but prepare for what might come as good as possible.

There is a lot of discussion about the end of the bond bull market. It's not my goal to open this discussion but there is a reasonable chance so I don't feel comfortable with the 80% weight in bonds.

I agree with the negative returns of platinum and gold during decades. But what happened with bond prices before the 40year bull run (from 1950 to 1975) when yields were in an uptrend? This is not a statement, it's a question as I don't have direct access to its historical prices but I assume there was a significant period of negative returns as well. Maybe you have a better view on this?

Thanks for the input so far!
User avatar
BeBH65
Posts: 1763
Joined: Sat Jul 04, 2015 7:28 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by BeBH65 »

Not sure the USD and China bonds and TIPS are what you need as a European.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
tobyy
Posts: 34
Joined: Thu Feb 18, 2021 1:41 pm

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by tobyy »

Henri111 wrote: Tue Apr 27, 2021 10:39 am Hi Tobyy, I get your point and I agree that the simplicity of the permanent portfolio got lost. The idea was to respect the structure behind it but prepare for what might come as good as possible.

There is a lot of discussion about the end of the bond bull market. It's not my goal to open this discussion but there is a reasonable chance so I don't feel comfortable with the 80% weight in bonds.

I agree with the negative returns of platinum and gold during decades. But what happened with bond prices before the 40year bull run (from 1950 to 1975) when yields were in an uptrend? This is not a statement, it's a question as I don't have direct access to its historical prices but I assume there was a significant period of negative returns as well. Maybe you have a better view on this?

Thanks for the input so far!
Bonds have significant periods of negative returns: any asset class does. You can't expect any asset class in your portfolio to have positive return all the time, this is why you have more than one asset class in your portfolio.

Historical data older than 1972 is hard to come by, but at least for the US market you can find a calculator here. From 1950 to 1975 bonds had real negative returns, but stocks did good in the same period and a 20/80 portofolio had a 1.5% inflation adjusted CAGR.
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Great calculator. Well saved!

I WANT to follow your reasoning. Why make things complicated if it can be easy.
So, a main question is here: Can it happen that bonds will go down together with stocks?
Is there a possibility that we are now heading for such an era?

May I know which bond ETF you're buying exactly and where you're from?

I find Ray Dalio to be an inspiring man. He calls diversification with uncorrelated products the holy grail of investment
https://3jhb8o3jvg7f2j47gb10wfzs-wpengi ... 0x1125.jpg
It's also he who is warning for falling bonds
https://www.linkedin.com/pulse/why-worl ... ray-dalio/

But if I can summarize your comments: you're not a fan of gold and platinum (a total of 15% of my portfolio).
You would exchange these for extra bonds.
You didn't mention the agricultural commodities but I assume you'd advise to change these for bonds as well (10%)
So, we're talking about a similar portfolio but 25% of it with an extra diversification. OK.
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

BeBH65 wrote: Tue Apr 27, 2021 3:05 pm Not sure the USD and China bonds and TIPS are what you need as a European.
I was hoping someone would make this comment :-D
Why is that? Because of the currency risk?
Laurizas
Posts: 519
Joined: Mon Dec 31, 2018 3:44 am
Location: Lithuania

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Laurizas »

Henri111 wrote: Tue Apr 27, 2021 9:03 am 12.5% | DTLA | iShares $ Treasury Bond 20+yr UCITS ETF USD Accumulation (USD)
In general you'll see that I'm still pointing to a lot of US bonds. Many people don't. Why is that?
There is consensus (?) that bonds should be in your home currency or hedged to home currency. I think there is Vanguard paper regarding this.
Henri111 wrote: Tue Apr 27, 2021 9:03 am 12.5% | CYBE | iShares China CNY Bond UCITS ETF Accumulation (EUR Hedged)
I chose to split this in the long term US bonds and upcoming China bonds. Besides the US, China is the next super power and gaining strength.
China bonds are unusual choice. The question should not be whether it is gaining strength but whether is has gained strength.
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by DJN »

Hi,
I like a simple portfolio and the permanent is attractive. A couple of points might be worth thinking about:
If you buy gold to hold, the price you pay is key, buy low (<$1200). 10% is more than enough in my view.
For your bonds I would suggest that you just stick to basics and get a global aggregate including corporate like EUNA and forget about it.
Ray Dalio is a smart guy who seems to be obsessed with getting his image out there and he does talk at you like he is teaching kindergarten. (I must say appearing in a recent podcast dressed in his dressing gown and pyjamas is novel). So "cash is trash" and forget bonds, great so what are ordinary investors supposed to do? Invest in China/emerging markets? Check his actual portfolio out, that is interesting. Read his book on debt if you really want to get something from him other than pretty vague homilies. I would be cautious about investing so much in "Chinese" bond funds, it's a third world economy (oops I should say second) and it is definitely not transparent.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
tobyy
Posts: 34
Joined: Thu Feb 18, 2021 1:41 pm

Post by tobyy »

Henri111 wrote: Wed Apr 28, 2021 1:28 am Great calculator. Well saved!

I WANT to follow your reasoning. Why make things complicated if it can be easy.
So, a main question is here: Can it happen that bonds will go down together with stocks?
Is there a possibility that we are now heading for such an era?
There is a possibility that both assets go down at the same time and there is a possibility that bonds go up when stocks go down but not up enough to compensate for the losses from stocks. Historically a 20/80 portfolio had a maximum drawdown of about 15%, I can live with that risk for my emergency fund (which I slightly overfunded).
Henri111 wrote: Wed Apr 28, 2021 1:28 amMay I know which bond ETF you're buying exactly and where you're from?
I'm Italian. I bought shares of the Vanguard Lifestrategy 20. This fund is equivalent to a portfolio composed of 20% global stocks (VWCE) and 80% global bonds EUR-hedged (VAGF). Vanguard takes care of rebalancing for me.
Henri111 wrote: Wed Apr 28, 2021 1:28 amI find Ray Dalio to be an inspiring man. He calls diversification with uncorrelated products the holy grail of investment
https://3jhb8o3jvg7f2j47gb10wfzs-wpengi ... 0x1125.jpg
It's also he who is warning for falling bonds
https://www.linkedin.com/pulse/why-worl ... ray-dalio/
When interviewed Ray Dalio often suggests to get out of bonds and cash, but he does not really discuss the alternatives and their risk.
Henri111 wrote: Wed Apr 28, 2021 1:28 amBut if I can summarize your comments: you're not a fan of gold and platinum (a total of 15% of my portfolio).
You would exchange these for extra bonds.
You didn't mention the agricultural commodities but I assume you'd advise to change these for bonds as well (10%)
So, we're talking about a similar portfolio but 25% of it with an extra diversification. OK.
Yes, I am not a fan of commodies in general (that includes gold, silver, platinum, agricultural commodities, bitcoin, etc.). Also I am not a fan of having too many funds in a portofolio, because it usually means that one is departing too much from a globally diversified market weighted portfolio. So I would replace commodities with bonds and for bonds I would stick to a global aggregate bond fund as suggested by DJN. That leaves you with a 2-funds portfolio, 25% VWCE and 75% VAGF (or AGGH).
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Hi!

Interesting feedback! I like the global aggregate bond mix pointed out. I had a quick look at the holdings and actually China, US, Japan and a bit later France and Germany are the biggest countries part of it. Is it possible these are mainly mid term bonds? I barely find any historical data of EUNA/AGGH/VAGF. Am I missing something?

Good tip to actually have a look at RD's portfolio. Is this the website you'd use?
https://whalewisdom.com/filer/bridgewat ... s_tab_link

I actually did read his book Principles. And I'm now reading the changing world order. Principles is not so much directed to the stock market even though he starts the book with his personal story which of course is fully intertwined with it. An important thing I learned from his book is that he (secretely) is a very spiritual person. A spiritual person its deepest wish is to find inner peace. What has this to do with stocks? :-D That I trust him that in a market skewed by manipulation and abuse of the power of influencers, he truthfully wants to share what he knows and thinks is right (even if that's while wearing pyjamas :-D).

We also have to keep in mind who he is. He is the founder of the largest hedgefund in the world. That means that they must move slowly and have to look some years ahead. I think that's what he is doing. Bonds are not going to crash this year but maybe within 2-3 years. I think that's his message.

I personally don't agree he's talking about kindergarten level. I feel the content he brings out is heavy if you want to grasp all the details. I rather feel he is vague and not giving clear solutions as Tobyy pointed out. But I trust he'll come up with more practical info once it will be required.

In an old doc about the all weather portfolio he talks about the 'safe portfolio'. I uploaded it to my Google Drive for you:
https://drive.google.com/file/d/1UYyXEA ... sp=sharing

I copy paste:
The Safe portfolio is comprised of a balanced mix of hedged global government nominal bonds, hedged global government
inflation-indexed bonds, government bills, and gold.
Actually the above are still bonds? But inflation indexed ones and global ones supporting your case to just add the aggregate global bond ETF.

@Laurizas if you'd be able to find that Vanguard paper that would be awesome as I still don't get it :-S
China has always been a strong force and seems to become stronger while the US weaker. Also this is based upon one Ray Dalio his analysis. I need to do some diving but it's part of his Changing world order series.
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BeBH65
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Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by BeBH65 »

Henri111 wrote: Wed Apr 28, 2021 1:30 am
BeBH65 wrote: Tue Apr 27, 2021 3:05 pm Not sure the USD and China bonds and TIPS are what you need as a European.
I was hoping someone would make this comment :-D
Why is that? Because of the currency risk?
"normally"* the bond funds are part of the portfolio to provide stability to the investor.
One can gain this stability by spreading the investments ( countries, currencies, durations) and hedging to the home currency of the investor.
Note that hedging has a cost.

* I am not very knowlegable on the permanent portfolio, certainly not for non-US investors.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Thank you BeBH65! Thank you Everyone!!

As a result of the comments received I decided to change the bond part for
AGGH | iShares Core Global Aggregate Bond UCITS ETF (EUR Hedged)
IS3V | iShares Global Inflation Linked Govt Bond UCITS ETF (EUR Hedged)

Euro hedged as you mentioned and a more global/better spread.

I did stick to the 25% commodities part (Gold etc) for 2 main reasons
Bonds are heavily taxed in Belgium. If you can have the same result with less bonds (permanent portfolio Vs 20/80 portfolio) then that's better.
Automatically the extra commodities create more diversification and more possible counter actors for inflation.

The last thing I'm stuck with is the unclarity in regard to the Belgian TOB tax (a fixed percentage to be paid when buying and selling). There are example that 3 different brokers charge 3 different rates for the same product. For example the IS3V is being charged 1.32% when purchasing and again when selling with Bolero. I assume that's not correct as the ETF is not registered in Belgium itself. Still investigating. If some Belgian people here could check this with their broker that would be awesome. I assume it's 0.12% when purchasing and selling and of course 30% capital gains.

Anyway, I already learned a lot here! It feels great to be surrounded with such amazing people!
Laurizas
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Location: Lithuania

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Laurizas »

Henri111 wrote: Wed Apr 28, 2021 9:02 am @Laurizas if you'd be able to find that Vanguard paper that would be awesome as I still don't get it
Fixed income provides the portfolio “ballast” that
diversifies and counters equity volatility. To maintain
this ability to control portfolio risk, it’s prudent to
hedge international fixed income currency exposure

The portfolio currency-hedging decision, by objective and block by block

https://www.google.com/url?sa=t&source= ... HaV4SsorYq
tobyy
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Joined: Thu Feb 18, 2021 1:41 pm

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by tobyy »

Henri111 wrote: Thu Apr 29, 2021 11:07 am I did stick to the 25% commodities part (Gold etc) for 2 main reasons
Bonds are heavily taxed in Belgium. If you can have the same result with less bonds (permanent portfolio Vs 20/80 portfolio) then that's better.
Ok, but in the case of agricultural commodities are you sure that contango is going to cost you less than the taxes you pay on bonds?
Topic Author
Henri111
Posts: 20
Joined: Thu Apr 22, 2021 6:45 am

Re: Belgium - Emergency/safety fund portfolio - Roast me

Post by Henri111 »

Laurizas wrote: Thu Apr 29, 2021 1:30 pm
Henri111 wrote: Wed Apr 28, 2021 9:02 am @Laurizas if you'd be able to find that Vanguard paper that would be awesome as I still don't get it
Fixed income provides the portfolio “ballast” that
diversifies and counters equity volatility. To maintain
this ability to control portfolio risk, it’s prudent to
hedge international fixed income currency exposure

The portfolio currency-hedging decision, by objective and block by block

https://www.google.com/url?sa=t&source= ... HaV4SsorYq
Hi Laurizas, interesting input and it makes totally sense. Indeed. Why are we adding bonds? Because we want to keep volatility under control, so it doesn't make sense to not currency hedge them. So, I keep my bonds currency hedged and all the rest can swing along :-)
tobyy wrote: Thu Apr 29, 2021 2:43 pm
Henri111 wrote: Thu Apr 29, 2021 11:07 am I did stick to the 25% commodities part (Gold etc) for 2 main reasons
Bonds are heavily taxed in Belgium. If you can have the same result with less bonds (permanent portfolio Vs 20/80 portfolio) then that's better.
Ok, but in the case of agricultural commodities are you sure that contango is going to cost you less than the taxes you pay on bonds?


Good remark! I haven't investigated this enough. I'll look into it and see if I can form an idea of the influence.

Thank you Guys!!
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