Since I started investing in 2016, my investment portfolio has steadily grown and exceeds 119,000 EUR today. While the initial portfolio growth was driven by me gradually converting my savings from my savings account into investments (See 4-cycle ETF investment approach) – more recent growth is from monthly savings. My monthly savings rate is between 45% and 60%.
Balanced portfolio approach
All my savings are invested in my investment portfolio. I canceled my low-interest paying saving account and gradually converted all savings into investments which yield passive income. As a moderately conservative investor, it has been important for me from Day 1 to build a portfolio that includes a broad mix of investments. To invest as broad as possible and to diversify investments across a wide range of assets,
One of the reasons that a diversified and balanced investment portfolio is important for me is that I have no safety-net to fall back on if the money is gone. There’s no emergency saving account or parents that will bail me out. There’s always the possibility to go back to working full-time and to start over. But let’s not hope for that.
Although a 100 percent worry-free conservative investment portfolio will never exist, there are a few strategies to minimize risk. My approach to a balanced portfolio is:
- Diversify as widely as possible to reduce risk (invest in assets from different asset classes and with different risk exposure)
- Invest in simple and low-cost investing products
- Do not try to beat the market
- Invest in equities to achieve long term growth
I am invested in a World Index ETF, an Emerging Market Index ETF, and a Dax ETF.
World Index ETF: I am invested in the MSCI World which is an equity tracker that spreads its holdings across 1,600 of the world’s largest companies from the 23 most advanced economies. It’s essentially “investing in the world” and thus avoids excessive exposure economic fluctuations of single countries. The MSCI World ETF is globally diversified and thus immunizes investors against the risk of a single company going bust. Individual corporate disasters barely affect the MSCI World when even Apple and Microsoft is worth just over 2% of the entire index.
Emerging Market ETF: The MSCI Emerging Markets is the second building block of my ETF Portfolio. The MSCI Emerging Markets represents the performance of more than 800 companies across 26 emerging market countries including the BRICs (Brazil, Russia, India
DAX ETF: This is a remnant of my first days as an ETF investor – and a clear case of home bias (the common investing mistake of overweighting your own country in your portfolio due to the inbuilt human habit of confusing familiarity with safety). I am planning on trading my shares into the MSCI World ETF in the near future.
Details about my ETF Portfolio: ETF Portfolio
The nature of the P2P lending market, namely individuals (Peers) lending money to individuals (Peers), creates unique risks in comparison to other investment types. These risks include that borrowers default (credit risk), that entire P2P lending platforms become insolvent (platform insolvency), that loans can’t be sold prematurely (liquidity risk), that capital sits idle waiting to be lent (cash drag), as well as other risks including fraud, declining interest rates, and others.
As a conservative investor, I am trying to shield myself as much as possible from these risks, including through the following:
- I diversify my P2P lending investments across 4 platforms and all-together across 90+ loan originators.
- I only purchase loans with BuyBack guarantee
- I focus on platforms with a secondary market, which allows the selling of loans at any time (e.g. Mintos)
- I also invest in loans with long duration to ‘lock-in’ the high-interest rate.
Real Estate Loans (Real Estate Crowdfunding)
Real estate loans and real estate crowdfunding is a relatively new investment class. Creating direct connections between a large number of investors and real estate developers, real estate crowdfunding platforms open an asset class which was traditionally only accessible to institutional investors and high net worth individuals.
Real estate crowdfunding platforms and marketplaces, such as Crowdestate and Estateguru offer pre-vetted real estate investments opportunities to individuals. The majority of loans are either secured with a first-rank mortgage (physical security), personal guarantees, or are backed with a mortgage.
Also, real estate crowdfunding is a great way to diversify my investment portfolio. The real estate market is to a large extent independent from the stock market.
Auto-pilot Portfolio optimized for passive income
My Investment Portfolio is optimized to run on auto-pilot while yielding a balanced amount of passive income.
Auto-pilot: That means that investments are automated in such a way that they require only a minimum amount of maintenance and oversight. That is usually less than 2 hours per month. I am buying broad-based ETFs as part of a buy-and-hold approach. Things are on auto-pilot. There is no trading.
Balanced passive income: My P2P and Real estate loans are emitting continuous interest payments, which serve as my main source of passive income. My ETF investments do emit dividend payments every 6 months, but – and that is important – the ETF itself also grows in value. My value-gaining ETF portfolio is essentially my retirement account.
Below is a graph showing my portfolio transactions since I started building my passive income investment portfolio in 2015. Transactions marked in blue are deposits, transactions marked in orange are withdrawals. The many blue ETF deposits in the first period were a ETF saving plan, which I have since discontinued.
If you are interested in more details about the investment portfolio, please have a look at my Investment/Transaction History. This includes a detailed breakdown in deposits and withdrawals over the past four years.