When you’re just getting started with investing, then your portfolio strategy is pretty much aggressive growth all the way. After a while though the issue of balance starts coming to play, which is what I’m starting to struggle with right now.
How much of what should you have in your portfolio?
There are about as many rules as you can imagine about this. One thing that people generally agree on is that your portfolio should have more than one asset class included. For me, I have three – social lending/crowdfunding, stocks and real estate. Beyond that though things get complicated – how much of what should you have? When to rebalance? How to rebalance before a crisis? How to take into account cash flow vs capital growth?
If I visualize the more actively managed part of my portfolio this is the result. The equity I own in the Sõle apartment is worth just about as much as most of my other investments combined. This sets my portfolio to something like 50% real estate equity/20% stock market/30% social lending.
Is that a good or a bad balance? On paper it seems fine since no asset class is above others, and real estate is a capital heavy type of investments. However, if I purchased another apartment then real estate equity would take up almost 70% of the whole portfolio balance – not a good way to go in my opinion. Also, whole social lending grows organically quite quickly due to money being reinvested then with stocks you need to contribute actively, especially for Baltic stock.
So, in a way I’m currently trying to figure out a strategy for how to balance my portfolio better. I’m fine with taking larger risks since I’m still young, which would mean contributing more to social lending. However in terms of a potential crisis real estate might be better in terms of steady cash flow, even if it does eclipse other types of investments in terms of capital value. I’m leaning towards not letting any asset class climb above 50% of portfolio value but that might be a tricky balancing act if I want to get further into real estate. What’s your strategy on this?
If you’re an investor that wishes to invest into American stock without getting taxed double you have to fill out a form that proves your residency (in this case to prove that you aren’t in the USA). Since I started purchasing SP500 index through my growth account I was planning to do it for a while already, but I kept postponing it. Then the bank where I keep my stock decided to subtly remind me to get it done.
How to fill out the form?
They’ve seriously made filling out the form as easy as possible. LHV even has a guide to help you out if you need it. Essentially you fill out personal information and additional info where you live and that’s it. The way you present it is ridiculous though – after having filled most of it your you have to print it out, sign it by hand and then either scan it or take a photo of it to send it in. (Digital age! You used to have to fax it or snail mail it!)
After filling it out, I just sent a picture of the form to the bank, and a day later I got a response that my residency form runs until 31.12.2018 and that’s it. In 3 years’ time I’ll have to refill it and it’ll hopefully take less than 5 minutes again (honestly the longest part was walking upstairs to take it out of the printer and to upload/download the picture.)
While fundamentally the way USA is behind with the times in terms of paperwork such as this is unpleasant, then LHV has made this pretty easy (seriously they should pay me for how much positive advertising they get from me). If you’re using the growth account to invest into US stocks (or any other method) then make sure your paperwork is in order and fill in the form, it’s super quick and there won’t be any issues down the line.
I realised then titling this post that soon I will have been investing into Moneyzen for a year. The only thought that comes to mind with this – underwhelming. Moneyzen has greatly underperformed my expectations and if a secondary market existed at this point I’d likely make a full exit from the site.
Thoughts on Moneyzen’s current situation
Having invested into Moneyzen for 10 months now, I’m struggling to even fill my original goal of 50€ invested per month. I haven’t wanted to reduce the requirements I have for the loans I wish to invest into since their whole business plan was to have high quality borrowers. This means that while I’ve kept interests reasonable in my opinion then money has been moving slowly and I’ve had time when no loans have gone out for close to a month.
I’m not sure if it’s an issue with their business model or the way they select their clients. At this rate the lack of liquidity is becoming a bit of a liability since exiting the portal is a time consuming process. Also, I’ve now had two loans go into collections as well, which means that a sum close to the number of euros I’ve made in investments is now locked down.
Just overall I’m feeling very unimpressed and I can’t really figure out what the issue is. Is there truly a level of market saturation that they can’t break through? Is there a lack of clients that they’d like or is it just that at the interest point they are at people would prefer loans? Will the hoped expansion to Finland finally be the key? Whatever it is, then other portals are showing growth while Moneyzen is just not doing much of anything. I’m considering just stopping all investments at this point to not lock down more money and just see how it goes.
Though I’m currently enjoying a lovely 34 degrees and sunshine in Valencia, then not all is sunshine and rainbows in my Bondora portfolio. Firstly, the influx of defaulted loans is steady and secondly, since I’ve slowly reduced money invested monthly as well, then actual numbers of interest earned have also dropped.
As you can see, this month ended with red + yellow loans actually totalling over 25% of current portfolio value. One of the reasons for this is that I’m now seeing the influx of defaults from the second half of last year when I added in increasing amounts of funds. This will likely look even sadder in the next few months when I reduce the money invested further. Not that I’m looking forward to the moment when 20% of the pie will be defaulted loans but that is not completely out of the realm of potential options.
As stated, there was an actually almost 3 euro drop in interest earned, mostly due to more loans defaulting. The final total for the month of June ended up just below 100€ (99,16€), which is a bit sad since I hoped that I was over the 100€ hump for good. I’m hoping July will perform better, but so far there hasn’t been a particular influx of payments like there is at times in summer. Also, the recovery of defaulted loans wasn’t particularly great this month either, the total recovered was barely over 5€.
Compared to May I actually ended up with so many new defaults it was a bit surprising, 15 more stage 1 loans was a bit more than expected in comparison to the recovery. It’s still a very long time horizon plan to see anything from recovery but it’s clear how this is demotivating to see – the default rate of loans in my portfolio is getting quite high despite the fact that I’ve heavily steered towards lower risk grade loans in the past few months.
Looking at the overall investments, as stated, I’ve reduced the amount I invest in Bondora per month to about 100-120€ or so, depending on how much free funds I have. This slows me down in terms of my goal for Bondora portfolio size for the year 2015, but across all social lending platforms I’m on track for 10 000€ principal value, since while Moneyzen is doing slow, then I’ve added Estateguru into my portfolio as well. Time will tell how the second half of the year will play out.