Building a portfolio strategy

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?

correctportfolioIf 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?



4 thoughts on “Building a portfolio strategy

  1. Right now, I’m still growing my Bondora portfolio. I’m a student and putting about 30 euro a month in, and that’s also around the amount that I get back in repayment of principal and interest. I haven’t had my portfolio long enough to any of the defaulted loans being collected… yet.

    However, I am also thinking about bringing a bit more balance into it. Right now I have a rather small amount invested in Mintos (so it’s secured) – but I hope to raise the amount of money there – either by cutting down on the amount going into Bondora or getting a job besides all the other things I do.

    I don’t really have any stock yet, or anything else, but over time that might be worth checking out – but right now it’s not something I’m looking at.

  2. Hi, for a newbie, I would really recommend this book:
    This helps you to look at the asset allocation question in a broader sense as the author has compared the performance and risk characteristics of most popular portfolios over the past 40 years. The only downside for this sample period being that bonds have been in a bull market during this time (i.e. the era of declining interest rates).

    Spoiler alert goes with the following citation from the concluding chapter:
    “Once you have determined your asset allocation mix or policy portfolio, stick with it. The exact percentage allocations don’t matter that much. Make sure to implement the portfolio with a focus on fees and taxes.”

    1. I must say, I’m a pretty bad example when it comes to this because I don’t keep big cash reserves. Now, I know that a lot of people do – and they are preparing for the crisis and whatnot. However, my strategy is generally to invest money as it comes a long – which means, if I want to do something else with my money I just skip out on other investments (for example, don’t buy stocks or invest into Bondora), meaning I could start creating a cash buffer quite quickly if I wanted to.
      Generally <5% of my portfolio is in cash. For people who are more risk averse the percentage should definitely be higher (I have a very steady job with a steady income, so I don’t feel worried about a lack of cash reserves.)

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