We’ve mentioned in Our Grand Plan! that we’re now in the accumulation phase of our journey to FIRE. Somehow Ms. K mentioned that the task of making our money grow rests on my shoulders alone…..hmmm….a bit daunting no? Being our portfolio manager (with Ms. K in advisory position, especially in the area of risk management), I’ve given thought to how I should structure the portfolio taking into consideration our planned lifestyle (across various geographies), level of expenses (frugal but with occasional travel or splurges) and view on markets and my investing capability.
Without further ado, I present below our plan for the Sipping Coconuts FIRE Portfolio!!! (I say plans because currently, our allocation is different because of the fact that we’re still accumulating funds hence the portfolio is positioned for growth + I deem certain markets (that’s you USA!) to be expensive. That’s another post.)
Main Course: ETFs
At the point of our retirement in say 2 years, I would expect that the bulk of the portfolio will be invested in equity ETFs. Why ETFs, you may ask? Well, I’ll let the godfather of the FIRE movement in America, JL Collins, explain that in his in-depth stock series.
The ETFs we will be invested in would be spread across various geographies as we plan to slow travel around the world and/or have long vacations from a base in Singapore, hence we need to ensure that our purchasing power remains on par with the world average. Investing in only the STI (or whatever your home market may be) could risk us getting left behind if that particular country has slower economic growth relative to the rest of the world.
Thus, the ETF portion will be split into roughly the following:
STI ETF (I use the ES3): 30%-40%
S&P500: 50%-60%
Emerging Markets: 10%-20%
Other Developed Markets: 0%-10%
Side Dish: Discretionary Portfolio
In retirement, we plan to pursue various projects whether out of interest or just to make some income. As a student of the value investing school, stock picking fits both for me! Somehow I just like analysing the business models of companies, reading financial statements, and investigating special situations. I’m a nerd, I know.
So, while the bulk of the portfolio will be in ETFs, I will keep a certain amount for me to invest into my personal stock picks. The percentage of allocation will depend on how stable my historical investment return is but it’s been pretty okay so far so maybe I’ll dedicate 5%-15% to this.
Even if I decide to go all ETF in the end, I still think that I would continue reading up on potential investments just for fun, and if appropriate, re-balance some to my discretionary fund.
Don’t forget your vegetables: Cash
Initially, I had not planned for a material cash holding on the assumption that we would be able to live off the cash flow produced by the portfolio. However, having read many prudent approaches by other bloggers such as OurNextLife and in Minimalist in the City’s latest post, I thought it would be best to have a cash buffer of maybe 2 years of expenses. This cash buffer would mainly serve to avoid the need to sell any part of the portfolio during inopportune times such as market crashes when even dividends could get cut too. In the two years provided by the buffer, the transition to a lower cost lifestyle or to earn additional income can be more easily absorbed if necessary.
Dessert: Real Estate
Home ownership in Singapore presented us a dilemma and we had to put much thought into whether to keep or sell our Singapore property. Due to low yield, lumpy capital appreciation, high transaction costs and difficulties we’ve experienced in leasing out investment properties before, we subscribe to the “rent and invest in stocks” school of thought. However, to ensure we don’t get priced out of a likely home base (Singapore), we decided to keep one apartment here for now.
Chef’s Surprise: CPF, ye’ ol’ Social Security
Surprise surprise, that’s not all! Let’s not forget that employees in most countries are likely to have some form of social security, whether in the form of defined benefit or defined contribution. Wiki those terms here and here if you’re wanna learn more.
As we plan to be early retirees and don’t get to touch the funds in this bucket until we’re much older, I did not factor our CPF amount into our retirement plan. We also don’t get to control when we get to access it and the amount we can withdraw, so left it just as an upside to fund the later years of our retirement. After all, it may be the case that expenses could increase as we grow older out of necessity, such as for health reasons or just because I’m old and I wanna stay in a comfortable hotel when I travel at that age. 😀
Conclusion:
The bulk of the Sipping Coconuts will be in low cost equity ETFs in various economic regions, followed by a discretionary fund, then equity in real estate, CPF and finally a cash buffer.
In my next post, I’ll share some graphs on where we are today and what we need in order to achieve FIRE.
Author: Mr.C
Mr.C – our resident investment expert and the muscle behind this entire movement for Sipping Coconuts. When his nose is not buried in anything financial, he’s either sailing or cooking or with the kids and always with a beer or a coconut nearby!
Nice read. And I love the way you presented your portfolio as a full course meal!! I’m a little surprised by the amount of ETFs you hold.
Thanks sleepydevil
Glad you enjoyed the full course. 😀 The reason we plan to hold most in ETFs is because I subscribe to the idea that above market returns requires above average work (in analysing etc) and there’s also the fact that my investing history is pretty short (<10 years) so it's not really proven itself to put all our eggs in that discretionary basket.
The idea is that, I want to be able to retire even with average market returns. By setting the required rate of return higher (as implied by stock picking...otherwise why bother), there's a larger chance of failure to sustain our lifestyle.....after all, the average return is the most probable.
Besides, if I wanna chose to spend my time by the beach sipping coconuts all day...I kinda need a more passive way of generating sufficient returns. 😉
Thanks for sharing your portfolio. I only managed to get to read this post now. I was wondering if having a larger emerging market allocation as opposed to the big Singapore allocation make sense. I think you are sharp to identify individual investing requires more effort.
I was wondering if you have look at quantitative funds, or those funds that are less correlated, such as trend following eTF
Hi Kyith! I do plan to allocate a fair amount to emerging market ETFs because there’s where the high growth is. I also keep in mind that I need to balance out the political and legal risks of such countries. Eg: Vietnam is on a tear because of the market liberalisation measures that they’re implementing, but with the new “Chinese political model” being proposed as an alternative, who knows how the Vietnamese government will take things forward? So while my EM has a larger weighting vs global ETFs (<5% or exclude altogether), I do keep it reasonably balanced vs my core portfolio of SG, MY and developed markets.
Sorry I haven't looked at quantitative funds before. Have you invested in those? What's your experience with them and any links to your posts on this subject you can share? Thanks for bringing up a new angle to learn about. 🙂