The Easy Portfolio

Easy rules for accumulation and spending

Last week I wrote about my portfolio, and how I discovered it isn’t fit for purpose. This week I’m going to write about what a super-easy portfolio might look like. We’ll also go into how you could use it to save for retirement and spend once you get there.

The problem with my portfolio

There are a couple of minor problems with my current portfolio, and one more serious one.

The first minor problem is that the portfolio has a lot of different investments in it, so it is a bit time-consuming to keep track of. The other is that a lot of the US shares pay out dividends in dollars, which I learned recently might incur a forex tax reporting requirement if held over time.

The more serious problem is that I don’t have a simple rule to tell me what to sell, and when, in retirement.

The super-easy portfolio

The ideal portfolio would have clear rules on what to buy during the accumulation phase (when you are saving and investing), and what to sell during the drawdown phase (when you are spending in retirement).

It would also involve little work, and be tax-efficient. It should be simple enough to take care of that I can write a short note for my family with enough information for them to manage the portfolio if I became unable to do so.

Reinventing the wheel

I actually read about this kind of portfolio in the first edition of Millionaire Teacher in 2013 or so (I’m a slow learner). Andrew Hallam had it all figured out back then, after going through a similar process with his own portfolio.

So this isn’t rocket science, nor is it new. It was just too simple (and boring) for me to do the first time round.

The problem with people who are into personal finance and enjoy thinking about investing is that we tend to enjoy thinking about our portfolio, and trying various things.

I certainly did. I bought into a hedge fund, a solar power fund, a 3x bull Russia fund (that did not end well), a Chinese social media stock that I made money on although I didn’t deserve to (RENN), gold mining company stocks, Nissan (betting on EVs before the Ghosn thing), and a bunch of other things before settling on my current index fund and US/Japanese dividend stock approach.

What comes next

I should have just done what Andrew Hallam suggested. I’d have saved a lot of time, made more money, and been able to automate my portfolio much earlier.

But I don’t regret the journey. I learned a lot, had fun, and we did okay anyway. So if you like to tinker and want to go your own way for a while have at it.

You just might end up here in the end though.

Going forward I’m going to slowly convert all our investments to a two-fund portfolio except for the Japanese dividend payers (those can sit there producing dividends).

Global stocks, most likely the eMaxis Slim All-country fund or similar, and a global bond fund. We’ll target 70-30 on that. A simple spreadsheet updated once a month will give me the exact percentage across all our accounts.

During the accumulation phase (we will probably continue accumulating for the next decade or two), each month we’ll buy the asset that is below it’s target allocation (ie if we were at 73% stocks and 27% bonds we would buy bonds). Once a year we will rebalance if things are really out of whack.

In retirement during the drawdown phase, we’ll sell the asset that is above its target allocation (in the example above we would sell stocks). We’ll probably do that a couple of times a year and not bother rebalancing. In retirement I am planning to use a ‘bucket’ approach where we have 1-2 years’ worth of spending in the bank, and sell investments periodically to top up that account.

This should make things simple enough that I can write out a detailed ‘how to’ on a piece of paper and have my wife, or one of my daughters or grandkids run the portfolio.

Now I am not saying this is the ideal portfolio and it would suit everyone. It is something that makes sense to me, now, based on our situation and goals. I may end up making further changes in the future as I get more used to how it works and how our situation develops.

And that has been how this has worked for me from day one. Learn a bit, try something, see how it goes, learn more, make adjustments, see how it goes. The kaizen approach to investing for individuals.

Remember, we are not competing with anyone, or trying to maximise our profits. At the end of the day the only thing that matters is that you meet your goals and enjoy your life.

How about you? What does your retirement portfolio look like? Do you have a very different approach?

28 Responses

  1. “During the accumulation phase (we will probably continue accumulating for the next decade or two), each month we’ll buy the asset that is below it’s target allocation (ie if we were at 73% stocks and 27% bonds we would buy bonds). Once a year we will rebalance if things are really out of whack.”

    Do you mean that literally? The way you’ve written that implies that if the allocation was still at 70/30 you wouldn’t add anything. Do you mean you’d add a set amount each month, adding whatever amounts bring it back to 70/30?

    1. Yeah, we put a set amount in every month. If the portfolio was perfectly balanced, we’d put in 70-30 in new money ^-^

  2. Why not just emaxis all country, and leave it at that? Otherwise, there’ve been several 2- or 3-fund portfolios tabled in the forums.

      1. How about the meiji yasuda corporate bonds fund? It’s semi-passive, is geographically-diversified yet JPY-denominated.

        Not counting it as a bond fund because it’s tied to the market but it seems interesting to me as something between total world stocks and government bonds as it hedges against currency rates and offers better guarantees than stocks.

        1. That’s probably an option. I really want to keep things simple though so two funds + some dividend payers is the current plan.

  3. Sounds sensible, but…how are you going to scratch that itch?
    Online chess? Poker without money involved?

  4. What made you decide to get a bond fund? You have been against bonds for as long as I’ve been a reader?

    1. It’s a really good question.

      I could never see why someone would settle for lower returns by buying bonds, in exchange for lower volatility.

      But then a lot changed for us. I will no longer have a reliable salary going forward. Also, we now arguably have enough money to last us the rest of our lives.

      So the desire to grow our portfolio has given way to the desire to preserve it. And bonds seem like a good way to do that.

      We’ll see how it goes though. I wouldn’t be surprised if I change my mind again in the future 😉

  5. Interesting article Ben!

    I have read Hallam’s two first book but I’m still only investing in index funds and basically saving my bonds money into my cash account. This year I will start to buy bonds to my portfolio as well. I’m 33yo and will probably do 75% index funds and 25% global bonds.

    Also about to buy Hallam’s new book “Balance” soon!

  6. Hi Ben, thanks as always, lot of helpful information! Reading this post I ended up on another post of you “THE END GAME”. One of the comments on that post was “I’d love to know what stock you purchase to increase your dividends. I’ve mostly stuck to index funds that don’t pay out that much”, posted on Dec 17, 2020. You replied “I’ll do a blog post on it soon”. I couldn’t find that post about your stocks! Can you please post the link here if you ever posted that info about your stocks and dividends? I’m also stuck to index funds only, so it would be nice to read about it too. Thanks!!!

    Hi Sean, your wish is my command -I’ll do a blog post on it soon 🙂

  7. That balancing strategy is something I’ve seen recommended a bit. I think it’s a good one, especially if you invest in more volatile assets such as crypto.

    If one thing goes up and becomes a larger percentage of your portfolio it’s because it has made strong gains. So in order to lock in those gains you re-balance. In theory it’s kind of a way, a rule, of forcing yourself to sell what has potentially become over valued and to buy what has become undervalued. It takes the emotion out, you just do what your portfolio is telling you to do. Actually it doesn’t necessarily mean buying or selling, but it will guide you where to invest new money.

    Human nature often has us doing the opposite. We are sheep and chase the gains. We end up buying at high prices and selling at lower prices because of greed and fear.

    1. That theory is well-founded and it’s what I do, but theoretically nowadays we’re not really selling things that have increased in price to buy cheaper things in the hope that the cheaper things will then increase in value, ad infinitum. We’re apportioning a proportion to instruments (bonds) that are going nowhere. Much like selling shares that have risen in value then keeping the cash in the bank. That’s OK if you need the money because you’re retired, but for younger people time in the market is more important than timing.

      Of course that’s better than keeping fully invested in only stocks and then losing half the value in a crash. But the long-established rebalancing advantages are not as clear-cut right now, I think. Well, just my thoughts, though I will continue to invest in stock and bond indexes and rebalance because I’m not savvy enough to have a better plan.

      1. Yeh, I agree, it’s also a risk management strategy. When you are younger, yeh just 100 per cent in growth shares because you want maximum time in the market and have plenty of time to recover from any dips.

        As you get older you’ve already made some profits, and you want to lower your risk so you start moving to 90/10, 80/20 and so on.

        Actually I’m 47, I’ve always been pretty much 100 per cent in, except of course the cash in the bank for daily life and emergencies. Though last year I slowed my buying a lot and let the dividends accumulate in the bank as I felt prices were getting a bit high.

  8. Could you tell us more about “the US shares pay out dividends in dollars, which I learned recently might incur a forex tax reporting requirement if held over time.” This has just given me something new to worry about

      1. So I earn dividends on my shares in Australia. Then at some stage I transfer money from my Australian bank account to Japan. That transfer could be a taxable event? That would be almost impossible to track and report. If that’s what the thread is suggesting it implies you are supposed to somehow calculate where and when you got every dollar that you bring to Japan. I’d be interested to know if anyone has reported forex gains like this or has been told by the tax office they need to.

        1. Indeed.

          In my case at least, I can eliminate the issue fairly easily, so I will.

          If you could convert the dividends to yen the same day you got them there wouldn’t be a forex issue I guess, but otherwise there is that possibility…

  9. I think having some dividends is helpful. And as you said in a different article very satisfying. Will you do individual stocks or funds that pay dividends every month or every 3 months or twice a year and so on?

  10. “The other is that a lot of the US shares pay out dividends in dollars, which I learned recently might incur a forex tax reporting requirement if held over time.”

    Could you expand on this part? I have some US shares held in my NISA account and wondering if this applies to NISA or non-NISA accounts?

    1. Interesting question! I’m guessing this would not apply to NISA as dividends in there are not taxable nor reportable.

  11. Hi Ben, thanks for an interesting food for taught. Have you ever considered to not to sell the portfolio? I mean ideally one would make a money machine, like live out of the yearly extra only? Or (in ideal world) would it make sense to pass the portfolio on to your kids and have them pay you your living costs somehow.

    1. Not really! The purpose of our investments it for us to spend them at some point. See this: https://www.retirejapan.com/blog/book-review-die-with-zero/

      Having said that, I am planning to end up with more money than we need, so that even withdrawing 3% or less should be enough for us to live on (it is very unlikely that a 3% withdrawal will deplete the portfolio).

      But I’m also planning to give money to friends, family, and charity while I am alive.