Long Term Investor Checklist – Banker on Wheels

 

As a Do-It-Yourself Investor you know you can get great value from doing your own homework and investing without incurring additional costs (costs add up significantly)

 

You control the re-balancing process and observe how markets evolve – a humbling exercise that shows that even most professional investors can’t add much value over the long term.

You may have a plan but would like to get a second opinion – did I miss something? 

Investment advice is always personal (Bankeronwheels.com gives broad guidance not tailored advice); here are some common questions investors seek to answer before starting out investing:

 

Did I consider my objective and time horizon?

 

• Different objectives drive different asset allocations in your portfolio
• Be prudent if investing for the short or medium term and protect your capital against market volatility 
• For those with a long term vision seeking to be Financially Independent, Retired Early (FIRE) market volatility may help you achieve great returns over time; a typical model portfolio will be more aggressive towards long term returns
• When approaching retirement or focused on regular income you may look at corporate bonds to reduce equity risk.

 

Do I have a plan when market crashes 

 

• Crashes are part of the game; plan on how you will behave when the next one comes along; how much can I lose? How long will a downturn last? How quickly can I recover my savings?
• Here is a comprehensive answer on how to protect your portfolio

 

Did I choose the right Equity ETF?

 

• The easiest way to combine equities and bonds is a one-stop ETF like Vanguard LifeStrategy or BlackRock’s ESG ETFs
• A great way to control equity allocation is to buy a World ETF – I have reviewed the main ones so you only have to pick the best given your requirements
• Alternatively, you could split your portfolio as introduced here through a Banker or Cyclist portfolio, and choose a combination of International ETFs

 

Do I have the right proportion of Bonds?

 

 

• Bonds reduce the volatility in your portfolio and protect capital during sell-offs; unless you are very long term with high risk tolerance you need bonds – understand why
• Understanding risk tolerance and time horizon is key to your financial success; take a questionnaire  to understand what stocks/bond allocation is suitable for you
• Once you decide on an allocation, use this guide to select an appropriate bond ETF
• Cash or bond ETFs? A mix of the two could be the answer – here is a calculator to compare cash and bonds

 

Did I hedge currencies where needed?

 

• Currencies can be confusing here is what you need to know
• You may consider a hedged international bond fund to reduce portfolio volatility as two thirds of risk in international bonds comes from currencies; you should keep international equity funds unhedged
• Here is a guide regarding currency hedging

 

Did I consider all important criteria when choosing an ETF?

 

• Choosing ETFs includes which provider to select, fund characteristics, fees, dividend reinvesting and tax. Here’s how to pick the right UCITS ETF
• Here’s a Q&A on how to buy the cheapest ETF
• Choose wisely between Accumulating and Distributing ETFs and ETF Domicile as each has tax implications
• Before you invest – consider the Best UCITS ETFs – here is a curated list

 

 

Did I decide if Gold is appropriate for me?

 

• If you already have inflation protection with assets like real estate it may not be as necessary
• Within your bond allocation you may also consider a small part of Gold

 

Did I clean up my portfolio from unnecessary ETFs?

 

• Is your portfolio needlessly complicated with asset classes you don’t need making portfolio re-balancing complicated?  Understand how to clean up your portfolio 
• Financial theory is clear on  your chances of beating the market with stock selection, but if you really want to invest in single name stocks keep to a maximum of 5 to 10% of your portfolio (aka play money)

 

Lump sum or drip feed?

 

• Research says initial lump sum investment outperforms 2 out of 3 times when compared with drip fed investment – ‘pound cost averaging’ – with 2% incremental returns over a 12-month period
• However, when deploying savings in a volatile market it may be more comfortable to invest at regular intervals; the same research says if you decide to deploy cash over time be disciplined and invest on a monthly basis over 12 months (you can’t beat the lump sum investment over a longer time period)

 

Did I verify there is no overlap in my ETFs?

 

• Do you have multiple ETFs covering the same markets and/or countries? Look at indices you want to track 
• Overlaps may make sense if you are investing in the UK and want world exposure (e.g. through MSCI ACWI) but also overweight your local country (e.g. add some FTSE exposure); be aware of home bias, though

 

Have I placed the ETFs into investment accounts based on tax efficiency?

 

 

• It is important to track your overall portfolio; separate and place your ETFs into different accounts based on tax advantages – e.g. place bond ETFs that pay dividends into a non-taxable account such as an ISA and accumulating equity ETFs into taxable accounts.
• The domiciliation of an ETF is important because of tax impact

 

Am I comfortable with my Broker’s safety?

 

 

Make sure you understand how likely a Broker is to fail and what are the available compensation schemes.

 

Did I decide how frequently should I re-balance my portfolio?

 

 

• The general guidance is that re-balancing frequency has low impact on overall portfolio returns as long as you do it
• Choose a rule – whether it’s deviation for your long term asset allocation or based on time period (e.g. annually) and stick to it
• Here is a detailed guide on how to rebalance

 

 

Stay tuned

 

 

This investment checklist is work-in-progress and will be expanded as resources are added to guide you through the investment process; exciting things are in the pipeline – if you want to know more visit the site and subscribe to our newsletter 

 

Good luck with your Investments!