A question I often get from readers is how I invest my money.
Back in 2017, I wrote this post about how I invested my money. Since then, I have changed my strategy slightly, so I guess it’s time for a 2019 update.
If you follow my monthly net worth updates, it should come as no surprise that I have money invested in stocks, bonds, peer-to-peer lending and cryptocurrencies.
My investment principles today
I have invested over many years now and I have had some learnings on the way. I have tried gaining a lot of money and losing a lot of money (hello cryptocurrencies, hello stock market volatility) 🙂
Therefore, I always invest following a set of principles religiously:
- Simplicity: I always choose easy investments. I have so many things I want to spend my time on, and to be frank, investing is not one of them. Investing is important to me (and I do think it’s fun), but I try to find assets that require a minimum amount of time.
- Diversification: I spread my investments over different asset classes (e.g. stocks, bonds, crowdlending and cryptocurrencies) and I invest in assets I consider low risk (bonds) and some I consider very high risk (crypto). I like to have a mix of both with a higher weight of high risk assets.
- Long-term: I only invest in assets I plan to hold for a long time (+10 years), so I never invest in something with the expectation of withdrawing my money any time soon again.
- Consistency: I religiously invest every single month. I have set up an automatic transfer to my broker account on the first day of the month. I do this to make sure I keep on investing (when the market is at a high and when the market is at a low) to dollar cost average my investments. I keep some cash available for large dips in the market too.
- Aware: I never invest more than I am willing to lose. It’s extremely important to be aware of the fact that every time you invest in an asset, it comes at a risk.
How is my portfolio made up
So, how is my portfolio made up? I invest all of my money based on the following investment strategy:
- Stocks (index funds): 80%
- Bonds (index fund): 10%
- Peer-to-peer lending: 10%
As you can see, the vast majority of my investments go into stocks.
I have peer-to-peer lending as my very high risk investment (it is my best performing investment the past many years, so I consider it high risk and high reward). I have bonds as my low risk investment.
Since the tax regulation in Denmark favors index funds managed by Danish investment companies, I invest in these rather than international ones (such as Vanguard).
My stocks investments are split across the following funds (80% in total):
- Global index fund: 40% in Danske Invest Global Indeks, kl DKK d (similar to Vanguard VTSAX)
- Emerging markets (Asia) index fund: 30% in Danske Invest Fjernøsten Indeks KL DKK d (similar to Vanguard VWO)
- European index fund: 10% in Danske Invest Europa Indeks BNP, klasse DKK d (similar to Vanguard VGK)
Why those three? I like an overall exposure to the global stock market. I have high expectations for growth in emerging markets (specifically Asia) in the future, also beyond what is visible today and factored into the prices. Lastly, I like having slightly more exposure to some of the large European companies as I would otherwise for the most part have investments in US and Asian companies.
I invest 10% in Danish bonds through an index fund (Maj Invest Danske Obligationer – similar to Vanguard BLV in the US).
Lastly, I invest 10% in different peer-to-peer lending platforms such as Mintos, Envestio and Grupeer.
I don’t want to complicate things more, but my pension is invested in other stock index funds (one global and one in biotech).
How I practically invest my money
Remember I said I liked to keep things simple? That’s why I don’t invest in all of these index funds and P2P lending platforms every month.
I have a spreadsheet where I enter my target share (as above) and the actual share (share of total investments in the start of a month). The index fund with the biggest relatively difference from my target share to the actual share will be the one I invest all my money in for that specific month. That means I only make one investment per month 🙂
How did my strategy work in 2018?
So, you might be wondering. Does it work? Is the net worth snowball rolling?
The answer is yes and no.
In 2018, my stock investments decreased -2.6% with all my positive returns for the year being wiped out in December. This year, it’s already looking much better at +10%.
My peer-to-peer lending investments were really good yielding a return of 12% for the year, whereas bonds turned out a big fat 0%.
Based on the above, you might conclude my strategy doesn’t work, but in a historical perspective it does work. For me, it’s just important to keep staying on track and not change too many things in my strategy based on emotions and good ideas.
My future investment plans
Now you know how I invest. Wasn’t it simple?
Just as I have changed my strategy slightly from 2017 to today, I am sure my strategy will also change in the future again.
Right now, I’m considering two very real strategic alternatives:
- Bonds: Given recent developments in the stock market with rising P/E ratios, I might start putting a bit more into bonds as many people talk about a market crash sometime in the future, but then again, I invest for the long-term, so I probably shouldn’t care
- Real estate: I already own a lot of real estate (it’s 65% of my total net worth), but I currently don’t see it as an investment. In the future, I would like to invest more in real estate either directly or through a real estate investment company and start building up passive income from this
On top of this, I’m also considering changing my investments from broad indexes to indexes screened for ethical companies, but I haven’t found an index fund yet that has strict enough ESG filters at an attractive cost. I guess this will change in the future as more people move money into ethical investments.
I’ll be happy to get your input on my strategy and hear how you invest in the comments 🙂