Hi LingoPhil,
I wanted to add a couple of suggestions for a "lazy" (not necessarily "3") fund portfolio. First of all, there are a few wikis on Bogleheads aimed squarely at those investing from the EU so definitely digest those to see what others are doing.
Secondly, great that you're starting in your 20s, the effects of compounded reinvested dividends will be superb down through the years.
Below is a sample portfolio that you could adopt. This is just for the stock position; I'm yet to find an appealing bond fund that is broad, with a decent exposure to EUR, that has a tolerable yield and that doesn't behave like a stock in times of crisis - so I don't hold bonds currently but I appreciate that strategy isn't for everyone. Like AJAM said, if it were me, I would ignore bonds for a decade or so.
Suggested portfolio:
IWDA - iShares Core MSCI World UCITS ETF USD (Acc) - 40%
EIMI - iShares Core MSCI EM IMI UCITS ETF USD (Acc) - 25%
IMEA - iShares MSCI Europe UCITS ETF EUR (Acc) - 25%
WDSC - SPDR MSCI World Small Cap UCITS ETF (Acc) - 10%
In terms of exposure, you're at about 30% US, 20% Europe (Euro), 10% Europe (non-Euro), 10% UK, 5% Japan with a sprinkling of exposure to smaller developed markets like Canada, Australia and emerging markets like China, India, Russia &c. In terms of company size, about 80% of the portfolio is large cap, 15% mid cap and 5% small cap. In terms of the underlying securities, you have exposure to about 6,000 companies - not quite as rich in diversity as the original Bogleheads portfolio but not bad. Currency exposure is anyone's guess (as it depends on the exposure of each underlying security) but for a EUR investor, there's substantially less currency risk attached to this portfolio than the original 3-fund portfolio - largely due to the MSCI Europe holding. In any event, a good reason to hold equities in the first place is if your home currency tanks, you still retain some purchasing power - so avoid trying to mitigate currency risk completely.
I've avoided adding property into the mix as most of us here in Ireland tend to be sufficiently exposed. The portfolio also skips commodities which I'm not wild about - if you want to go down that route, best go after the commodity producers instead. But, as you've identified yourself, a simpler portfolio is easier to manage and you're already exposed to materials/industrials through the above holdings.
One final point, the above are all domiciled in Ireland and are accumulating ETFs (meaning they don't distribute dividends - our one huge advantage over US investors). There's a wealth of information out there pointing Irish investors to US listed funds to minimise the tax impact; I tend to disagree with this advice based on a few points:
- When you invest in US securities, you have to complete your W-8BEN form regularly, an additional hassle that isn't present with the above portfolio.
- Even though the currency exposure of the underlying companies rather than the holding currency affects your wealth, I think it makes everything a bit more transparent holding EUR exposed equities in EUR, USD exposed equities in USD - as much as is feasible.
- If you hold more than $60k in US domiciled equities at the time of your death, your spouse/partner will get hit for US estate taxes.
- Even though CGT on US listed equities is 33% and exit tax on the above is 41%, you may end up with more money in your pocket with accumulating ETFs. Consider a very basic example: You buy 2 lots of a nominal amount worth of ETFs (1 accumulating based in Ireland and 1 distributing based in US) with annual share price growth and dividend growth of 5% over an 8 year period. Because your dividends are getting re-invested instead of paying 41% tax on them when they're distributed, even with the higher "disposal" tax, you'll end up ahead with the "Acc" ETFs. There are downsides of course, i.e. you can't offset losses on 1 ETF against gains on another but by keeping the number of ETFs in the portfolio small and holding for an extended period, you reduce this risk somewhat.
- Finally, the legislation governing the tax treatment of ETFs in Ireland pre-dates the invention of ETFs (except the very earliest "spiders"). Call me an optimist but I just can't see how the current legislation can persist over your investment lifetime. The US and UK have fantastic tax-sheltered facilities for retail investors to provide for their own retirement (401k, Roth IRA, ISA etc) - we just need a visionary Minister for Finance to provision something similar for Irish investors.
All the best.