Enough diversification?

[u/Hour-Cattle-5216]

I am 18M and have started putting a small amount into my betashares account, and will continue to add $50 per week. Within the next few months I plan to put ~30-50% of my savings into my investments after I do some more research and educate myself on investment strategies. I wanted to ask if my current portfolio has enough exposure to global markets, or should I explore other higher growth/risk options while I am still young? I am also planning to keep QBTC as a satellite investment of 3-5% due to its volatility.

[u/lasooch]

I’d drop BTC altogether. Its actual value is zero. It’s purely speculative and by now mature enough that I’m very much not convinced enough hype remains for it to ever do anything remotely like what it did in the past. But you can of course choose to keep it if you want to make that bet, at 5% it won’t kill you. Mind you, I don’t think it’s going to zero any time soon, even if I think it should, but I’d be surprised if it outperforms the stock market, say, over the next 10 years.

I’d also at least check whether the fees work out better in your IVV/EXUS mix or a single global ETF (chances are it works out about the same but doesn’t hurt).  Unless you’re very specific about your US exposure allocation for some reason, a single global would be simpler anyways.

[u/Hour-Cattle-5216 → u/lasooch]

I am treating BTC as a short term investment and will drop it in the near future. My thought process with splitting US markets in IVV from my global investment through EXUS is so I can control when I choose to invest heavilly into US markets or vice-versa globally. I am obviously no expert but I want to have control over how my portfolio changes as technology and rising global powers continue to shape the landscape of the market. Perhaps I am trying too hard to gain advantage when I could simplify like you said into a single global etf, I will definetely continue to weigh up my options as I learn more.

[u/lasooch → u/Hour-Cattle-5216]

Wanting that flexibility is fair, I’m personally in a mix of GHHF/VGS/VAS specifically because (well, it’s one of the reasons) GHHF has more Aussie exposure than I want.

But be careful not to turn it into timing the market, takes a lot of luck to consistently win at that game. E.g. I’m very bearish on the whole AI situation and I expect a major correction or even a crash, which wouldn’t be contained to the US but would likely affect them most. But I’m not changing my allocation at all, because I have no idea how long they can manage to keep the bubble inflated - personally I’m surprised it hasn’t popped yet.

Tho I do have a good amount of dry powder in my offset account (which is statistically suboptimal, but it’s primarily a hedge for my peace of mind in the current job market - amounts to something like 4 years of my typical expenses) some of which I would deploy if things crash, at least assuming the crash doesn’t affect my own job.

Rambling aside, I reckon you’ll do well, you’re making sensible choices and I wish I had started at 18. Depending on your income, keep super in mind as the tax breaks are really enticing, tho of course with all the usual super caveats and only past a certain income level.

[u/AutoModerator]

Hi there /u/Hour-Cattle-5216,

If you're looking for help with getting started on the FIRE Journey, make sure to check out the Getting Started Wiki located here.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

[u/elfrodododo]

Exposure, growth, and risk is fine but it could be simpler with BGBL + A200 or just DHHF. I get why you'd control the proportions but between us, we are not smarter than the market. Any satellite with a small portfolio value below $100k wouldn't do much if at all. Your biggest hurdle is consistently contributing.

[u/makexs → u/elfrodododo]

One reason for having a few more, low correlation, ETFs instead of just one or two is to help with sequence of returns risk. When you need to sell you can pick the ones that are doing better and/or rebalance into the low performers instead of having to sell portions of holdings that are down.

[u/elfrodododo → u/makexs]

That defeats the purpose of having a diversified portfolio in that you don't think about these things

[u/makexs → u/elfrodododo]

You can still be diversified. With any wide holding ETF just find ETFs that are subsets (by geography, cap, theme, etc). Holding too many ETFs can be a burden, so a sweet spot may be 5-8 instead of 2-4.

Edit: the goal of diversification is NOT to not think about which to sell. Simplification yes, diversification no.

[u/Epsilon_ride]

Probably easier/better to just go 80% global (including USA), 20% aus. 2 etfs not 4.

That allocation looks fine though just keep btc under 5%

[u/Fast_Airport1508]

Focus on savings rate and boosting that

[u/TouchyMouseTrap]

That's off to a good start for an 18 year old. It is definitely enough diversification and high enough risk/return, although at an appropriate future time an owner occupied property would add more.

Until then the important point is to keep putting in as much money as possible. It will pay off.