Gyroscopic Investing

Background:
I'm a swedish investor investigating the possibility to convert the existing portfolio (100% equity in index funds, 30% domestic, 70% international) to a 50-75% permanent portfolio + a 25-50% variable portfolio.

What I need help with is figuring out how to set up a portfolio for an investor who lives in a extremely small country with it's own currency. Right now, I believe, Sweden is slightly below 1% of the total world stock market and is not a part of the euro. This is a problem I would like to diversify away from.

This is the plan:
Two portfolios set up in two different brokerage firms.

PP 50-75% of both portfolios combined) - All domestic holdings
25% Stocks. Avanza zero (tracks SIXRX30 index, 30 largest companies in Sweden). 0% expense ratio.
25% Bonds. Long term Swedish bond fund. About 0.12% expense ratio.
25% Gold. Mostly physical. Some part ETF fund to easy reallocation.
25% Cash. Savings account and short term government bonds.

VP 25-50% of both portfolios combined) - All international holding
100% Stocks. Total world stock market with emerging markets. 0,3 expense ratio.


It probably looks a lot like a regular boglehead portfolio with the exception for gold and cash.

Does the plan sound ok? Is it wise to use some kind of hedge against the dollar when I select a gold fund? Any tips? Should I skip the variable portfolio and set up international holdings in the PP? What percentage would you use between the PP + VP?

I think in Sweden they take away a big chunk of your pay for various socialist services and very good retirement benefits. As such, I think a lot of your investments are already quite conservative and invested in local government debt. Why would you want Swedish PP? Are you afraid of the failure of the social system and loss of your retirement? If not, I'd keep that big chunk they take away from you each month as local government bond part of your portfolio and invest the rest you have in the total world stock market. If you are afraid of the failure of the social system or Swedish economy, then I'd have some kind of EU PP (or even better US PP as it seems EU is a huge mess). In any case, I'd stay away from a PP in an economy of 1% size of the world economy.

I should probably have stated this in the first entry. I'm looking to "retire" early, around 45 years of age. Right now I'm 29 years and saving around 50% of my income. It will increase beyond that this fall because of a downsize.

This will mean that from 45 years of age I will try to use the nest egg to bridge the gap between early retirement and the real swedish retirement age (probably 70 years of age if I get there). I need to make the portfolio last 25 years and then have a chunk left because of the lack of contributions late in life. The early retirement will probably consist of a couple of hours a week for work, just to cover some basic expenses and a withdrawal rate of something like 3% to be sure I don't start digging into the principal.

With this in mind I thought I could create two portfolios. A PP which would be a insurance and would sustain to the real retirement age. And a VP that might boost possible gains (100% stocks).

There are some concerns for dismantling of the social system, house market bubble etc.

That's an ambitious goal and you have years after 45 and social system to support you if something goes wrong. So you can go with 50-50 PP-VP as you suggested. It pretty much becomes a typical Bogleheads portfolio. Either with PP or Bogleheads you'll do fine.

LazyInvestor wrote: That's an ambitious goal and you have years after 45 and social system to support you if something goes wrong. So you can go with 50-50 PP-VP as you suggested. It pretty much becomes a typical Bogleheads portfolio. Either with PP or Bogleheads you'll do fine.

Yeah, ambitious is probably a good word for it. I'll be back in twenty years to tell you if I made it...

The real question is probably how I should allocate between domestic and international. Any suggestions? I would like to go 100% total world market but the currency risk is a bit daunting.

If you know that swedish currency (not sure what it is) is rock solid like what German DM used to be, with the country having amazing fiscal discipline, then make a bet on it by keeping all bonds swedish and having a larger chunk of swedish stock market. If the currency is a typical fiat currency like most other European currencies of today, then I'd say don't worry too much about it as it will probably inflate in a similar way like all other regional currencies and over time you will get to pretty much the same result whichever currency you chose. So if Sweden has rock solid economy, with great fiscal policies, and rock solid currency then overweight, otherwise get the total world market for the stocks and probably overall good EU bond market (solid countries like Germany, Switzerland, Norway, Sweden, etc.)