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    How to diversify (as an European)

    I'm not going to do the "doomer post", but indeed the market has been heating up quite a bit. I'd like to diversify and possibly miss on some gains, but lower the risk of loss.

    Right now my portfolio is relatively heavily tech, although mostly ETFs.

    I own:

    • 10% GOOG
    • 25% QQQ
    • 23% SPY500
    • 22% World
    • 20% cash/bonds

    Would you call this tech-heavy?

    What would be your estimate of a downturn from this portfolio, were the "AI bubble" to pop?

    I'd say possibly a -30% for GOOG, -25% for QQQ, -20% for SPY500, -10% for World? Or do you think it would be much higher?

    I think that GOOG is the kind of stock which might get hit by the "AI bubble" popping, but has solid ground, and would recover most relatively quickly (also why I keep some cash at hand to be able to buy some stocks in case there's a downturn)

    Another question:

    • I'm also an European investor, and fear a bit the devaluation of USD, which would also eat on profits.

    • I think for some reason in my broker, GOOG and SPY500 ETF are in USD currency, and QQQ and World are in EUR (perhaps because of the ETF I bought them with). Does that matter relative to USD/EUR valuation? Should I change my SPY500 ETF to a EUR-based one (if that exists?), or do the "EUR-based ETFs" actually simply do a conversion to EUR, and they are equivalent (eg in case of a downturn of USD-to-EUR, they will also go down by the same amount)

    Final question: I've never really used/understood bonds? Are there the equivalent of ETFs for bonds? And what typical "benefits" (eg 4%/yr ? 6%/yr?) can I get from those? (so I can park my cash on these)

    How to diversify (as an European)
    byu/oulipo ininvesting



    Posted by oulipo

    6 Comments

    2. Aware_Secret_8910 on

      If the bubble pops (as in there is not enough revenue to be made from AI to counterbalance the capex) then I think we might even see a -50% on QQQ and -35% on SPY. Depends also on rates and if we get a recession.

      As for the EUR/USD you can consider EUR Hedged ETFs after you understand how they work but the increased TER makes it hard to justify. ETFs are not automatically hedged if you buy them in EUR, which means that the EUR value you see is the conversion at the time you are looking at it.

      There are ETFs for bonds but I’m not sure how they work exactly, keep in mind that if they distribute dividends the taxation becomes a mess

    3. egauifan on

      I’m sitting out of the AI trade because it doesn’t bring in enough revenue to justify capex. My DDR5 RAM that I bought has gone up 8 times in price and that isn’t really sustainable…

    4. RetiredEarly2018 on

      If one accepts that the market is mostly rational over the long term, one’s long term returns from a portfolio depend on how much risk one is willing to take in the shorter term. As a result, the more you try to diversify away risk, the lower your returns in the long term.

      Yes I have heard about Japan and dotcom, but the ones that mention those are using hindsight bias to pick the top of the relevant market rather than looking across the full market cycle including the bull before the bear.

      Have you seen any CAPE studies looking at returns for 20 or thirty years?

    5. RetiredEarly2018 on

      Lazyportfolioetf.com shows max drawdown over past 30 years for a variety of portfolios, including euro ones.

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