3652 Days to Financial Independence

3652 Days

The countdown has begun.

What do we want? Financial independence.
When do we want it? Now. (But, failing that, in 10 years or 3652 days).

Below is the how.

Investment philosophy.

Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth.
– John C. Bogle

Asset allocation.

Allocate assets to three main sub-portfolios:

  1. Emergency Fund.
  2. The Freedom Fund. This will finance my life between 2025 and the year when I’m allowed to get my mitts on my pension.
  3. Pension, which I will be able to access in 20-odd years. Probably later.

Emergency Fund
Three months’ salary in cash.

Freedom Fund
Maintain overall 60% stock + 20% fixed income + 10% property + 10% gold allocation to accommodate both short-term and long-term requirements. Assets should be diversified across major asset classes including domestic equity, international equity, conventional bonds of short to intermediate term, and index linked bonds.

Pension
Divided between a SIPP of my choice and the Employer’s Scheme.

Funds and accounts.

Use low cost funds and ETFs – index trackers preferably – which do not overlap and provide maximum diversification across asset classes. Try to assume only market risk as far as possible. Try to shelter tax-inefficient investments in tax-advantaged accounts to reduce tax drag.

Target allocation.

Freedom Fund
The target Freedom Fund portfolio allocation is set out below.

Asset class Vehicle Asset allocation
Equity ETFs 60%
Property Funds or ETFs 10%
Government bonds ETFs 20%
Gold ETFs 10%

Pension
Invest SIPP in low cost tracker funds or ETFs. Equity % allocation will be (120 – [my age]).

Other considerations.

Automate future contributions wherever possible.

No market timing.

Rebalance annually using Larry Swedroe’s 5/25 rule. Asset classes with a target allocation of 20% or more: rebalance when it moves by 5% versus the entire portfolio. Asset classes with a target allocation below 20%: rebalance when they drift by 25% in proportion to their target allocation.

Exact sub-allocations between ISA / trading accounts are not as important as maintaining the overall asset allocation – no need to make things complex in order to meet sub-allocation targets.

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