Money tree

Important Notice

The content of this page is not intended to serve as professional financial counsel. The views expressed herein are solely those of the author and should not be taken as investment recommendations. Investments carry the potential for both partial and total loss of capital.

Planting your Money Tree

Envision planting a financial tree that thrives, bearing the fruits of prosperity throughout your life.

Does it sound like a dream?

Our tree’s roots are investments spread across a broad spectrum of publicly traded stocks, balanced by market capitalization. To bolster our tree, we’ve grafted on sovereign bonds from around the world, hedged to our local currency (€), all cultivated with the lowest costs in mind.

We began by pruning our financial relationship and evaluating our ongoing and future expenses to determine our monthly investment potential. We commit to planting seeds that we won’t need in the immediate future, ensuring resilience against unexpected changes. This method is fruitful whether you’re gradually saving or managing a sudden windfall.

We pluck no more than 3% of the total invested amount or 3% of the entire portfolio value of our tree each year. For example, if we’ve invested €50,000, we allow ourselves a maximum harvest of €125 monthly—regardless of the stock market’s climate—or adjust the yield if the portfolio’s value swells and we require more.

If our investment reaches €1,000,000, we could potentially gather a €30,000 (gross) annual income from our tree, expecting it to outpace inflation even after the harvest.

Essential Steps:

  1. Refine your financial relationship.
  2. Establish a “self-directed” investment account with a broker or your bank.
  3. Begin cultivating the recommended investment portfolio.
  4. When possible, contribute funds monthly according to your asset allocation plan.
  5. Refrain from frequent rebalancing of your investments.
  6. Wisely harvest from your tree annually as needed.

Why do we divulge this blueprint? We believe everyone should have the opportunity to grow such a tree, be it grand or modest. This site is a non-profit endeavor; it is devoid of advertisements and affiliate links.

Investment Portfolio

Index Benchmarks

Our portfolio is a reflection of the world’s markets, not a gamble on individual stocks. We align our investments with comprehensive indexes that represent the global economy:

  • The MSCI ACWI IMI serves as our compass for equities, encompassing the full spectrum of the investable stock market across both developed and emerging nations, inclusive of companies of all sizes.
  • For bonds, we look to the FTSE World Government Bond Index, which offers a broad-based, diversified portfolio of sovereign debts.

Our allocation strategy is straightforward: 70% stocks / 30% bonds. This balance allows us to tap into the growth potential of equities while maintaining a stable foundation through bonds.

Portfolio Composition for Dutch Investors (ABN Amro)

For those rooted in The Netherlands, certain funds can optimize returns by reducing dividend tax leakage, thanks to a unique tax treaty with the USA. Partnering with a bank as a broker can grant access to institutional funds at reduced costs. To mirror the index closely, based on the February 2024 factsheet calculations (multiplying the average market cap from the factsheets by the number of fund holdings), the portfolio could be structured as follows:

Equities (e.g., 70% of the portfolio):

  • 83% – Northern Trust World Custom ESG Equity Index Fund (NL0011225305)
  • 9% – Northern Trust Emerging Markets Custom ESG Equity Index (NL0011515424)
  • 8% – Northern Trust World Small Cap ESG Low Carbon Index Fund (NL0013552078)

Bonds (e.g., 30% of the portfolio):

  • 35% – Vanguard U.S. Government Bond Index Fund – Institutional Plus EUR Hedged Acc (IE00BF6T7R10) (exclusively available through Zelf Beleggen Plus)
  • 35% – Vanguard Euro Government Bond Index Fund – Institutional Plus EUR Acc (IE00BFPM9W02) (exclusively available through Zelf Beleggen Plus)
  • 30% – cash in a bank savings account (government guaranteed), or the iShares € Ultrashort Bond UCITS ETF

The primary benefit of utilizing Northern Trust’s Dutch-domiciled funds is the tax advantage for Dutch residents, which effectively lowers internal costs by avoiding dividend leakage. The access to institutional bond funds results in a very low Total Expense Ratio (TER) for bonds. The inclusion of cash aims to reduce the bond duration, with the anticipation that interest will be paid once rates begin to rise again (to counteract inflation). For those without access to ABN Amro or the “Zelf Beleggen Plus” product, similar options are available within the EU generic sample portfolio.

EU Investment Portfolio

For non-Dutch EU residents, here’s a portfolio that overlooks broker costs and focuses on global diversification:

  • 70% – SPDR® MSCI ACWI IMI UCITS ETF (SPYI, IE00B3YLTY66, EUR, accumulating) – This fund represents the foliage of our tree, offering a wide canopy of global stocks.
  • 20% – Xtrackers II Global Government Bond UCITS ETF – EUR Hedged (DBZB, LU0378818131 or LU0690964092, EUR, accumulating or distributing) – These bonds form the sturdy branches that support our tree, providing stability and balance.
  • 10% – Cash on bank savings account (government guaranteed), or iShares € Ultrashort Bond UCITS ETF – The liquid assets act as the soil that nourishes our tree, ensuring liquidity and security.

USA Investment Portfolio

For investors based in the USA, the Vanguard Total World Stock ETF (VT) is recommended over VWCE due to its inclusion of small cap stocks:

  • Vanguard Total World Stock Index Fund ETF (VT, US9220427424, USD, distributing) – This ETF encompasses the entire forest of global stocks, from the mightiest oaks to the smallest saplings, in one comprehensive fund.

Asset Allocation

The ideal balance of stocks and bonds in your portfolio hinges on your risk tolerance and the length of time you can invest your money without needing to access it.

Investment considerations such as costs, expected returns, and volatility are crucial. Higher returns are typically accompanied by increased volatility. Stocks offer high returns but are more volatile, while government bonds provide lower returns with less volatility. A high-return, low-volatility investment does not exist; if it did, it would attract a flood of investors, which would diminish the returns.

For younger investors under 40 years old with a long-term perspective (20+ years), a mix of 70% stocks and 30% bonds is often recommended. This allocation is considered optimal for balancing risk and return, and it supports a 3% annual withdrawal rate. It’s also wise to maintain an emergency fund in cash, equivalent to about six months of expenses.

A portfolio composed entirely of stocks may yield the highest profits but also bears the greatest volatility. Including bonds can significantly reduce volatility, and the peace of mind this brings is often worth the trade-off in potential returns.


Currently, there is no single ETF that serves as the “holy grail” for Europeans, covering the entire investable global stock market. For those with access to US-listed ETFs, the Vanguard VT is the closest option for comprehensive coverage at a low cost.

If Vanguard VT is not accessible, or if your country lacks a tax treaty with the US to prevent double taxation, consider alternatives like VWRL (developed and emerging markets, distributing), VWCE (developed and emerging markets, accumulating), or IWDA (developed markets, accumulating).

While VWRL/VWCE includes emerging markets and may not offer a tax advantage for Dutch investors, its low cost and broad coverage make it a solid long-term choice. For Europeans, VWCE has the added benefit of not dealing with US dollar dividends, as they are automatically reinvested.


Bonds differ fundamentally from stocks in that their yield, known as the yield to maturity (YTM), is predetermined. Corporate bonds typically carry a higher risk of default than government bonds, and thus offer higher yields.

The duration of a bond influences its yield—longer durations generally mean higher yields—but also affects how sensitive the bond’s price is to interest rate changes. Beyond a duration of approximately 8 years, the yield curve flattens, and additional commitment yields relatively little extra return. With current low interest rates, some investors opt for shorter durations, though this can lead to market timing challenges. It’s difficult to predict interest rate movements; for example, Japan has experienced low rates for decades. This uncertainty underscores the value of international exposure in a portfolio.

Inflation-linked bonds offer protection against unexpected inflation, whereas expected inflation is already factored into the prices of equities and nominal bonds. While nominal bonds have historically served as a reliable hedge during stock market downturns, the market for inflation-linked bonds is less liquid, which can be disadvantageous during periods of market stress.

The role of inflation-linked bonds in a portfolio is debated. While most model portfolios do not include them, some financial advisors recommend a certain allocation. For instance, Bogle suggests approximately 6% of fixed income for retirees, Swedroe recommends up to 80% of fixed income, and Ferri advises 20% of fixed income.

Considering the market cap of Eurozone inflation-linked bonds is around 8.5%, including them according to market cap would mean less than 3% of a portfolio with 30% fixed income.

Investors may decide between a 50/50 split of nominal and inflation-linked bonds based on their preference for protection during market downturns versus guarding against unexpected inflation. Global bonds offer diversification, which can mitigate the impact of inflation or interest rate changes. This is why cash was included in the ABN Amro-specific setup, as it’s likely to yield returns when interest rates rise, partially offsetting inflation as well.

Corporate bonds are not an effective hedge against volatility, as they tend to move in tandem with stocks, especially during market crashes. If seeking higher returns, it’s better to allocate a larger percentage to stocks. For reduced volatility, government bonds are the preferred choice. Corporate bonds, being a middle ground, may be best avoided.

Bank as an Alternative to Bonds

A savings account or Cash Deposit with a government guarantee can be likened to a bond fund with a duration of zero. If you opt for a 1-year cash deposit, its duration is 1, and it behaves similarly to a bond, requiring reinvestment upon maturity.

When strategizing, consider the bond duration that aligns with your comfort level. Typically, a duration of around 8 years is sought to optimize the risk/reward ratio.

For short-duration bonds, if you’re comfortable with the risk rating of the bank’s country, you can benefit from the special EUR 100k government guarantee. This could be more advantageous than purchasing a government bond of the same duration, especially given the current market inefficiencies accessible to a limited group.

Deciding on the duration is crucial; longer durations hedge against deflation, while shorter ones protect against inflation. Despite the current expectation of inflation, such predictions involve market timing, which can be uncertain.

Government bonds, unlike corporate bonds, tend to rise during equity downturns, providing an additional layer of security.

We choose to forego the current premium on Cash Deposits and instead utilize DBZB (global government bonds hedged to EUR). The approximate 8-year duration offers a long-term optimal balance for risk and return, with diversified government default risk. Hedging eliminates any global premium, which is acceptable if bonds are to be the stable portion of the portfolio. To enhance returns, consider adjusting the Asset Allocation towards more equity.


In The Netherlands, the brokerage landscape is evolving, with frequent price changes and acquisitions. For those seeking stability, paying slightly more for continuity might be preferable.

Major banks are reducing their brokerage fees to remain competitive, providing access to low-cost funds, particularly beneficial for new investors.

We currently use ABN Amro as they offer access to an optimal portfolio for Dutch citizens.


Assessing the best portfolio involves considering various costs, including the Total Expense Ratio (TER), lending income, dividend leak advantages, tax effects, and actual returns.

While broker costs matter, they shouldn’t dictate the portfolio choice. Instead, align the broker with your long-term portfolio strategy.

Be cautious of “bargain brokers” that may offer temporary incentives to attract quick growth. Remember, investing is a long-term endeavor.

Domicile and Dividend Leak

The domicile of an ETF or fund determines the applicable tax regime, affecting taxes on dividends received and distributed. Ireland and Luxembourg, for instance, are favored domiciles as they don’t charge dividend tax upon distribution.

Depending on the domicile, treaties may reduce taxes on dividends received. Ireland has a treaty with the US, reducing the dividend tax impact from 30% to 15%. Luxembourg, lacking such a treaty, incurs a 30% tax. In the Netherlands, the tax is also reduced to 15%, and Dutch citizens can effectively offset this against their income tax, resulting in a 0% US dividend tax.

Comparing domiciles, Ireland should outperform Luxembourg for US stocks by approximately 0.3%, assuming a 2% dividend. This performance aligns with historical data. The Dutch domicile offers an additional 0.3% advantage on the US portion due to tax recoverability, translating to a 0.18% advantage over an Irish domicile for a World index with 60% US stocks.


Dividends can be psychologically satisfying but don’t necessarily indicate long-term value. High-dividend stocks may decline faster in a crash due to the challenge of maintaining dividend payouts.

Immediate reinvestment of dividends is advisable to capitalize on compounding returns. With accumulating stocks/bonds, manual dividend handling is unnecessary.

Market Capitalization

Market capitalization ensures that the balance of an ETF automatically adjusts to market growth. For example, if emerging markets expand relative to developed markets, the ETF will adjust proportionally. This automatic rebalancing simplifies portfolio management, especially when investing stops.

However, combining accumulating ETFs can lead to deviations from market cap due to differing dividend percentages, as dividends reduce market cap. The ETF with higher dividends will slightly outpace market cap growth due to automatic reinvestment.


Periodic investments, such as salary or dividends, should be allocated to maintain the balance of your portfolio in accordance with your risk profile. It’s important to note that the so-called “rebalancing premium” of buying low and selling high does not actually exist. While stocks offer higher returns and higher volatility, rebalancing from stocks to bonds is essentially moving from higher to lower returns and volatility. During market downturns, rebalancing can further decrease the portfolio’s value, so it may be more prudent to wait for recovery.

By allocating new investable funds to maintain asset allocation, you save on transaction costs. A more defensive strategy would be to rebalance annually from stocks to bonds, reducing volatility but also potential long-term returns.

Safe Withdrawal

In the withdrawal phase, it’s generally safer to limit the amount you draw from your investments. Historically, a pre-tax withdrawal rate of 3% of the invested value or total portfolio value per year is considered safe. When you cease investing, rebalancing to bonds with a deviation greater than 5% on a fixed date can reduce the risk of depleting your funds prematurely due to lower volatility during market slumps.


Investing a large sum, such as an inheritance or lottery winnings, can feel risky due to the constant predictions of market crashes. However, these risks are already factored into market prices. There’s no need to rush; take your time to decide on a comfortable strategy. If direct investment seems daunting, consider spreading it over six months. Regardless of market fluctuations, stick to your chosen strategy for the best long-term outcome.

Currency Hedging

Interest rates and inflation significantly affect both bonds and currencies. Hedging government bonds to your home currency can reduce volatility. While hedging is inexpensive, it’s not free; the yield to maturity (YTM) is adjusted for the risk spread relative to your currency. For stocks, currency hedging is generally not recommended as the goal is to maximize value rather than minimize volatility.

Google Sheets

To track the current value of a fund on or, you can use custom Google Sheets formulas. For example:
=substitute(substitute(query(importxml("","//td[@class='line text']"),"select* limit 1",0),"EUR ","",1),",",".")*B10


=substitute(substitute(query(importxml("","//span[@class='header-nav-data']"),"select* limit 1",0),"EUR ","",1),",",".")

Or, if available, you can use Google Finance:

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