Long Term Investing Strategies for Financial Independence – How asset allocation will determine your Early Retirement

Long Term Investing Strategies for Financial Independence

Key Takeaways

  • A 10+ time period is long and while Long Term Investing Strategies for Financial Independence should be relatively simple they need to cover key asset classes (at least 3-4 different ETFs in the Core Portfolio) that can boost returns in the long run 
  • The great news is that unlike Medium Term Investing your long time horizon materially decreases risks. Given your Time Horizon and if you follow sound investment principles illustrated below you have by historical standards no chance of losing money
  • After assessing your Risk profile you can construct a portfolio quite easily and reduce costs/fees. What most people don’t realize is that this can be done without much financial knowledge 
  • Whether you are based in the US, Europe or UK the composition of your Equity Portfolio should’t change significantly (otherwise you have a home country bias!) – the only difference is the type of Bond ETF you will buy and the currency hedge you need
  • Select at least one Bond ETF and a couple of Equity ETFs and rebalance at least annually

The Banker vs.  The Cyclist 

As a Banker I tried to make the below analysis as objective as possible

As a Round the World Cyclist (I have recently cycled c. 15,000 km including Asia and North America) I have supplemented it with my personal comments after witnessing the changes in our societies (see About section of this website)

Table of Contents

Three Building Blocks for Long Term Investment Strategies

Key Ingredients for Financial Success

In order to construct solid Long Term Investment Strategies e.g. for Financial Independence and/or Retire Early you need at least each of the following:

  • One US Market ETF (#1)
  • One or Two International Market ETFs (#2)
  • One or Two Fixed Income ETFs (#3)

Example of Asset Allocation for Long Term Investment Strategy

Long Term Investing Strategies for Financial Independence - choosing best long term index funds - example of strategic asset allocation 10 year long term investment strategy for retirement with index funds
Source: Bankeronwheels.com

A Crash Course on Asset Allocation

Why do I need these asset classes and want to avoid other assets (e.g. High Yield Bonds, most Commodities or even REITs?)

Understand 3 aspects to watch for High Impact Asset Allocation Strategies

The above allocation is an illustrative example of balanced growth portfolio for someone with some appetite for risk and higher returns:

  • 70% is Allocated to Equities 
  • 30% to Fixed Income
  • Assumes no additional asset classes (e.g. investor may already own Real Estate)
  • Jump to the appendix if you want to see how it performs
Before You Start


How much money should I keep in Bonds?

  • Remember, knowing yourself and your goals matters most – you should always align your Portfolio with your objectives and that’s why this Portfolio should be individual and tailored to your needs and not benchmarked against other people you know
  • Take a questionnaire first to understand what Stocks/Bond allocation you need
  •  The below Core portfolio is divided into 4 Sections: (i) US Equities (ii) International Equities (iii) Bonds and (iv) Real Estate
  • The allocation to Risky Assets from the questionnaire should be the combination of all the rest of Core Portfolio (Equity and Real Estate) except Bonds 
  • Understand that rebalancing of your portfolio is the key to being successful with any long term investment strategies

Here is why you should consider these asset classes for Long Term Investment Strategies

#1 Choosing Best US Equity ETFs

ETF Benchmark Risk & Annual Returns (2000-2020)

ETF Fund return 20 years QQQ SPY SDY VEA VWO VNQ XAU TLT AGG LQD TIP investment strategies long term
Source: Bankeronwheels.com

Capturing the entire US market

The chart above is about  Total returns including dividends from different US Asset Classes (also including ex-US Developed Markets and Emerging Markets for comparison). US Equities generated about 7% per year including Mid and Small Caps

  • While there is an argument to just hold S&P 500 in the long term you also want to capture the excess returns from Small Caps and Mid Caps (see the red circle above)
  • To that extent the easiest way is to buy a US Total Market Equity Fund
  • The past two decades have also been characterized by an  outperformance of the technology Sector but they are already heavy-weights in the S&P 500
The Easy Way


One ETF solution – the Total US Market ETF

Total Market ETFs cover all listed securities and thus capture the upper part of the graph that the largest Corporations (S&P 500) may not – over the long term this is the most prudent way of investing

For European and UK Investors, the best way is to capture all developed countries (including US) together – here is a guide on how to do it

For US Investors, an example of cheap Total Market ETF is:

#2 Choosing Best International Long Term Index Funds

Annual Equity Returns from US, Developed (ex-US) and Emerging Markets

long term investment strategies cyclicality developed markets emerging markets US stocks etfs
Source: Bankeonwheels.com

When US Markets are not enough

Different decades/time periods will favor different markets – while US Equities had a great decade it wasn’t necessarily the case in the 2000s – also, while US markets never experienced a Japan/Taiwan type of market crash in the past decades diversifying your bets by taking World Equity exposure can be very beneficial

Read how to select asset classes for best impact

While there is an argument of just holding US Equities since they represent over 55% of total World Stock Capitalization and derive over 40% of their revenues from abroad there are a couple of arguments to still diversify away:

  • There is a tendency of rotation in the markets in different time periods as illustrated above 
  • The mix of industries is essential – The US is concentrated in biotechnology, computer equipment, IT services, and software but would be underweighted in industries such as electrical equipment, durable household goods, and automobiles. Other example: Europe is skewed towards Value vs. US 
  • Stocks are strongly correlated to domestic Economy Performance and while the US has done exceptionally well in the past the US Stock market may not always outperform International Markets
  • Asian Markets while volatile seem to be something you can’t ignore in the long term. The mix of sectors is also changing with China consumer growing fast and technology being over 33% of the overall MSCI EM Index. US Technology firms have little access to some of these large markets.
READ  Crash course to simplify your portfolio - 3 aspects to watch for High Impact Asset Allocation Strategies

Choosing the best International ETFs

Understand how ETFs track benchmarks to control (i) Countries, (ii) Developed vs Emerging economies and (iii) Size of companies (large to micro caps) and choose the Best International ETFs for your Equity Portfolio

What part of my Equity Portfolio should be International?

The FTSE Russell Index factsheet has the market capitalization of Developed and Emerging countries. You could broadly align the Equity part of your portfolio to market capitalization where:

  • US is 55%
  • Developed Markets ex-US 35%
  • Emerging Markets 10%

It’s up to you to make any tweaks by investing in two ETFs instead of one International ETF – I personally feel that Emerging Markets should have a higher allocation, perhaps at the expense of Developed Markets ex-US. 

As an example I have tweaked the illustrative portfolio from 10% to 15% in Emerging and 30% down from 35% for non-US Equity (given 70% of allocation to Stocks it is 10.5% and 21%  of the overall Portfolio)

The Easy Way


One ETF solution – International Stocks ETF

This is the easiest way of getting exposure to both Developed and Emerging International Markets

However, it is weighted by the size of the respective Stock Market and thus skewed towards the developed World (Japan, Europe)

Example of cheap International Equity ETF:


Bundled International ETF vs. Emerging ETF & Developed ex-US ETF split?

Relative size of Emerging Market Stocks in a typical International Equity ETF

long term investment strategies - international markets - relative size of emerging markets etfs
Source: Bankeonwheels.com

Emerging Asia – when the Banker doesn’t agree with the Cyclist 

As a Banker, I would tend to say – stick with the market allocation i.e. if the market says Emerging Markets should be 10% of World Equities then your portfolio should have 10% allocated to it.

As a Round the World cyclist, I tend to disagree – I’ve seen the speed at which the world is transforming and emerging Asia looks to still be underestimated

There is however a case of splitting the International ETF Exposure into two:

  • Developed Market ETF
  • Emerging Market ETF

The problem with typical International Market ETFs is that they are weighted by size of the Market. The chart above shows this trend for a Vanguard ETF as of Q3 2020. You can see how under-represented certain emerging countries are (in red) relative to their size of the Economy and their growth

Annual Equity Returns and Risk from Key Developed and Emerging Market (2000-2020)

risk return emerging markets india china brazil mexico korea taiwan hong kong hsi csi 300 bovespa SHSZ300 KOSPI NIFTY long term investment strategies
Source: Bankeronwheels.com

Developed Market returns have come from Dividends

These are Total returns including dividends e.g. French CAC 40 Index was unchanged over the past 20 years so the c. 3% annual return you see on the chart comes solely from Dividends

Developed Markets have lagged over the past 20 years and while US Equities have performed well, EM should have a decent allocation in your portfolio

You may want to control the exposure to key Emerging Markets and rebalance them manually

Examples of cheap ETFs to obtain exposure to Developed and Emerging Markets include:

  • Vanguard FTSE Emerging Markets ETF (VWO)
  • Vanguard FTSE Developed Markets ETF (VEA)

This way you have more upside potential from Markets that have outperformed over the past 2 decades and while their risk is higher you will also capture the incremental returns

Over 65% of EM Countries have a good ability to handle COVID-19

choosing best long term index funds - pandemic risk and ability score GMO emerging markets korea taiwan china russia brazil - coronavirus
% Next to country indicates weight in MSCI Emerging Market Index. Source: GMO

So far, Asian societies have handled Covid-19 much better

So far, Asia has handled COVID-19 much better than the Western Economies and as a round the world cyclist this only confirmed my observations about their societies and long term potential of their economies

#3 Choosing Best Long Term Portfolio Protection

Not all diversifiers are created Equal

Key assets for portfolio protection include:
  • Government Bonds – need no introduction
  • Blend Bond Funds – a mix of high quality Corporate Bonds and Government Bonds. Either US or Global. Global Blend Bond Funds are much larger than the US ones but incremental benefits are generally marginal – on a currency hedged basis there is little difference to US Bond Funds (so, while great for European / UK Investors, this may not be needed for US Investors)
  • Inflation Protected Bond ETFs – Government Bonds that provide protection in inflationary environment
  • Gold – the ultimate currency (no yield, though)

But all will hedge your portfolio

  • Diversifiers to your Equity Portfolio perform differently depending on the environment (see chart below)
  • You probably want a mix of them, especially in a low yield environment
  • The allocation is slightly more conservative (traditional 60% / 40% vs. 70% / 30%) – the 70% allocation would have had a tiny loss in 2009
READ  Don't say you weren't warned when Gold crashes & why you should still buy it (Is now a good time to buy Gold?)

No losses since 1976

Rolling Annual Returns for 10 Year Period - 60% Equity 40% Diversifier Portfolio (1976-2020)
choosing best long term index funds - financial independence retire early
Source: Bankeronwheels.com

Why you need both Treasuries/Bonds and Inflation Protection

Held for 10 years, any 60% / 40% Portfolio wouldn’t experience any losses. The chart just above illustrates that the protection benefits of Bonds / Gold vary depending on the environment

  • Historically, Long Term Treasuries were the best bet for hedging downside risk and return – these have very low yields now
  • On average Gold produced a inferior returns than Bonds and such small differences add up to a substantial absolute amount over long periods of time. However, this occurred in a context of few decades of falling interest rates which favored Bonds
  • However while Gold is volatile on its own in a portfolio context it provided for a smoother overall ride 
The Easy Way


In my portfolio 75% of the Portfolio Bond allocation is assigned to Blend Bond ETF & 25% of the Bond allocation to the following: Inflation Linked Bond ETF and/or Gold

  • Bonds are robust and provide you with Income – unless you are very risk averse and want to reduce volatility to a minimum (and thus have more Treasuries) holding a Blend Bond ETF is a good compromise of downside protection and (some) income 
  • Inflation Bonds and/or Gold hedge against a change of environment and since you invest for the Long Term you need to have inflation protection in your portfolio that regular Bonds don’t provide
If you are a European or UK Investor you can check my guide to International Bond ETFs here along with guidelines on how to hedge currencies

For US investors, Examples of cheap Blend Bond Funds:

Examples of Inflation Linked and Gold ETFs:

If you want a deep dive into Fixed Income here is probably the most comprehensive Bond Guide

Treasuries vs. Blend Bonds

Protection vs. Income Trade-Off in the Short Term
  • For the same maturity/duration profile Treasuries have lower yield than Blend Bond Funds that include higher yielding securities like high quality MBS, too
  • However, Treasuries will react better in a crisis and allow you to (i) lower the overall volatility of your portfolio and (ii) rebalance quickly into cheaper Equities should you wish so
  • Ultimately it’s a trade off but I think that investing in a Blend Fund (which includes over 50% of Treasuries) is a good balance

Inflation Protection

Gold - Uncorrelated to other Assets

  • Remember – while perceived as safe heaven, Gold on its own is a very volatile asset – it it benefiting from tailwinds currently but may underperform in the years ahead (akin to 2013)
  • But it works well when combining it with Equities
  • Adding a small allocation to Gold makes sense even though it doesn’t produce income
  • The above chart shows average annual returns over the prior 10-year period (i.e. one dot is an the average annual return that was generated at the time of exit e.g. 14% in 1987 after having invested 10 years before i.e. in 1977)
  • Gold had inferior overall returns but provided better downside protection in case of severe stress period (GFC)
  • Read how Gold reacts to different macro environments 

Inflation Protected Bonds

  • Another option instead/in addition to Gold are Inflation Protected Bonds
  • For Inflation Protected Bonds, both Bond Face Value and coupon are adjusted to inflation so you get inflation protection
  • For Treasury Inflation Protected Securities (TIPS) the real yield may be the same as for Treasuries but they won’t react the same way to inflation / deflation
  • TIPS will protect you against inflation but will under-perform relative to Tresuries if inflation turns out lower than expected
  • TIPS have a relatively short history and first issued in 1997. The Market is relatively small compared to Treasuries and may be more illiquid impacting prices in times of stress

Understand Bond ETFs

If you want to understand better how to select Bond ETFs, please have a look at the guides below:

  • US Bond ETFs   – Comprehensive Review of Blend Bond Funds, Treasuries, Corporates, High Yield, Inflation Linked, Muni ETFs
  • European Bond ETFS – For Long Term International Investors to protect their Equity Portfolios

Additional Asset Classes - Real Estate


Real estate Investment Trusts (REITs) are part of wider Real Estate Markets. You should always consider it in conjunction with the Real Estate you already own (e.g.limited benefit of over-allocating if you already own and rent out Real Estate). Real Estate:

  • Produces consistent cash flows and pays high dividends
  • Makes great use of conservative leverage (LTV below 50%)
  • Serves as a strong defense against inflation
A cheap way to get exposure to REITs is:
  •  Vanguard Real Estate ETF (VNQ)

What about Currency Risk?

  • If you live in Europe or UK investing in a globally diversified portfolio means you are getting significant exposure to foreign currency, typically USD since roughly half of World Equities are in the US
  • Similarly, US Investors face ETF Currency Risk with International Equities 
  • Currencies can fundamentally change the risk/return profile of your portfolio if you don’t hedge it correctly – understand the best practices for your long term investments
READ  Don't say you weren't warned when Gold crashes & why you should still buy it (Is now a good time to buy Gold?)

BONUS - What can I expect?

Likelihood of experiencing any losses

Simulation of all possible scenarios from 1976 until 2020 using my diversified model portfolio
buy and hold strategy with ETFs - likelihood of losing money
Monthly data, Source: Bankeronwheels.com

No losses if held above 7 years

Lengthening your time horizon increases your odds of positive returns – my model portfolio that I introduced at the beginning of this guide (modelled in USD) with 70% Equities and 30% Bonds/Gold (I used 7.5% allocation to Gold and no Inflation Linked Bonds) didn’t experience any losses since 1976 if kept for over 7 years 

What could have happened if I held longer or needed to sell earlier?

My model 70% Stocks 30% Bonds/Gold portfolio:

  • Would have generated an average annual return of 9.2% since 1976
  • Would have experienced a worst case scenario of positive 2% annual return if held for 10 Years
  • The same portfolio could have had an annual loss of 1% in the worst case if held for 5 years instead of 10 Years
  • If the time horizon was lengthened to 20 Years the minimal worst case annual return would have been a positive 5% annually  
  • While I focused here on limiting downside risk, the below graph shows that there were some exceptional double digit annual returns in some scenarios
Average Annual Returns (circled) and Annual Return Ranges for different Time Horizons (1976-2019)
how much money can I lose with ETFs - bogleheads
Source: Bankeronwheels.com

When the starting point doesn’t matter

The graph above incorporates over 1100 SCENARIOS (!) with any possible entry point at the end of each month with different time horizons making it independent from the starting point

The key takeaway is that no matter the market environment if you held your portfolio long enough the downside became limited given a 70% Equity 30% Diversifier/Hedge Asset Allocation

Why not keeping the best historical portfolio?

  • US Economy dominated the world post World War II – this is likely to change over the next 30 years. While US stocks outperformed both Developed countries ex-US and Emerging Markets, this is far from guaranteed over the long term
  • Bonds have returned 6.8% since 1976 – this is unlikely to be reproduced anytime soon 
  • In the past, Stock/Bonds mix wasn’t materially different to 100% Stocks return (on average) – this is also unlikely and you need more diversifiers

Expected Long Term Performance

compoud interest long term investment strategies

Adjusted for Low Yield Environment

The graph shows the Portfolio Balance of 1,000 invested now for a period of 30 years

Bond Yields have been overriden to 2% to account for current low yield environment. Other asset class returns have been used based on the averages from 1976 until 2020. The Portfolio yields 7.4% after accounting for fees (modelled as 0.3% for the entire portfolio)


My fundamental reviews of Equity ETFs and Asset Allocation include:

My fundamental reviews of Bond ETFs include:


The information provided in Bankeronwheels.com is general in nature only and does not constitute personal financial advice.The information has been prepared without taking into account a reader’s personal objectives, financial situation or needs.

Before acting on any information contained in Bankeronwheels.com you should consider the appropriateness of the information having regard to your objectives, financial situation and needs, and seek professional advice where appropriate.

I only talk about products, services and companies I use / would use myself.


This website is non-revenue generating. In addition to time I dedicate to this, I pay for hosting and software to provide you with the analysis.

If you enjoyed my work and found it useful please do leave a comment below or share it with someone that may benefit from it

I am grateful for any single feedback

Stay safe & healthy, 



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1 month ago

This is a great and well put together article! I have always been a statistics lover, so I really enjoyed all the different graphs.

Darren Smith
1 month ago

Great article. What are your thoughts on Bitcoin being a store of wealth and considered by some as a possible Gold 2.0?
Darren Smith

48 minutes ago

For the “long” term, if you’re starting to invest (i.e. in your twenties or thirties), risk-adversity can cost much more than studied risk-taking. I suggest investing 100% in passive broad index low-cost ETF or mutual funds at this early phase, because statistically, risk of loss in an index stock-fund is almost nil after fifteen years. Even if you do lose everything, you’ll be in your forties with ample time (two decades) to recover. Failure to take this bold step by keeping 30% in bonds, which are subject to erosion by inflation, can cost dearly in stunted growth of the portfolio… Read more »