4 Levels of Portfolios: Crafting Your Ideal Early Retirement Strategy
One of my favorite podcasts, BiggerPockets Money, hosted by Scott Trench and Mindy Jensen, dives deep into personal finance, investing, and achieving financial independence. If you're unfamiliar, BiggerPockets Money is a spin-off from the larger BiggerPockets brand, which primarily focuses on real estate investing. However, Scott and Mindy’s show casts a wider net, covering everything from budgeting and saving strategies to investment diversification and early retirement. They frequently bring on expert guests and real-life investors to explore how different financial strategies play out in the real world.
In a recent episode, Scott and Mindy discussed an intriguing question: "How would you allocate a hypothetical $1.5 million portfolio for someone looking to retire early?" This question stuck with me, and I started thinking about how I’d approach it, especially if I were advising a 35-year-old friend who lives on around $50,000 a year and is ready to retire now.
So, I’ve crafted four portfolio scenarios, each with varying levels of complexity and activity. Whether you're looking for something super passive or you're eager to stay engaged in the investing world, there's an approach here that might resonate with you.
1. The Super Simple Portfolio
* For the investor who wants a completely hands-off, passive approach.
Cash ($50,000): 100% in a High-Interest Savings Account
ETFs ($1,450,000):
50% US Total Stock Market Fund
15% US Small Cap Fund
15% International Fund
10% Emerging Markets Fund
10% Bond Fund
Estimated Income: $58,000/year (based on the 4% rule applied to the ETF portfolio)
This portfolio is as easy as it gets—minimal management, broad diversification, and a steady income stream that should comfortably cover living expenses.
2. The Simple Portfolio
* For the investor who wants to add a little real estate to their passive portfolio without too much complexity.
Cash ($50,000): 100% in a High-Interest Savings Account
ETFs ($1,000,000):
50% US Total Stock Market Fund
15% US Small Cap Fund
15% International Fund
10% Emerging Markets Fund
10% Bond Fund
Real Estate ($450,000):
100% in Single-Family Homes in Hybrid Markets, Leveraged at 75% (balancing cash flow and appreciation)
Estimated Income: $67,000/year
(This combines the 4% rule for the ETF portfolio and a 6% cash-on-cash return for the real estate portfolio. It doesn’t factor in appreciation, debt paydown, or tax benefits from real estate.)
This approach introduces real estate to the mix, offering more diversified income streams and potential tax advantages.
3. Simple Plus Portfolio
For the investor seeking more diversification with a taste for higher-risk, higher-reward opportunities.
Cash ($50,000):
60% High-Interest Savings Account
20% Gold
20% Crypto (mainly Bitcoin and Ethereum with a small allocation to ALT coins)
ETFs ($1,000,000):
50% US Total Stock Market Fund
15% US Small Cap Fund
15% International Fund
10% Emerging Markets Fund
10% Bond Fund
Real Estate ($450,000):
60% in Single-Family Homes in Hybrid Markets, Leveraged at 75%
40% in Commercial Syndications (multi-family, self-storage, industrial, etc.)
Estimated Income: $67,000/year
(The income remains consistent, but the potential for outsized returns increases with crypto and syndications. For example, I recently exited two syndication deals that delivered a 100% return in just two years.)
This portfolio is ideal for those comfortable with moderate risk and looking for both steady income and potential big wins.
4. The "I’m Not Really Ready to Retire" Portfolio
* For the investor who claims they want to retire but still have the entrepreneurial itch.
Cash ($100,000):
60% High-Interest Savings Account
20% Gold
20% Crypto (mainly Bitcoin and Ethereum with a small allocation to ALT coins)
ETFs ($1,000,000):
50% US Total Stock Market Fund
15% US Small Cap Fund
15% International Fund
10% Emerging Markets Fund
10% Bond Fund
Real Estate ($350,000):
60% in Single-Family Homes in Hybrid Markets, Leveraged at 75%
40% in Commercial Syndications (multi-family, self-storage, industrial, etc.)
Business ($100,000):
Invest in or acquire small, cash-flowing businesses using techniques popularized by entrepreneurs like Cody Sanchez. Think laundromats, car washes, or lawn care businesses. Alternatively, start a short-term rental business through property acquisition or rental arbitrage.
Estimated Income: Unlimited
This portfolio is perfect for someone who wants financial independence but still craves the excitement of business ventures and active income generation.
Which Portfolio is Right for You?
Your ideal portfolio depends on your risk tolerance, desired involvement level, and long-term goals. Whether you're looking for simplicity, a balanced approach, or a more active investment strategy, the key is to create a diversified portfolio that supports your lifestyle and financial independence journey.
If you haven’t already, I highly recommend checking out BiggerPockets Money for more insights like this. Scott and Mindy do a fantastic job of breaking down complex financial topics into relatable, actionable advice. Their podcast has inspired many of my own strategies—maybe it’ll spark some ideas for you, too!
So, what’s your ideal portfolio? Let me know in the comments!
What’s in The FI Professor’s Portfolio?
Almost 20 years ago, when I came to Japan, I brought with me about $5,000 from selling a car—but also $20,000 in student loan debt. However, I knew I needed to make a change. I was in my late 20s and had to get my finances together.
I went to a bookstore in Osaka that carried foreign titles and picked up The Complete Idiot’s Guide to Getting Rich by Larry Waschka. This was before the FIRE movement and before the endless stream of financial content through podcasts, YouTube, and social media. But the advice from that book was simple and effective:
Save more than you earn.
Pay off high-interest debt.
Build an emergency fund.
Invest in low-cost index funds.
Eventually, expand into real estate and business.
This advice carried me through my entire investing career. I quickly learned, however, that the rules are a little different for American expats in Japan. Even with these challenges, I was able to become financially free within 15 years of moving here.
So, what’s in my portfolio today? Let’s take a deep dive.
The FI Professor’s Portfolio Breakdown
My portfolio is heavily weighted toward the U.S. (85%), with Japan making up 15%. The structure focuses on index investing for long-term market exposure, real estate for cash flow and appreciation, and a small allocation to crypto.
Overall Allocation:
Cash (5%)
Index Funds (37%)
Cryptocurrency (1%)
Personal Residence (9%)
Residential Real Estate Investments (44%)
Commercial Real Estate Investments (4%)
U.S. Portfolio (85% of total networth)
Cash (5% of U.S. Portfolio)
I hold high-yield savings accounts (HYSA) and checking accounts in the U.S. While I generally prefer to stay fully invested, I keep some cash liquidity for real estate purchases, market dips, and emergencies.
Index Funds (40% of U.S. Portfolio)
My U.S. index fund allocation follows a high-growth, diversified strategy:
20% VTI (U.S. Broad Market) – Covers the entire U.S. stock market.
30% VOO (U.S. Large Cap) – Focuses on the S&P 500.
20% VB (U.S. Small Cap) – Provides exposure to smaller, high-growth companies.
20% VXUS (International Stocks) – Diversifies into developed and emerging markets.
10% VWO (Emerging Markets) – Focuses on high-growth economies like China, India, and Brazil.
Cryptocurrency (1% of U.S. Portfolio)
Crypto is a small, high-risk, high-reward part of my portfolio:
70% Bitcoin – The most established and widely adopted cryptocurrency.
10% Ethereum – The backbone of decentralized finance (DeFi).
10% Altcoins – A mix of smaller, speculative crypto projects.
Residential Real Estate Investments (50% of U.S. Portfolio)
Real estate plays a major role in my U.S. portfolio, providing cash flow and long-term appreciation. I calculate my equity in the portfolio by subtracting the debt from the value of the properties. I own:
2 single-family homes in Caldwell, ID
6 single-family homes in Memphis, TN
1 single-family home in Fultondale, AL
1 duplex in Toney, AL
Commercial Real Estate Investments (4% of U.S. Portfolio)
I currently hold equity in a 19-duplex portfolio in Huntsville, AL. This investment will be sold in early 2025, and I will decide whether to reinvest in new syndications or allocate the proceeds elsewhere.
Japan Portfolio (15% of total networth)
Cash (15% of Japan Portfolio)
I hold Japanese yen in multiple bank accounts to cover living expenses and potential real estate purchases in Japan. Since I live here, it makes sense to keep a portion of my net worth liquid in yen.
Index Funds (30% of Japan Portfolio)
My Japanese investments include tax-advantaged accounts (DC Plan and NISA) and a taxable brokerage.
DC Plan (Retirement Account)
50% International Stocks (三井住友・ＤＣ外国株式インデックスファンドＳ)
20% Japan Stocks (三井住友・ＤＣつみたてＮＩＳＡ・日本株インデックスファンド)
10% Emerging Market Stocks (インデックスファンド海外新興国（エマージング）株式)
10% International Bonds (三井住友・ＤＣ外国債券インデックスファンドＳ)
5% Emerging Market Bonds (ＤＣダイワ新興国債券インデックスファンド)
5% Japan Bonds (三菱ＵＦＪ国内債券インデックスファンド（確定拠出年金）)
NISA (Tax-Free Investment Account)
100% eMAXIS Slim 全世界株式（オール・カントリー） – A globally diversified all-world index fund.
Taxable Brokerage (Japan)
My Japanese taxable investments mirror my U.S. allocation:
30% VOO (U.S. Large Cap)
20% VB (U.S. Small Cap)
20% VXUS (International Stocks)
10% VWO (Emerging Markets)
Personal Residence (55% of Japan Portfolio)
I own a condo in Kusatsu, Shiga, which serves as my primary residence. While I don’t consider personal real estate an investment, it still represents a portion of my overall net worth. This property has no mortgage.
Residential Real Estate Investments (TBD%)
I am currently exploring rental property opportunities in Japan, particularly single-family homes (akiya) that need minor renovations. These properties will be located just outside major population centers in Kansai and will be within 15 minutes of a train station.
Why This Portfolio Works for Me
This portfolio provides a balance between growth, cash flow, and stability:
Index funds ensure long-term market exposure and growth.
Real estate provides cash flow and appreciation.
Cash reserves offer liquidity and flexibility.
Crypto is a small but high-risk/high-reward allocation.
For me, financial independence is about options. With this portfolio, I have the flexibility to continue working, travel, invest in new opportunities, or simply enjoy life on my terms.
Final Thoughts
When I started my financial journey two decades ago, I had more debt than assets. Today, my portfolio allows me to live life on my own terms while preparing for the future. The key lessons I’ve learned along the way?
Consistency beats complexity – Automate savings and investments.
Diversification is crucial – Spread risk across asset classes and geographies.
Real estate can be a game-changer – But it requires careful planning.
Personal finance is personal – Your ideal portfolio depends on your goals.
Whether you’re just starting out or refining your own portfolio, I hope this breakdown provides some useful insights.
What does your ideal portfolio look like? Let me know in the comments!
Disclaimer
This article is for educational purposes only and does not constitute financial or legal advice. Please consult a certified financial planner or tax professional before making investment decisions, especially concerning U.S. residency requirements for bank and brokerage accounts, as this is a grey area and may have legal implications. Always conduct thorough due diligence.
Simplifying Tax Season: How I Organize My Documents
Tax season can feel overwhelming, but having an organized system makes it much easier to manage. In this post, I’ll share the system I use to keep all my tax-related documents tidy, accessible, and ready for my accountant. I’ve included examples for different types of documents and assets and screenshots of my folder structure to help you visualize how it works. At the end, I’ll show you how to create a simple spreadsheet to guide your accountant through your files.
Step 1: The Folder Structure
I use Google Drive to store and organize all my tax documents. Each year has its own folder (e.g., "2024 Tax Documents Daniel"), and within that folder, I create subfolders for different categories:
Banks and Brokerages
Personal Real Estate Portfolio
Commercial Real Estate and Syndications
Work
Each subfolder is further divided based on document type. For example, under "Personal Real Estate Portfolio," I’ll have folders for:
City/County Taxes
Income Statements
Insurance
Mortgage 1098s
Property Management 1099s
This setup ensures that every document has a clear home. Take a look at the screenshots of my Google Drive for a visual example of how this is organized.
Image 1: Folder Setup in my Google Drive
Image 2: Folders in my 2024 Tax Folder
Image 3: Subfolders in my Personal Real Estate folder
Step 2: Naming Documents
A consistent naming system is key. Each document is named in a way that makes it instantly identifiable. Here’s how I structure names:
Banks and Brokerages:
Format:
Bank/Brokerage_Name_1099_Year_OwnerExample:
Ally_1099_2024_Daniel
Personal Real Estate Portfolio:
Income Statement:
Property_Name_Income_Statement_YearExample:
BlueRidge_Income_Statement_2024
Mortgage 1098:
Property_Name_Mortgage_Provider_1098_YearExample:
BlueRidge_Rushmore_1098_2024
Property Taxes:
City/County_Taxes_Year_Property_Name_Tax_AgencyExample:
Memphis_City_Taxes_2024_Redvers_Debby_Aden_SpringShadow
Commercial Real Estate and Syndications:
K-1 Statements:
Entity_Name_K1_YearExample:
GPCMAlabamaLLC_K1_2024
Work:
Tax Documents (Japan):
Gensen_Name_YearExample:
Gensen_Daniel_2024
By using this naming system, I can quickly locate any document when needed.
Step 3: Providing Context for Your Accountant
To make life even easier for my accountant, I create a spreadsheet that acts as a roadmap to my folders. Here’s how it’s structured:
Image 4: Tax Document Roadmap
This spreadsheet ensures that my accountant knows exactly where to find each file. It’s also a great reference for me when I’m double-checking my files before submission.
Step 4: Keeping It Up-to-Date
Organization isn’t a one-time task; it’s an ongoing process. Whenever a new document arrives, I:
Save it to the correct folder immediately.
Name it according to the system.
Update the spreadsheet with its location.
Final Thoughts
Tax season doesn’t have to be stressful. With an organized folder structure, a consistent naming system, and a detailed spreadsheet for your accountant, you’ll save time and headaches. Take a look at the provided screenshots for inspiration, and start building your own system today. If you have any questions or tips for organizing tax documents, let me know in the comments below!
Investing for Americans in Japan: A Step-by-Step Guide to Building Wealth Across Borders
It all begins with an idea.
For Americans living in Japan, investing can seem like navigating a financial maze. From understanding the complexities of Passive Foreign Investment Companies (PFICs)—a classification that comes with punitive taxes to discourage passive investments in foreign entities and funds—to deciding where to save and invest, the process can be challenging but rewarding. This guide will break down the steps to help you build wealth while ensuring compliance with both U.S. and Japanese financial systems.
Step 1: Save More Than You Spend
Before investing, you need to master saving. If you aren’t saving money yet, implement one or more of these strategies:
Budgeting:
Track Your Spending: Monitor your expenses for at least 30 days to identify areas where you can cut back. Continue tracking until you have spending under control.
Pay Yourself First: Open two bank accounts and deposit your planned savings into a separate account as soon as your paycheck arrives. Spend only what remains in the primary account. This approach requires a general understanding of your monthly expenses.
Earn More Money:
Take on part-time work or start a side hustle.
Use tools like ChatGPT for business advice and growth strategies.
If applicable, consider upskilling or pursuing education to increase your income, but evaluate the return on investment (ROI) to avoid unnecessary debt or delays in retirement.
Step 2: Save a Small Emergency Fund
Ensure you have at least ¥100,000 saved for small emergencies before moving forward. This safety net prevents unexpected expenses from derailing your progress.
Step 3: Pay Off High-Interest Debt
Focus on eliminating debt with interest rates higher than 6%. While investments may offer higher returns, paying off high-interest debt is a guaranteed way to improve your financial situation.
Step 4: Decide Where to Hold Your Money
As an American, you need to decide whether to keep your assets in Japan, the U.S., or both. Each option has pros and cons:
In Japan: Provides easy access to local currency and aligns with residency.
In the U.S.: Keeping assets in the U.S. can allow you to collateralize loans for purposes like real estate or business investments. Additionally, it enables you to earn returns in dollars, which currently hold more purchasing power compared to the yen.
Holding assets in both locations allows you in retirement to live for extended periods of time in both countries and may provide a form of asset protection as it is difficult for lawsuits to claim assets in a country where they didn't originate.
To maintain U.S. bank and brokerage accounts, you’ll generally need a U.S. address. Options include:
Keeping a U.S. driver’s license and paying bills at that address.
Using virtual mailboxes (note: many institutions require a physical address).
This is a grey area, so consult a financial professional to ensure compliance.
Step 5: Build a Full Emergency Fund
Aim to save 3-6 months of living expenses. For business owners or those with variable income, 12 months may be safer.
In Japan: Save in a standard bank account for easy access during emergencies.
In the U.S.: Use a high-yield savings account (e.g., Ally Bank currently offers 4.2% APY).
Step 6: Invest in Equities and Bonds
Utilize Your Japanese Spouse’s NISA and iDeCo Accounts:
Americans should avoid investing in NISA and iDeCo accounts due to U.S. tax treatment of PFICs. However, gifting up to ¥1.1 million to a Japanese spouse for investment in these accounts can be a tax-efficient strategy.
Contribute to a DC Plan:
If offered by your employer, DC Plans are treated as pensions and avoid PFIC rules. Ensure they are reported on your FBAR. Consult a CPA to confirm eligibility.
Open a Taxable Brokerage Account:
In Japan, use Interactive Brokers Japan to access U.S.-domiciled ETFs like VTI, VXUS, and BND, which avoid PFIC issues.
In the U.S., open an account with major brokerages like Fidelity. Maintaining a U.S. address and phone number is crucial for account eligibility. Some brokerages may require in-person setup.
Recommended Portfolio: Consider a three-fund portfolio consisting of:
50% U.S. Large Cap (VTI)
25% International (VXUS)
25% Bonds (BND)
Adjust allocations based on your risk tolerance, and always conduct due diligence.
Step 7: Explore Real Estate and Business Opportunities
Real estate and business ventures are promising paths for Americans facing limited tax-efficient investment options in Japan.
Real Estate: Leverage U.S.-based loans to invest in rental properties.
Business: Use your unique skills and experiences to create a business that complements your financial goals.
These strategies require careful planning and execution. Stay tuned for a future post diving deeper into these topics.
Final Thoughts
Investing as an American in Japan requires strategic planning and adherence to both countries' financial rules. By following these steps and consulting professionals, you can build a robust portfolio that aligns with your lifestyle and retirement goals.
Stay Connected and Take the Next Step
Ready to take control of your financial future? Follow me on Instagram @TheFIProfessor for expert insights and practical tips on investing and financial independence. Whether you're navigating life as an expat or planning your next steps, let me help you succeed. If you’re looking for a dynamic speaker or personalized coaching, reach out through my website today—your journey to financial freedom starts here!
Disclaimer
This article is for educational purposes only and does not constitute financial or legal advice. Please consult a certified financial planner or tax professional before making investment decisions, especially concerning U.S. residency requirements for bank and brokerage accounts, as this is a grey area and may have legal implications. Always conduct thorough due diligence.