Your set-up should work, if Apple would fix a bug of iCloud Photos, that is making it risky.
Ideally, your local copy of your iCloud Photos Library on your external drive should be complete and contain all original image files, as you are not using "Optimize Mac Storage" for your Photos Library, but "download originals".
The hitch is, that Photos is dragging its feet about downloading the originals from iCloud. There is no status indicator telling us, if the download is complete. Most of the time the status bar beneath Photos is showing "Synced just now", but that does not mean, that all originals have been downloaded, only that Photos has compared the local library with iCloud. We can only be sure, that the library is complete and all originals have been downloaded, if we have been opening each photo to force a download. That is clearly not feasible for a large library. Photos 4 on macOS 10.14 Mojave has been the last version of Photos, where we had a command to force a download from iCloud for selected items in Photos. Since macOS 10.15 Catalina we are left in the dark about the state of the download.
I have tested several time the state of my local copy of the Photos Library, after it has shown "synced just now". There are several ways to test it:
- We can copy the Photos library to an external drive and then open it in Photos, without making it the iCloud Photos Library. When we get a warning, that incomplete items will be removed, we know, that the library is not yet complete. My library with roughly 80000 items usually had approximately 20 items missing, when I compared the number of items in the copy of the library to the number of items in the original library.
- We can make a copy of the library with the most recent versions of PowerPhotos. This will create a list of incomplete items, so we can force a download for the incomplete items, then copy again, until no items are missing.
- I have tested several time to restore the library from Time Machine, and the restored version had also missing items, unless used PowerPhotos to check for incomplete items before making the backup.
My backup strategy is to use Time Machine to backup my local copy of the Photos Library, but additionally I am exporting regularly all new originals to folders, so I am having a local archive of originals and recover missing items for the occasional incomplete original.
And my iCloud Photos Library is also syncing to another Mac that is also backing up to Time Machine.