# Investment makeover for 35 year old living abroad



## He-Man (2 Jul 2014)

*Statement:* I'll soon be investing 20k euros in ETFs for the long-term and adding at least 1000 euros per month thereafter.

*Time to Grow:* 30 years

*Broker:* Saxo 

*Base currency of Saxo account:* Euro

*Sources of Information and Advice:* Self directed learning using the following resources:


Andrew Hallam's blog and his book, "Millionaire Teacher"
ETF Database
ETF Channel
"Millionaire Next Door"
"The Intelligent Investor"

*Strategy:*

Broad ETFs
Geographical diversification
Currency diversification
Use of bonds a portfolio proportion approximately equal to my age (32)
Dollar cost averaging and throwing cash into markets during exceptional crashes

*Proposed ETFs & Portfolio Allocation:*

VUSA (Vanguard S&P 500 bought off Amsterdam exchange); *40%*
VEUR (Vanguard developed Europe bought off Amsterdam exchange) *30%*
BND (Vanguard Total Bond Market bought off NYSE); *30%*

*Other Milestones to Achieve:*

To acquire an investment property as a source of income during retirement. I am keeping 30k euros in cash to avail of the next housing bubble burst, be it in Australia or closer to home, such as Madrid, if its low-price situation persists.
Keeping 20k euros in cash as an emergency fund
To acquire a home, where I know not. I'm an expat in the Middle East so am not sure where I'll end up, though I am Irish.
To seriously consider investing in a property in the Philippines
Possibly retire in Belize, Panama, or Spain

Thoughts? 
I'd love to make this a big thread on ETFs and portfolio planning, so if anyone wants to join in, please do.


----------



## kmick (3 Jul 2014)

Seems like a very sensible yet ambitious strategy - well done - it looks like you have thought it through.
Its a few months old now but here are some pointers for European ETF's that pay a dividend.
http://www.marketwatch.com/story/3-strong-european-dividend-etfs-2013-03-11
It should help to give you some growth aside from stock appreciation.


----------



## Jim2007 (3 Jul 2014)

Well for a start you have about 50k to invest of which you are proposing to but 30K in property, that is about 10 fold higher that what a portfolio of this size should have....  Before doing any trading I would suggest you spend time reading up on asset allocation and the significance in plays in build wealth and avoiding risk.  As it stands your portfolio is structurally very different to those that achieve say 6% to 8% pa over a 30 year period, as it is carrying significantly more risk.  Furthermore give the high property weighting my expectation would be returns of around 3% to 4% pa.


----------



## He-Man (3 Jul 2014)

Hi Jim,

Thanks for your perspective. I'm also a little concerned about over allocating to property as I know it is not a liquid asset and it is a high risk one in several respects. 

However, given that I do not have a home, what would you suggest?


Also, in order to sustain an income of 40k in retirement, I would need to have a substantial income per month from stocks. But if I have an investment property bought at a burst-bubble price, it should yield 1k per month in the long run, reducing the pressure to build up such a large sum in equities. 

Given that you seem to be averse to a large property weighting in a portfolio, what would you propose for someone like me who does not yet have a home? Property is expensive, but necessary for living, so unless someone has several million, how can property in the average portfolio ever be lower than, say, 20%?


----------



## PMU (3 Jul 2014)

You are putting 40% in foreign developed markets (note just one market) and 30% into domestic (i.e Eurozone) developed markets.  You’re keeping some cash, which should lower overall portfolio volatility and you have an emergency fund. I’d say this is a well worked out investment policy.

But why are you buying a bond fund and in particular a USD-denominated bond fund?  Do you really need income now and why are you taking on currency risk (assuming your base currency is the EUR)?  If, as an EUR investor, you invest only in USD bonds you presumably believe that EUR bonds have a higher credit risk than USD bonds and that this outweighs the currency risk of holding a USD denominated asset.  

 Also, if your investment horizon is 30 years, should you not be going for riskier assets than bonds (e.g. emerging market equities, commodities, timber, absolute return strategies, non-correlated returns, etc.) now and leave investing in debt markets until retirement beckons? 

You say you’ll put something into an investment property at a later date.   You probably regard this as a separate (leveraged) project, but if you believe ‘money is money’ it means you maybe overweighted in property relative to your other investments. 

Also, assuming you take out a mortgage to buy the property, why would you invest in a bond fund? When you take out a mortgage you are in effect issuing a personal bond and if you have bond fund you are buying them. So why are you doing this? You need to think this out.
[Disclaimer: The above is comment / observation only and is not a recommendation to follow any particular investment strategy or to buy / not buy any particular fund or stock.][/B][/B]


----------



## Jim2007 (3 Jul 2014)

He-Man said:


> Also, in order to sustain an income of 40k in retirement, I would need to have a substantial income per month from stocks.



Some back of a napkin calculations: You need to have assets sufficient to by buy an annuity of 40K at retirement, so about say 900K.  But starting with 50K, adding 12K a year for 30 years with an expected return of say 6% to 8% would give you around 1.3M to 2M.  There is every change that you will be able to buy a suitable home on retirement in cash and provide an adequate pension as well without having to use a high risk strategy.



He-Man said:


> Property is expensive, but necessary for living, so unless someone has several million, how can property in the average portfolio ever be lower than, say, 20%?



From an investment point of view, never buy property if you can rent, because when you do you break every rule of conservative investing - Over weight a portfolio with a risky asset class, you fail to diversify that asset class and you borrow to do so.  The recent crisis is typical of what happens to investors that overweight their portfolio in a property - equity style investors, typically middle Europeans, say the value of their portfolio slashed by about 35%, but after three or four years they had recovered their value and even gained ground, while property investors are still in negative equity and carrying lots of debt.

If you do want to add property to your investments, then you are far better with a REIT that an actual property, assuming of course you choose a well diversified REIT of course.  Remember REITs will also come down when a property bubble bursts.


----------



## He-Man (4 Jul 2014)

PMU said:


> But why are you buying a bond fund and in particular a USD-denominated bond fund? Do you really need income now and why are you taking on currency risk (assuming your base currency is the EUR)? If, as an EUR investor, you invest only in USD bonds you presumably believe that EUR bonds have a higher credit risk than USD bonds and that this outweighs the currency risk of holding a USD denominated asset.


Thanks for the comments!
I'm buying a bond ETF because that is the approach advocated by Graham in _The Intelligent Investor_ and also by Andrew Hallam on his website. Hallam in particular has a whole chapter in his book on bonds and the role they play in a portfolio. I am still trying to decide which bond to go for. I want one that will hold the line and yield a modest percentage. BND (offered by Vanguard) looks very diversified, but I agree with you, it would be better to have one in euro. I am having trouble identifying a suitable European total bond market ETF.



> Also, if your investment horizon is 30 years, should you not be going for riskier assets than bonds (e.g. emerging market equities, commodities, timber, absolute return strategies, non-correlated returns, etc.) now and leave investing in debt markets until retirement beckons?


ETFs have a high risk associated with them (according to factsheets on Vanguard and iShares websites). Emerging markets oscillate widely, but have not outperformed first world ETFs. However, in due course I might allocate around 5% of my portfolio to emerging markets. But right now, the emerging middle class in those markets are soaking up western goods, meaning that European and North American companies that comprise the broadest indexes look set to prosper. 
Also, on average, most amateurs like myself, and most financial advisers too, simply cannot beat an index in terms of average return over 15-20 year periods. I realize this is all debatable, but the charts at least don't lie.



> You say you’ll put something into an investment property at a later date. You probably regard this as a separate (leveraged) project, but if you believe ‘money is money’ it means you maybe overweighted in property relative to your other investments.
> 
> Also, assuming you take out a mortgage to buy the property, why would you invest in a bond fund? When you take out a mortgage you are in effect issuing a personal bond and if you have bond fund you are buying them. So why are you doing this? You need to think this out.
> [Disclaimer: The above is comment / observation only and is not a recommendation to follow any particular investment strategy or to buy / not buy any particular fund or stock.][/B][/B]


 
Noted. Based on this, Jim's, and my own perspective, I'm starting to seriously reappraise my plans for property.


----------



## He-Man (4 Jul 2014)

Hi Jim, 

I'm intrigued by several aspects of your post.



Jim2007 said:


> Some back of a napkin calculations: You need to have assets sufficient to by buy an annuity of 40K at retirement, so about say 900K.


I'm curious as to why you haven't factored inflation into your figures there (at least, you don't seem to have). 40k in today's money would mean that 900k would be an adequate pension pot. But if we consider an average inflation rate of 2.5% over the next 30 years, it seems to me that it would be very inadequate. 



> But starting with 50K, adding 12K a year for 30 years with an expected return of say 6% to 8% would give you around 1.3M to 2M.  There is every change that you will be able to buy a suitable home on retirement in cash and provide an adequate pension as well without having to use a high risk strategy.



My instinct is actually anti-property, or at least it was until it occurred to me that 10k per month coming in from a rental property thirty years from now means that my portfolio would not have to generate 100% of the desired 40k annuity. It would only have to generate 75% of it.

Do you really think that there's a hole in that logic, especially if the mortgage was effectively being paid by the tenant? In addition, is property not a good inflation beater in such a scenario? I'm genuinely curious. 



> From an investment point of view, never buy property if you can rent, because when you do you break every rule of conservative investing - Over weight a portfolio with a risky asset class, you fail to diversify that asset class and you borrow to do so.  The recent crisis is typical of what happens to investors that overweight their portfolio in a property - equity style investors, typically middle Europeans, say the value of their portfolio slashed by about 35%, but after three or four years they had recovered their value and even gained ground, while property investors are still in negative equity and carrying lots of debt.



This makes perfect sense to me. But given that inflation does not seem to be factored into the calculation at the top of your post above, it may well be that I cannot afford a home out of my pension pot. I'm curious as to whether you have bought a home or an investment property for yourself and, if not, how you see your own living situation evolving when you retire.

I am "anti-debt", however, and for that reason I agree, the idea of a mortgage horrifies me. For that reason, I would have hoped to have a tenant pay the mortgage of the investment property (or a good deal of it anyway) through rent, and I would have been prepared to consider the purchase of my own home down the line as a _purchase_ rather than an _investment_. I suppose the idea of not having property is so culturally counter-intuitive that it requires some time to come around to looking at the subject from a different perspective.

I don't yet know where my wife and I will end up, so I am in no rush to buy - but if I am to buy a property, I'd like to do it during a bubble-burst period.



> If you do want to add property to your investments, then you are far better with a REIT that an actual property, assuming of course you choose a well diversified REIT of course.  Remember REITs will also come down when a property bubble bursts.



I have been considering this too, based on some guidance outlined in a recent edition of _The Intelligent Investor_. In that book, a small REIT allocation in one's portfolio is recommended as a protection against inflation. Vanguard have to REIT ETFs: a US one and a world one. The US one seems more stable; which one would you be inclined to go for yourself?

Thanks very much for all your points. Very much appreciated.


----------



## Marc (4 Jul 2014)

Tax tax tax tax tax and tax

This strategy might be all well and good if you live in the USA but Ireland, forget it.


----------



## He-Man (5 Jul 2014)

I live in a tax-free country at the moment and hope to stay for many more years. 
But if I move back to Ireland then yes, tax will be an issue. But surely it would only be an issue regarding dividends and realized capital gains? Is there something I'm missing?


----------



## Jim2007 (5 Jul 2014)

Marc said:


> Tax tax tax tax tax and tax
> 
> This strategy might be all well and good if you live in the USA but Ireland, forget it.



The joys of live in a country where the gains for investing are tax free!!!


----------



## Jim2007 (5 Jul 2014)

He-Man said:


> I'm curious as to why you haven't factored inflation into your figures there (at least, you don't seem to have). 40k in today's money would mean that 900k would be an adequate pension pot. But if we consider an average inflation rate of 2.5% over the next 30 years, it seems to me that it would be very inadequate.



The are called back of a napkin figures for a reason - they are not intended to be accurate!  On the other hand they are good enough for our purposes.  Inflation is not discriminative, it will impact both sides of the equation so it is just as handy to ignore it.

Now this may sound flippant, but the truth is that I've spend over twenty years working on financial models and the bottom line is that most complex models seldom do better that simple models because the more parameters you bring in the more likely you are to get it wrong!  So I'm more than comfortable to go with the model as I have it.



He-Man said:


> My instinct is actually anti-property, or at least it was until it occurred to me that 10k per month coming in from a rental property thirty years from now means that my portfolio would not have to generate 100% of the desired 40k annuity. It would only have to generate 75% of it.



There are two phases to your strategy, first how to generate the maximum wealth over the investing period and second using that wealth to generate an income there after.  In all probability a portfolio with a low property element will generate a higher return over the investing period, but there is nothing stopping you taking part that point and buying a rental property as part of the means to generate your retirement income.



He-Man said:


> Do you really think that there's a hole in that logic, especially if the mortgage was effectively being paid by the tenant? In addition, is property not a good inflation beater in such a scenario? I'm genuinely curious.



Well the historic performance figures for the various assets classes includes times of both high and low inflation and property did not do very well as an asset class....

That said, you have to keeping mind that the property figures used in such studies are closer to a REIT style of investing rather than the purchase of an individual property.  Buying an individual property as many addition risks and opportunities involved in it that simply as a defence against inflation.

If you are concerned about inflation that much then the best idea would be to add a small amount of precious metals plus a REIT to the mix.



He-Man said:


> I'm curious as to whether you have bought a home or an investment property for yourself and, if not, how you see your own living situation evolving when you retire.



Well things are a bit different over here, we do not have a choice when it comes to pensions - they are by law required to be mainly inline with the strategy we have been discussing, for the very reasons I've outlined.  By law you start contributing about 6% of your salary, which is matched by your employer, from aged 25 and it scales up over your working life until you reach my age where I'm contributing almost 15%, which is again matched by the employer.  The objective and it is usually achieved is to deliver a pension equal to about 60% of your annual salary on retirement.

Another 20% is expected to come from the state pension and the rest by personal savings for which you are allowed to contribute 6K pa tax free into a fund which is also run on the same basis as already stated.

That said, most professional Swiss could afford to buy a house as well but choose to invest in equities instead because investing in property is considered to be foolish!  Something to do if you have money to spare....  The result is that it is not at all unusual to fined a Swiss couple heading into retirement with a pension of 80% plus another 200K - 500K in investments.

For the most part, I'd say houses tend to be inherited rather than being bought and when it does come to buying foreigners account plus holiday homes account for a large part of it 

On retirement we will most likely rent or buy (for cash) something in the Italian speaking part of Switzerland outside one of the main cities such as Lugano or Locarno.  As the winters are short and no so severe, plus of course we like the region.   



He-Man said:


> suppose the idea of not having property is so culturally counter-intuitive that it requires some time to come around to looking at the subject from a different perspective.



This is very true and many of my Swiss friend can not begin to understand what went wrong in Ireland - how did so many people get taken in by the property boom...  Typically the conversation starts with something like:  The Irish are northerners (all northern countries are sensible to the Swiss way of thinking) so why did they going buying property? And then the ultimate sin as the Swiss are concerned - borrowing to do it!!




He-Man said:


> Vanguard have to REIT ETFs: a US one and a world one. The US one seems more stable; which one would you be inclined to go for yourself?



For me that would be too much exposure to the dollar for a start.  I will be retiring in Europe so I tend to stick to Euroland and CH for the most part.


----------



## He-Man (5 Jul 2014)

Jim, thanks very much for your response (especially on a Saturday morning!). Plenty for me to chew on there.
As well as being very important, at a personal level I also find this general subject fascinating. There's lots to learn and consider.


----------



## Brendan Burgess (5 Jul 2014)

Hi He man

A very interesting case study.  I will repeat some of the points others make.


Your objective needs to be general, maximising and protecting  wealth. At 35, it's pretty meaningless to have an objective of "40k  income in retirement". So don't bother with any calculations which  purport to show how you might achieve this. 

If you continue to save and invest, you will accumulate wealth over the next 25 years. You should not borrow to invest as it dramatically increases risks. You do not need to take these sort of risks. 


At your age, almost all of your investments should be in equities. You should derive much higher returns than other classes, and you can handle the short and medium term volatility.

Be really conscious of costs. You can keep them to an absolute minimum by buying shares directly rather than investing through ETFs.  While the costs of ETFs are low, they do still eat into your returns. 

As you don't know where you will end up, all your investments should be relatively liquid. Therefore, no property as an "investment". Property is an actively managed business and not a passive investment. The chances that you could identify a suitable property in Belize and manage it from a distance profitably are very low indeed. 

With a good income, and plenty of liquid investments, you do not need a €20,000 emergency fund. If you are mainly invested in equities, you can convert them to cash quickly if you need to. 

Tax is a serious consideration which again argues against property. It may be useful for you to realise all your capital gains before you move to a tax paying jurisdiction. A property might be difficult to sell in that timeframe. 

It's almost impossible to time equity or housing markets. While you are invested in equities, it's quite possible that you will be participating in a bubble at some time during your 30 year holding period.  To exploit the bubble, you will have to sell towards the top and buy in again towards the bottom. Very, very difficult to do, and probably not worth trying.


----------



## Brendan Burgess (5 Jul 2014)

> I don't yet know where my wife and I will end up, so I am in no rush to  buy - but if I am to buy a property, I'd like to do it during a  bubble-burst period.


As I have said, I don't think you should invest in property. 
You certainly should not borrow to invest in property. 

When you know where you will be living, I think you would be right to buy property there at that time. 

I don't agree with Jim's suggestion that you should rent instead of buying. 

But it could depend on where you live. In Ireland, there are huge tax advantages in owning your own home. 

But as well as the financial advantages, there are many other advantages, such as security of tenure, a better sense of home, freedom to extend and decorate it as you wish.  In Switzerland, where the culture and law supports it, renting may be find. But in many other places, it's not. 

Of course, these advantages do not apply to you at present, where renting is much better as you will be moving from place to place. 

But, come back to Askaboutmoney in 20 years when you have decided where you want to settle and decide at that stage if it's a good idea to rent or buy.


----------



## He-Man (6 Jul 2014)

Brendan Burgess said:


> Hi He man
> 
> A very interesting case study. I will repeat some of the points others make.
> 
> Your objective needs to be general, maximizing and protecting wealth. At 35, it's pretty meaningless to have an objective of "40k income in retirement". So don't bother with any calculations which purport to show how you might achieve this.


 
Interesting. This is contrary to several sources of info I've read so far, but it does have merit, and I am a bit of a generalist by nature. Basically, work hard, save and invest, exploit opportunities, be frugal, and it will work out. I'll accept that  



> If you continue to save and invest, you will accumulate wealth over the next 25 years. You should not borrow to invest as it dramatically increases risks. You do not need to take these sort of risks.


 
I accept the logic of this absolutely. But it does beg the following question for me: If I don't borrow, how will I ever be able to afford a home? I just don't see it happening without borrowing, unless I continue to live in the Middle East for many more years. In my case, this is possible, but unlikely. I have a feeling that my job here won't last much beyond another 2 or 3 years. If that happens, my plan would be to seek a similar role in Singapore or another Middle East country. Only as a last resort would I move back to Europe for work. 



> At your age, almost all of your investments should be in equities. You should derive much higher returns than other classes, and you can handle the short and medium term volatility.


 
I've been persuaded by you and Jim (and other sources) that this is correct for me.



> As you don't know where you will end up, all your investments should be relatively liquid. Therefore, no property as an "investment". Property is an actively managed business and not a passive investment. The chances that you could identify a suitable property in Belize and manage it from a distance profitably are very low indeed.


 
Noted. Again, I've been persuaded. I am not interested in actively managing a business, especially not from home. WRT Belize, I had that more in a mind as a place where I'd buy a little house when 60 years old or so. For an investment property right now, I had been thinking Cork, Madrid, or somewhere in the Philippines (diverse, I know). Cork because I know it and because I think you could always fill a 2-bed apartment there; Madrid because it's a capital city with a lot going for it in the long-run and currently at decent prices; and the Philippines because my wife is from there, prices are cheap, and some places in Makati (which is the opulent quarter of Manila) or the student districts look set for a bright future. 

But yes, you're right: Too difficult to manage given I don't know where we will be living 5 years from now. So equities will be the plan. 



> With a good income, and plenty of liquid investments, you do not need a €20,000 emergency fund. If you are mainly invested in equities, you can convert them to cash quickly if you need to.


 
Right now I have 22k euros sitting in a bank and it's doing nothing but wasting away slowly. This is a little sickening on the one hand, but on the other I do derive a lot of comfort from knowing it's there. In a worst-case scenario, wifey and me would have to move back to Ireland in two years' time, in which case we would have to rent a place, buy a car (possibly 2), wait ages for her to find a decent-paying job (accountant), and on top of all that, my net earnings would drop from 71k euro per year to 38k euro per year. Ouch! Now, wifey and I are pretty frugal, and we don't need or spend 71k currently; but what we save from it is our future-wealth-generator. This investable surplus will be gone if we have to move back to Ireland.

Also, if we go back to Ireland on a vastly reduced income, we certainly won't be able to buy a home and may well be condemned to renting long-term out of necessity. I would rather not convert whatever investments we have made to cash unless it is expedient to do so, because those investments are really to be locked away for 30 years.

So my general plan up to the end of 2015 is to keep 30k in cash to cover the drastic changes that would occur were we to move back to Ireland at a non-optimal time (this would allow for the retention of an emergency fund + a potential deposit *in case* for whatever reason we wanted to buy a place); and also, to have invested 70k euros in the stock market.

I'm curious if your advice would change with regard to keeping cash following the above explanation. I am very eager to hear your opinions as my fears may be unfounded.



> Tax is a serious consideration which again argues against property. It may be useful for you to realise all your capital gains before you move to a tax paying jurisdiction. A property might be difficult to sell in that timeframe.


 
It is difficult to know what the tax situation would be were we to move back. My understanding is that capital gains on anything received before repatriating would be exempted; but all future capital gains would be taxable. This is indeed a serious concern - and frankly it's one of several reasons why I would be likely to go to Singapore if my Middle East career dried up. 



> It's almost impossible to time equity or housing markets. While you are invested in equities, it's quite possible that you will be participating in a bubble at some time during your 30 year holding period. To exploit the bubble, you will have to sell towards the top and buy in again towards the bottom. Very, very difficult to do, and probably not worth trying.


 
Fully agree with this -- this has been reiterated by the likes of Graham, Munger, Buffet and others and I do not doubt my inability to time peak markets, so I won't try. However, if prices tumble but long-term prospects look decent, then I would hope to be in a position to seize the opportunity. I think you need a bit of cash to do so, but we'll see.


----------



## He-Man (6 Jul 2014)

Brendan Burgess said:


> As I have said, I don't think you should invest in property.
> You certainly should not borrow to invest in property.
> 
> When you know where you will be living, I think you would be right to buy property there at that time.
> ...


 
So, just so I'm clear, your advice here would be to (a) not buy an investment property anywhere given my present situation and (b) only consider buying a home if I am in a stable location and it would be advantageous to do so. I'm inclined to agree (and would struggle to disagree). If I do end up in a place like Germany or Switzerland (this is possible) then Jim's advice would probably be optimal for me.

I should point out that another book I'm reading carefully at the moment is _Millionaire Next Door_. It does emphasize that homes should be modest, not in the most upmarket areas, and not costing more than double one's annual realized income. These are precepts I will follow if I do eventually buy a home.



> But, come back to Askaboutmoney in 20 years when you have decided where you want to settle and decide at that stage if it's a good idea to rent or buy.


I hope to stick around Askaboutmoney between now and then. Fantastic forum.


----------



## Brendan Burgess (6 Jul 2014)

> Basically, work hard, save and invest, exploit opportunities, be frugal, and it will work out.


I think you need to balance these various issues.  I think that many people are too frugal.  Make sure you are saving enough for your retirement, but don't live on the breadline, so  you can die a millionaire. 


> If I don't borrow, how will I ever be able to afford a home?


Don't borrow to invest. It is ok to borrow for your home.  

If you don't borrow to buy a home, you will be paying rent.  Interest is just the rent for money borrowed. 



> I would rather not convert whatever  investments we have made to cash unless it is expedient to do so,  becuase those investments are really in my mind to be untouchable for 30  years.
> 
> So my general plan up to the end of 2015 is to keep 30k in cash to cover  the drastic changes that would occur were we to move back to Ireland at  a non-optimal time


Sorry, this does not make any sense to me.  If you move back to Ireland or if you need the cash for any other reasons, you can sell part of your investments.  You probably need to adjust your mindset a bit in this regard.  For example, if you move back to Ireland and need to cash all your investments to buy a home, then you should be prepared to do so. You will save the repayments on the mortgage so you can use them to begin investing again. In Ireland at least, owning your own home is very tax-efficient. No Capital Gains Tax and no tax on the benefit of not paying rent. If you have €200k invested and you rent a house, the investment income will be taxed and you get no tax relief for the rent. 



> Andrew Hallam's blog and his book, "Millionaire Teacher"
> 
> I should point out that another book I'm reading carefully at the moment is _Millionaire Next Door_.


I don't know these guys or their books, but I am suspicious of books or schemes with titles such as these. 



> homes should be modest, not in the most upmarket areas, and not costing more than double one's annual realized income.


Again, it's a question of balance. A lot of people are in financial trouble today because they bought trophy homes which they could not afford. But you accumulate wealth to enjoy it, not to just count it.  If a home costs you three times your income but is close to where you work and your family lives, then this would be better than buying a home for twice your income which requires two hours of commuting every day.

By all means, read these books.  As with these comments on askaboutmoney,  treat the ideas in them as ideas, worth thinking about. There are very few absolute rules.


----------



## He-Man (6 Jul 2014)

Brendan Burgess said:


> I think you need to balance these various issues. I think that many people are too frugal. Make sure you are saving enough for your retirement, but don't live on the breadline, so you can die a millionaire.
> Don't borrow to invest. It is ok to borrow for your home.
> 
> If you don't borrow to buy a home, you will be paying rent. Interest is just the rent for money borrowed.
> ...


 
Noted -- and thanks for opening my mind to new options that I hadn't considered. 



> I don't know these guys or their books, but I am suspicious of books or schemes with titles such as these.


On these books, I agree the titles aren't the best, but the content is very good.

_Millionaire Next Door_ actually arose out of an academic study done on a large number of American decamillionaires. It profiles their spending habits and general attitudes to finance and is intriguing because it explodes the myth of the high-flying, high-consumption millionaire. The book also explores second and third generation millionaires, noting that family fortunes usually run dry by the end of the third generation. It's a very enlightening book and is well worth a read. The book does not advocate a get rich quick policy; it really is just a study of millionaire spending and domestic budgeting habits, contrasting them with high-earning people who like to spend lots on designer clothes, luxury cars, big houses, etc, but who at the end of the day have a relatively low net worth due to hyper-consumption.

_Millionaire Teacher _is written by a Canadian expat high-school English teacher who became a millionaire on a teacher's salary from investing prudently by following Graham's and Buffet's advice. Of course the fact that he lives in Singapore helped too!
The book and the author's website tackle the expat financial planning industry head-on and is against high-fee "investment" plans offered by Zurich International, Friends Provident, Royal Scandia et al. In fact, I found the website only because I had almost been suckered into opening a whole-of-life-insurance / savings plan from a snakeoil salesman in the Middle East. 
The author advocates a balanced portfolio of low-fee, highly diversified ETFs and adheres to the precepts of _The Intelligent Investor_. The book really cleared the fog of ignorance from my mind about investing and for that, I consider it one of my best ever purchases. I does not, however, discuss property and concentrates exclusively on bonds and ETFs, and controlled consumer spending.


----------



## west_bound (6 Jul 2014)

He-Man said:


> Thanks for the comments!
> I'm buying a bond ETF because that is the approach advocated by Graham in _The Intelligent Investor_ and also by Alexander Hallam on his website. Hallam in particular has a whole chapter in his book on bonds and the role they play in a portfolio. I am still trying to decide which bond to go for. I want one that will hold the line and yield a modest percentage. BND (offered by Vanguard) looks very diversified, but I agree with you, it would be better to have one in euro. I am having trouble identifying a suitable European total bond market ETF.
> 
> 
> ...




you are quite correct that over time most investors will fail to beat index funds

i made big money in 2013 on bank of ireland and groupon , two high risk stocks , ive since lost nearly everything i gained  on groupon , im still up since 2012 due to success with glanbia , kerry and bmw but had i simply put all my money in an s+p etf , i would have done better due to the money saved on trades 

i think the cleverest investor is the one that admits they are not smart enough to outwit the broad market , luck only lasts so long , on top of that , i think a lot of people can develop into a gambler by seeking out " ten baggers "   



i wouldnt be shy about putting 10 or 15% in emerging markets today , emerging markets have performed horribley this past four years and as these things are cyclical ,their cheap valuations should make for significant returns ,i think DEM is the best emerging markets ETF


----------



## Jim2007 (6 Jul 2014)

Brendan Burgess said:


> Your objective needs to be general, maximising and protecting  wealth. At 35, it's pretty meaningless to have an objective of "40k  income in retirement". So don't bother with any calculations which  purport to show how you might achieve this.


 


He-Man said:


> Interesting. This is contrary to several sources of info I've read so far, but it does have merit, and I am a bit of a generalist by nature.



It is not about accuracy, it is about trying to ensure that you don't take on more risk than is necessary to achieve your objectives.  The exercise shows that you can achieve your objectives without having to take on unnecessary risks.  And so it has merit, of course you should redo the figures every so often and adjust your strategy accordingly.



Brendan Burgess said:


> Be really conscious of costs. You can keep them to an absolute minimum by buying shares directly rather than investing through ETFs.  While the costs of ETFs are low, they do still eat into your returns.



In theory this is a good idea, in practice it seldom works for two reasons, firstly while most people do not have a problem identifying good companies they find it nearly impossible to determine the price they should buy at and secondly individual stocks are more volatile which often leads to people yoyo in and out of the market.  With few exceptions, most people who got this route fail to track the index.

The other thing is that this is a small portfolio at this stage and so buying an ETF will achieve a good level of diversification at reasonable costs.


----------



## He-Man (6 Jul 2014)

While I do appreciate Brendan's caution about cost, I will definitely be going the ETF route because of diversification, simplicity, and cost effectiveness. 

As mentioned, I'll be looking at broad-based ETFs like S&P 500 and Developed Europe. I was looking at investing in some sector-specific ETFs like aerospace and consumer discretionary, but in general over a long period I have faith in the returns of the index rather than any one sector or company. 

I had been geared towards Vanguard, but I would prefer one that reinvests dividends automatically. For this reason, I am now considering iShare's SACC rather than Vanguard's VUSA. The expense ratio of SACC is 0.08% whereas Vanguard's is 0.15%.

What are people's feelings on ETFs that automatically reinvest dividends versus those that don't from a tax point of view?


----------



## Jim2007 (6 Jul 2014)

He-Man said:


> The author advocates a balanced portfolio of low-fee, highly diversified ETFs and adheres to the precepts of _The Intelligent Investor_. The book really cleared the fog of ignorance from my mind about investing and for that, I consider it one of my best ever purchases. I does not, however, discuss property and concentrates exclusively on bonds and ETFs, and controlled consumer spending.



As I showed with the back of a napkin figures we used before there, is every chance you could end up with a figure of over 1M after thirty years (starting with 50K, adding 12K a year for 30 years with an expected return of say 6% to 8% would give you around 1.3M to 2M).  Most people however fail to achieve this because they lack the will power required to carry it through.

There are many behavioural issues that case investors to achieve less that expected when using ETFs and dollar cost averaging including:

- They stop investing when the price falls rather than carrying on with the plan
- They increase their investment amount when the price is rising
- They fail to rebalance the portfolio on a regular basis
- They get distracted by market noise and start to divert funds to other assets
- They start to look for quick killings

Most Swiss citizens end up with a good asset pot on retirement, not because they are more disciplined investors than the rest of us, but because they have not choice by law, but to do it.


----------



## He-Man (6 Jul 2014)

So, Jim, based on the above (and which I agree with), how would you feel about Brendan's suggestion to cash in part of the investments for home-purchase if living in Ireland?

I see the definite advantage of what he's saying, don't get me wrong, but there are three potential problems as well: 

1) at the time of realization it may have lost value 

2) it would incur a capital gains tax 

3) it would negatively affect the process of compound interest


----------



## west_bound (6 Jul 2014)

He-Man said:


> While I do appreciate Brendan's caution about cost, I will definitely be going the ETF route because of diversification, simplicity, and cost effectiveness.
> 
> As mentioned, I'll be looking at broad-based ETFs like S&P 500 and Developed Europe. I was looking at investing in some sector-specific ETFs like aerospace and consumer discretionary, but in general over a long period I have faith in the returns of the index rather than any one sector or company.
> 
> ...




only advantage is you dont need to make a trade  , you still have to pay tax on the value of the dividend which is re-invested 

i always choose the cash option as i use stocks for income to a degree


----------



## He-Man (7 Jul 2014)

west_bound said:


> only advantage is you dont need to make a trade , you still have to pay tax on the value of the dividend which is re-invested
> 
> i always choose the cash option as i use stocks for income to a degree


 
Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.

Do you generally use Vanguard or iShares?


----------



## monagt (7 Jul 2014)

> Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.


 Yes, as you must track the buy prices of the shares and pay tax on the dividend.



I have to ask.............who owns all the property in Germany and Switzerland that  all the people rent?


----------



## Brendan Burgess (7 Jul 2014)

monagt said:


> I have to ask.............who owns all the property in Germany and Switzerland that  all the people rent?



I had wondered that myself. I presume institutional investors?  

We have very few institutions investing in residential property in Ireland.  Irish Life used to own the Mespil Flats complex but it just was not profitable to run residential investment in Ireland.  If people don't bother paying their rent, there isn't too much you can do about it.  I suspect, that there is more respect for and enforcement of the law in Switzerland and Germany. 

Brendan


----------



## Jim2007 (7 Jul 2014)

He-Man said:


> Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.
> 
> Do you generally use Vanguard or iShares?



In many countries you do not need to pay taxes on the accumulating dividends, in fact it is one of the reason why ETFs come in both varieties.  So check out what the tax situation is in your country before you get too excited.

[Other than yourself, it seems I'm the only one commenting who lives in a country where the gains from investing are tax free...]


----------



## He-Man (7 Jul 2014)

Jim2007 said:


> In many countries you do not need to pay taxes on the accumulating dividends, in fact it is one of the reason why ETFs come in both varieties. So check out what the tax situation is in your country before you get too excited.
> 
> [Other than yourself, it seems I'm the only one commenting who lives in a country where the gains from investing are tax free...]


 
Indeed, in my present country everything is tax free, including investment returns.
However, I have one eye on the possible implications of repatriating to Ireland in a few years - though as mentioned, this would be a worst-case scenario for me.


----------



## Jim2007 (7 Jul 2014)

monagt said:


> who owns all the property in Germany and Switzerland that  all the people rent?



The pension funds are major players, by law they are required to hold major blocks of property.  However it is not held as part of an investment portfolio, but as an income source to match pension payments.

It also has one one other advantage it means the banks are no heavily weighted in property and have fund available to invest in industry instead.


----------



## monagt (9 Jul 2014)

> However it is not held as part of an investment portfolio, but as an income source to match pension payments.


I keep hearing property is not an investment, but what is an investment if it is not for income and/or capital gain?

Property and/or mortgage, I agree is a concentration of risk with issues such as asset class, currency, borrowing  to invest thus increasing the "bet" up or down which as we have seen is dangerous.

So, what is the consensus on the current situation here where people are taking money out of low interest accounts (very low net interest after tax & PRSI) and purchasing property to rent as an investment.

Karl Deeter on Newstalk was very much in favour of it while Jill Kerby on same programme was wary but not against it (warning on tax, costs, property taxes, vacant time, etc) but not saying don't.


----------



## RainyDay (9 Jul 2014)

monagt said:


> So, what is the consensus on the current situation here where people are taking money out of low interest accounts (very low net interest after tax & PRSI) and purchasing property to rent as an investment.
> 
> Karl Deeter *of Irish Mortgage Brokers *on Newstalk was very much in favour of it while Jean Kirby on same programme was wary but not against it (warning on tax, costs, property taxes, vacant time, etc) but not saying don't.



Just added a little clarification to your post there


----------



## west_bound (12 Jul 2014)

He-Man said:


> Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.
> 
> Do you generally use Vanguard or iShares?



it doesnt complicate things , a trade can cost 50 euro with some brokers and some people might forget to use their cash to rebuy more stocks 

i often use the cash so it suits me not to choose reinvestment of dividend , plus i have a very large portfolio ( nearly 200 k )


----------



## west_bound (12 Jul 2014)

Brendan Burgess said:


> I had wondered that myself. I presume institutional investors?
> 
> We have very few institutions investing in residential property in Ireland.  Irish Life used to own the Mespil Flats complex but it just was not profitable to run residential investment in Ireland.  If people don't bother paying their rent, there isn't too much you can do about it.  I suspect, that there is more respect for and enforcement of the law in Switzerland and Germany.
> 
> Brendan



god help anyone who ever invested in any irish life funds , for every ten they sold , nine were dogs , managment and exit fees were scandalous prior to the crash


----------



## west_bound (12 Jul 2014)

monagt said:


> I keep hearing property is not an investment, but what is an investment if it is not for income and/or capital gain?
> 
> Property and/or mortgage, I agree is a concentration of risk with issues such as asset class, currency, borrowing  to invest thus increasing the "bet" up or down which as we have seen is dangerous.
> 
> ...




karl deeter has a lot more credibility than jill kirby when it comes to theese matters , kirby ( along with eddie hobbs and constantine guirdiev )  was encouraging people to buy gold in 2011 when deeter was telling them property was looking good

property in dublin ( where ive only ever heard karl deeter comment on ) is up at least 50% since then ( in desrable areas of dublin ) and gold is down at least 25%


property is not a particulary  high risk investment compared to other assets , its much less risky than commodities or trading currency to give just two examples  , a house or land  cannot disapear , it will always have some value and is tangible ,  a publically listed company can become worthless eventually  and the health of the company is usually unknown to most share holders until something big happens , thats why its better for most people to simply buy the market instead of individual shares , on the other side of the coin ,  gains are also on average lower on property , it also requires a lot more hands on managment ,  over the long term , equities trump every other asset class

i would not invest in property with the banks money however , mortgages should only be for buying a home to live in ( IMO )


----------



## RainyDay (12 Jul 2014)

west_bound said:


> property is not a particulary  high risk investment compared to other assets , its much less risky than commodities or trading currency to give just two examples  , a house or land  cannot disapear , it will always have some value and is tangible ,  a publically listed company can become worthless eventually  and the health of the company is usually unknown to most share holders until something big happens , thats why its better for most people to simply buy the market instead of individual shares , on the other side of the coin ,  gains are also on average lower on property , it also requires a lot more hands on managment ,  over the long term , equities trump every other asset class


You are ignoring the reduced risk through a diversified equity portfolio. While you are technically correct so that that a company can become worthless (e.g. Anglo or AIB), a well diversified portfolio that spreads investment across many geographic regions and many industries minimises this risk to an insignificant level.


----------



## drrkpd (13 Jul 2014)

A practical question?

may i ask for the financially challenged  ie me-it is clear that looking up vanguard and ishare that you cannot buy into these funds directly. Vanguard gives a list of UK and Irish stockbrokers.
if you are in Middle East ( and very very wary of financial advisors)  how do you actually buy into these funds??
Sorry if this is a stupid question but I genuinely do not know. And again these intermediaries must also charge commission- how do you pick one??

If considered off topic then I will put in a new thread as i am sure I cannot be the only person who may be confused

I can see online uk sterling brokers eg nutmeg but not euros??


----------



## drrkpd (13 Jul 2014)

thanks he-man by PM- I  have got it now - you use an online broker like saxobank and buy them that way


----------



## He-Man (23 Aug 2014)

OP here again. So, at long last I'm about to make my investments during the coming week and I'm suddenly paralyzed with the following doubts:


I chose euro as my base brokerage currency. But it seems most of the ETFs I'm interested in have their base currency as dollar; i.e., the ETFs can be bought in euros from European stock exchanges, but the underlying currency is dollar. My concern is that in choosing euro as my brokerage currency, I have chosen inefficiently.

I had intended to buy two equity ETFs: VUSA (for US exposure) and VEUR (for European exposure). VUSA, when bought in euros, does not track the same as its NYSE equivalent, VOO. So, I am now thinking to buy VWRL instead of those two. VWRL is an all-world stock ETF which I can buy in euros; but again, the ETFs base currency is US dollar.

Another nagging doubt is that all the ETFs are domiciled in Ireland, and although I am a non-resident Irish national, I have discovered that I would fall into the category of "ordinarily resident" for another 12 months. Therefore, I'm concerned I have tax exposure.

I'm trying to choose a government bond ETF but don't know whether or not to choose an inflation-linked ETF.  

Finally, I hold the brokerage account which is handled by a well known Danish broker, jointly with my wife. My wife is a non-EU citizen and a long-time Middle East resident. I am thinking I should have set up the account in her name only to eliminate tax exposure.

I have not yet deposited funds to my broker account, though I'm sitting on 20k ear-marked for it. Would appreciate some opinions regarding the base currency of my brokerage account, the base currency and domicility of the ETFs I should buy, and whether the account should be in my name or my wife's name only, or whether it's OK to have it in both our names.


----------



## dub_nerd (23 Aug 2014)

If you choose a different base currency, aren't you just going to have to convert your money on the way to the account. (I've just opened a Saxo account, and that's my understanding). So you've got the currency issue one way or another.


----------



## He-Man (23 Aug 2014)

Perhaps. Although I do get paid in a dollar-pegged currency right now. However, I plan to invest for 30+ years; for that reason, I chose euro as I don't expect to continue to be paid in a dollar-pegged currency for that length of time.


----------



## Jim2007 (23 Aug 2014)

You are over thinking it.

For 20k thinking about putting in a single fund, say an MSCI world index.  Here is one registered in LUX since you seem to prefer non Irish.  And here is a EURO hedged version of the same.

You are investing in MNCs, so they will have more less the same exposure to the world economy and FX risks in the long term!


----------



## drrkpd (23 Aug 2014)

He-Man said:


> OP here again. So, at long last I'm about to make my investments during the coming week and I'm suddenly paralyzed with the following doubts:
> 
> 
> I chose euro as my base brokerage currency. But it seems most of the ETFs I'm interested in have their base currency as dollar; i.e., the ETFs can be bought in euros from European stock exchanges, but the underlying currency is dollar. My concern is that in choosing euro as my brokerage currency, I have chosen inefficiently.
> ...



*

I think the clever answer here is it depends on marriage!! I suspect some high profile developers are very very worried about keeping their wives happy!!*


----------



## drrkpd (23 Aug 2014)

Jim2007 said:


> You are over thinking it.
> 
> For 20k thinking about putting in a single fund, say an MSCI world index.  Here is one registered in LUX since you seem to prefer non Irish.
> 
> You are investing in MNCs, so they will have more less the same exposure to the world economy and FX risks in the long term!



Jim two questions
1 can you access the LUX fund through saxo or other online brokers?

2 what is an MNC Please ?


----------



## He-Man (23 Aug 2014)

MNC = multinational corporation.


----------



## Jim2007 (23 Aug 2014)

drrkpd said:


> Jim two questions
> 1 can you access the LUX fund through saxo or other online brokers?



The bottom of the first page of he PDF shows the exchanges where the fund is traded, so you need to see if your broker gives you access to any of these exchanges.



drrkpd said:


> 2 what is an MNC Please ?



MNC = Multi National Corp.


----------



## He-Man (25 Aug 2014)

Jim2007 said:


> You are over thinking it.
> 
> For 20k thinking about putting in a single fund, say an MSCI world index.  Here is one registered in LUX since you seem to prefer non Irish.  And here is a EURO hedged version of the same.
> 
> You are investing in MNCs, so they will have more less the same exposure to the world economy and FX risks in the long term!



Fair enough -- and I get that. However, if I invest in, say, VWRL (euro-denominated) and it performs at +15% in 2013 versus VT (which is the very same ETF in the US) which performs at +18%, aren't I better off investing in VT - or, rather VWRL bought with US dollars?

I have a euro-denominated Saxo account into which I have not yet deposited any funds. 

Right now, I know that I want to buy VWRL. The question is whether I buy VWRL with dollars from London or euros from Amsterdam . In any event, the base currency of VWRL is USD. However, as you pointed out, the ETF tracks businesses in the US, the Eurozone, Switzerland, UK, Japan, China, India, Russia, Brazil, UAE, Egypt, Chile, Philippines, etc.....so there is indeed an underlying currency diversification.

I am highly confused. I just rang Saxo and they tell me that I can change the base currency of my Saxo account to dollar if I wish. But only prior to depositing funds. Euros or dollars...that is the question...



drrkpd said:


> I think the clever answer here is it depends on marriage!! I suspect some high profile developers are very very worried about keeping their wives happy!!


I have no fears there


----------



## He-Man (25 Aug 2014)

*Bond ETF*

So, as per the above, I've decided on VWRL for my stocks. 
Per _The Intelligent Investor_, I'll also buy a short-term first world government bond ETF and try to maintain my portfolio as follows 70:30 stocks:bonds.

I have several questions about bond ETFs.


If I buy a eurozone bond ETF like IEGE or CBE3 (both iShares), is this riskier than a multiple currency bond ETF like ISHG? After all, eurozone countries cannot print money to pay their debts. Would I be better off going for an ETF that contained bonds from the US, UK, Japan, Australia and the eurozone, or should I stick to the eurozone only?

If I have a choice, should I buy an inflation-linked bond ETF over a non-inflation-linked government bond ETF? Again, iShares have several inflation-linked government bond ETFs on offer.


----------



## Jim2007 (25 Aug 2014)

He-Man said:


> I'll also buy a short-term first world government bond ETF.



Why?  Keep the 6K in cash with no transaction or depo fees the return should end up about the same.


----------



## drrkpd (25 Aug 2014)

*thanks*

Thanks for answering my questions and I am delighted to know the healthy state of He-Mans marriage!!!


----------



## He-Man (25 Aug 2014)

Jim2007 said:


> Why?  Keep the 6K in cash with no transaction or depo fees the return should end up about the same.



The why of it is that this is the approach favored by John Bogle, Ben Graham and, most recently, Warren Buffet (although he recommends 90:10 stocks:bonds). 

That said, at the moment I can see more merit in your suggestion of just quarantining the cash! I may well do this. 

But, please humor me for a minute: If you were to recommend a bond ETF, how would you respond to my questions above RE: 


> If I buy a eurozone bond ETF like IEGE or CBE3 (both iShares), is this riskier than a multiple currency bond ETF like ISHG? After all, eurozone countries cannot print money to pay their debts. Would I be better off going for an ETF that contained bonds from the US, UK, Japan, Australia and the eurozone, or should I stick to the eurozone only?
> If I have a choice, should I buy an inflation-linked bond ETF over a non-inflation-linked government bond ETF? Again, iShares have several inflation-linked government bond ETFs on offer.



Finally, does anyone have counsel regarding the base currency of the Saxo account? I know, Jim, you said that the underlying MNCs are diversified enough currency-wise as it is; but is there a persuasive argument for buying the ETF in dollars rather than euros?


----------



## mammyof2 (25 Aug 2014)

I am not by any means an expert in investment strategies but a couple of things strike me from your post. You say that



He-Man said:


> _I have a feeling that my job here won't last much beyond another 2 or 3 years. If that happens, my plan would be to seek a similar role in Singapore or another Middle East country. Only as a last resort would I move back to Europe for work._


 
yet you are assuming as part of your investment strategy that you will have 1k a month to invest on an ongoing basis. Surely you can only be confident of this for the next 2 - 3 years? 


_Right now I have 22k euros sitting in a bank and it's doing nothing but wasting away slowly ....   In a worst-case scenario, wifey and me would have to move back to Ireland in two years' time ... my net earnings would drop from 71k euro per year to 38k euro per year._ 

If there is any possibility at all of you having to live in Ireland on 38k a year, I disagree that your 22k is 'doing nothing but wasting away slowly'. Even if you are lucky and get to move to Singapore or another ME destination, you'll inevitably incur costs from the move. Perhapsd you don't need as much as 22k in cash but I wouldn't go below 15k if I were you.  

_WRT Belize, I had that more in a mind as a place where I'd buy a little house when 60 years old or so._ 

Have you ever been to Belize? It currently has one of the highest homicide rates in the world. Of all the LatAm countries I have ever visited, it is the last place I'd plan to retire! 

Final question - are you considering having children? It is a less nosy question than it seems, as it will (or should) affect your investment outlook. A 30 year time frame for your investment strategy to mature is all very well if you don't plan of having a family - but your savings and expenditure priorities could change quickly if, say in 5 years time, you find yourself with 2 or 3 extra mouths to feed, clothe and educate!


----------



## mammyof2 (25 Aug 2014)

He-Man said:


> I should point out that another book I'm reading carefully at the moment is _Millionaire Next Door_. It does emphasize that homes should be modest, not in the most upmarket areas, and not costing more than double one's annual realized income. These are precepts I will follow if I do eventually buy a home.


 
Sorry, one more point. Whoever wrote _Millionaire Next Door _has clearly never been to Ireland. You estimate that if you moved back to Ireland, your net income would be 38k. Never mind the most upmarket areas and modest or immodest houses, 76k wouldn't get you a hovel anywhere in Ireland, never mind anywhere you or your wife would be likely to find employment (essentially Dublin, Cork, Galway and surrounds). I applaud your advance financial planning for your future but I think you need to be realistic. You are currently earning an excellent salary, tax free and you should certainly save while you can, but, in a sense, you are currently living in a bubble when it comes to extra disposable income, and it is one that may not last, even if you don't end up moving back to Ireland. I am really not sure that your reliance on books written by US authors for your life investment strategy is very realistic.


----------



## He-Man (26 Aug 2014)

mammyof2 said:


> I am not by any means an expert in investment strategies but a couple of things strike me from your post. You say that you are assuming as part of your investment strategy that you will have 1k a month to invest on an ongoing basis. Surely you can only be confident of this for the next 2 - 3 years?



Well, for the next 2 years I can be confident of being able to invest on average in the region of 40k per annum. If I repatriate, the amount I can spare each month would very probably fall below 1k per month. But I probably won't have to repatriate to Ireland as there is nothing in particular pulling me back there. You are, however, correct that I cannot predict what exactly my financial situation will be in 5-10 years -- but I would assume that this is true for most people. 

If I had to repatriate, I would either cash in before repatriation, or I would simply maintain my investments and pay tax on the dividends; but I would hope that the principal (which by then should be at least 100k euro) will be sufficient to ensure that a nice bit of compounding is occurring over 20-30 years.



> If there is any possibility at all of you having to live in Ireland on 38k a year, I disagree that your 22k is 'doing nothing but wasting away slowly'. Even if you are lucky and get to move to Singapore or another ME destination, you'll inevitably incur costs from the move. Perhaps you don't need as much as 22k in cash but I wouldn't go below 15k if I were you.


. Noted. I am following this advise and am maintaining around 22k in cash just in case.  



> Have you ever been to Belize? It currently has one of the highest homicide rates in the world. Of all the LatAm countries I have ever visited, it is the last place I'd plan to retire!


Hehe, fair point! To be honest, my wife and I would consider any tropical place to retire. Granted, Belize isn't a good bet right now. Perhaps things will have improved by 2044. If not, there's Panama, Palawan, places like that. Pure speculation at this stage, though. 



> Final question - are you considering having children? It is a less nosy question than it seems, as it will (or should) affect your investment outlook. A 30 year time frame for your investment strategy to mature is all very well if you don't plan of having a family - but your savings and expenditure priorities could change quickly if, say in 5 years time, you find yourself with 2 or 3 extra mouths to feed, clothe and educate!



Answer is yes. One child only. We're at an age and at stages in our careers where 2 children seem unlikely given the timelines and in any case, neither of us want more than one. We are adamant about that. They're certainly expensive, and we're even running budget simulations at the moment on how costly a child would be. 



mammyof2 said:


> Sorry, one more point. Whoever wrote _Millionaire Next Door _has clearly never been to Ireland. You estimate that if you moved back to Ireland, your net income would be 38k. Never mind the most upmarket areas and modest or immodest houses, 76k wouldn't get you a hovel anywhere in Ireland, never mind anywhere you or your wife would be likely to find employment (essentially Dublin, Cork, Galway and surrounds). I applaud your advance financial planning for your future but I think you need to be realistic. You are currently earning an excellent salary, tax free and you should certainly save while you can, but, in a sense, you are currently living in a bubble when it comes to extra disposable income, and it is one that may not last, even if you don't end up moving back to Ireland. I am really not sure that your reliance on books written by US authors for your life investment strategy is very realistic.



True about the cost of a house. Now, this gets us back to Jim2007's point about property being a millstone around one's financial neck. I'm sympathetic to his view. We have no intention of buying a property anywhere for the forseeable future. But when/if we do buy one, it will be modest and we will ensure we don't pay an inflated price for it.

But it's not an option right now as we don't know where we will end up. 

I'm painfully aware that we're in a bubble. We are on-course to net 100k euros from September 14 to September 15 with zero debts of any kind. This cannot continue forever. 

I should say, however, that if we were to repatriate to Ireland tomorrow, I would net 38k and my wife would probably net a similar amount.


----------



## He-Man (26 Aug 2014)

Jim2007 said:


> Why?  Keep the 6K in cash with no transaction or depo fees the return should end up about the same.



Actually Jim, for the sake of teasing this out, I'll pursue you on this. 
Here's a quote I got from an advocate of a bond/stock index mixture:



> When stocks rise, bonds often fall in price. Cash won’t. You will want to sell stocks (after they have risen) to buy the cheaper bonds when rebalancing. Also, have a look at the following charts. Here’s Canada’s short term government bond index.
> In the past five years, $10,000 grew to roughly $11,500. You would have had no such luck with cash. A broader Canadian bond market index would have done even better: turning $10,000 into $12,657 over the past five years. Check out the iShares ticker, XBB.
> 
> If you’re American, and you invested in Vanguard’s broad bond market index five years ago, you would have turned $10,000 into $12,367: [broken link removed] With cash, you would have made nothing.
> ...


----------



## alwaysonit (10 Sep 2014)

Did you decide which government bond ETF to buy yet he-man? I assume by the lack of response that your last post of bonds being negatively correlated with equity makes sense. 

Jim did you advise him to leave his 8k in the bank because it is a low amount? My total portfolio is about 500k so would you advise me to buy bonds with this rather than in a deposit account (paying DIRT)?


----------



## SiEire (26 Mar 2015)

Hi He-Man,

This thread is the closest thing I’ve found to my own situation. I’m Irish and living in Singapore. Unfortunately I got nabbed by Zurich International in one of those expense ridden product and I’m tied in for a long term. It also lead me to Hallam’s book. I’m married with kids and the likelihood is to return to Ireland within 3-5 years. I was interested to hear how you’ve been getting on with your portfolio.

I am at the stage now deciding whether to invest in Vanguard or iShares ETFs via the Amsterdam exchange, using a nest egg of Euro’s as opposed to converting into another currency. It doesn’t look like Vanguard will be listing in the Singapore Exchange any time soon.

Hope to hear back from you!


Regards,
Si.


----------

