Newbie.. Foreign Assets. Is my portfolio wrong ??

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Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby whattodo » Sat Jan 26, 2013 7:39 pm

Just discovered this forum today and like it. Looking for some good advice on my strategy and position. Feel free to comment anyway you want. No offence to anyone.

Age: 44. IT professional, Wife is homemaker. Kids 8, 6 and 4. NY state
165K base. 40K Bonus. Take home probably 7.5K/month after all deductions as below excluding bonus.
Max out 401k at 17K. HSA 5K per year.
After all these years (15 years in US) and probably living little bit expensively for the past 3 years, Now trying to save 2K/month(and with bonus) total potential of 50K total cash saving in a year.
Don't own. Rent 2600/month... ( Didn't buy but for reasons I will document later in the post)
Job is good but worry about future being in IT... amid cost cuts in corporations. Will get ~90K ( befor tax) package if lose job.
Zero commitment, loans
Very conservative investor. Dont want too much commitment/loans.

US portfolio.
401K balance 155K. Retirement acct 28K. HSA balance 12K.
Cash 33K
stocks 4K

INDIA.... Major metropolitan city.

City1
1. House and asset worth 500K ( inherited)
2. Plot worth 500K ( Funded through a 50K investment in 2003)
3. CASH 200K in FD. India inflation is high and Indian rupee is under pressure. All these is savings from my income.
City 2
4. Plot worth 180K ( inherited)
5. RE plot worth 200K ( original investment of 50K in 2006. By cancelling buying a house in US in 2006... Got lucky there)
City 3
6. Agricultural land worth 50K
7. Plot worth 25K

So looks like around total liquid CASH of around 250K. 180K retirement related asset and 1.4M of Real estate which it TOTALLY in India.... with ZERO RE portfolio in US. What concerns me is the imbalance in portfolio and asset risk in India. A country with political instability to some extent, troublesome neighbors, inflation, infrastructure and populations issues.. I might go back to India at some stage though but US is what my primary country is and what I love.

So couple of questions..
Do I have too much in foreign asset ??.
Am I heavily imbalanced in RE ??.
Is my strategy until now of not buying a house is bad ?.
Should I buy a house in US now to make a meaningful portfolio, ??
Am I wasting too much in rent ? If I do buy, I wont buy anything higher than 550K..

I do want to retire below 55 and sometimes think, I cant take all the corporate stress but kids are still young.. So this is not a typical post and feel free to comment on anything and on any advice. Im open to all.
Last edited by whattodo on Sat Jan 26, 2013 9:38 pm, edited 1 time in total.
whattodo
 
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Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby rr2 » Sat Jan 26, 2013 9:13 pm

whattodo wrote:Just discovered this forum today and like it. Looking for some good advice on my strategy and position. Feel free to comment anyway you want. No offence to anyone.

Age: 44. IT professional, Wife is homemaker. Kids 8, 6 and 4. NY state
165K base. 40K Bonus. Take home probably 7.5K/month after all deductions as below excluding bonus.
Max out 401k at 17K. HSA 5K per year.
After all these years (15 years in US) and probably living little bit expensively for the past 3 years, Now trying to save 2K/month(and with bonus) total potential of 50K total cash saving in a year.
Don't own. Rent 2600/month... ( Didn't buy but for reasons I will document later in the post)
Job is good but worry about future being in IT... amid cost cuts in corporations. Will get ~90K ( befor tax) package if lose job.
Zero commitment, loans
Very conservative investor. Dont want too much commitment/loans.

US portfolio.
401K balance 155K. Retirement acct 28K. HSA balance 12K.
Cash 33K
stocks 4K

INDIA.... Major metropolitan city.

City1
1. House and asset worth 500K ( inherited)
2. Plot worth 500K ( Funded through a 50K investment in 2003)
3. CASH 200K in FD. India inflation is high and Indian rupee is under pressure. All these is savings from my income.
City 2
4. Plot worth 180K ( inherited)
5. RE plot worth 200K ( original investment of 50K in 2006. By cancelling buying a house in US in 2006... Got lucky there)
City 3
6. Agricultural land worth 50K
7. Plot worth 25K

So looks like around total liquid CASH of around 250K. 180K retirement related asset and 1.4M of Real estate which it TOTALLY in India.... with ZERO RE portfolio in US. What concerns me is the imbalance in portfolio and asset risk in India. A country with political instability to some extent, troublesome neighbors, inflation, infrastructure and populations issues.. I might go back to India at some stage though but US is what my primary country is and what I love.

So couple of questions..
Do I have too much in foreign asset ??.
Am I heavily imbalanced in RE ??.
Is my strategy until now of not buying a house is bad ?.
Should I buy a house in US now to make a meaningful portfolio, ??
Am I wasting too much in rent ? If I do buy, I wont buy anything higher than 55K..

I do want to retire below 55 and sometimes think, I cant take all the corporate stress but kids are still young.. So this is not a typical post and feel free to comment on anything and on any advice. Im open to all.


Welcome to the forum! Great job accumulating what you have so far.

Are you planning to retire in India? If so, then this is (probably) all good given that Indian real estate has been appreciating like crazy.

If not, then I assume that you will use the money/income generated from your Indian Real Estate and other holdings to fund your retirement life in India.
-- You would definitely be taking some amount of currency risk.
-- If you sell your Indian real estate then you will have to pay Indian and US long term capital gains. I remember that India does not have step up basis on inheritances. However, the basis is adjusted for inflation.
-- About 20 years ago, it was very difficult to repatriate money from India to the US. Things have become liberalized and it is much easier these days, provided all relevant taxes have been paid in India.

Some questions/issues:

1. I assume you are an non-resident Indian. If so, my understanding is that you cannot buy Indian farm land etc. If you had bought these prior to becoming an NRI then you can continue to hold them. Also if you inherit them as an NRI, then you have to sell. Please check on this.

2. Holding foreign banking assets directly does lead to some increased paperwork in the US. I assume that you have been filing the FBAR forms and keeping in touch with FATCA and FBAR regulations. Make sure you (and/or your accountant) keep up with the current state of taxation laws both in US and India.

3. Is the FD is an NRE account or an NRO? If it is an NRE, then there are no taxes due in India. Also keep in mind that Indian FDs are insured by the Indian Government and not by the US FDIC. However, the Indian insurance is quite low -- something equivalent to US $2K. If NRO, then Indian tax is deducted. You will have to file an Indian income tax return.

House: Are you planning to buy a house for $55K in the US? That seems terribly low given your income and the rent you are paying. Maybe I misunderstood. Perhaps you mean $550K?
rr2
 
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Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby whattodo » Sat Jan 26, 2013 9:48 pm

rr2,
Thanks for the quick feedback.
I don't know if I will retire in India... metro life is miserable in India these days. So no decision yet..
When you say currency risk, do you mean risk due to Indian rupee depreciation ??
I do pay taxes as policy. FBAR and all those stuff for my FD. NO clue on the rest as I haven't sold anything in India yet..
Im am an NRI and cant buy farmland. yes.
FD is in NRO. Pay 15% TDS in india and need to pay rest in US this year as the FD was opened last year.
I meant 550K house. Do you suggest I bring some $$$ back to buy a house here in the US to hedge ??
My concern in asset risk due to the way things work in india, like potential legan, family problems and security of maintaining property in india eventhough my parents take are who are now in their 70s..
Holding off on US home purchase due to talks about needing to relocate to diff state due to corporation direction ( same job, same company) AND my intention to not to use India CASH for now and the fact that it will take me 1 more year min to accumulate 20% down payment for a house..
Also is there any point in putting more $$ in india these days ??
whattodo
 
Posts: 5
Joined: Sat Jan 26, 2013 7:02 pm

Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby Valuethinker » Sun Jan 27, 2013 3:31 am

whattodo wrote:Just discovered this forum today and like it. Looking for some good advice on my strategy and position. Feel free to comment anyway you want. No offence to anyone.

Age: 44. IT professional, Wife is homemaker. Kids 8, 6 and 4. NY state
165K base. 40K Bonus. Take home probably 7.5K/month after all deductions as below excluding bonus.
Max out 401k at 17K. HSA 5K per year.
After all these years (15 years in US) and probably living little bit expensively for the past 3 years, Now trying to save 2K/month(and with bonus) total potential of 50K total cash saving in a year.
Don't own. Rent 2600/month... ( Didn't buy but for reasons I will document later in the post)
Job is good but worry about future being in IT... amid cost cuts in corporations. Will get ~90K ( befor tax) package if lose job.
Zero commitment, loans
Very conservative investor. Dont want too much commitment/loans.

US portfolio.
401K balance 155K. Retirement acct 28K. HSA balance 12K.
Cash 33K
stocks 4K

INDIA.... Major metropolitan city.

City1
1. House and asset worth 500K ( inherited)
2. Plot worth 500K ( Funded through a 50K investment in 2003)
3. CASH 200K in FD. India inflation is high and Indian rupee is under pressure. All these is savings from my income.
City 2
4. Plot worth 180K ( inherited)
5. RE plot worth 200K ( original investment of 50K in 2006. By cancelling buying a house in US in 2006... Got lucky there)
City 3
6. Agricultural land worth 50K
7. Plot worth 25K

So looks like around total liquid CASH of around 250K. 180K retirement related asset and 1.4M of Real estate which it TOTALLY in India.... with ZERO RE portfolio in US. What concerns me is the imbalance in portfolio and asset risk in India. A country with political instability to some extent, troublesome neighbors, inflation, infrastructure and populations issues.. I might go back to India at some stage though but US is what my primary country is and what I love.

So couple of questions..
Do I have too much in foreign asset ??.
Am I heavily imbalanced in RE ??.
Is my strategy until now of not buying a house is bad ?.
Should I buy a house in US now to make a meaningful portfolio, ??
Am I wasting too much in rent ? If I do buy, I wont buy anything higher than 550K..

I do want to retire below 55 and sometimes think, I cant take all the corporate stress but kids are still young.. So this is not a typical post and feel free to comment on anything and on any advice. Im open to all.



I cannot give you detailed advice.

If you plan to retire in India owning a house there is fine.

Whether you want the other properties I don't know, whether that could become a retirement income.

If you are planning to retire in the USA then it's probably a good time to buy a house in America. Housing prices look poised for a long upswing-- most places you can probably still buy a house for -30% over its 2006 price? However you do not have a lot of savings in the USA (but you will have Social Security).

On India the long term is bright but one does not want to be overexposed-- there are too many things to go wrong, from nuclear armed neighbours to domestic insecurity to communalist politicians. I would not put *more* money into India, probably. However there may be restrictions on getting money out of the country?
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Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby nydad » Sun Jan 27, 2013 12:23 pm

Hi - just a few quick thoughts.

It seems that about 10% of your portfolio is in the US (401k), while the remaining 90% is in India.

So when you ask the questions
a) do you have too much foreign asset?
b) do you have too much RE?

I think the answer depends on your own definition of 'foreign' and whether you might go back to India or not. Most US investors have 100% of their assets in the US (even if they own foreign stocks, they are often dollar denominated)

The majority of your portfolio is in India - that's just the way it is. Whether that is ok or not I think depends on your chances of going back to India. If those chances are slim to none, then you probably have too much in India. If they are high, then why not have a strong portfolio there, if you're going to retire there someday - in the case the currency risk doesn't really matter as you'll be consuming in rupees.

Regardless, you are exposed as noted to several risks, besides currency risks, to the risks inherent in all real property ownership - damage, loss, legal issues, etc. This becomes more difficult when you are living far away.

I would think about a few things
1) In designing your asset allocation for the 401k and any taxable investing you want to do in the US, take into account the strong RE component of your portfolio - which may indicate that you don't need to take on additional RE risk by owning REITS for example. Giving the potential volatility, risk, and the concentrated nature of the few RE investments you have, that may also suggest leaning towards a more conservative equity investment in general to balance out the potential swings. I don't know much about Indian RE, but if it is screaming upwards, I would be worried about whether that could be sustained forever, and if not, what would happen to valuations?
2) If you were to purchase a house in the US you'd probably take a mortgage, so your actual equity exposure to US real estate would still be slim until the mortgage was paid off. I'd thus let other elements in the house purchase decision weigh in more strongly (e.g. chance of staying in the house, tax deduction from mortgage interest, pride of ownership, ability to build equity, etc). There are several rent-vs-own calculators available on the web. NY RE is expensive now, but will likely always be...
3) If you wanted to balance away from the 10/90 split, you could sell some of the plots in cities 2 and 3 and put that into low cost indexes of US equities and bonds. Or, you could just redirect future savings to your US accounts, and keep the Indian stuff where it is.
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Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby whattodo » Mon Jan 28, 2013 5:20 pm

Thanks rr2, value thinker and nydad for your views..
Yes, looks like I need to up my US investments.. House prices in NY metro still seem to be high. I'm not comfortable for a >300K mortgage and trying to find a nice house for <500K is a challenge assuming that I can somehow come-up with 200K down-payment.
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Re: Newbie.. Foreign Assets. Is my portfolio wrong ??

Postby rr2 » Tue Jan 29, 2013 2:44 pm

whattodo wrote:Thanks rr2, value thinker and nydad for your views..
Yes, looks like I need to up my US investments.. House prices in NY metro still seem to be high. I'm not comfortable for a >300K mortgage and trying to find a nice house for <500K is a challenge assuming that I can somehow come-up with 200K down-payment.


Good Luck.

A minor wrinkle:
You own 6 properties in India of which 5 are residential. If you decide to sell these properties and repatriate the money, there are some restrictions. See
http://www.rbi.org.in/scripts/faqview.aspx?id=33#D1
Notably, from Q22
(iii) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

I suppose there may be ways to get round it but bear in mind such rules. Consult a good Indian accountant and/or tax consultant well versed with such issues.
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