New investor. looking for input on investing strategy [South America]

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PvdHeuvel
Posts: 7
Joined: Mon Jun 05, 2017 7:02 am

New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Mon Jun 05, 2017 8:26 am

Dear All,

I'm new to investing and after a couple of months of reading these forums, MMM, jscollins stock series and other investing/FI material I think I'm ready to start. I've done my research, but I'd love to have a second opinion.

My situation:

- 36 yro Dutch Citizen working in South America, I'm a permanent resident of a small country with no tax treaties with either USA or Ireland (afaik)
- working fulltime, relatively stable job, should be OK for at least the next 3 -5 years
- one house, 2 rental properties (small morgages)
- income is in USD, my expenses in the local (weak) currency

I suppose i'm already FI, because i could live off the rental income, but that would be too close for comfort. My plan for the next couple of years is to pour all my earnings in my new investing account and see if I can attain true FI in another 5 - 10 years.

Here are my questions:

1. My plan is to start with a stocks-only portfolio. I want maximum growth and have sufficient safety with my salary and rental income. When I've reached my target I could change the allocation to a more conservative stocks/bonds ratio. Is this acceptable or simply too risky because of reasons I'm overlooking? I'm pretty sure I can 'stay the course' once i know I'm on the right track.

2. The simplicity of the 1 funds portfolio (jscollins VTSAX) really resonates with me. The only difference is I like to go whole world stock (VT). Are there any compelling reasons for not going this way and focussing more on USA stocks?

3. Because I'm not a USA citizen or resident I'm subject to a 30% tax on dividents. To circumvent this I plan on buying Vanguards FTSE All-World UCITS ETF (VWRL/VWRD) which is domiciled in Ireland. This should save me about 15% in DWT. Apart from the Dividend Tax there's also the issue of the Estate Tax with funds domiciled in the USA.
The downside is the fact that VWRD is a lot more expensive than VT (0.25% vs 0.11%)
Any objections to this choice?

4. I've created an account with Saxobank. As an internatial investor my options seem limited, so after trying Interactive Brokers and Saxobank I decided to go with saxobank, because they're slightly cheaper and I like their interface a lot better. They have high min. trade commisions though (min USD 20,- per trade). I'm wondering if people have experience with Saxobank and if they have any advice regarding to fees/commisions.

If everything goes according to plan I'll be funding my account later this week and start making regular deposits from there on. What I'd like is some input on my investing strategy. I know it must seem very basic, but to me it's a big deal and I'd rather do everything right from the start instead of fixing things along the way.
Some questions have been asked and answered before on these forums, but time moves fast and things might've changed in the meanwhile. I hope you can forgive me if my questions are redundant. Part of the objective of this post is to get some reassurance I'm doing the right thing ;-)

Many thanks to anyone taking their time reading/answering this!

Kind regards,

PvdHeuvel

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BeBH65
Posts: 840
Joined: Sat Jul 04, 2015 7:28 am

Re: New investor. looking for input on investing strategy [South America]

Post by BeBH65 » Mon Jun 05, 2017 1:38 pm

Hello P,
PvdHeuvel wrote:Dear All,

I'm new to investing and after a couple of months of reading these forums, MMM, jscollins stock series and other investing/FI material I think I'm ready to start. I've done my research, but I'd love to have a second opinion.

My situation:

- 36 yro Dutch Citizen working in South America, I'm a permanent resident of a small country with no tax treaties with either USA or Ireland (afaik)
- working fulltime, relatively stable job, should be OK for at least the next 3 -5 years
- one house, 2 rental properties (small morgages)
- income is in USD, my expenses in the local (weak) currency

I suppose i'm already FI, because i could live off the rental income, but that would be too close for comfort. My plan for the next couple of years is to pour all my earnings in my new investing account and see if I can attain true FI in another 5 - 10 years.

Here are my questions:

1. My plan is to start with a stocks-only portfolio. I want maximum growth and have sufficient safety with my salary and rental income. When I've reached my target I could change the allocation to a more conservative stocks/bonds ratio. Is this acceptable or simply too risky because of reasons I'm overlooking? I'm pretty sure I can 'stay the course' once i know I'm on the right track.Remember stocks can loose 50% in a year and take several years to rebound, or might not rebound at all. Generally many people advise a minimum of 20% bonds. Those bonds can also be used to buy stock when they are on sale.


2. The simplicity of the 1 funds portfolio (jscollins VTSAX) really resonates with me. The only difference is I like to go whole world stock (VT). Are there any compelling reasons for not going this way and focussing more on USA stocks?
diversifying over the whole world is good. Even then this is more then 50% USA.

3. Because I'm not a USA citizen or resident I'm subject to a 30% tax on dividents. To circumvent this I plan on buying Vanguards FTSE All-World UCITS ETF (VWRL/VWRD) which is domiciled in Ireland. This should save me about 15% in DWT. Apart from the Dividend Tax there's also the issue of the Estate Tax with funds domiciled in the USA.
The downside is the fact that VWRD is a lot more expensive than VT (0.25% vs 0.11%)
Any objections to this choice?

- Seems like the a sensitive choice. As you earn in USD, it seems best to buy in USD avoiding currency exchange costs.
- Note the 30% and 15% are for the US assets of the fund. Other countries would have different taxation.
- You might want to investigate what taxation your host country levies. Do they have dividend tax? Do they have a tax on capital gains? Depending on the answers it might be advantageous to go for an accumulating fund like iShares Core MSCI World UCITS ETF (IWDA).


4. I've created an account with Saxobank. As an internatial investor my options seem limited, so after trying Interactive Brokers and Saxobank I decided to go with saxobank, because they're slightly cheaper and I like their interface a lot better. They have high min. trade commisions though (min USD 20,- per trade). I'm wondering if people have experience with Saxobank and if they have any advice regarding to fees/commisions.no experience here


If everything goes according to plan I'll be funding my account later this week and start making regular deposits from there on. What I'd like is some input on my investing strategy. I know it must seem very basic, but to me it's a big deal and I'd rather do everything right from the start instead of fixing things along the way.
Some questions have been asked and answered before on these forums, but time moves fast and things might've changed in the meanwhile. I hope you can forgive me if my questions are redundant. Part of the objective of this post is to get some reassurance I'm doing the right thing ;-)
Last question: how big is your emergency fund.

Many thanks to anyone taking their time reading/answering this!

Kind regards,

PvdHeuvel
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

PvdHeuvel
Posts: 7
Joined: Mon Jun 05, 2017 7:02 am

Re: New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Mon Jun 05, 2017 3:21 pm

Hi BebH65,

Thanks for your response.
Remember stocks can loose 50% in a year and take several years to rebound, or might not rebound at all. Generally many people advise a minimum of 20% bonds. Those bonds can also be used to buy stock when they are on sale
I must admit my preference for just stocks is largely based in my need for simplicity and the desire to build as fast as possible. I got the idea of 100% stocks from this article from the jscollins stock series (http://jlcollinsnh.com/2012/05/12/stock ... ur-wealth/ in which J Collins says:
A portfolio of 100% stocks, which is what VTSAX gives you, in study after study provides the greatest return over time.
however.. just a few sentences later it also says:
As an aside, there are a few studies that indicate that a 80%/20%, stock/bond mix will actually outperform, very slightly, 100% stocks. It is also slightly less volatile.
Maybe i can postpone a decision by just going all stocks till i hit 20.000 USD and only then add bonds by making the next deposit of 4000 USD toward bonds. From what i understand the basic assumption is 'the stockmarket always goes up' so as long as I don't need the money it should bounce back eventually. Your 'or might not rebound at all' scares me a little.

By the way, another reason I like the idea if having 1 fund is the fact that having 2 funds means I have to make more trades and thus incur more trading fees. Because my portfolio is still quite small those trading fees add up to real percentage points of each deposit.
Is this a classic case of 'penny smart, pound foolish' or does it actually make sense to wait till my portfolio reaches a certain size to make the trading costs relatively smaller?
diversifying over the whole world is good. Even then this is more then 50% USA.
Thanks! I thought so, but the reassurance feels good.
- Seems like the a sensitive choice. As you earn in USD, it seems best to buy in USD avoiding currency exchange costs.
- Note the 30% and 15% are for the US assets of the fund. Other countries would have different taxation.
- You might want to investigate what taxation your host country levies. Do they have dividend tax? Do they have a tax on capital gains? Depending on the answers it might be advantageous to go for an accumulating fund like iShares Core MSCI World UCITS ETF (IWDA).
If I buy the VWRD ETF there are no currency exchange costs. It is traded in USD.
As far as I can see my country doesn't have dividend tax nor capital gains tax. Since there are also no treaties I expect to pay the full 30% over the US assets.
On the bogleheads wikipage there's actually a comparison for this scenario at https://www.bogleheads.org/wiki/Nonresi ... World_ETFs

It concludes:
Including the funds´ expense ratios: VT's total cost is 0.77%, while VWRL's total cost is 0.46% for a no-tax-treaty NRA.
But admittingly, this is the whole basis for my VWRD decision. I'm trying to keep costs and taxes as low as possible and it seems going with the Irish Domiciled VWRD gives me a 0.3% edge over the US Based VT.
Last question: how big is your emergency fund.
1 - 2 years expenses available and even without that I could (barely) live of the rental income. This is assuming I stopped working and sitting on my ass all day ;) My investment portfolio is basically money I don't need (yet).

Kind regards and I appreciate the fact you're investing your time in this!

P

User avatar
BeBH65
Posts: 840
Joined: Sat Jul 04, 2015 7:28 am

Re: New investor. looking for input on investing strategy [South America]

Post by BeBH65 » Mon Jun 05, 2017 3:52 pm

PvdHeuvel wrote:Hi BebH65,

Thanks for your response.
Remember stocks can loose 50% in a year and take several years to rebound, or might not rebound at all. Generally many people advise a minimum of 20% bonds. Those bonds can also be used to buy stock when they are on sale
I must admit my preference for just stocks is largely based in my need for simplicity and the desire to build as fast as possible. I got the idea of 100% stocks from this article from the jscollins stock series (http://jlcollinsnh.com/2012/05/12/stock ... ur-wealth/ in which J Collins says:
A portfolio of 100% stocks, which is what VTSAX gives you, in study after study provides the greatest return over time.
however.. just a few sentences later it also says:
As an aside, there are a few studies that indicate that a 80%/20%, stock/bond mix will actually outperform, very slightly, 100% stocks. It is also slightly less volatile.
-->i think you got your answer.
Maybe i can postpone a decision by just going all stocks till i hit 20.000 USD and only then add bonds by making the next deposit of 4000 USD toward bonds. From what i understand the basic assumption is 'the stockmarket always goes up' so as long as I don't need the money it should bounce back eventually. Your 'or might not rebound at all' scares me a little.
--> Look at a graph of japanse stockmarket for the last few decades.

By the way, another reason I like the idea if having 1 fund is the fact that having 2 funds means I have to make more trades and thus incur more trading fees. Because my portfolio is still quite small those trading fees add up to real percentage points of each deposit.
Is this a classic case of 'penny smart, pound foolish' or does it actually make sense to wait till my portfolio reaches a certain size to make the trading costs relatively smaller?
-->what is the frequency that you indend to buy? you could buy bonds e.g. one out of four
diversifying over the whole world is good. Even then this is more then 50% USA.
Thanks! I thought so, but the reassurance feels good.
- Seems like the a sensitive choice. As you earn in USD, it seems best to buy in USD avoiding currency exchange costs.
- Note the 30% and 15% are for the US assets of the fund. Other countries would have different taxation.
- You might want to investigate what taxation your host country levies. Do they have dividend tax? Do they have a tax on capital gains? Depending on the answers it might be advantageous to go for an accumulating fund like iShares Core MSCI World UCITS ETF (IWDA).
If I buy the VWRD ETF there are no currency exchange costs. It is traded in USD.
As far as I can see my country doesn't have dividend tax nor capital gains tax. Since there are also no treaties I expect to pay the full 30% over the US assets.-->The 15% US dividend witholding tax will be paid by the Irish funds, this is hidden for you. Ireland does not have a witholding tax. If your hostcountry does not tax dividends then you are safe.
On the bogleheads wikipage there's actually a comparison for this scenario at https://www.bogleheads.org/wiki/Nonresi ... World_ETFs

It concludes:
Including the funds´ expense ratios: VT's total cost is 0.77%, while VWRL's total cost is 0.46% for a no-tax-treaty NRA.
But admittingly, this is the whole basis for my VWRD decision. I'm trying to keep costs and taxes as low as possible and it seems going with the Irish Domiciled VWRD gives me a 0.3% edge over the US Based VT.
Last question: how big is your emergency fund.
1 - 2 years expenses available and even without that I could (barely) live of the rental income. --> your rentals are actually an extra liability that you should cater for in your EF. what if you do not have any renters for a few months? what if you have high costs on your rentals; e.g. new roofThis is assuming I stopped working and sitting on my ass all day ;) My investment portfolio is basically money I don't need (yet).

Kind regards and I appreciate the fact you're investing your time in this!

P
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

PvdHeuvel
Posts: 7
Joined: Mon Jun 05, 2017 7:02 am

Re: New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Mon Jun 05, 2017 4:56 pm

Hi again,

I think you've convinced me. I plan on buying 4 or 5 times a year and it's probably not a bad idea to make of of these buys bonds. This also gives me some time to think about what bonds and what allocation exactly.

Indeed, the 15% is hidden, so basically I can treat the VWRD as an ETF with a cost of 0.46% and be done with it.

I've made it a habit to put 10% of the rental income in a separate account for maintenance cost. The rentals are quite new and till now I have hardly touched this account. This might change in the future of course, but by then the amount of money in that account will also have grown quite a bit.

Do you really think I should treat them as liabilities despite of this? I've always seen the rentals as some kind of separate business. Not so much as property/liability.

P

PS. My reply frequency might suffer a bit. I'm about to catch a flight and don't know when I'll have internet access again.

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BeBH65
Posts: 840
Joined: Sat Jul 04, 2015 7:28 am

Re: New investor. looking for input on investing strategy [South America]

Post by BeBH65 » Tue Jun 06, 2017 2:53 am

Hello,
PvdHeuvel wrote:Hi again,

I think you've convinced me. I plan on buying 4 or 5 times a year and it's probably not a bad idea to make of of these buys bonds. This also gives me some time to think about what bonds and what allocation exactly.

Indeed, the 15% is hidden, so basically I can treat the VWRD as an ETF with a cost of 0.46% and be done with it.
Not sure I follow you here.
As far as I understand the Expense Ratio (ER) of VWRD is 0.25%, this is calculated on the assets and 1/365th is taken every day.
Dividend taxation is different.
- This fund pays 15% dividend withholding tax on the dividends it receives of the US assets it hold
- This fund pays XX% dividend tax on the dividends it receives for Japan assets, and so on for the ohter countries.


I've made it a habit to put 10% of the rental income in a separate account for maintenance cost. The rentals are quite new and till now I have hardly touched this account. This might change in the future of course, but by then the amount of money in that account will also have grown quite a bit.
Do you really think I should treat them as liabilities despite of this? I've always seen the rentals as some kind of separate business. Not so much as property/liability.
OK, as such this separate account is the emergency fund for your rentals. It is good to keep your personal finanaces seperate from the "rental business" that you run.

P

PS. My reply frequency might suffer a bit. I'm about to catch a flight and don't know when I'll have internet access again.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

PvdHeuvel
Posts: 7
Joined: Mon Jun 05, 2017 7:02 am

Re: New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Mon Jun 19, 2017 11:51 am

Hi,

My apologies for the late reply, my trip took a bit longer than expected.
Indeed, the 15% is hidden, so basically I can treat the VWRD as an ETF with a cost of 0.46% and be done with it.
Not sure I follow you here.
As far as I understand the Expense Ratio (ER) of VWRD is 0.25%, this is calculated on the assets and 1/365th is taken every day.
Dividend taxation is different.
- This fund pays 15% dividend withholding tax on the dividends it receives of the US assets it hold
- This fund pays XX% dividend tax on the dividends it receives for Japan assets, and so on for the ohter countries.
I was referring to the calculation in this url https://www.bogleheads.org/wiki/Nonresi ... World_ETFs where they basically do the same calculation and conclude with:
Including the funds´ expense ratios: VT's total cost is 0.77%, while VWRL's total cost is 0.46% for a no-tax-treaty NRA. Note that as allocation to countries changes over time, tax drag will change over time as well. Note that as yield changes over time, tax drag will change over time as well.
In the meanwhile I am waiting for my first deposit to arrive at saxobank so I can start trading :)

selters
Posts: 424
Joined: Thu Feb 27, 2014 9:26 am

Re: New investor. looking for input on investing strategy [South America]

Post by selters » Mon Jun 19, 2017 1:03 pm

PvdHeuvel wrote: In the meanwhile I am waiting for my first deposit to arrive at saxobank so I can start trading :)
You mean start buying and holding? :)

PvdHeuvel
Posts: 7
Joined: Mon Jun 05, 2017 7:02 am

Re: New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Mon Jun 19, 2017 2:11 pm

si senor 8-)

PvdHeuvel
Posts: 7
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Re: New investor. looking for input on investing strategy [South America]

Post by PvdHeuvel » Fri Jun 23, 2017 10:32 am

done.. proud owner of a portfolio with 100% VWRD

Next deposit I'll start working on my 80/20 allocation, but that's another topic.

BebH65, thanks again for the input, it's appreciated. These first steps are scary :)

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