I'm looking to optimize my investments, and am curious what you think.
Emergency funds: 3 months' worth of living expenses, including potential rent (I currently live at home)
Tax Filing Status: Single
Tax Rate: 34.5% total, including mandatory healthcare contributions etc.
Desired Asset allocation: 70% stocks/30% bonds
Desired International allocation: 100% (By international, I mean U.S.-and-non.U.S. mixed, as I always prefer holding total market over e.g. S&P 500)
Portfolio size: Mid five-figures (converted to USD)
None of my assets are currently in tax-advantaged accounts.
- As I am/will be holding assets in EUR/USD I must assume some foreign exchange risk.
- I distrust the Hungarian government, and therefore don't want to hold too much government securities.
- I distrust Hungarian companies, too, and therefore don't want to hold any Hungarian stock.
- 48% cash in bank account (don't know what to do with it, bank provides around 0% interest rate, mutual funds are not a great deal here these days and ETFs feel somewhat risky)
- 10% in half-year government securities, extremely low risk (depending on your viewpoint on Hungarian history), 1.5% interest rate
- 4% in ETFs, breakdown:
- 50% iShares Core MSCI EM IMI UCITS ETF (EMIM), accumulating, held in EUR
- 50% iShares Core MSCI World UCITS ETF (IWDA), accumulating, held in EUR
- 38% in mutual funds, breakdown:
- 25% in AEGON Money Market Fund: 0.56% yearly fee (last year's number)
- 25% in AEGON MoneyMaxx Express Total Return Fund: 1.91% yearly fee (last year's number), fund manager gets 20% bonus on benchmark vs. actual difference if the benchmark is exceeded
- 25% in AEGON Ózon Annual Capital Protected Fund: 0.62% yearly fee (last year's number), fund manager gets 20% bonus on benchmark vs. actual difference if the benchmark is exceeded
- 25% in AEGON BondMaxx Total Return Bond Fund: 1.37% yearly fee (last year's number), fund manager gets 20% bonus on benchmark vs. actual difference if the benchmark is exceeded
- That 48% sitting in cash needs to be put to better use.
- I am not comfortable investing more in government securities even though the return rate is considered to be quite good. After all, the track record of the Hungarian government is not the best looking back on the past ~65 years...
- Those mutual funds are actively managed and cost lots each month.
- I am probably quite tax inefficient at the moment, not taking advantage of tax breaks when investing for 3 or 5 years' time. There are two reasons for that:
- I don't know if/when I want to buy an apartment. I currently live at home and plan to stay that way for some time to come. I may end up inheriting some part of the apartment at some point, but don't want to base any economical plans on that.
- I may move abroad in a few years' time and don't want to tie down my money for too long meanwhile. On the other hand, it's not as if I would be forced to forfeit my accounts. I could just wait the prerequisite 3 or 5 years, get the associated tax break, then withdraw my money.
- I don't feel like planning for retirement at all. My generation will be lucky to see any money returned to us when/if we retire... I am only 33 and 65 is very, very far away, if I will even live that long.
- My portfolio feels somewhat random, and I'm looking to move to a three- or four-fund portfolio.
- I am thrifty in general and the only item I spend lots of money on is food. I am lucky in that I save at least 50% of my income each month.
- I'm not much of a risk taker, but accept that some small risk can lead to great reward later and can therefore be worth it.
- I'm not planning to have a family or to get married.
- I appreciate simplicity, and the three-fund portfolio appeals to me for that reason.
- What to do with that cash? (I think I should invest it )
- How can I move closer to a three-fund portfolio approach? Are there any funds or ETFs that you can recommend?
- Are my current ETF investments appropriate?
- What to do with those mutual funds? I've decided to sell them, because I looked at the underlying asset allocation and found that there is nothing special about them that I can't do myself without paying fund management fees. Here is the breakdown of allocation:
- MoneyMaxx Express Total Return Fund: 6% stocks, 90% bonds, 3% cash
- Money Market Fund: 75% bonds, 25% cash
- Ózon Annual Capital Protected Fund: 50% bonds, 50% cash
- BondMaxx Total Return Bond Fund: 97% bonds, 3% cash
- What is a good asset allocation mix? I've decided on 70% stocks/30% bonds, more or less following the 'your age in bonds' rule and taking into account that while current retirement age is 65 years, it may rise all the way up to 72 years within a few years' time.
- What is a good domestic/international mix? (I'm uneasy buying Hungarian stocks for the same reason as above...). Based on my peculiarities, I see no reason to hold anything domestic save for some government securities, and will be pursuing 100% international (=not Hungary-specific) investments.
- I don't hold anything in USD, would that be prudent?