How much stocks for 5 years?
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How much stocks for 5 years?
A friend of mine is moving to the US later this year with a fairly large taxable portfolio to invest. She asked me some recommendations on how to invest it knowing that I’m quite interested in this topic but I’m a bit unsure about the appropriate asset allocation to suggest her.
She has a 5-year contract with a large company that pays well. She might be offered to extend her contract for a year or two but afterwards she’ll be leaving the US.
I’m struggling to figure out what should be her stock allocation. She told me she’s “moderately risk averse”, so that doesn’t really help either. As far as I can tell, most people on this forum would recommend a very low stock allocation for a 5-year horizon, but pretty much all the tools you can find online (including Vanguard) recommend a fairly substantial stock allocation, even just for 5 years. Betterment goes as far suggesting 60%, which seems extremely agressive to me.
I think somewhere around 40% stocks would probably be reasonable, but I’m worried to advise her to take too much risk. What do you think?
She has a 5-year contract with a large company that pays well. She might be offered to extend her contract for a year or two but afterwards she’ll be leaving the US.
I’m struggling to figure out what should be her stock allocation. She told me she’s “moderately risk averse”, so that doesn’t really help either. As far as I can tell, most people on this forum would recommend a very low stock allocation for a 5-year horizon, but pretty much all the tools you can find online (including Vanguard) recommend a fairly substantial stock allocation, even just for 5 years. Betterment goes as far suggesting 60%, which seems extremely agressive to me.
I think somewhere around 40% stocks would probably be reasonable, but I’m worried to advise her to take too much risk. What do you think?
Re: How much stocks for 5 years?
If the money is needed for an expenditure at the end of the 5 years then 0% is the appropriate allocation to equities (unless she hedges the allocation).
You don't say why the investment horizon matches the term of her employment contract?
Or why coming to the U.S. has anything to do with the investment decision?
If she's retiring after the contract wouldn't her horizon more like 20-50 years, to match her life expectancy?
Now my best advice is for you to direct her to an asset management firm for her to investigate and come to her own conclusion. Vanguard, Fido, Schwab would all be reasonable choices. They all will recomment more than 0%; as we know equities earn more for their firms than cash or short term Treasury funds.
You don't say why the investment horizon matches the term of her employment contract?
Or why coming to the U.S. has anything to do with the investment decision?
If she's retiring after the contract wouldn't her horizon more like 20-50 years, to match her life expectancy?
Now my best advice is for you to direct her to an asset management firm for her to investigate and come to her own conclusion. Vanguard, Fido, Schwab would all be reasonable choices. They all will recomment more than 0%; as we know equities earn more for their firms than cash or short term Treasury funds.
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Re: How much stocks for 5 years?
If the general plan is for the friend to move to the US for 5 years, invest her money in the US for 5 years, and then liquidate investments and move out of the country she may not have enough expected time in the US to make any US equity investment worthwhile since there is no guarantee or expectation that economic and market conditions will coincide to be favorable with her investment period.
While assuredly there may be tax and other issues has she considered the alternative of keeping her investment capital outside of the US? Depending on her countries of residence before and after the period of US employment there may be a more favorable investment situations elsewhere. Other countries may tax, or not tax, investments differently. Taxes can be significant factors in investing in the US, the tax situation elsewhere may be different. Another issue might be how those foreign investments are treated tax-wise while she lives in the US.
What kind of investments does she presently hold? Could she continue to hold those during her period of US residency?
Perhaps the potential participation in an employer 401k may be a sufficient means of participating in the US equity market and her "outside" investments would be better left outside. Of course 401k eligibility would depend on the employer situation.
While assuredly there may be tax and other issues has she considered the alternative of keeping her investment capital outside of the US? Depending on her countries of residence before and after the period of US employment there may be a more favorable investment situations elsewhere. Other countries may tax, or not tax, investments differently. Taxes can be significant factors in investing in the US, the tax situation elsewhere may be different. Another issue might be how those foreign investments are treated tax-wise while she lives in the US.
What kind of investments does she presently hold? Could she continue to hold those during her period of US residency?
Perhaps the potential participation in an employer 401k may be a sufficient means of participating in the US equity market and her "outside" investments would be better left outside. Of course 401k eligibility would depend on the employer situation.
The closest helping hand is at the end of your own arm.
Re: How much stocks for 5 years?
Rather than buy and sell within such a short time frame, if it were me, I would try to continue investing in my home country or only purchase investments which can be transferred in-kind back to the home country.michaeljmroger wrote: ↑Wed Jan 30, 2019 12:54 amBecause Vanguard (which I recommended) isn’t available in her home country, so she’ll have to sell everything and get her money back once she leaves.
I would not purchase U.S. equity instruments (funds or individual stocks) if I have to liquidate in less than 7 years. Either buy home country appropriate investments (that allow in-kind transfer to home country brokerage) or just invest in home country products.
Re: How much stocks for 5 years?
The discussion has focused on specific products which is obviously critical to consider but I think the answer to your question of stock allocation is unrelated to the other details you provided. If she sees a big loss while she's here, assuming similar exposure the same thing would have happened at home too. So it is trivial to sell at a loss.
Re: How much stocks for 5 years?
If money is to be repatriated anyway after 5 years, then start investing in her home country might be a good choice.
Nevertheless, I recommend simple 50/50 on global index fund.
Nevertheless, I recommend simple 50/50 on global index fund.
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Re: How much stocks for 5 years?
If I were coming to the US for a five year job and then returning to my home country, I would not invest in any US stocks or bonds. I would just put any saved monies into a high yield savings account.
Re: How much stocks for 5 years?
With 5 year CD's in the 3.5% to 4.% range that's where most of the money should go for 5 years. To participate in the "market" I'd say no higher than 15% US Total or S&P500 and 15% Total International. Just my 2 cents, YMMV.
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Re: How much stocks for 5 years?
This. Five years is too short a time to ride the stock market. An online savings such as Ally would be a good choice. Or, alternately, you might consider five-year CDs or (say) three-year Treasuries. I haven't compared interest rates among these choices, but it might be worth looking at.UpperNwGuy wrote: ↑Wed Jan 30, 2019 5:13 am If I were coming to the US for a five year job and then returning to my home country, I would not invest in any US stocks or bonds. I would just put any saved monies into a high yield savings account.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
Re: How much stocks for 5 years?
I agree she should invest as she would have at home if possible, even at home if possible. If she is opening an account at Vanguard and buying Vanguard funds then some mix of global/international stocks and bonds would seem to fit. The five year thing seems to me to be a red herring. That is not usually what we mean by an investment horizon even if she liquidates everything, takes it home, and invests in something elsewhere.
If there is fear, uncertainty, and doubt clouding the issue, then just tucking everything away in CDs and savings could be an option.
I hope she is doing some research on how to move this money out of the country and what her tax status is.
If there is fear, uncertainty, and doubt clouding the issue, then just tucking everything away in CDs and savings could be an option.
I hope she is doing some research on how to move this money out of the country and what her tax status is.
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Re: How much stocks for 5 years?
The rationale for bringing her funds to the US is basically to take advantage of Vanguard's funds which are significantly cheaper and more tax-efficient than what she could get otherwise.
As I excepted, the consensus here (which I sort of agree with) seems to be that a very conservative allocation is the right thing to do given her time horizon. As I said though, this goes against the recommendations from the online questionnaires that I tried, hence my doubts.
As I excepted, the consensus here (which I sort of agree with) seems to be that a very conservative allocation is the right thing to do given her time horizon. As I said though, this goes against the recommendations from the online questionnaires that I tried, hence my doubts.
Re: How much stocks for 5 years?
+1SoonerD wrote: ↑Wed Jan 30, 2019 12:50 am If the money is needed for an expenditure at the end of the 5 years then 0% is the appropriate allocation to equities (unless she hedges the allocation).
You don't say why the investment horizon matches the term of her employment contract?
Or why coming to the U.S. has anything to do with the investment decision?
If she's retiring after the contract wouldn't her horizon more like 20-50 years, to match her life expectancy?
Now my best advice is for you to direct her to an asset management firm for her to investigate and come to her own conclusion. Vanguard, Fido, Schwab would all be reasonable choices. They all will recomment more than 0%; as we know equities earn more for their firms than cash or short term Treasury funds.
Global stocks, US bonds, and time.
Re: How much stocks for 5 years?
Be sure to browse our wiki pages related to non-US Domicile. The taxation topic merits a deep analysis.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). |
Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Re: How much stocks for 5 years?
Sure. But, what about possible tax issues of selling in the home country, possibly selling in the US to move it back home, and anything that way? You mentioned tax efficiency right there. Are cheaper ERs for 5 years worth all that?michaeljmroger wrote: ↑Wed Jan 30, 2019 8:36 am The rationale for bringing her funds to the US is basically to take advantage of Vanguard's funds which are significantly cheaper and more tax-efficient than what she could get otherwise.
I have to doubt moving around a large portfolio would be cheap to do this with.
What about leaving the money and investments alone in the home country and investing extra cash earned in the US with Vanguard while here?
As mentioned, this really wouldn't be a 5 year investment if the friend were to do this. With a large portfolio, it sounds like a long term or retirement portfolio. Trying to figure out how best to invest that for 5 years while moving around seems pointless and complicated to me.
Re: How much stocks for 5 years?
25% stocks / 75% bonds is my preferred defensive position. It actually gives less volatility and higher return than 100% bonds.