Portfolio Advice: Indian Expat in UAE

For residents of the United Arab Emirates.
Post Reply
Topic Author
retronai
Posts: 5
Joined: Wed Nov 16, 2022 6:58 am

Portfolio Advice: Indian Expat in UAE

Post by retronai »

Reposting here from the main non-US investing page.

As a preface, I recently sold a bunch of shares in the startup I work at as a result of which I have a USD 500k lump sum to be invested. The rest of the details follow:

Country of Residence: UAE

International Lifestyle: 1-2 major holidays a year planned going forward.

Currency: The lump sum amount is in a USD account; my salary is in AED. Looking to invest ~USD 7000 from my monthly salary in addition to the lump sum.

Emergency funds: Yes - have a year's salary in cash/ term deposits with less than 1-year maturity

Debt: None

Age: late 30's

Desired Asset allocation:
I'm getting paranoid about talk of stagflation in the coming years and I'm looking to protect my principal while beating inflation/ staying close to inflation. Both bond and equity look dangerous at the moment. At the same time, I don't want to miss out on any upside, in case inflation continues to fall (as it did in November). I'm therefore looking at the following target portfolio:
1. 40-50%: inflation hedges. Right now, I'm looking at the iShares TIPS ETF. Should I also consider ultra-short US treasuries? The logic being they will get frequently repriced so there is a lower risk of my principal getting wiped out by further interest rate hikes. Is there any benefit arising out of diversifying here?
ETFs shortlisted:
iShares USD TIPS UCITS ETF USD (Acc);
JPMorgan BetaBuilders US Treasury Bond 0-3 Months UCITS ETF USD (Acc)
Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating
2. 40% in Equities with a heavy (80%) weight given to US equities. I'm separately investing approx $500 a month in an India index fund as part of an existing investment plan. I'm giving a larger weightage to US equities because I believe stagflation and the resulting debt crisis will cause more strife in non-US markets, as the US will be able to better bail out its companies, given most of the global debt is in USD (looking at Sri Lanka as an example).
ETFs shortlisted:
I'm open to suggestions. Ideally, I'd like something similar to VTI, but Ireland-domiciled. And another for the rest of the
world.
3. 10-20% in REITs, commodities and gold
ETFs shortlisted:
Invesco Physical Gold A
iShares Diversified Commodity Swap UCITS ETF
HSBC FTSE EPRA NAREIT Developed UCITS ETF USD
Any advice on choice as well as the quantum of allocations would be great.

I also need advice on how to time my lumpsum investment. I don't want to dump everything in the market right now. My local bank is offering Term Deposits with between 3% (2 months) -5% (1 year) returns. Should I break the lumpsum up into 12-month term deposits, and release them into the market as they mature?

Please let me know if there are any obvious holes in this strategy, given the problem that I'm trying to tackle.

My long-term goal is to invest in real estate either in my home market or in the UAE, but the interest rates and asset bubble make it an unattractive proposition.
_______________________________________________________________

Existing Portfolio:
Less than USD100K, mostly in Indian equities and retirement funds from previous jobs in India. There is no pension fund plan here in the UAE. Also, UAE is a tax-free jurisdiction.
TedSwippet
Posts: 4462
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Portfolio Advice: Indian Expat in UAE

Post by TedSwippet »

Welcome. Some thoughts below.
retronai wrote: Sun Nov 20, 2022 6:31 pm 1. 40-50%: inflation hedges. Right now, I'm looking at the iShares TIPS ETF. Should I also consider ultra-short US treasuries? The logic being they will get frequently repriced so there is a lower risk of my principal getting wiped out by further interest rate hikes. Is there any benefit arising out of diversifying here?
ETFs shortlisted:
iShares USD TIPS UCITS ETF USD (Acc);
JPMorgan BetaBuilders US Treasury Bond 0-3 Months UCITS ETF USD (Acc)
Vanguard U.S. Treasury 0-1 Year Bond UCITS ETF (USD) Accumulating
These funds will (partially) protect against USD inflation, but the inflation of the country and currency in which you will spend the money may be entirely different. Hedging a foreign country's inflation isn't the same as hedging your own. Not a criticism, but a consideration.

Maybe consider something global, perhaps IGIL?
retronai wrote: Sun Nov 20, 2022 6:31 pm 2. 40% in Equities with a heavy (80%) weight given to US equities. I'm separately investing approx $500 a month in an India index fund as part of an existing investment plan. I'm giving a larger weightage to US equities because I believe stagflation and the resulting debt crisis will cause more strife in non-US markets, as the US will be able to better bail out its companies, given most of the global debt is in USD (looking at Sri Lanka as an example).
ETFs shortlisted:
I'm open to suggestions. Ideally, I'd like something similar to VTI, but Ireland-domiciled. And another for the rest of the
world.
VTI is Vanguard total (US) stock market. If you compare its performance with VOO (S&P500), you'll see barely any difference. This indicates that an Ireland domiciled S&P500 index ETF would be fine, and there are plenty of those.

The tricky part is that there is no single non-US domiciled equivalent to VXUS, Vanguard's US domiciled ex-US stock fund. This makes it fiddly to 'underweight' US stocks. However, 'overweighting' the US is easy. Simply buy an all-world ETF such as VWRD, around 60% or so US, and add a further slice of something like VUSD to edge the US ratio up towards your desired level.
retronai wrote: Sun Nov 20, 2022 6:31 pm 3. 10-20% in REITs, commodities and gold
ETFs shortlisted:
Invesco Physical Gold A
iShares Diversified Commodity Swap UCITS ETF
HSBC FTSE EPRA NAREIT Developed UCITS ETF USD
Any advice on choice as well as the quantum of allocations would be great.
Nothing from me here. Not my area at all.
retronai wrote: Sun Nov 20, 2022 6:31 pm I also need advice on how to time my lumpsum investment. I don't want to dump everything in the market right now. My local bank is offering Term Deposits with between 3% (2 months) -5% (1 year) returns. Should I break the lumpsum up into 12-month term deposits, and release them into the market as they mature?
It's certainly an option. Statistically, lump sum gives the best results, but your fear (and I've shared it) is that you end up on the wrong end of this statistic. In which case, averaging is a perfectly good antidote. Certainly better than continued paralysis.

Just take care not to let the averaging period extend too long. A year, or perhaps at most two, at a guess.

Finally, if you haven't already found it, the wiki offers some additional ideas on ETF choices:

- Building a non-US Boglehead portfolio - Bogleheads
- Simple non-US portfolios - Bogleheads
Topic Author
retronai
Posts: 5
Joined: Wed Nov 16, 2022 6:58 am

Re: Portfolio Advice: Indian Expat in UAE

Post by retronai »

Thank you for the reply, it is very helpful.
These funds will (partially) protect against USD inflation, but the inflation of the country and currency in which you will spend the money may be entirely different. Hedging a foreign country's inflation isn't the same as hedging your own. Not a criticism, but a consideration.

Maybe consider something global, perhaps IGIL?
My local currency (AED) is pegged to USD. Also, most local commodities and goods are imported. Should this influence my decision?
Topic Author
retronai
Posts: 5
Joined: Wed Nov 16, 2022 6:58 am

Re: Portfolio Advice: Indian Expat in UAE

Post by retronai »

Thank you for the reply, it was very helpful. I just have one further question:
These funds will (partially) protect against USD inflation, but the inflation of the country and currency in which you will spend the money may be entirely different. Hedging a foreign country's inflation isn't the same as hedging your own. Not a criticism, but a consideration.

Maybe consider something global, perhaps IGIL?
My local currency (AED) is pegged to USD. Also, most local commodities and goods are imported. Should this influence my decision?
TedSwippet
Posts: 4462
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Portfolio Advice: Indian Expat in UAE

Post by TedSwippet »

retronai wrote: Thu Nov 24, 2022 6:55 am Thank you for the reply, it was very helpful. I just have one further question:
These funds will (partially) protect against USD inflation, but the inflation of the country and currency in which you will spend the money may be entirely different. Hedging a foreign country's inflation isn't the same as hedging your own. Not a criticism, but a consideration.

Maybe consider something global, perhaps IGIL?
My local currency (AED) is pegged to USD. Also, most local commodities and goods are imported. Should this influence my decision?
Do you expect to spend this money in AED? If yes, then linking your returns to US inflation makes some sense. Otherwise, it may be less useful.

Perhaps you are saving for retirement, and plan to retire to India. In that case, Indian inflation in INR between now and when you retire is what you have to consider, and ideally what you need to hedge, and whatever US inflation is over the period will have much less impact on your spending power in retirement. Of course, hedging to INR may not be simple, or even possible from your location. In that case, something that covers global inflation-linked bonds at least gives you a decent level of diversification (that is, a portion of every country's inflation!).
Post Reply