Relative with 50 years old needs help with strategy [Spain]

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Topic Author
Heisenberg
Posts: 2
Joined: Sun Jun 09, 2013 8:13 am

Relative with 50 years old needs help with strategy [Spain]

Post by Heisenberg »

Hello everyone,

At the moment I have a relative with 50 years that needs help with his strategy. He is very risk adverse and so far all of his portfolio is based in cash (savings accounts) and real estate that he rents out.

Cash: $600k in savings
Other: $67k in equity
House: Paid off
Health Insurance: Not needed in his country
Wife is a housewife and has one son that is going to enter the job market in 1 - 2 years time.

Currently his total anual income is around $300k after expenses, and he expects to retire between 53 to 55 years of age, when entitle to receive a pension of around $3k a month.
So he will have his pension and the income that his properties generate, making his total income by then be lowered that it is now.

So in this 3 to 5 years time period he will be able to get at least more $900k - $1500k to add to the money he already has.

He read the book and after some research understood that what is has been doing with the cash is wrong and wishes to change that.

Initially he though of having a portfolio with a three-fund portfolio and have a allocation of 40% equity and 60% bonds, and then when he retires change the allocation to 30% equity and 70% bonds.
In reallity he doesn't need the money unless something bad happens, so we can think in investing in the long term and then change the allocation later on. Probably he will only start to withdraw a % from the gains of this portfolio when he gets to 58 - 60 years of age.

25% - Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
15% - Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
60% - Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)

Also, what is the diference of using this funds VS using the etfs from vanguard as well? (meaning VTI, VXUS and BND)
They will all be bought from a platform and not directy to vanguard.

What do you guys think?
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Relative with 50 years old needs help with strategy

Post by Grt2bOutdoors »

Heisenberg wrote:Hello everyone,

At the moment I have a relative with 50 years that needs help with his strategy. He is very risk adverse and so far all of his portfolio is based in cash (savings accounts) and real estate that he rents out.
Hello and welcome to the forum! Let me take a crack at this. Can you confirm the following? You have a relative whom you are posting this question for? Your relative is 50 years of age and is planning to retire between the ages of 53 and 55, correct?
Cash: $600k in savings
Other: $67k in equity
House: Paid off
Health Insurance: Not needed in his country
Wife is a housewife and has one son that is going to enter the job market in 1 - 2 years time.
What country does your relative reside in? Are the funds listed above in dollars or some other currency or is that the US dollar equivalent of some foreign currency?
Currently his total anual income is around $300k after expenses, and he expects to retire between 53 to 55 years of age, when entitle to receive a pension of around $3k a month.
So he will have his pension and the income that his properties generate, making his total income by then be lowered that it is now.

So in this 3 to 5 years time period he will be able to get at least more $900k - $1500k to add to the money he already has.
So that will be gross income earned just prior to retirement for which he will pay taxes on so the amount added to his portfolio may be less than the $900 - $1500K you state above.
He read the book and after some research understood that what is has been doing with the cash is wrong and wishes to change that.
He read the Bogleheads Guide to Investing and understands he can obtain a higher return on his cash. However, it looks like your relative may be doing just fine. He should only invest (place money at risk of loss) if he is truly comfortable with the prospect of losing his entire capital placed in the equities markets. Is he?

Initially he though of having a portfolio with a three-fund portfolio and have a allocation of 40% equity and 60% bonds, and then when he retires change the allocation to 30% equity and 70% bonds.
Your relative is comfortable placing approximately $240K in the stock market placing it at risk of loss or gain, depending on how the winds blow, before stepping down the risk profile to 30% equities at retirement?

In reallity he doesn't need the money unless something bad happens, so we can think in investing in the long term and then change the allocation later on. Probably he will only start to withdraw a % from the gains of this portfolio when he gets to 58 - 60 years of age.
How much of a percentage does your relative have in mind? In general, we don't suggest an initial withdrawal rate exceeding 4% in the first year, some advocate 3 - 3.5% withdrawal rate to allow the portfolio to sustain itself into the future.
25% - Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
15% - Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
60% - Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)

Also, what is the diference of using this funds VS using the etfs from vanguard as well? (meaning VTI, VXUS and BND)
They will all be bought from a platform and not directy to vanguard.

What do you guys think?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Heisenberg
Posts: 2
Joined: Sun Jun 09, 2013 8:13 am

Re: Relative with 50 years old needs help with strategy

Post by Heisenberg »

Grt2bOutdoors wrote:
Hello and welcome to the forum! Let me take a crack at this. Can you confirm the following? You have a relative whom you are posting this question for? Your relative is 50 years of age and is planning to retire between the ages of 53 and 55, correct?

What country does your relative reside in? Are the funds listed above in dollars or some other currency or is that the US dollar equivalent of some foreign currency?

So that will be gross income earned just prior to retirement for which he will pay taxes on so the amount added to his portfolio may be less than the $900 - $1500K you state above.

He read the Bogleheads Guide to Investing and understands he can obtain a higher return on his cash. However, it looks like your relative may be doing just fine. He should only invest (place money at risk of loss) if he is truly comfortable with the prospect of losing his entire capital placed in the equities markets. Is he?

Your relative is comfortable placing approximately $240K in the stock market placing it at risk of loss or gain, depending on how the winds blow, before stepping down the risk profile to 30% equities at retirement?


How much of a percentage does your relative have in mind? In general, we don't suggest an initial withdrawal rate exceeding 4% in the first year, some advocate 3 - 3.5% withdrawal rate to allow the portfolio to sustain itself into the future.
Thanks for quick reply!

Yes this question is being posted in behalf of my relative that has 50 years of age and will retire between the age of 53 and 55.

He lives in Spain and the funds are listed in dollars.

The amounts that I mention above are after taxes (assuming that they don't change that) and assuming also that he mantains the same level of expenses that he has now.

Yes that is correct, however there is also the risk of banks in Spain doing the same cap as they did in Cryphus, this is hypotetical of course but he feels the need to diversify and so far with inflation some of is savings are only reaching break even, meaning in the long term his buying power is not increasing as it should.
He doens't want to use all the cash at once to buy the funds, he wants to use for now just half of it, meaning he would expose $120k in equities (plus the $67k he already has).

The percentage he thought was between 2% - 3% but he honestly didn't put alot of time to research and think that properly, including the various sugestions that can be found on the wiki.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Relative with 50 years old needs help with strategy

Post by Grt2bOutdoors »

Heisenberg wrote:
Grt2bOutdoors wrote:
Hello and welcome to the forum! Let me take a crack at this. Can you confirm the following? You have a relative whom you are posting this question for? Your relative is 50 years of age and is planning to retire between the ages of 53 and 55, correct?

What country does your relative reside in? Are the funds listed above in dollars or some other currency or is that the US dollar equivalent of some foreign currency?

So that will be gross income earned just prior to retirement for which he will pay taxes on so the amount added to his portfolio may be less than the $900 - $1500K you state above.

He read the Bogleheads Guide to Investing and understands he can obtain a higher return on his cash. However, it looks like your relative may be doing just fine. He should only invest (place money at risk of loss) if he is truly comfortable with the prospect of losing his entire capital placed in the equities markets. Is he?

Your relative is comfortable placing approximately $240K in the stock market placing it at risk of loss or gain, depending on how the winds blow, before stepping down the risk profile to 30% equities at retirement?


How much of a percentage does your relative have in mind? In general, we don't suggest an initial withdrawal rate exceeding 4% in the first year, some advocate 3 - 3.5% withdrawal rate to allow the portfolio to sustain itself into the future.
Thanks for quick reply!

Yes this question is being posted in behalf of my relative that has 50 years of age and will retire between the age of 53 and 55.

He lives in Spain and the funds are listed in dollars.

The amounts that I mention above are after taxes (assuming that they don't change that) and assuming also that he mantains the same level of expenses that he has now.

Yes that is correct, however there is also the risk of banks in Spain doing the same cap as they did in Cryphus, this is hypotetical of course but he feels the need to diversify and so far with inflation some of is savings are only reaching break even, meaning in the long term his buying power is not increasing as it should.
He doens't want to use all the cash at once to buy the funds, he wants to use for now just half of it, meaning he would expose $120k in equities (plus the $67k he already has).

The percentage he thought was between 2% - 3% but he honestly didn't put alot of time to research and think that properly, including the various sugestions that can be found on the wiki.

The portfolio you listed above is okay to use so long as your relative is able, willing and needing to take risk with the portfolio.
The Total Bond Market Index is currently 72% US Treasuries and is dollar denominated. Your relative is living in a Euro based economy. He may want to diversify further by holding a percentage of fixed income in the Total International ex-US Bond ETF (BNDX), that fund is dollar hedged. That may or may not help someone who is residing in a Euro based country. The other thing, since your relative has selected a higher weighing towards US equities, he is effectively betting against international markets and wagering the US economy will outperform over the long term - some here in the US are taking the opposite approach, placing up to 50% in international ex-US stocks and 50% in Total Stk Market Index. Food for thought.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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