Bogleheads® investing start-up kit for non-US investors

Welcome to the !

This kit is designed to help you, a non-US investor, begin or improve your investing journey. If you have not already, visit the getting started for non-US investors page which will introduce you to non-US investing and help you find the right starting point for exploring content in the wiki. Investing is a complex topic and can easily become overwhelming, but we are here to help! Here are a few tips to help you start your investing journey.
 * Get organized! Create a document to keep track of your progress. Tip: Bookmark this page so that you can always get back to the outline provided here.
 * Be patient with yourself! Investing can seem a complex topic but it does not need to be. One of the principles of the Bogleheads® investment philosophy is to invest with simplicity.
 * It will take some time to get your bearings. Take it slow, track your progress. Ask for help on the forum if you get lost!

Are you ready to invest?
You need to save money to invest. Take a step back and look at the big picture. Investing only comes after you have a sound financial footing. Investigate these resources to determine whether you are ready to start on your long-term investing journey.


 * Watch this helpful video on how to start with a sound financial lifestyle.
 * Pay down high-interest credit cards and other debt
 * Establish an emergency fund (saving 6 months of expenses is a common goal)
 * Ensure you have enough insurance coverage
 * Carefully investigate if you should participate in the retirement or pension plan offered by your employer or government. Take advantage of it if it is worthwhile - even as you work towards the above goals.

Educate yourself
If you have never taken the time to educate yourself on investing basics, you should do that now. There are several easy-to-read books that do not require extensive maths knowledge, finance interest, or hours to read. For example, this e-book is a free download: If You Can: How Millennials Can Get Rich Slowly

Taylor Larimore's Investment Gems is a compendium of book reviews that will help you quickly learn what the experts have to say. These reviews are very informative and may also help you decide whether you would like to obtain the book.

Some of the books are US-centric or have US-centric references. It is acceptable to skip those. Please have a look at the Outline of Non-US domiciles for information specific to non-US investors.

For more recommended reading, check out our book recommendations and reviews.

Create an investment plan
Your investment plan should look out into the future and include things like a new car or home purchase in a few years, education expenses for children, and retirement, just to name a few common objectives. All of these goals require money in different time frames, and the money should be invested accordingly. Start with a simple investing plan where your objectives can be something as simple as "I want to retire in 10 years". Write down what the investment will be used for and when the funds are needed. Defining clear objectives will determine how you configure your portfolio.

As you continue with this investing start-up kit you can expand your simple investing plan into a full-blown investment policy statement (IPS). The IPS will describe strategies to meet your objectives and contain specific information on subjects such as risk tolerance, asset allocation, asset location, rebalancing strategies and liquidity requirements.

Asset allocation - set your level of risk
Asset allocation divides an investment portfolio among different asset categories such as stocks, bonds, and cash. The asset allocation should be performed according to the investor's risk tolerance. Risk and return are directly related, i.e., a higher expected return will necessitate a higher level of risk. The asset allocation should reflect one’s unique ability, willingness, and need to take risk. This balance is a key factor in creating a portfolio that will allow investors to stay the course during the inevitable market downturns.

Risk tolerance is an investor’s emotional and psychological ability to endure investment losses during large market declines without selling or undue worry, such as losing sleep.

Set your level of risk tolerance
Investment risk is the uncertainty (variation) of an investment's return, which does not distinguish between a loss or a gain. However, investors usually think of risk as the possibility that their investments could lose money.

Investment risk can be managed by diversifying your portfolio. You set your level of risk, the tolerance you have to a decline in your portfolio's value, by adjusting your asset allocation.

To know whether a portfolio is right for your risk tolerance, you need to be brutally honest with yourself as you try to answer the question, "Will I sell during the next bear market?"

Asset allocation
Selecting the appropriate asset allocation (ratio of stocks to bonds) is essential to designing a portfolio that matches the investor's ability, willingness, and need to take risk. . Asset allocation is one of the most important decisions that investors can make. In other words, the importance of an investor's selection of individual securities is insignificant compared to the way the investor allocates assets to stocks, bonds, and cash.

Although your exact asset allocation should depend on your goals for the money, some rules of thumb exist to guide your decision.

Split between risky and less risky assets
The most important asset allocation decision is the split between risky and less risky assets. This is most often referred to as the stock/bond or equity/fixed interest split. In a period of low bond yields, cash could be a stable component of the portfolio.

To know whether an asset allocation is right for your risk tolerance, you need to be brutally honest with yourself as you try to answer the question, "Will I sell during the next market decline?". This is very hard to accurately assess before you have already gone through a bear market.

Benjamin Graham's timeless advice was:
 * "We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of their funds in common stocks, with a consequence inverse range of 75% to 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums."

John Bogle recommends "roughly your age in bonds"; for instance, if you are 45 years old you might hold 45% of your portfolio in high-quality bonds. All age-based guidelines are predicated on the assumption that an individual's circumstances mirror the general population's. Because each individual's circumstances differ, these guidelines should be treated as a starting point.

Author Larry Swedroe has written a multi-part guide for selecting your asset allocation; how much to invest in stocks versus bonds. How you should handle difficult choices among ability, willingness, and need to take risk.

Individuals would be well advised to consider what circumstances make their situation different from the average case and adjust their asset allocation accordingly.

Stock asset allocation for non-US investors
Within their stock allocation every investor needs to make a number of decisions:
 * What regional allocation will I adhere to?
 * Do I want global diversification?
 * Do I overweight one region?
 * Do I overweight my region and introduce a home country bias?

Fixed interest asset allocation for non-US investors
Within the fixed interest asset allocation a non-US investor has a number of options:
 * Do I choose local-bonds, global-bonds or global-bonds hedged to the home currency?
 * Are there other assets that can provide me with the required stability?
 * Is cash a valid option?

Avoid common behavioral pitfalls
Jonathan Clements, former Wall Street Journal columnist said:
 * "If you want to see the greatest threat to your financial future, go home and take a look in the mirror.”

Investing is much more than working with numbers or reading a fund prospectus. Emotions also play a large role. If you let your emotions control your investing decisions, your investing plans will quickly go off-track.

As an example, if you select an asset allocation without taking into account your emotional capacity for risk, you’re unlikely to stay the course in a down market or market crash.

Poor decisions are not always caused by emotion or stress; other types of behavior can affect decision-making as well. It is essential that investors recognize the behavioral pitfalls before committing to decisions which can affect portfolio or investment goals.

Portfolio construction
Rather than trying to pick specific securities or sectors of the market that in theory might outperform the overall market in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market. The best and lowest-cost way to buy domestic and global stock markets and domestic and global bond markets is with index funds (either through traditional mutual funds or exchange-traded funds (ETFs)). Bogleheads create a good plan, avoiding attempts to time the market, and then stick with it, "stay the course." This consistently produces good outcomes over the long term.

Keep costs low
One very important consideration in a portfolio is the total cost of ownership of the portfolio. Every dollar paid in fees means less is working for the portfolio owner. It is critical to keep investing costs low. The following page examines mutual fund costs:
 * Expense ratios

Example portfolios
We advocate investments in well-diversified, low-cost index funds. The following articles provide examples of simple, broadly-diversified investment portfolios.
 * Simple non-US portfolios
 * Bond basics for non-US investors

Tax considerations
Consideration should be given to tax efficiency, which is an approach to minimize the effects of taxes on your portfolio. Tax efficiency should be considered after you select your asset allocation, but before you select your specific index funds or ETFs. Refer to this section of the wiki for tax information:


 * Outline of Non-US domiciles § Tax issues

Maintain your portfolio
Once you have your portfolio, it is important to maintain your targeted asset allocation. Rebalancing is the act of bringing a portfolio that has deviated from its target allocation back into line. If you are in the accumulation phase, this can be accomplished by adding new contributions to the asset classes that are below their targeted amount. Another approach is to transfer from over-allocated asset classes to under-allocated asset classes. This does not need to be done too often; for example, it can be done once a year or if your funds have deviated (more than 5%-10%) from your targeted asset allocation. Target date retirement funds automatically rebalance for you.