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

From Bogleheads
Investing startup guide

1. Are you ready?
Get your expenses under control.

2. Learn about investing
Read about time-tested investing principles.

3. Create an investment plan
Plan ahead.

4. Set your asset allocation
Set your percentage of stocks and bonds. What are you comfortable with?

5. Control your emotions
Recognize how emotions and biases influence your decisions.

6. Build your portfolio
Invest in the entire market using low-cost index funds.

7. Maintain your portfolio
Rebalance your portfolio once a year.

Investing startup guide

1. Are you ready?
Get your expenses under control.

2. Learn about investing
Read about time-tested investing principles.

3. Create an investment plan
Plan ahead.

4. Set your asset allocation
Set your percentage of stocks and bonds. What are you comfortable with?

5. Control your emotions
Recognize how emotions and biases influence your decisions.

6. Build your portfolio
Invest in the entire market using low-cost index funds.

7. Maintain your portfolio
Rebalance your portfolio once a year.

Welcome to the Bogleheads® investing start-up kit for non-US investors.

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 page for non-US investors, 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.[note 1]
  • 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.[note 2]
  • It will take some time to get your bearings. Take it slowly, track your progress. Ask for help on the forum if you get lost.

In Investing With Simplicity,[1] John Bogle said:

Simplicity is the master key to financial success. When there are multiple solutions to a problem, choose the simplest one.

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 solid financial foundations. 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 six 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.

Learn about investing

If you have never taken the time to learn about 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.

Unfortunately, many of the best books on index investing are written specifically for US investors, or contain references to particular US investment products or accounts, and those books or parts of books that talk about things like 401(k) accounts, IRAs, and so on, will not be relevant for you. See the Outline of non-US domiciles for information specific to non-US investors.

There is no general agreement on what are the best first books, but this short list is very popular:

Published Details
2018 Taylor Larimore. The Bogleheads' Guide to the Three-Fund Portfolio. ISBN 978-1-119-48733-3. (Discussion)
2017 John C. Bogle. The Little Book of Common Sense Investing (10th Anniversary Edition). ISBN 978-1-119-40450-7. (Discussion)
2014 Taylor Larimore; Michael LeBoeuf; Mel Lindauer. The Bogleheads' Guide to Investing. ISBN 978-1-118-92128-9. (Discussion)
2014 William Bernstein. If You Can: How Millennials Can Get Rich Slowly. ISBN 978-0-9887803-3-0. (Discussion) (Free download)
2011 Andrew Tobias. The Only Investment Guide You'll Ever Need. ISBN 978-0-547-44725-4.
2010 Rick Ferri. All About Asset Allocation. ISBN 978-0-07-170078-8. (Discussion)
2009 William Bernstein. The Investor's Manifesto. ISBN 978-0-470-50514-4. (Discussion)
2005 Larry Swedroe. The Only Guide to a Winning Investment Strategy You'll Ever Need. ISBN 978-0-312-33987-6. (Discussion)

Suggested first reads for general financial education:

Published Details
2011 Allan Roth. How a Second Grader Beats Wall Street. ISBN 978-0-470-91903-3. (Discussion)
2006 Jane Bryant Quinn. Smart and Simple Financial Strategies for Busy People. ISBN 978-0-7432-6995-7.

For those residing outside the US (or outside their home country):

Published Details
2020 Index Investing & Financial Independence for Expats (Free download), supplied by the SimplyFI group (United Arab Emirates).
Written in a simple, easy-to-understand style, new investors residing inside or outside the US are encouraged to add this publication to their reading list. Discussed in this Bogleheads forum topic: "[Free download] Index Investing & Financial Independence for Expats".
2018 Andrew Hallam. Millionaire Expat: How To Build Wealth Living Overseas. ISBN 978-1-119-41189-5.
2014 Andrew Hallam. The Global Expatriate's Guide to Investing. ISBN 978-1-119-02098-1.

For more recommended reading, see our book recommendations and reviews.

Create an investment plan

Your investment plan should focus on the future, and may include things like a new car or home purchase in a few years, education expenses for children, and retirement. All of these goals require money in different time frames, so you need to invest in a way that matches those time frames.

Begin with a simple investing plan. Your objectives can be something as simple as "I want to retire in ten years". Write down what you will use the investment for and when you will need the funds. Defining clear objectives will give your portfolio its shape.

Later on, you can expand your simple investing plan into a full investment policy statement. This will describe the strategies you will use to meet your objectives, and hold specific information on your risk tolerance, asset allocation, asset location, rebalancing strategies, and liquidity needs.

Asset allocation - set your level of risk

Asset allocation splits up an investment portfolio into different asset categories, such as stocks, bonds, and cash. Your asset allocation should reflect your risk tolerance.[2]

Risk and return are directly related; that is, a higher expected return needs a higher level of risk. Your asset allocation should reflect your own personal ability, willingness, and need to take risk. Balancing these is the key to creating a portfolio that will help you to stick to your plans during 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. Try to evaluate yours.

Set your level of risk tolerance

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

You can manage investment risk 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 your ability, willingness, and need to take risk.[3] Asset allocation is one of the most important decisions that investors can make. In other words, which exact securities, stocks, or bonds that you choose is insignificant when compared to the way you allocate assets to stocks, bonds, and cash.

Although your exact asset allocation should depend on your goals for the money, there are some broad guidelines that can help you decide.

Split between risky and less risky assets

Your most important asset allocation decision is the split between risky and less risky assets. This is 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 your 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:[4]

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, covering how much to invest in stocks versus bonds, and how you should handle difficult choices among ability, willingness, and need to take risk.[5]

Think carefully about what might make your situation different from the average case, and if necessary adjust your asset allocation to account for the differences.

Stock asset allocation for non-US investors

When deciding on your stock allocation, you face a number of questions:

  • What regional allocation will you use?
    • Do you want global diversification?
    • Do you overweight any regions? If yes, which ones?
    • Do you overweight your region and introduce a home country bias?
  • You also need to decide if you will focus on the mainstream Boglehead practices, or if you prefer one of the variations.
    • Do you introduce a tilt? If yes, to what?
    • Do you overweight or underweight a portion of the stock market? If yes, which one?

Fixed interest asset allocation for non-US investors

For your fixed interest asset allocation you face these questions:

  • Do you choose local bonds, unhedged global bonds, or global bonds hedged to your home currency?
  • Are there other assets that can provide you with enough 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 are unlikely to stick with it in a down market or market crash.

Emotions or stress are not the only causes of poor decisions; other types of behavior can affect decision-making as well. It is essential for you to recognize the behavioral pitfalls before you commit to decisions which can affect your portfolio or investment goals.

Build your portfolio

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 entire stock markets and bond markets is with index funds, either 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. It is critical to keep your investing costs low. Every fee you pay means less money is working for you.

Tax considerations

Think about tax efficiency. You want to minimize the effects of taxes on your portfolio. Consider tax efficiency after you select your asset allocation, but before you select your specific index funds or ETFs.

Unfavourable US tax laws for US nonresidents in particular may mean that you should avoid all of the usual US domiciled ETFs and funds used by US investors, and instead use only non-US domiciled equivalents.

Example portfolios

We suggest that you invest in well-diversified, low-cost index funds.

Maintain your portfolio

Once you have your portfolio, it is important to maintain your targeted asset allocation. Rebalancing means bringing a portfolio that has deviated from its target allocation back into line.

If you are in the accumulation phase, you can do this by adding new contributions to the asset classes that are below their target. Or, you can transfer from over-allocated asset classes to under-allocated ones. You do not need to do this too often; for example, you might do this once a year or if your funds have deviated (more than 5%-10%) from your targeted asset allocation.

If you have access to them, target date retirement funds automatically rebalance for you.

Notes

  1. We will do our best to help you navigate the content as you start your journey, but sometimes you might get lost. Get organized.
    • Create a document to keep track of your progress.
    • Consider reading through all of the summary content in the start-up kit before diving into the main articles that are linked. This will help you get a broad overview of the whole process before diving into the details.
    • For a first reading, when the start-up kit suggests reading content on another page, read the lead-in on that page and avoid clicking further links. Once complete, come back to the start-up kit and continue your journey. This will help keep you on track and prevent the feeling of being overwhelmed.
    • Wikis are meant as references and are not designed to provide a step-by-step walk-through. Bookmark this page so that you can always get back to the outline provided here.
  2. Investing with simplicity is a principle of the Bogleheads investment philosophy: Investment philosophy for non-US investors § Invest with simplicity

See also

References

  1. John Bogle (January 30, 1999). "Investing With Simplicity" (PDF). Retrieved December 3, 2019.
  2. "Bogleheads' Guide To Investing (2nd ed.)". Bogleheads. Retrieved December 3, 2019.
  3. Larry Swedroe (2010). The Only Guide You'll Ever Need for the Right Financial Plan. Bloomberg Press. ISBN 978-1-57660-366-6.
  4. The Intelligent Investor. Collins Business. p. 93 of the 2003 edition annotated by Jason Zweig. ISBN 978-0-06-055566-5.
  5. Larry Swedroe (February 25, 2014). "Asset Allocation Guide: Dealing with conflicting goals". CBS Moneywatch. Retrieved December 3, 2019.

External links