Investment advice - resident

[B9]

Hello

 

I would first like to thank The White Coat Investor for sparking my path towards financial literacy. After I read the White Coat Investor I have read The Coffee House Investor, Common Sense Investing and A Random walk down Wall Street. (Any recommendations on what to read next are most welcome).

It changed the way I think. I always wanted to achieve financial freedom. Always thought I would start my own business but that seems less likely now. Mostly due to my specialty. It is small, highly specialized and has poor opportunities for private practice. All my time is spent at the hospital or research when outside of it.  This also limits the opportunities.

I thought about stocks before but what stopped me was before was  a) my lack of knowledge regarding the topic making it seem risky b) it felt too slow. 30 years of risky investment in hopes that your stock does not devalue by the time you want to cash, did not sound too attractive.

 

So here are am seeking financial advice to what is the next step. First a bit about me.

 

I am a first year resident in Europe. 28 year old. Not married/no kids. My salary a year is approximately 120k/year/$. After taxes I get around 60k/year/$.

I am able to save 40k a year. Currently I have around 100k saved up.

Due to all the reasons mentions in the books, low cost, passive index investing seems very solid. Assuming you capture the average market returns, minus inflation and minus taxes and if I keep up adding 3k a month, in 15-20 years I should be financially quite well off. While at the same time spending minimum amount on time on it.
I doubt I will be able to find any other way of becoming financially free that does not require me to stop spending all my time on my current specialization.

I have analyzed my situation and I think I will be able to set aside 3k a month for the next 15-20years. Hopefully.

 

Basic questions.

 

I was planning on investing 50% index, US large cap stocks, 25% europe, 25% far east.

No bonds. Having 10k cash left, as an emergency fund.

 

Is that wise? How would you invest given my situation above?

How do you actually do it? Vanguard seems good but I am not sure if I can just buy into the index fund online or do I need a program for it?

How would you track your gains/losses, program for it or just doing it by hand in an excel sheet?

 

Any feedback on how to get started would be much appreciated. Thanks in advance.

 

Regards

Marcus

 

 

[Dreamgiver]

Hey Marcus,

You can do everything through the Vanguard website especially if that is your only investment firm. Otherwise there are a couple of apps that will track things for you. The bigger question I have is if Vanguard will allow you to invest with them not being an American citizen/resident. I do not know the answer to that question.

[DMFA]

I think the account type would be very different outside of the US - IDK what their tax laws are vis-a-vis investment accounts - nor if you would weight US stocks as much as an American would.  But the emphasis for diversification and a focus on equities would probably still be the same.

Can foreigners hold accounts with US brokers?

If you dislike stocks, then have you considered other investments like real estate?  I also don't know how property owning/leasing works in Europe...I think most posters on the board are best versed in US.  I'm not sure it can all be extrapolated.

[Peds]

I don't think you can have a vanguard account without a US address.

[B9]

Thanks for the replies.

 

Regarding real estate, that was my original plan. Buy real estate, hold it while it appreciates in value and rent it out while I live in a hospital provided apartment.

However, the current market in my country has increased its prices 10% each year for the last 7 years. Seems like buying into a bubble at the moment, definitely not worth the investment if you look at total price vs. return on renting out.


It would seem so, that you cannot unless you are an US citizen.

 

I am not experienced enough to value one stock market higher than another, its simply all the information I have read has been centered around US S&P 500 index. Its familiar and the data seems solid. Did not really check other markets. I suppose EU index market would have similar track record.

 

Seems there is a Vanguard Europe section. I will look into if I can invest via them.

 

So I suppose since nobody commented on the strategy that it is solid? Assuming low cost ( around .2%), index fund that is diversified in US(50%)/EU(25%)/EAST(25%) all bought via Vanguard (on first glance seems possible from their site).

 

 

[DMFA]

B9 wrote:

So I suppose since nobody commented on the strategy that it is solid? Assuming low cost ( around .2%), index fund that is diversified in US(50%)/EU(25%)/EAST(25%) all bought via Vanguard (on first glance seems possible from their site).

Click to expand...

That strategy seems OK.  Being in the US, and having the economic environment around me mostly mirror the US stock market, and so our funds weight it a bit more, usually 1.5:1 ratio.  I think doing 50/50 US/int'l is reasonable.  The combination funds from US brokerages usually have a 60/40 split of US/int'l (using Morningstar's benchmarks), and the int'l index funds are around 50/40/10 Europe/Far East/Americas (using VTIAX and FTIPX as references), so I would think your splits of 50/50 both ways are pretty reasonable.

[jfoxcpacfp]

1. You won't be able to use Vanguard as your brokerage - try Interactive Brokers instead.


2. Another idea if you are an American living and working in Europe is to keep a US address for your investment firm. That seems to work for many people.


3. I'm pretty fine with your portfolio except:
   
   
   
   • I would add a good REIT fund and reduce the non-US exposure; and
   
   
   • Read the discussions here about 100% equity portfolios versus portfolios with bonds. 100% equity will work only if you do not invest any money you will need within 5 years (not a problem for you), you hold a well-balanced portfolio, you rebalance periodically (I recommend annually), and you can control your emotions during erratic market movements. 90% of long-term growth in the stock market is due to behavior.
   
   
   • To accomplish the above, I recommend you read Simple Wealth, Inevitable Wealth by Nick Murray. Ignore the references to using an advisor who charges 1% AUM and soak up the knowledge about how to invest and manage your portfolio appropriately and why it works.
   
   
   
   

[B9]

Thanks for all the input.

Just wanted to give a quick status update.

 

So I took your advice and set out to put the picture in motion. However, I found out there are specific rules for Denmark. (The country im residing).

I found out I was able to invest in Vanguard indirectly and other foreign funds.  The problem with this is 1) I have to exchange the valuta converting the danish currency to US. This adds another variable. And 2) If you invest in foreign funds you pay tax by the end of the year of the unrealized profit.

Needless to say, the last one seems pretty brutal. The tax is 27% until 20k dollars and after that its 42%.  So most danish investors invest via domestic funds to avoid paying taxes on unrealized profit and only to pay taxes on actual profit. Which you can imagine puts the domestic funds and banks in a good position as they do not have to compete with other indexes for a better price.

As such most index funds I have found that are passively managed and broadly diversified are expensive. Lowest cost was 0.6% anually.

Oh well, I will do more research into the specific rules for Denmark and the funds that are there. Guess I am not ready yet to invest.

 

Regards

B9

 

[jfoxcpacfp]

B9 wrote:

I found out I was able to invest in Vanguard indirectly and other foreign funds.  The problem with this is 1) I have to exchange the valuta converting the danish currency to US. This adds another variable. And 2) If you invest in foreign funds you pay tax by the end of the year of the unrealized profit. Needless to say, the last one seems pretty brutal. The tax is 27% until 20k dollars and after that its 42%.

Click to expand...

Yikes - how long do you plan to live in Denmark?

[B9]

Well I have thought about moving to USA for a long time. However as a foreign medical graduate I have concluded after doing some research that you are at a too big disadvantage regarding the match. Especially for very competitive programs. I am currently doing my residency in neurosurgery in an academic center as well as my PhD. Doubt I would match a similar program in the US.

 

So probably going to stay in Denmark for quite some time. Its not all bad. Very socialist country. However there are some downsides, probably never going to be well off as a poorly paid neurosurgeon in an academic center.

 

Salary as an attending is around 200$k / year. The base income tax is 46%. After the first 100k its 56%. Not to mention other taxes, such as regarding investment funds and on cars. (Same car costs x3-4 times what it does in the US).

 

Anyway, I would just be happy if I could find a few solid danish low cost index funds that are diversified globally. The danish books arent nearly as good as the US ones.

 

Oh well. Wish me good luck. Thanks for the help Jfox.

 

Regards

B9

[Dreamgiver]

Interesting....I moved away from Europe many years ago, best decision I have ever made in my life. For such a small return after many years of study and sacrifices, why would anyone work more than the very minimum? And why would the best and brightest go into the field?

These are retorical questions, I know the answer....