Investment novice at 56 (and living overseas)-help! [US ex-pat in EU]

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Billiken
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Investment novice at 56 (and living overseas)-help! [US ex-pat in EU]

Post by Billiken »

I am a dual citizen (US born) but have lived in an EU country for more than 20 years (I have citizenship in that country too). I plan to retire in the EU. I am 56 years old.

I am vested in Social Security in the USA and in the retirement scheme of the country where I live.

I have owned a small business in the EU for 15 years, and it was prospering until Covid. Since then sales dried up almost completely (it is tourism-related), and I don't know if it will return to profitability or not. In the meantime I have received government grants which have allowed me to pay my employees, while I personally have been living off income from my rental apartments. Before Covid I had a profit in the company of around $100,000/year after taxes (I do not take a salary.) The grants will allow me to pay my employees and keep the lights on until the end of this year, and will probably then end.

If I should have to close my company, I don't see myself finding another job due to health issues, and would thus be living off my savings and my rental income.

I only started investing in the stock market in early 2019, and have since then been buying in regularly. My profit so far was at about 21% a few days ago, but has dropped to 17% today due to this week's market activity.

I live very frugally. I don't have a car. I hardly ever eat out. I don't make a lot of purchases. I am comfortable, though, and I do like to travel from time to time, but even that I do on a budget basis. I don't see myself going nuts in retirement and splashing out cash willy-nilly! My currently monthly expenses for life are about $450.

I have no heirs or close family, so I'm not particularly concerned about leaving a lot behind!



All my market/retirement investments are in the USA in US dollars.

Emergency funds: I have at least 6 months available

Debt: No debt whatsoever

Tax Filing Status: Single

Tax Rate: 19% in European country where I am resident; 24% in US (although to this point this has been offset by foreign tax credit and foreign earned income exclusion)

State of Residence: Permanent resident of European Union country

Age: 56

Desired Asset allocation: ??% stocks / ??% bonds
Desired International allocation: ?% of stocks

I am unsure of this, need advice

Current investments in the USA total $314,450:

Mutual funds $24,807—8%
Vanguard Small-Cap Growth Index Fund Admiral Shares VSGAX 61%
Fidelity® International Index Fund FSPSX 39%

Index funds (ETF): $142,361—45%

Vanguard 500 Index Fund ETF VOO 80%
Vanguard Growth Index Fund ETF VUG 13%
Schwab US Broad Market ETF SCHB 4%
Invesco QQQ Trust Series 1 QQQ 3%

Individual stocks: $147,282—47%

Largest holding Boeing Company BA (15%)
Remainder distributed between 30 companies at between $700-8000/company.
I am down about 37% on Boeing, but almost all other stocks have done well


Property holdings (no mortgage, purchased in cash):
$481,000 (total of purchase prices, consisting of 5 apartments (condos) in Europe, 3 of which I rent out, one I live in, and one used as company office) (I receive about $875/month in rent—total)­


Current retirement assets

Cash holdings in bank (already taxed): $935,000

Inherited IRA (from parents)
$42,000 remaining, invested in various Pimco funds

Vanguard company 401k from previous employer:
$105,400 (divided between 20% company stock, remainder distributed in Vanguard funds)


_______________________________________________________________


Questions/concerns:

1. I need to figure out my next steps here. I have a large amount of cash, and I need to do something with this so that I can be it to work earning for me instead of losing value to inflation.

2. I have considered purchasing some additional rental properties, but the rental property calculators are showing me a ROI of only 6-7%, based on the rents I may be able to get. I've read that anything under 8% isn't a good investment. Plus there are the hassles of tenants, maintenance, etc. Do I want to be bothering with that at my age?

3. I am also concerned about the rate at which I should be funneling money into stocks and or bonds. I'm currently doing about $2000/month, which seems like a drop in the bucket considering the amount of cash in the bank. I'm worried about timing risks of doing a large amount at one time.

4. I have nothing invested in bonds. I'm unsure how or if I need to start in this, and don't what sort of ROI they provide, nor of what percentage of my investment assets I should put in them. Am I even going to beat the inflation rate with bonds right now?

5. One other concern is that my brokerage in the US is TDAmeritrade, recently sold to Schwab. TDA has had no problem dealing with me as an expat, but I've heard that Schwab isn't as friendly. I do have a US bank account and mailing address I can use. I'm not sure if I will have future problems managing this account.

I'm looking for ideas on how to proceed, and at what pace. I've certainly been lazy about investing, leaving it so late. I did purchase some mutual funds in 1999, but they lost 40% of their value almost immediately and hadn't recovered after 3-4 years, when I sold them; this put me off further investing for a very long time. Also it was only in this last decade that I started earning larger amounts, which I simply put into the bank.

Thank you in advance for any advice and comments.
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LadyGeek
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Re: Investment novice at 56 (and living overseas)-help! [US ex-pat in EU]

Post by LadyGeek »

Welcome! I moved your thread to the Non-US Investing forum. Although you have US investments, your situation requires the expertise of investors who live outside the US (including ex-pat). I also retitled your thread to attract the attention of members who can help you the best.
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sneezeslayer
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Re: Investment novice at 56 (and living overseas)-help! [US ex-pat in EU]

Post by sneezeslayer »

Welcome! I don't know if I'm qualified to answer all of your questions, but I will try.


Many US-born investors living overseas use the address of a trusted family member or friend. I have read stories of banks who were once okay with addresses abroad suddenly change their policy and close the accounts. Be extra careful, though, if that address is in one of the "sticky" states like CA, VA, or NY that don't like to let residents "leave" and will try very hard to tax your income. I believe that there are also some mail forwarding services based out of South Dakota that RVers use, but you would need to make sure that the address is registered under USPS as residential and not business.

It's probably for the best that your funds are US-based funds as you need to make sure to not run afoul of US PFIC rules and EU MiFID II rules.

In terms of asset allocation, most people here would advocate for a simpler 3-fund portfolio. The wiki is filled with pretty good info https://www.bogleheads.org/wiki/Getting ... _investors. I would recommend reading through that and some of the other pages on getting started. 50% of your portfolio in specific stocks is probably quite a lot, especially assuming that they are blue-chip stocks already well represented in any index funds.

Investing all of your funds at once beats holding on to cash and investing over many months on aggregate, but it can be more stressful for people. Once you determine what AA you would like to use, you could set a timeline of, say, 1 year where you invest 1/12 of the amount each month. You gains are less than they could be if you dumped it all in at once, but so are your losses.


For your specific case, it is somewhat hard to know what to suggest as Europe is quite large with many different local phenomena. In general, interest rates are quite low, so you could always consider another investment property. Assuming you live somewhere that uses the Euro, you are exposed to some currency risk if the EUR/USD rate slides too much if all your liquid assets are USD-denominated but expenses are in Euros. More real assets where you live could help mitigate that.
TedSwippet
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Re: Investment novice at 56 (and living overseas)-help! [US ex-pat in EU]

Post by TedSwippet »

sneezeslayer wrote: Thu May 13, 2021 8:28 am In terms of asset allocation, most people here would advocate for a simpler 3-fund portfolio. The wiki is filled with pretty good info https://www.bogleheads.org/wiki/Getting ... _investors.
Just a note ... that links to a page that because of the US's citizenship-based tax rules is not really appropriate for US citizens living outside the US. The US-investor specific version of the getting started wiki entry point page is here: https://www.bogleheads.org/wiki/Getting_started.
sneezeslayer wrote: Thu May 13, 2021 8:28 am Assuming you live somewhere that uses the Euro, you are exposed to some currency risk if the EUR/USD rate slides too much if all your liquid assets are USD-denominated but expenses are in Euros.
Take care though to differentiate between the denomination currency of the actual assets and the trading/denomination currency of the ETF or fund holding those assets. For returns, the first of these is the one that matters; the second is just accounting. A US investor worried about hedging currencies for future spending in EUR might choose to hold (or perhaps overweight) a US domiciled and USD denominated ETF or fund that holds EU stocks.
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