First time investor at 24 y.o. with $1.5m, based in the UAE.

For residents of the United Arab Emirates.
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Topic Author
catinacradle
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First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by catinacradle »

Hi! I am a 24 year old Canadian expat living in Dubai, UAE and have approximately $900k USD and $550k EURs (equivalent to ~$620k USD at the moment) I intend to invest.

Emergency funds: Yes, 3+ years of emergency expenses available
in cash
Debt: No debt
Tax Filing Status: Single
State of Residence: United Arab Emirates
Age: 24
Desired Asset allocation: I am investing for the long-term. Given my age and time horizon, I intend to be 100% invested in stocks. I was considering going all-in on VWRD for USD, and VWRL for EURs, but from a TER standpoint a mix of IWDA + EIMI (88% IWDA and 12% EIMI seems to roughly match the region allocation of VWRD) seems to be a better option than VWRD/VWRL. Does it make sense to opt for the iShares version instead to minimize the TER fee?
Desired International allocation: The demographic tailwinds & the relatively lower valuations make me optimistic about the emerging markets. I intend to overweight them slightly with an allocation of 85% IWDA 15% EIMI

My plans at the moment are to
1) Invest via Interactive Brokers
2) Invest in Irish-domiciled funds to achieve a 15% withholding tax on dividends vs. the 30% that would occur with other funds
- Question regarding this, since Ireland-domiciled funds withhold 15% dividend tax and there's effectively no tax when it arrives to myself - a resident of the UAE, is that not effectively equivalent to investing as a US resident since US residents are mostly paying 15-20% tax on their dividends as well?
3) Understanding that time in the market is better than timing the market & that macro predictions are difficult to make and just as hard to execute on, considering the bull-run the market has been on, I imagine I will sleep better at night if I were to keep a portion of the funds in a safe vehicle for the time being in the event of a recession for a chance to buy. Would a total bond index suffice for keeping cash safe in the event of a downturn? Are there money market fund options available to expats? What are the options here besides leaving it as plain cash at the bank or brokerage?
4) If I were interested in purchasing US stocks directly - since the dividend tax is 30%, would a purchase in a dividend-less stock e.g. Facebook be more efficient than a Coca Cola (ignoring the actual businesses involved in the example and assuming the purchases are only made on US stock exchanges)?
5) Does the stock exchange matter? e.g. Whether I buy AMS/EUR/VWRL or FRA+XTER/EUR/VWRL or LSE/USD/VWRD, does it make any difference to an expat in the UAE?
6) How are decisions between providers usually made when for all intents and purposes the ETFs should be equivalent to one another? Image

Really appreciate any input you may have :D
Last edited by catinacradle on Thu Mar 21, 2019 12:59 am, edited 1 time in total.
ICH
Posts: 244
Joined: Wed Jun 13, 2018 3:08 am

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by ICH »

Just to confirm: have you found the UAE bogleheads chapter? We are quite active in the UAE, for passive investors :D

1. IB is OK, if not the best.

2. Irish dom OK. US investors pay additionally capital gains taxes. In UAE you don't.

3. You are confusing the matter here. You want to keep cash as part of your asset allocation or to time the market? I suggest to think in terms of allocation. There's nothing wrong to go for 30% cash, or 40% bonds or whatever. But planning to keep cash to throw in the market at the bottom may disappoint you. If that's the plan, why not keep all in cash for now?

In any case, there are plenty of short to intermediate term bond ETFs you can choose from.

4. Correct, the 30% tax on dividends is a drag. But the estate tax may be more problematic. And the risk of individual stocks is certainly there: you can choose to go for Facebook to save this 30% on dividends and lose 30% in a week if Mark Zukerberg decides to do something crazy...

5. No. There can be some small differences in the spread due to liquidity, but cannot be significant. Now, of course, if you have USD, don't go and buy VWRL in GBP...

6. These ETFs are similar but not the same. VWRD is distributing, includes developed and emerging markets and it is Vanguard. IWDA is accummulating, has only developed markets and it is BlackRock.

Note: if you are Canadian and plan to go back there in the future, you should have some CAD assets (bonds or CDs)
Topic Author
catinacradle
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Joined: Wed Mar 13, 2019 9:06 pm

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by catinacradle »

ICH wrote: Wed Mar 20, 2019 11:47 am Just to confirm: have you found the UAE bogleheads chapter? We are quite active in the UAE, for passive investors :D

1. IB is OK, if not the best.

2. Irish dom OK. US investors pay additionally capital gains taxes. In UAE you don't.

3. You are confusing the matter here. You want to keep cash as part of your asset allocation or to time the market? I suggest to think in terms of allocation. There's nothing wrong to go for 30% cash, or 40% bonds or whatever. But planning to keep cash to throw in the market at the bottom may disappoint you. If that's the plan, why not keep all in cash for now?

In any case, there are plenty of short to intermediate term bond ETFs you can choose from.

4. Correct, the 30% tax on dividends is a drag. But the estate tax may be more problematic. And the risk of individual stocks is certainly there: you can choose to go for Facebook to save this 30% on dividends and lose 30% in a week if Mark Zukerberg decides to do something crazy...

5. No. There can be some small differences in the spread due to liquidity, but cannot be significant. Now, of course, if you have USD, don't go and buy VWRL in GBP...

6. These ETFs are similar but not the same. VWRD is distributing, includes developed and emerging markets and it is Vanguard. IWDA is accummulating, has only developed markets and it is BlackRock.

Note: if you are Canadian and plan to go back there in the future, you should have some CAD assets (bonds or CDs)
Thanks for the advice!

My time horizon is indefinite, e.g. 30+ Years, and all purchases are final - at no point along the process will anything be sold.

Have decided on an allocation of 85% IWDA, 15% EIMI (as opposed to VWRD/VWRL due to lower TER) and likely to invest 60-70% USD, 30-40% EURs - currency hedging partly based on the inertia of the currencies I already have on hand (which is admittedly a poor basis for decision making) & in part in consideration of the fact that in the long-term USD may or may not remain the reserve currency.

3. It'd be a hedge against the fact that it's a macro prediction that the market will experience some correction in the next 2 years, understanding that the evidence suggests these predictions are impossible to make but also that I'll end up sleeping better if I leave some cash just in case, if this doesn't play out I'll simply become fully invested at a later date. Rather than 100% cash though, I'll sleep well with 50% of the funds placed into IWDA/EIMI now and leaving cash on hand to dollar cost average into the market in the event of any drop in the market (rather than catching the falling knife, starting to dollar cost average into the market if it experiences any dip of 5% or greater). There's good odds that I'm wrong of course, and the decision to keep cash would only bear fruit if the market goes down hence the decision to put part of it in now.

Regarding CAD - thanks for the tip. I'm content with holding USD and converting to CAD down the line :)
minimalistmarc
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by minimalistmarc »

Would be interested to hear more if your story as to how you arrived at this point in life if you are willing to share
me81
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by me81 »

Hi there!

I guess you have already received some great advice and you seem to have already made your mind up.

I agree with most of whar's been said above, but would just raise a question to think over..

You obviously are is a great place financially, so it looks to me that your portfolio needs growth, but mostly preservation.. And you also mention the likelihood (or rather, your conviction) that there might be a market drop sometime soon. Should that happen, with your 100% equity exposure, would you sleep well seeing your portfolio lose 400.000 or 500.000 $ in value (and that would only be a 30-35% market drop.. Imagine a 60% one.. (!!!).

We are all Econs when we post behind a screen, but since you have never experienced a major bear market, most of us turn Humans when that actually happens.. i.e. the chances of you losing your cool and selling "before it's all gone" are higher than you think..

For this, and for diversification reasons, I would always keep at least a 10-15% in bonds.. Slowing growth does not necessarily means having lower long-term returns.. Reducing a drawdown would make a huge difference in long-term performance.. And since you do not seem to need crazy returns, I would argue that a more balanced AA would help in many ways, financially and psychologically..

Having said that, congrats for having built a great nest egg so young and as mentioned above, join our FB group "SimplyFI", a lot of great conversations in there too!

Cheers
Topic Author
catinacradle
Posts: 4
Joined: Wed Mar 13, 2019 9:06 pm

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by catinacradle »

me81 wrote: Thu Mar 21, 2019 4:09 am Hi there!

I guess you have already received some great advice and you seem to have already made your mind up.

I agree with most of whar's been said above, but would just raise a question to think over..

You obviously are is a great place financially, so it looks to me that your portfolio needs growth, but mostly preservation.. And you also mention the likelihood (or rather, your conviction) that there might be a market drop sometime soon. Should that happen, with your 100% equity exposure, would you sleep well seeing your portfolio lose 400.000 or 500.000 $ in value (and that would only be a 30-35% market drop.. Imagine a 60% one.. (!!!).

We are all Econs when we post behind a screen, but since you have never experienced a major bear market, most of us turn Humans when that actually happens.. i.e. the chances of you losing your cool and selling "before it's all gone" are higher than you think..

For this, and for diversification reasons, I would always keep at least a 10-15% in bonds.. Slowing growth does not necessarily means having lower long-term returns.. Reducing a drawdown would make a huge difference in long-term performance.. And since you do not seem to need crazy returns, I would argue that a more balanced AA would help in many ways, financially and psychologically..

Having said that, congrats for having built a great nest egg so young and as mentioned above, join our FB group "SimplyFI", a lot of great conversations in there too!

Cheers
Thank you for the perspective!

Having never gone through the experience, I believe it will be difficult to predict how I would react. The one discipline I've chosen to adhere to however (for better or for worse) is that at no point in my investment process will I sell anything, all purchases are final so to speak. The paper loss will probably be harder to bear than I imagine it to be right now, but I also believe that I will be able to keep my head by adhering to the single rule of never selling & only buying. I take refuge in that these funds have no relation to my day-to-day life or my quality of life so a paper loss would not materially affect me. In addition, in a weird way I've cultivated a preference for lower prices & I imagine IF a drop occurs I'd be able to treat it as a fire sale if anything & increase my savings rate at that time. The funds would not be tapped into for decades to come as I continue in my career so at the moment I would frankly prefer if the market were significantly cheaper.

I've weighed the outcomes of buyer's remorse at not having gotten in the market at a cheaper price (given my time horizon, the cheaper the better) vs. missing the returns of the following years if none of the doom and gloom materializes, and I think 30% cash or some cash equivalent bearing some yield is an acceptable position to be in.

My current plan is to leave 30% cash for a potential drop and get the rest fully invested now, but that may never materialize & I could instead allocate 30% to bonds that I would be able to convert into equities in the event of any sizable correction instead of leaving it as all cash. The eventual allocation will be 100% equities regardless in this case.

I understand that beyond having to be right about a drop in the next ~2 years which may entirely fail as a prediction, I'll also have to have the mental fortitude to buy into the market at the drop & I understand it'll be impossible to buy at the bottom. Timing the market can't be done, but I am generally apathetic towards these funds and think this conservative approach is something I will be able to live with regardless of what comes to bear. Admittedly, if a drop did occur, I have no real strategy for how I would buy but the goal is to simply get it >10% cheaper than it is available now & I'll count it as a win if I can achieve that & if it doesn't happen, when I would throw the remaining cash in to become fully invested is up in the air as well.

I'm considering allocating the cash as bonds or something else that would hold up in the event of a drop instead. Any suggestions for this? Not sure if bonds would be a good choice or if there's some substitute for cash that would be liquid and be stable in the event of a market drop, money market funds seem to be the best option - but I really don't know what's available here for an expat
DJN
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by DJN »

me81 wrote: Thu Mar 21, 2019 4:09 am
My current plan is to leave 30% cash for a potential drop and get the rest fully invested now,
I think that you have probably answered your own question here by suggesting that the cash should be allocated to bonds. AGGH is a good option.
You have also the option of parking some cash locally in the UAE where there are good deposit rates available. So perhaps keep a lower risk element in a mixture of AGGH + cash deposit accounts locally and have a read about short term options such as short term bonds etc.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Topic Author
catinacradle
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Joined: Wed Mar 13, 2019 9:06 pm

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by catinacradle »

DJN wrote: Fri Mar 22, 2019 2:04 am
me81 wrote: Thu Mar 21, 2019 4:09 am
My current plan is to leave 30% cash for a potential drop and get the rest fully invested now,
I think that you have probably answered your own question here by suggesting that the cash should be allocated to bonds. AGGH is a good option.
You have also the option of parking some cash locally in the UAE where there are good deposit rates available. So perhaps keep a lower risk element in a mixture of AGGH + cash deposit accounts locally and have a read about short term options such as short term bonds etc.
DJN
That makes sense.

It looks like the simplest approaches for bonds would be to go 100% AGGG (0.1% TER) for USD and AGGH for EUR hedged, but as I look at the ETF more closely, the ETF seems to be managing about ~$1 billion but the daily trading volume is very much on the low end (<50k daily trading far as I can tell so <$250k/day traded), is that an issue? The underlying asset seem like it would be highly liquid & there's a fair bit of AUM as well, but the trading volumes of the ETF gives me pause.

Does it make sense to take the low trading volumes into account when buying in this case? Does the currency (USD for AGGG, EUR for AGGH) matter here for liquidity?

Have been considering IBTS and IGLO as well because they seem like decent options for lower risk bonds domiciled in Ireland & have better trading volumes.
msk
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by msk »

My choice for Buy and forget (I actually have mid 7 figures deployed like this):
76% IWDA, 12% EIMI, 12% WSML
I see no reason to overweight the USA when the investment horizon is many decades. But different opinions make the market what it is...

That 30% you wish to await a fall in the market:
Learn how to use Options. Then you can SELL one-year Puts on either SPY or ACWI, and collect 5% (e.g. $50k if you want a position representing $1million). Then wait one year. Possible outcomes:
SPY worse than 5% down from current price. You end up owning SPY but at a price 5% down from current (you will have saved 5% compared investing the million $ today)
SPY is higher than its current price. You pocket the $50k and play another round.
Same happens if you are playing ACWI instead of SPY.

You can also use Calls or Puts at whatever you think the market will fall to. Hence LEARN how to use options before playing. Good luck.
ICH
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by ICH »

The ishares Core Global Aggregate Bond UCITS ETF has a Net Assets of Fund = USD 1,880,903,700.

This is divided today (02-April-2019) as follows:
AGGG - USD unhedged distributing : USD 306,445,615
AGGU - USD hedged Accummulating : USD 1,049,468,447
AGGH - EUR hedged Accummulating : EUR 294,401,485
AGBP - GBP hedged distributing : GBP 94,906,144
AGGNZX - NZD hedged Accummulating : NZD 40,793,950

Just from the above numbers you would expect the USD hedged version to have the highest liquidity. However I have not researched the subject.

However, if you are a USD only investor, you should get the USD hedged version. If you are a EUR only investor, you should get the EUR hedged version. If you deal with multiple currencies and have no idea what your currency is (like me): you should get the unhedged version. It is currently available only in USD, but this doesn't really matter because you get the full effect of currency swings (because it is unhedged).

IGLO is very good,if you don't want to hedge to a particular currency (it only comes out as GBP hedged or unhedged)
me81
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by me81 »

msk wrote: Tue Apr 02, 2019 5:44 am
Learn how to use Options. Then you can SELL one-year Puts on either SPY or ACWI, and collect 5% (e.g. $50k if you want a position representing $1million). Then wait one year. Possible outcomes:
SPY worse than 5% down from current price. You end up owning SPY but at a price 5% down from current (you will have saved 5% compared investing the million $ today)
SPY is higher than its current price. You pocket the $50k and play another round.
Same happens if you are playing ACWI instead of SPY.

You can also use Calls or Puts at whatever you think the market will fall to. Hence LEARN how to use options before playing. Good luck.
😳😳😳
What happens if SPY is 20% lower??? Or 30%?? Selling a PUT option??? I am in no way qualified to discuss options strategies, but my little understanding is that second to selling CALL options, the second most dangerous thing you could ever do is selling a PUT..! You would have to buy SPY at a 15-25% premium at a time of crisis..
Play money?? Have fun at the casino, play with options..
Bogleheads long-term investing money? Avoid selling options, use a balanced Asset Allocation instead..
msk
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by msk »

You have a choice: invest all your money in one go (my choice) and you have a 60% chance of later believing this was clever or a 40% chance shortly later regretting the big jump-in. Ten years later it will all turn out to be terribly clever :mrgreen: The other choice is to go in using Discounted Cost Averaging and/or waiting for a market fall. How big a market fall will appease you enough to actually ACT and do the BIG jump-in?! Pick your %. 5%? then selling a Put at the current price of SPY is perfect. 10%? then sell the Puts at current price less 10%. 30%? then sell the Puts at 30% below the current price. Without playing with timing and/or options you'll never learn. And without playing the market you will always have a nagging feeling that you can be cleverer than the market. I suspect that most BHs have played the market years ago and finally came to the conclusion that market indexing is the better way. All the preaching newbies get here will never convince them. Losing real $ does. It did to me after a few decades. But playing with actual market timing and individual stock picks is both risking a major fraction of your savings and is too slow (it may indeed take decades to learn THE BH lessons). Using options intelligently will speed up the learning process and risk less of your savings. That's why I always recommend that budding market-timers and stock pickers (every beginner?) are better off using play money and options to launch them faster into a lifelong BH investment trajectory, indexing without market-timing.

PS Selling Covered Calls is low risk. You get the dividends (1 to 2%) plus 5% for one year Calls. 6 to 7% return on $1.5 million (say, $100k) if the market goes sideway over the next year is not too shabby. You can also limit your downside by buying Puts at your deemed tolerance level. Teaches you your risk tolerance/management levels very quickly without putting a huge chunk of your savings to sleep in bonds earning next to nothing beyond inflation. Too many outcomes to digest theoretically. Only way to learn is to risk real $, but keep it at play money level. A trivial error in understanding CAN wipe out your entire play pot.
mooudn
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by mooudn »

catinacradle wrote: Wed Mar 20, 2019 2:51 am Desired Asset allocation: I am investing for the long-term. Given my age and time horizon, I intend to be 100% invested in stocks. I was considering going all-in on VWRD for USD, and VWRL for EURs, but from a TER standpoint a mix of IWDA + EIMI (88% IWDA and 12% EIMI seems to roughly match the region allocation of VWRD) seems to be a better option than VWRD/VWRL. Does it make sense to opt for the iShares version instead to minimize the TER fee?
Why would you go with ishares? the fees are higher not lower than vanguard IWDA (0.2%) + EIMI (0.18)>VWRD (0.22%). Have you made adjustments to your portfolio holdings since this post?
ICH
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Joined: Wed Jun 13, 2018 3:08 am

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by ICH »

mooudn wrote: Sat Feb 29, 2020 4:29 pm Why would you go with ishares? the fees are higher not lower than vanguard IWDA (0.2%) + EIMI (0.18)>VWRD (0.22%). Have you made adjustments to your portfolio holdings since this post?
You need to do the math properly. I will give it a try:
Say you go for 90%IWDA + 10%EIMI.
Cost = 90%*0.2% + 10%*0.18% = 0.18%+0.018%=0.198%.
Smaller than the 0.22% of VWRD.
We're splitting hair of course and such differences are immaterial. I prefer the simplicity of all in one with VWRD and it minimizes the transaction costs.
DXBinvest
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Joined: Sun Jul 07, 2019 2:42 pm

Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by DXBinvest »

ICH wrote: Tue Apr 02, 2019 5:45 am The ishares Core Global Aggregate Bond UCITS ETF has a Net Assets of Fund = USD 1,880,903,700.

This is divided today (02-April-2019) as follows:
AGGG - USD unhedged distributing : USD 306,445,615
AGGU - USD hedged Accummulating : USD 1,049,468,447
AGGH - EUR hedged Accummulating : EUR 294,401,485
AGBP - GBP hedged distributing : GBP 94,906,144
AGGNZX - NZD hedged Accummulating : NZD 40,793,950

Just from the above numbers you would expect the USD hedged version to have the highest liquidity. However I have not researched the subject.

However, if you are a USD only investor, you should get the USD hedged version. If you are a EUR only investor, you should get the EUR hedged version. If you deal with multiple currencies and have no idea what your currency is (like me): you should get the unhedged version. It is currently available only in USD, but this doesn't really matter because you get the full effect of currency swings (because it is unhedged).

IGLO is very good,if you don't want to hedge to a particular currency (it only comes out as GBP hedged or unhedged)
There is unhedged version of AGGG in EUR as well, it is EUNU trading on XETRA. I was told it is always best to go for unhedged versions of ETFs.
ICH
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Re: First time investor at 24 y.o. with $1.5m, based in the UAE.

Post by ICH »

DXBinvest wrote: Tue Sep 01, 2020 2:12 pmThere is unhedged version of AGGG in EUR as well, it is EUNU trading on XETRA. I was told it is always best to go for unhedged versions of ETFs.
For bond ETFs, assuming you are buying them for stability, this is not always the case. AGGG now has 42% exposure to the USD and the rest in other currencies. So the movement of the USD relative to the other currencies can affect the price of the ETF in USD substantially. If you get the hedged USD version, this effect largely goes away. Vanguard has done some studies on the subject I believe.
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