European national based in UAE - seeking advice

For residents of the United Arab Emirates.
Post Reply
Topic Author
frakso
Posts: 2
Joined: Sat Sep 19, 2020 5:41 am

European national based in UAE - seeking advice

Post by frakso »

portfolio advice
Country of Residence: UAE

Age: 30

Marital status: not married, but planning to marry in ~2 years. No kids

International Lifestyle: I have been living in many countries, but might start settling down in UK or Italy from next year. I would like to retire in Italy at 60+

Currency: my savings are in AED, which is pegged to USD.

Emergency funds: Currently I have enough cash to live with no income for 8-12 years. I would like to keep this money liquid in order to buy a house in Europe in ~2 years. Funds are in a savings account in AED earning 1.5% interest pa.

Debt: none

Desired Asset allocation: 80% stocks / 20% bonds

Boglebot suggestions:

80% VWRA Vanguard FTSE All-World
20% AGGH/EUNA iShares Core Global Aggregate Bond (EUR Hedged)

Strategy:
- keep my savings accumulated so far aside, in order to fund my first owned home in ~2 years
- start buying USD 5k worth ETFs every month from this month onwards
- sell my ETFs next year (TBC) before leaving the UAE and buy again once moved to a new country. This is to avoid being taxed abroad on gains earned while in UAE.

1) Does my strategy makes sense? Do you agree with the above ETF suggestions in my situation?
2) Would it be wise to invest now considering that I might move in one year or less?
3) Now that I am in the UAE shall I opt for EUR or USD ETFs? Shall I review this decision after relocation?
4) Are Ireland-domiciled ETFs still the best decision for me now that I am in the UAE, considering that I am investing a relatively small amount and will most likely liquidate it in a year or so? How to check the trade-off of TER vs US taxes?
5) EUR-hedged bonds or not?
Thanks in advance
Last edited by frakso on Sun Oct 04, 2020 12:37 pm, edited 3 times in total.
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: European national based in UAE - seeking advice

Post by DJN »

Hi,
good plan overall. Irish domiciled ETFs are best for you.
I wouldn't keep large sums of money in a local UAE bank, why not put your house deposit into the bond AGGH ETF. Just sell it when you are going to buy in two years, plans change.
I would use UAE Exchange and get your money out of UAE as soon as you earn it.
You may not have to sell your ETFs before you leave it really depends upon the tax regime in the country that you are entering then, check with a tax adviser or here.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Topic Author
frakso
Posts: 2
Joined: Sat Sep 19, 2020 5:41 am

Re: European national based in UAE - seeking advice

Post by frakso »

Thanks for your feedback. And regarding the the currency? Boglebot suggests VWRA (USD), but since you are suggesting AGGH (EUR) wouldn't it make sense to buy VWCE (EUR) instead?

And wouldn't the UAE savings account be safer against bond price fluctuations?
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: European national based in UAE - seeking advice

Post by DJN »

Hi,
if you intend to go back to a country with the Euro as the currency, then wouldn't this indicate investing via Euros?
In respect to the UAE bank accounts I wouldn't rely upon any guarantee that they would honor your savings in all circumstances.
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
ICH
Posts: 244
Joined: Wed Jun 13, 2018 3:08 am

Re: European national based in UAE - seeking advice

Post by ICH »

1) Does my strategy makes sense? Do you agree with the above ETF suggestions in my situation?
If you're 30, planning to retire at 60, an 80-20 split is logical. But going from savings accounts to 80% stocks is a little abrupt. Are you emotionally prepared to see a paper loss of 40% and not panic sell? It doesn't hurt to start smoothly.
To keep the savings aside since you want to buy a house in 2 years is also OK. I wouldn't put such money in AGGH because its duration is 7+years. But take care of currency fluctuations. If you want to buy a house in Italy, the money should be in euros. If you have it in AED now, you may go after 2 years to buy the house and have less euros.
We generally don't invest monthly from the UAE to minimize the cost of money exchange and transfer. In your case, if you're sending 5k, this is not a big issue.
2) Would it be wise to invest now considering that I might move in one year or less?
No problem. Before departing you sell, after moving you buy the same. If you are certain you will move in 6 months or so start after you settle to the new location. Note that countries in Europe are not tax free like the UAE but have tax efficient accounts you can use.
3) Now that I am in the UAE shall I opt for EUR or USD ETFs? Shall I review this decision after relocation?
The currency in which you buy the ETF does not really matter. What matters is the currency of the underlying assets inside the ETF. So for VWRA, it doesn't matter at all. If you go for AGGH which is hedged to the euro, you have to buy it in euros anyway. To avoid complexity, buy VWRA in euros as well. If you go for an unhedged bond ETF, such as IGLO or AGGG, you can have a portfolio in any currency you want.
The reason most UAE residents prefer the USD, is the thin spreads between AED-USD, which makes exchanging money more economical.
4) Are Ireland-domiciled ETFs still the best decision for me now that I am in the UAE, considering that I am investing a relatively small amount and will most likely liquidate it in a year or so? How to check the trade-off of TER vs US taxes?
https://www.bogleheads.org/wiki/Nonresi ... ciled_ETFs
It's basically always better to go for Irish domiciled ETFs.
5) EUR-hedged bonds or not?
Tricky question. You know of course that yields on european bonds are generally negative. In the case of German bonds as far out as 30 years.
Now, if you are certain you are going to need the money in EUR and your currency is EUR generally, inevitably you have to go for either EUR bonds or bonds hedged to the EUR. If you are a more international person, who may go to Italy next year, maybe to the UK and maybe after some time spend a decade in Asia somewhere, go for a more global, unhedged version. At the end of the day, a 20% allocation only is not going to make or break your portfolio.

Good luck. And get an offshore bank account!
Post Reply