42yr old - first time boglehead - advice appreciated

For residents of the United Arab Emirates.
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Topic Author
Down&Out
Posts: 7
Joined: Sun Feb 12, 2023 6:10 am

42yr old - first time boglehead - advice appreciated

Post by Down&Out »

Team, I am looking for some advice please.

I understand the general principles followed here and want to put them in to practise. But haven’t to date, to the detriment of my financial future.

As background, been in UAE for 10 yrs. Am looking to semi retire (or fully retire if possible, depending on finances) in 3 yrs at age 45. It’s just my wife and myself, and our aim is to live a simple nomadic life as long as we can, travelling the world cheaply and basic. Possessions ain’t the aim and I don’t need to be rich……

Did have one of those monthly saver plans a few years ago which I eventually found out was junk and lost £10k in the process. This experience put me off ‘investing’ even though I knew it was nonsensical, and all savings were just kept in cash.

So today we have circa £800k cash doing nothing. And are on track to put aside a further £600k over the next 3 yrs. Dont have any investments or debt, other than a AED 1m mortgage balance which should be covered by rental income once we leave.

I am trying to filter out the noise and work out what may be the most appropriate investment strategy/split for us over the next 3yrs, and long term. We will need a living allowance of circa £40k per year (inflation adjusted and before taxes - don’t know where we will end up so working on a basis of flat 20% tax on savings growth), and assuming a 70/30 split example of Vanguard S&P 500 tracker / Bond (maybe a bond ladder - but I don’t really know where to start picking bonds…) giving 7% and 5% annual returns respectively over the long term this amount seems doable, depending on market performance.

A problem I see is the fixed income portion at 30% does not give the desired yearly income of 40k, meaning I’d have to take value out of the ETF which, if the market is down, is an issue.

Really, I want to adopt the invest and forget approach to this so long as I can maintain our necessary yearly income.

Any and all advice would be more than welcome. Does my approach seem realistic, achievable, a pipe dream etc., and how would you go about it?

Thanks for reading if you made it this far.
niagara_guy
Posts: 1168
Joined: Tue Feb 11, 2020 7:32 am

Re: 42yr old - first time boglehead - advice appreciated

Post by niagara_guy »

Welcome to the forum! Here's a link:

https://www.bogleheads.org/wiki/Getting_started
Topic Author
Down&Out
Posts: 7
Joined: Sun Feb 12, 2023 6:10 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Down&Out »

niagara_guy wrote: Sun Feb 12, 2023 6:54 am Welcome to the forum! Here's a link:

https://www.bogleheads.org/wiki/Getting_started
Thanks for the link.

I’ve been through a lot of background reading on the boglehead approach to investing over the past few years which I believe my initial post mostly adheres to (?), but would appreciate individual’s input on the specific situation.
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: 42yr old - first time boglehead - advice appreciated

Post by DJN »

Hi,
Money earned in UAE is pretty much doubled over your potential in the west. So invested money is going to perform even better in your case.
If it were me I would start investing tomorrow under my own steam, you don't need an adviser or the like. Another three years of tax free-ish money is like gold dust. Sounds like you are nervous and that's fair enough at the moment, so why not dollar cost average into a few straightforward ETFs as laid out for non US bogleheads over the next three years, say @ £30,000 or more per month:
https://www.bogleheads.org/wiki/Buildin ... _portfolio
For UAE IBKR is probably optimal, just get started with a few months of purchases and after the first three months it won't feel like a burden and you can watch your valuations go up and down as you feel inclined! You can then ramp up your monthly instalments as you gain confidence so that your cash surplus diminishes. One other advantage is that you are not keeping such large sums of money in a bank or series of banks, not too safe right now. This aspect should worry you nearly as much as any drawdown.
good luck,
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Topic Author
Down&Out
Posts: 7
Joined: Sun Feb 12, 2023 6:10 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Down&Out »

DJN wrote: Sun Feb 12, 2023 8:14 am Hi,
Money earned in UAE is pretty much doubled over your potential in the west. So invested money is going to perform even better in your case.
If it were me I would start investing tomorrow under my own steam, you don't need an adviser or the like. Another three years of tax free-ish money is like gold dust. Sounds like you are nervous and that's fair enough at the moment, so why not dollar cost average into a few straightforward ETFs as laid out for non US bogleheads over the next three years, say @ £30,000 or more per month:
https://www.bogleheads.org/wiki/Buildin ... _portfolio
For UAE IBKR is probably optimal, just get started with a few months of purchases and after the first three months it won't feel like a burden and you can watch your valuations go up and down as you feel inclined! You can then ramp up your monthly instalments as you gain confidence so that your cash surplus diminishes. One other advantage is that you are not keeping such large sums of money in a bank or series of banks, not too safe right now. This aspect should worry you nearly as much as any drawdown.
good luck,
DJN
Solid, thank you.

For the next three years, do you feel going 100% into ETF could be more sensible than going 30% into bonds? Just an opinion
DJN
Posts: 996
Joined: Sun Nov 19, 2017 11:30 pm

Re: 42yr old - first time boglehead - advice appreciated

Post by DJN »

Hi,
I believe you mean 100% equities? Considering your fairly risk averse approach with such a large cash amount I would have imagined that a good degree of fixed income would be appropriate. Maybe 50/50 bonds to equities? Who knows how the next year or so will progress, probably some version of a soft landing or a hard landing or a recession or a crash landing or a.....off to the moon? Certainly the comprehensive yield curve inversions across multiple curves including interestingly enough an inversion of the German curve is pointing to something untoward.
I have two main portfolios, the one I am really invested in (which has become complicated for tax reasons) and a shadow one which is a simple 50/50 version with a selection of global ETFs in equities and bonds. The shadow one has performed better and is in strong positive territory over the last 10 years.
Here are some examples of accumulating ETF from Bogleheads Wiki:
https://www.bogleheads.org/wiki/Buildin ... _portfolio
Alternatively you could just invest in a Vanguard Life Strategy and forget about it for ten years:
Vanguard LifeStrategy 80% Equity ETF Acc (80% equities/20% bonds)
ISIN IE00BMVB5R75 EUR
(Using 80% equities over the period of dollar cost averaging because you hold so much cash, it will take you more than two years to invest the £800,000 at a rate of £30k per month not to mind the future income addition of £16,666 per month. Of course if the market drops a lot in the interim then that's another "lucky for you" buying opportunity which will shorten your timespan)
(BTW there are good offshore deposit accounts available via local UAE banks offering decent deposit rates).
DJN
Yah shure. | Have a look at the Bogleheads Wiki in the first instance.
Topic Author
Down&Out
Posts: 7
Joined: Sun Feb 12, 2023 6:10 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Down&Out »

DJN wrote: Mon Feb 13, 2023 3:07 am Hi,
I believe you mean 100% equities? Considering your fairly risk averse approach with such a large cash amount I would have imagined that a good degree of fixed income would be appropriate. Maybe 50/50 bonds to equities? Who knows how the next year or so will progress, probably some version of a soft landing or a hard landing or a recession or a crash landing or a.....off to the moon? Certainly the comprehensive yield curve inversions across multiple curves including interestingly enough an inversion of the German curve is pointing to something untoward.
I have two main portfolios, the one I am really invested in (which has become complicated for tax reasons) and a shadow one which is a simple 50/50 version with a selection of global ETFs in equities and bonds. The shadow one has performed better and is in strong positive territory over the last 10 years.
Here are some examples of accumulating ETF from Bogleheads Wiki:
https://www.bogleheads.org/wiki/Buildin ... _portfolio
Alternatively you could just invest in a Vanguard Life Strategy and forget about it for ten years:
Vanguard LifeStrategy 80% Equity ETF Acc (80% equities/20% bonds)
ISIN IE00BMVB5R75 EUR
(Using 80% equities over the period of dollar cost averaging because you hold so much cash, it will take you more than two years to invest the £800,000 at a rate of £30k per month not to mind the future income addition of £16,666 per month. Of course if the market drops a lot in the interim then that's another "lucky for you" buying opportunity which will shorten your timespan)
(BTW there are good offshore deposit accounts available via local UAE banks offering decent deposit rates).
DJN
Thank you very much. Really appreciate your opinions.

Yes I meant 100% equities. I agree, I am risk adverse, but I am trying my best to rationalise this mindset; easier said than done.

I played around with a fixed income allocation to achieve 40k income per year - circa 70% based on projected £1.4m is required which I feel is too heavily weighted and would adversely affect my future growth. A 50/50 may be the best option for now.

Offshore fixed term deposits seem to be offering circa 4% - are you aware of any bettering this? Based on dollar cost averaging, depositing the amount I will not invest into ETFS over the next 12 months into a fixed term saver is a great idea. Thank you

It is correct that bonds are seen as a debt should the bond issuer default whereas fixed term savers are not should the bank go bust?
Valuethinker
Posts: 49035
Joined: Fri May 11, 2007 11:07 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Valuethinker »

Down&Out wrote: Mon Feb 13, 2023 4:42 am
It is correct that bonds are seen as a debt should the bond issuer default whereas fixed term savers are not should the bank go bust?
It is more complex than that.

For a non-financial company, the bond is a debt. But there will be other forms of debt (bank loans, leases) that will get paid out first. It's a complex area. Recoveries vary widely. Can (and will) take years. They are still working on Lehman.

For a financial company, paying out the amounts up to deposit insurance ranks *first* generally. After that, it totally depends. For example Bank of Cyprus depositors got 100% of EUR 100k, and then anything over that was diluted about 60%. Iceland I am not exactly sure, but they imposed exchange controls so you had Icelandic Kronor you could not get out, or only do so at a very big discount to the exchange rate -- not sure if this is still the case.

So stay within the deposit insurance. And make sure the government that regulates that entity can afford to bail out its banks. That was the problem in Cyprus, it was just too small a country to do that. They needed to go to the EU and beg.

Lebanon of course is a total meltdown. The banks there limited foreign exchange transactions, then basically froze them. I think they also limited withdrawals in Lebanese currency to a certain amount each week.
Topic Author
Down&Out
Posts: 7
Joined: Sun Feb 12, 2023 6:10 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Down&Out »

Valuethinker wrote: Fri Feb 17, 2023 6:30 am
Down&Out wrote: Mon Feb 13, 2023 4:42 am
It is correct that bonds are seen as a debt should the bond issuer default whereas fixed term savers are not should the bank go bust?
It is more complex than that.

For a non-financial company, the bond is a debt. But there will be other forms of debt (bank loans, leases) that will get paid out first. It's a complex area. Recoveries vary widely. Can (and will) take years. They are still working on Lehman.

For a financial company, paying out the amounts up to deposit insurance ranks *first* generally. After that, it totally depends. For example Bank of Cyprus depositors got 100% of EUR 100k, and then anything over that was diluted about 60%. Iceland I am not exactly sure, but they imposed exchange controls so you had Icelandic Kronor you could not get out, or only do so at a very big discount to the exchange rate -- not sure if this is still the case.

So stay within the deposit insurance. And make sure the government that regulates that entity can afford to bail out its banks. That was the problem in Cyprus, it was just too small a country to do that. They needed to go to the EU and beg.

Lebanon of course is a total meltdown. The banks there limited foreign exchange transactions, then basically froze them. I think they also limited withdrawals in Lebanese currency to a certain amount each week.
Thank you very much for the detailed response. I have some Lebanese friends who have suffered from the measures you have mentioned.
Bdzyd
Posts: 5
Joined: Sun Jul 19, 2020 2:09 am

Re: 42yr old - first time boglehead - advice appreciated

Post by Bdzyd »

Just in case you haven't already found us, we have a bogleheads group in UAE called SimplyFI.org Find us on Facebook. Our group is very active.
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