Portfolio advice for a Tico [Costa Rica]

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
User avatar
Topic Author
bojackHorseman
Posts: 18
Joined: Wed Oct 26, 2022 8:06 pm

Portfolio advice for a Tico [Costa Rica]

Post by bojackHorseman »

Country of Residence: Costa Rica

International Lifestyle: I do not expect to move out from Costa Rica or pass a very prolonged amount of time in any other country.

Currency: USD

Emergency funds: 3 Months of my salary

Debt: I have a student loan that it's in CRC, currently my balance is of approximately $13,024.47 USD (exchanged from CRC), it has an annual interest rate of 4,5% and I pay approximately $114.74 (exchanged from CRC) per month, the debt is for 14 years and I have been paying for 14 months.

Age: 23

Desired Asset allocation: 77% stocks / 23% bonds
Desired allocation to stocks outside your of country of residence: 77% of stocks

I don't have any investments yet.

Here in Costa Rica I have an state pension that me and my employer (and future employers) contribute to which it will be available for me at 65 years old and after a certain amount of quotas, these quotas are paid by my salary wages automatically alongside some other accounts that I also contribute in small amounts automatically and will receive after being unemployed or I can hold them until I have my pension.

Current assets

I have my savings in a regular savings account. On this account I have less that $7000 to invest as a lump sum, the other part of my money is for the emergency fund. I also have another account which is my everyday spending money which is my salary minus what I save each month, I save around 30% of my salary. Besides that I have no CD's or hold special kind of accounts.

Future planned investments?

By using BogleBot and reading related books, the Bogleheads wiki and such I have come by the basic portfolio of:
  • iShares Core Global Aggregate Bond UCITS ETF USD Hedged Acc (AGGU)
  • Vanguard FTSE All-World UCITS ETF (USD) Accumulating (VWRA)
But I want to read more and hear your opinions on what could be there for me alongside my investment objectives and context.

Investment Objectives

My main objective by investing is to retire probably at the age of 60-65 or even earlier if I can afford it. Besides that in the nearest future I would like to have some money saved for a home, probably around 2033-2035. Obviously I think that I'm young and could change my mind or add a new objective in the following years like saving for a big trip, kids maybe, whatever life has for me that I haven't thought about yet, or with more investing knowledge I could have have some new ideas.

About me

I currently think that I can bear risk since I live with my parents, nobody is dependent on me and I work in tech as a software engineer, that enables me to save a healthy amount of money each month and the tech area is growing here in Costa Rica, so there is a nice amount of job positions coming every day for now with mostly stable companies, so there's stability for the moment. Nevertheless I really care about my money and saving in general, I want to invest since I want to get more return for my money rather than letting it sit on my bank account and my bank actually making money with my own money,

I plan to save around $400 per month or less an invest it in a regular way, besides that I plan to invest the lump sum when I'm ready and maybe divided it out throughout the months to see how everything works out since I'm quite new.

I'm paid in USD and most of my cash is in USD, though that could change in the future if my future employers paid me in CRC, but it's common in the tech sector to pay in USD.
_______________________________________________________________
Questions:
1. For an investment objective like saving for a home at their thirties like me. How do people do it?

My guess it that obviously for short or intermediate stints like this you would either buy a MMF, CD's or a short bond fund or bond ETF. Does something like buying iShares Core Global Aggregate Bond UCITS ETF USD Hedged Acc (AGGU) and then selling it at the time that I need be sufficient? I know that internally they have an allocation of short and intermediate maturity dates but I don't know exactly in the real world how do people time this to their objectives or if maybe other instruments would serve me better, or another kind of specific duration ETF's that I've seen.

2. How much DCA?

I have to do wire transfer's from Costa Rica so the commission is between $15 to $30 and besides what Interactive Brokers will charge me as commissions. I don't want to pay a lot of commissions between my broker and my bank every month, so I guess that I could do payments every three months with what I've saved. Is that OK? Will it affect anything? I guess not much but I want to be sure.

3. How much investing is enough?

What I mean is, what I save each month, is it sound to invest it all on different instruments? For example If I want to save for a big travel with my friends or family, do I just take that money from what I save each month and let it sit in my bank account? Or is it more sound if I use short investments like CD's, MMF, short bonds, to hold this kind of money? How much enough is enough?




If anybody has any question please feel free to ask, thanks for your time
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

Re: Portfolio advice for a Tico [Costa Rica]

Post by jg12345 »

Hi

1- For a house, you'd need to have a separate pot, invested ideally in anything with duration that matches or is shorter than when you'll need the money.

So for example, if you need the money in 10y, a single high quality inflation linked bond with maturity in 2033 may do the trick, if it exists. Or otherwise CDs ladders - I have never seen CDs for 10y, you could do 5y, 4y, 3y, 2y, 1y, and then renew as they expire.

2- you can definitely DCA every 3 months, or even 6 months. Obviously the longer the period the longer your money stays out of the market. if 3 months is ok given the amounts and commissions involved, it's perfect.

3- For example If I want to save for a big travel with my friends or family, do I just take that money from what I save each month and let it sit in my bank account? You could do that.

Or is it more sound if I use short investments like CD's, MMF, short bonds, to hold this kind of money. => I would suggest against short bonds ETFs. I would suggest a CD or bond with maturity at the date you need the cash. If your big travel is in November 2023, buy a CD or a bond that matures in October 2023.

I hope this helps
User avatar
Topic Author
bojackHorseman
Posts: 18
Joined: Wed Oct 26, 2022 8:06 pm

Re: Portfolio advice for a Tico [Costa Rica]

Post by bojackHorseman »

Thanks jg12345 for your answers

I have another question raised from your answers. So then you say that for something like my example of a house in 2033, it's better to use either CD's or single bonds, but what about bond funds? I've been reading that although you cannot control the maturity of them, each bond fund has an average maturity date that you could use as a minimum to withdraw from it if you need it.

How much is better to have a single bond than a bond fund? Or is it OK if you match the estimated time with the average maturity date of a bond fund?

Another question is, is there any recommended tool around here to know how much to invest in order to get approximately to the amount that you may want, I have that doubt since if I want to start with a 23% Bonds and 77% Equity allocation, I would like to know how to split my bond percentage for intermediate goals like the example of the home and my main goal which is retirement, or even adjust it along the way to see how it may fit.
jg12345
Posts: 427
Joined: Fri Dec 11, 2020 12:03 pm

Re: Portfolio advice for a Tico [Costa Rica]

Post by jg12345 »

bojackHorseman wrote: Sat Dec 10, 2022 2:57 pm Thanks jg12345 for your answers

I have another question raised from your answers. So then you say that for something like my example of a house in 2033, it's better to use either CD's or single bonds, but what about bond funds? I've been reading that although you cannot control the maturity of them, each bond fund has an average maturity date that you could use as a minimum to withdraw from it if you need it.

How much is better to have a single bond than a bond fund? Or is it OK if you match the estimated time with the average maturity date of a bond fund?

Another question is, is there any recommended tool around here to know how much to invest in order to get approximately to the amount that you may want, I have that doubt since if I want to start with a 23% Bonds and 77% Equity allocation, I would like to know how to split my bond percentage for intermediate goals like the example of the home and my main goal which is retirement, or even adjust it along the way to see how it may fit.
Hi OP

1) well, a bond fund will have a duration that remains usually stable. say the duration is 5 years. that tells you that if there is an interest rate increase of 1%, you will lose 5% of the fund value, and it will take 5 years to get the money back (not exactly but let's assume)

then say you buy a bond fund now, 2022, duration 5 years, expect to need the money in 2027. In 2026 the duration of that bond will still be 5 years, and if interest rates grow in 2026, you'd be messed up. I find simpler to understand that I get a single bond (or a mix/ladder) with maturity in 2027, and in 2026 the duration will be 1 year.

Others might disagree with my point of view.

2) hard to say, you might want to look at either history (portfolio visualizer and similar) or long term forecast analysis LTFA from the big banks if you want to have an idea of the return of given assets. there are also nest egg calculators from Vanguard.

I suggest you quote replies, otherwise those replying you do not know you replied.
User avatar
galeno
Posts: 2653
Joined: Fri Dec 21, 2007 11:06 am

Re: Portfolio advice for a Tico [Costa Rica]

Post by galeno »

My wife and I are retired 65 y/o CRs. We started investing in world financial assets in the mid 1980s. It was much harder and far more expensive vs today.

I suggest you keep it SIMPLE. Put all your money into IBKR like this: 80% VWRA + 20% AGGU. When you have a nice amount sell enough of your port and buy your home etc for CASH.

E.g. we bought our home in 2000. After 15 years of investing. It cost 40% of port.

Regarding wire tranfers to IBKR from your CR bank. Just try to keep your costs under 1%. That means you may want to make a transfer every 3 to 6 months vs every month.
KISS & STC.
User avatar
Topic Author
bojackHorseman
Posts: 18
Joined: Wed Oct 26, 2022 8:06 pm

Re: Portfolio advice for a Tico [Costa Rica]

Post by bojackHorseman »

jg12345 wrote: Wed Dec 14, 2022 12:47 pm
bojackHorseman wrote: Sat Dec 10, 2022 2:57 pm Thanks jg12345 for your answers

I have another question raised from your answers. So then you say that for something like my example of a house in 2033, it's better to use either CD's or single bonds, but what about bond funds? I've been reading that although you cannot control the maturity of them, each bond fund has an average maturity date that you could use as a minimum to withdraw from it if you need it.

How much is better to have a single bond than a bond fund? Or is it OK if you match the estimated time with the average maturity date of a bond fund?

Another question is, is there any recommended tool around here to know how much to invest in order to get approximately to the amount that you may want, I have that doubt since if I want to start with a 23% Bonds and 77% Equity allocation, I would like to know how to split my bond percentage for intermediate goals like the example of the home and my main goal which is retirement, or even adjust it along the way to see how it may fit.
Hi OP

1) well, a bond fund will have a duration that remains usually stable. say the duration is 5 years. that tells you that if there is an interest rate increase of 1%, you will lose 5% of the fund value, and it will take 5 years to get the money back (not exactly but let's assume)

then say you buy a bond fund now, 2022, duration 5 years, expect to need the money in 2027. In 2026 the duration of that bond will still be 5 years, and if interest rates grow in 2026, you'd be messed up. I find simpler to understand that I get a single bond (or a mix/ladder) with maturity in 2027, and in 2026 the duration will be 1 year.

Others might disagree with my point of view.

2) hard to say, you might want to look at either history (portfolio visualizer and similar) or long term forecast analysis LTFA from the big banks if you want to have an idea of the return of given assets. there are also nest egg calculators from Vanguard.

I suggest you quote replies, otherwise those replying you do not know you replied.
Didn't know about the quote functionality, haven't been in a forum for years lol.

Quite a surprise on the bond funds, I knew that interest rates on bonds can be sensible, but didn't knew the hit would be that hard on the bond funds.

What's the recommended way to buy bonds directly for Non-US Investors? For example from US Bonds I've read that the US taxes 0% on bond interest, you would only have to take care of the state income tax. Can you buy them directly on IBKR? Not only US but from other countries too though.

Thanks
User avatar
Topic Author
bojackHorseman
Posts: 18
Joined: Wed Oct 26, 2022 8:06 pm

Re: Portfolio advice for a Tico [Costa Rica]

Post by bojackHorseman »

galeno wrote: Wed Dec 14, 2022 2:32 pm My wife and I are retired 65 y/o CRs. We started investing in world financial assets in the mid 1980s. It was much harder and far more expensive vs today.

I suggest you keep it SIMPLE. Put all your money into IBKR like this: 80% VWRA + 20% AGGU. When you have a nice amount sell enough of your port and buy your home etc for CASH.

E.g. we bought our home in 2000. After 15 years of investing. It cost 40% of port.

Regarding wire tranfers to IBKR from your CR bank. Just try to keep your costs under 1%. That means you may want to make a transfer every 3 to 6 months vs every month.
I hear you galeno, even though I'm more of a Saprissa fan :happy

It makes sense to me. Though, you would lose some of that compounding that way, but I mean it is what it is, you can't have it all isn't it.
User avatar
galeno
Posts: 2653
Joined: Fri Dec 21, 2007 11:06 am

Re: Portfolio advice for a Tico [Costa Rica]

Post by galeno »

"I hear you galeno, even though I'm more of a Saprissa fan."

My son in law, many cousins, and friends are Saprisa fans. I don't hold it against them.
KISS & STC.
Post Reply