USD portfolio planning from the EU (Hungary)

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stapke
Posts: 3
Joined: Sat Oct 28, 2017 12:33 pm

USD portfolio planning from the EU (Hungary)

Post by stapke » Sun Oct 29, 2017 8:59 am

I am someone with USD reserves living and working in Hungary. I am planning to invest these reserves in a lazy, buy-and-hold portfolio. I spent quite some time in reading up on the subject, and I would like to choose a strategy that will work without intervention and allow me to forget about the invested money for a long time. I think we will have the nerves to do this without regard to market changes as we kept the money accumulating in the bank for 15 years while the USD fluctuated widely (and lost a lot of possible revenue meanwhile). The Boglehead view I read about on this site seems to be the most reasonable to follow. I regret that I did not invest the time earlier in thinking about finances. I wonder if my plans described below have missed some risk that could influence them.

My savings came from working abroad (mainly Middle East and US) in USD, however I have a stable (as far as it can be) public sector job locally and have plans to remain and retire here, although I expect economic and political turmoil for the country in the not-so-long run (certainly in my lifetime). Hopefully our location in the middle of Europe will dampen the fallout effect on us.

I am 47, and have a family with 3 kids. My retirement should come in about 20 years. My presently teenage kids will probably enjoy public education with no such major cost as in the US. We own our apartment, and the two of us make enough locally to cover a sensible, but frugal middle-class lifestyle (luckily Hungary has almost the lowest living costs in the EU) and even manage to save some.

We have an emergency fund, and no debt whatsoever. So without no anticipated major costs we finally decided to invest the money we have.

I might continue to do consulting abroad, but I do not count on a steady foreign USD income. I do not have full confidence in the Hungarian currency (HUF), so most of our financial assets remain in USD.

Still, we have some assets locally in HUF (about 25% of total financial reserves). These are in a tax-sheltered account, with about 12% in inflation protected government bonds, and 13% in actively managed local funds (REIT type real estate and equity).

Also, we own another flat rented out (which is gaining well in value while producing income). Our investment in this (not counting our own place as investment) is comparable in value to our total financial reserves. The real estate prices doubled recently, so they could come down equally easily.

The asset allocation I would be imagining for us if we only had the USD cash would be 70% equity – 30% bonds. I do not know if our local holdings (HUF bonds and funds, real estate) should have an effect on this, or we should treat the USD as an independent fund where we better include bonds.

For the investments I need to go for low cost USD denominated ETFs that are domiciled in Ireland and accumulating. This will enable us to take full advantage of the tax-sheltered accounts in Hungary. I had mixed feelings about lump sum investing, but I convinced myself that waiting more is more likely a losing scenario despite the expected market corrections.
The equity ETFs I picked are often recommended here on the forums. As I understand I should give the orders for them on the London SE:
iShares Core MSCI World UCITS ETF (IWDA): 63% of USD, 47% of all investments, (TER 0.2%)
iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI): 7% of USD, 5% of all, (TER 0.2%)

I am most uncertain with the bond portion. I do not even know if I need to get these together with my local asset structure. If yes, I would also pick a globally covered one:
iShares Global Inflation Linked Government Bond UCITS ETF (IGIL): 30% of USD, 23% of all (TER 0.25%)

If I continue receiving USD income, that will probably be invested into this portfolio.

I also am thinking to convert all Hungarian funds (especially the actively managed equity funds) into inflation protected 5-year government bonds. These still give quite good returns and have a time horizon that leaves place for corrections. Local equity markets are so unbalanced, that I am not sure I should keep having positions there (especially with the high cost (>2%) of the active funds). Although real estate is still priced lower than most of Europe, I would not want to increase our exposure to that market either.

I welcome any feedback. Thanks in advance.

stapke
Posts: 3
Joined: Sat Oct 28, 2017 12:33 pm

Re: USD portfolio planning from the EU (Hungary)

Post by stapke » Mon Oct 30, 2017 2:56 pm

I might have erred with not including the template only a long textual explanation. My excuse is that the template is so much US oriented.
Let me give it a try.

Geoff

Emergency funds: 6 months of expenses
Debt: $0
Tax Filing Status:Head of Household
State of Residence: Hungary, EU
Age: 47
Income: $30k (reasonable for EU)

Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 50% of stocks

Current retirement assets
((Total of All Accounts together (not each account individually) should equal 100%. ))


Size of the portfolio: $150k

Owned
12% Hungarian treasury bonds in HUF
13% Hungarian active mutual funds in HUF (equity and bonds included)
Real estate (appr. same value as financial instruments)

Planned

iShares Core MSCI World UCITS ETF (IWDA): 47% (TER 0.2%)
iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI): 5% (TER 0.2%)
iShares Global Inflation Linked Government Bond UCITS ETF (IGIL): 23% (TER 0.25%)

Questions:
1. Do I need the bond portion for the USD investment?

2. Is this a sensible plan?

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BeBH65
Posts: 855
Joined: Sat Jul 04, 2015 7:28 am

Re: USD portfolio planning from the EU (Hungary)

Post by BeBH65 » Mon Oct 30, 2017 5:02 pm

This certainly is a sensible plan.


The currency risk is linked to the currency of the underlying Assets; for IWDA 55% usd, 8% jpy, ... Etc
Buying the funds in the usd version avoids the currency conversion charges.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

stapke
Posts: 3
Joined: Sat Oct 28, 2017 12:33 pm

Re: USD portfolio planning from the EU (Hungary)

Post by stapke » Sat Nov 04, 2017 10:56 am

Thank you very much. A little support is quite reassuring.

My only doubt remains whether I should count my Hungarian assets (mainly bonds and property) to balance out the equity ETFs I plan to buy from my USD reserves. My overall confortable asset allocation to equities/bonds would be 65/35. I do not have a good feel how to translate this when the currency risk is also there.
Anyhow, I plan to remain at home in the long run, so maybe I will cut down on the USD bond portion.

All the best,

Geoff

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