Hello, 26 year old American expat teaching in Abu Dhabi, UAE!

[thatgirlmjl]

MichaelB, that would be FANTASTIC if you have the time to post your results.

I'm a novice investor and this forum has been invaluable for me.

Thank you!

 

[nun]

Will check out Boglehead wiki. Thanks for the advice, nun! Is there a different Vanguard fund that would be better than VWINX for taxable accounts?

Don't get me wrong, Wellesley is a good fund to have, it's just that it is 60% bonds and dividends from those are usually taxed as income. It's not really an issue if you are in a low tax bracket, but for someone making big bucks it's best to put bond investments in retirement accounts. It's basically tax efficient to keep stock index funds in your taxable accounts.

I like MichaelB's suggestions, but the bond fund is very different from Wellesley's bond portfolio. Understand what you are buying and why. If you want to keep things simple look at VTSMX. Beware of all the "shinny funds" out there. There is an infinite amount of duplication and variation that just serves to confuse investing when it should be a relatively simple thing. Understand what you are investing in and why you are doing it, DON'T just pick at random (I don't think you are doing that) or buy something because someone says to.

Take a look at MichaelB's suggestions and think about how you can combine the funds he suggests to make a tax efficient "Wellesley clone"...it's a simple matter of getting the proportions right.......crucially look at the difference in the bond investments between Wellesley and Intermediate tax exempt bond fund.

 

[thatgirlmjl]

Update

Still here and still quietly investing 70% of my tax-free income.

Working overseas in the middle of nowhere can be a drag, but when I watch my savings and investments grow, I am reminded of why I am here.

 

[arebelspy]

Still here and still quietly investing 70% of my tax-free income.

Working overseas in the middle of nowhere can be a drag, but when I watch my savings and investments grow, I am reminded of why I am here.

That's terrific. So you met the "immediate goal" you put in the first post?

Enjoy yourself while you're there!

 

[Nemo2]

Working overseas in the middle of nowhere can be a drag, but when I watch my savings and investments grow, I am reminded of why I am here.

I spent 7+ years in the Magic Kingdom of Saudi Arabia, starting at age 39, and quit working forever at age 46 when I left......hang in there for as long as you can, and don't be tempted to piss your money away on 'frivolities'.

 

[thatgirlmjl]

I met my goal of 10k by the new year. In fact, I surpassed it and am up to 13k. Crunched numbers again and decided that I can save closer to 3k per month. So that is my new goal for February's pay check.

Formal j*b evaluations have been completed. I was praised for doing an excellent job and provided easily-actionable feedback. I was quite pleased with the outcome.

I just finished reading "Early Retirement Extreme" by Jacob Lund Fisker and am going to read it again and again. It gave me a lot to ponder and research.

INVESTMENTS
Asset Allocation is currently: 80% stocks, 20% bonds
Breakdown as follows:
TAXABLE Brokerage
6k (VTSMX)
3K (VWELX)
ROTH IRA
550 (VFINX) cannot contribute to it while overseas : (

SAVINGS
1K in 12 month fixed-rate bank CD (earning less than 1%)
1K in 9 month fixed-rate bank CD (earning less than 1%)
1K liquid

 

[nun]

I just finished reading "Early Retirement Extreme" by Jacob Lund Fisker and am going to read it again and again. It gave me a lot to ponder and research.

INVESTMENTS
Asset Allocation is currently: 80% stocks, 20% bonds
Breakdown as follows:
TAXABLE Brokerage
6k (VTSMX)
3K (VWELX)
ROTH IRA
550 (VFINX) cannot contribute to it while overseas : (

SAVINGS
1K in 12 month fixed-rate bank CD (earning less than 1%)
1K in 9 month fixed-rate bank CD (earning less than 1%)
1K liquid

Be careful, that book is obviously a little extreme. I follow a similar philosophy but like to eat more than just lentils.

You can actually contribute to your ROTH while working overseas. You either use foreign tax credits or just use your FEIE to exclude only a part of your income so that you can enter earned income on the 1040. To contribute $5k to your ROTH you need to arrange things so your modified adjusted gross income is at least $5k. Then you will subtract your exemptions and deductions from that and you should still end up with zero tax due, depending on how much investment income you have.

 

[thatgirlmjl]

Nun, it is my understanding that it is not possible to exclude only a part of your income from the FEIE (foreign earned income exclusion). I do not make anywhere close to 90k per year.

 

[MichaelB]

Thatgirl, what you cannot do is use part of the FEIE to exclude part of your earned income. The income exclusion must be used entirely or not at all. If you are paying some local income tax you might be able to use it as a credit against US income tax, not need the FEIE, and then have opportunity for the ROTH.

 

[thatgirlmjl]

I pay no local taxes as I am working in the United Arab Emirate. It is a tax-free country. Argh. This stuff is confusing!

 

[MichaelB]

Thatgirl, taxes are complex. I always worked outside the US and have no tax deferred savings - our entire portfolio is taxable. There are times I wish we had ROTH accounts, because there are investments we cannot consider because they are too tax inefficient. Looking over the past decade, however, these moments are not frequent, and not having tax deferred accounts is an advantage and a relief. My suggestion is you continue to do exactly what you are doing now - save as much as you can and build your taxable portfolio. If you get a chance for ROTH contributions, take them, but otherwise don't worry. You're doing well.

 

[nun]

Nun, it is my understanding that it is not possible to exclude only a part of your income from the FEIE (foreign earned income exclusion). I do not make anywhere close to 90k per year.

Yes, I was wrong about the FEIE, it only works if you earn above the FEIE so cannot exclude all your foreign earnings. The FTC route does work, but only if you pay more tax for similar amounts of tax than you would in the US. As your income is tax free that's not an option for you. Sorry for the 50% bogus post.

 

[lhamo]

Not sure what kind of summer breaks you get, but one way you could generate some extra income that would not be subject to the FEIE would be to come back to the US to work for a few weeks as a tutor or at a camp or something. You'd have to be sure that you had established your "tax domicile" in the Emirates first, though, or else not spend a total of more than 30 days in the US. Any income you earn in the US can be used toward a Roth, and as long as you aren't bringing in huge amounts you should stay below taxable limits.

We are able to put a little bit into Roths every year because DH and I both travel back to the US 1-2 weeks annually on work-related business trips. It isn't a ton, but every little bit counts.

lhamo

 

[billman]

Hi,

Just finished 8 years in UAE, Company has sent me to Asia now. Glad to see you are using the tax free living wisely. Some get caught in the expat spend mode especially in Dubai. FYI on vanguard, they are not the quickest with American expats, its quite rare for them. I tried to wire some money from them to Dubai, it took 10 days. Also, if you don't know already, they have free incoming wire transfers. Good luck, I saved a bundle, much more than if I had lived in USA.

Billman

 

[thatgirlmjl]

Update time!
Asset allocation:
VANGUARD TAXABLE ACCOUNT:
3k in VWINX
12k in VTSMX
VANGUARD ROTH IRA:
550 in VFINX
2k in CDs at the bank

On track for my goal of 25k by July!

 

[Sarah in SC]

Good for you, thatgirl! It is so exciting to see how fast the money can pile up when you pay attention. You are sacrificing a lot to get where you are want to go, money-wise and life-wise, and that kind of discipline bodes very well for your future.

I just did a back of the envelope number-crunch of what we've saved since 2005 and it is really, really remarkable. So much so I keep pulling out the envelope to check! But I remember quite well being where you are today, as far as my financial education and savings. Keep reading, and keep saving! Thanks for the update, too!

 

[ronocnikral]

Good job! Just a small thing, but you might want to change the VTSMX to VTSAX and reduce your expenses a bit.

Otherwise, keep up the good work.

 

[thatgirlmjl]

Thank you for the encouragement, Sarah in SC and ronocnikral! I will definitely be changing over to VTSAX to reduce my expenses. Here's to saving : )

 

[MichaelB]

Right on track. Feels good, doesn't it? So, have you started working on your next set of targets?

 

[EvrClrx311]

Awesome progress! Keep it up.

 

[thatgirlmjl]

MichaelB, my next target is 50k by June 2013. I'm striving for over 100k by the age of 30.

 

[EvrClrx311]

MichaelB, my next target is 50k by June 2013. I'm striving for over 100k by the age of 30.

Be careful not to set your target goals on too strict a time/amount. The reason being that the larger your account grows the less incoming savings will drive its growth and the more stock market swings and returns will influence the total amount.

In the long run this is a good thing (the market will work for you), but be prepared for years where your contributions are not even making up for losses. Other years you'll see that the returns dwarf what you're putting in. The key is not to let any of this discourage your rate of savings, just keep putting it in there no matter what.

Again, great job!

 

[MichaelB]

Good luck with that goal. Saving early in life is very enabling and gives you opportunities later you otherwise might not have.