What would you do if you were me? (investment strategy)

[ILikeStarTrek]

I've generally come to the mindset that I should never speculate, live within my means, and seek ways to PRESERVE the fruits of my hard work. Nothing more, nothing less. You know, something like those grandma's jars from the pantry...

Everything is statistics, nothing is "guaranteed", so it's like the "theory of relativity" (of the general kind, that is). But do you know what pisses me off the most? HOW come the following things are guaranteed:
- Having to come to work daily and in precise cadence, and always expecting from you to give your best
- Your salary
- Tax rates
- Legal / contractual commitments
- and so on and so forth,
.. but when it comes to investment outcomes, suddenly, everything is ... relative... Don't you find that intriguing? I'm looking for a unicorn - that can preserve my purchasing power / of the assets I am accumulating during my active working life, with the purpose of enjoying them later. That's too much to ask, I know I feel cheated in this scheme of affairs, to be candid with you.

Oh, I forgot to mention: I have no medical insurance, other than dental. It's still hard for me to accommodate to the current "healthcare" system here. Looks like "medicine for profit" and a lot of cost overhead mainly caused (I think) by a very litigious medical environment. To keep ourselves healthy, we go at least once a week for a harder hike in the Rockies. I am aware of the risk of not having health insurance, and currently re-evaluating. I did have insurance with a previous employer, because it was covering almost everything (and almost cost me nothing).

You started out by asking, "What would you do if you were me..."? You have gotten a lot of advice, but some of it you don't like. You ended up saying it "pisses me off" not to have guaranteed investment outcomes, you feel cheated, and in another post that "it's still hard for me to accommodate to the current 'healthcare' system here." People on this forum can give you advice about what we would do if we were you, but we cannot change the way systems in the US work.

It seems like you want guaranteed/universal salary, guaranteed universal health plan, guaranteed investment outcomes, etc. To mention a few things in response:

Much in life is not guaranteed. Your continued life and health are not guaranteed - no matter where you live. We all have an uncertain future, and we have to learn to deal with that.

I'm surprised you said your salary is guaranteed. Unless you have certain civil service jobs where the government pretty much guarantees your continued employment, you can be laid off at any time from almost any job. You may think your continued employment/salary is likely, but it's probably not guaranteed (at least mine wasn't). But if you have managed to get in one of those guaranteed civil service jobs, good for you!

If you want to vent about how you don't like things about the US economic system, that's okay up to a certain point, but ultimately you have to live and work within that system (or go live in some other country, if you can find one that you consider better!). I would love to have an FDIC-insured savings account that paid a guaranteed 8-10% return forever. But that doesn't exist. So I have learned to work within the economic system I do have, and so far I have managed to be very successful (despite some mistakes along the way). You will likewise be more successful with investing if you can adjust to what we have instead of lamenting what we don't have and getting paralysis of analysis. The "grandma's pantry jars" approach is just not a good investment methodology.

 

[smihaila]

Hi ILikeStarTrek,

First of all, I'd like to thank to both you and all the other forumists for the disinterested and great advice!

You started out by asking, "What would you do if you were me..."? You have gotten a lot of advice, but some of it you don't like.

It's not that there is "some of it" that I don't like. It's rather the fact that I am trying to put some of the suggestions into more context (my context), passing them thru my personal "filter", value system, comparing against past experience, and weighing and counter-weighing in various factors.

You ended up saying it "pisses me off" not to have guaranteed investment outcomes, you feel cheated, ...

I mentioned that aspect only to point out some form of asymmetry in terms of day-to-day facts of life. And I'm not sure if what I wished to convey, was understood properly: It's not about whining, or hoping for unrealistic "ivory towers".

The asymmetry (in expectations and risk factors) stems from this point of view: Certain aspects in life, such as taxes, legal-enforceable contracts (yes, even a job offer is a contract: one party commits to provide work and service and the other party will compensate financially for that work, or various policies in terms job expectations, traffic rules etc). But in the same time, a stock market or other inherently-risk forms of investment, can't offer the same level of "legal binding" and commitment between the 2 parties engaged in the transaction. In other words: one party puts in work effort, sweat, firm money, but there is no expectation from the other party to also commit so the same level of "seriousness". So, "stuff in life is relativistic" - but only for for the lower or the middle class, if you catch my drift. I wasn't suggesting that there is anything I could do to restore this balance of "fairness", I was only trying to point out the situation. The idea would be that "since investment outcomes are so relativistic, why shouldn't we also be relativistic by not paying taxes always in the right amount, or missing day of work, not doing the job at the same level of exigence all the time, etc"

... and in another post that "it's still hard for me to accommodate to the current 'healthcare' system here." People on this forum can give you advice about what we would do if we were you, but we cannot change the way systems in the US work.

I wasn't saying that US healthcare is completely orthogonal, and that I won't be able to eventually come to understand it and accommodate. I was saying only that it takes a tad longer to get to that point, especially for folks who got to experience other systems as well, from other countries and cultures. For someone who never experienced living and working in other countries and continents, and who got to grow up only with one system, it may be easier to cross that bridge.

And I thought that seeing other points of view, might interest you. I could come up with more comparisons, but I'll stop, no problem - wasn't in my intention to offend or God forbid, bash anything. It's just some points of view resulting from past experience and putting new experience thru a filter.

It seems like you want guaranteed/universal salary, ...

No, sorry, I didn't say that, hopefully the additional explanation above clarifies a bit. A salary is "guaranteed" in the sense that is written in an offer, and both parties come to a firm agreement, and sometimes quite legally binding. I never alluded to "a minimum universal income guarantee" or other extremely socialist or even communist ideas (which I despise).

guaranteed universal health plan, ...

It depends on what you mean by "guaranteed" in that statement ^.
IF that's about fair pricing (instead of medicine for profits and a lot of intermediaries / "paper pushers"), fair contributions into the system, no "pre-existing conditions" crap, and easy access, then yes, it can be construed as "guaranteed" in a way

... guaranteed investment outcomes, etc.

Again, that was in the context of the "asymmetry of things in life".
It's about an "expectation" of getting something of value, in return for you putting in hard work, sweat, patience, energy, tenacity. Maybe that can be achieved by directly investing into local businesses, and becoming yourself intertwined with such business. In that way maybe cutting the middlemen (brokers, publicly-traded share markets etc). Not sure, just a thought.

To mention a few things in response:

Much in life is not guaranteed. Your continued life and health are not guaranteed - no matter where you live. We all have an uncertain future, and we have to learn to deal with that.

True, the future is always uncertain. But not ALL the things in life lack guarantee. SOME DO have a guarantee, sometime a strong one. Example: if you don't pay this X amount of owed taxes, you go to prison, right? OR, if the employer does not reward a perfectly valid work (and which you've given all the best you could do proffessionaly and ethically), then the contract between the 2 parties is null and void, right? Or you can't have these X goods / services sold, unless you pay for them. Or, you take a mortgage with the banksters, and you have a legal obligation to pay it back etc.

I'm surprised you said your salary is guaranteed. Unless you have certain civil service jobs where the government pretty much guarantees your continued employment, you can be laid off at any time from almost any job. You may think your continued employment/salary is likely, but it's probably not guaranteed (at least mine wasn't). But if you have managed to get in one of those guaranteed civil service jobs, good for you!

It was never in my intention to ever suggest that - sorry if it was misunderstood (kindly see my explanation above - "guaranteed" in the sense of a contract existing between 2 parties - the employer and the employee which obviously will never state that you have that job for life, but certain conditions are specified). Remember those unionized jobs from Canada? (I dislike the concept / see the Teachers union there - they live like Kings, and compare that to the underpaid teachers here in the US / or at least in Colorado).

If you want to vent about how you don't like things about the US economic system, that's okay up to a certain point, but ultimately you have to live and work within that system (or go live in some other country, if you can find one that you consider better!).

Of course! It's not venting (it may sounded like that because too many things and idea or views collect in my head and need to externalize them fast). It's rather about making connections between things, comparing between past experience and new experience, seeing the good in multiple socio-economical systems, the less good and trying to live with it and understanding it etc.

I would love to have an FDIC-insured savings account that paid a guaranteed 8-10% return forever. But that doesn't exist. So I have learned to work within the economic system I do have, and so far I have managed to be very successful (despite some mistakes along the way).

No, not 8-10% forever. But something that can counteract the hidden form of continuous thievery that the Governments (everywhere, not only in U.S.) are practicing, through inflation, and "fresh new money" that is given only to their club and circle of acolytes...Nothing more, nothing less.

Yes, it's a unicorn...Oh wait, if you are amongst the privileged few (private owners of "Federal" "Reserve"), and you lower your expectation but just by a tiny bit, you get 6% profit in perpetuity...

You will likewise be more successful with investing if you can adjust to what we have instead of lamenting

Not lamenting, but rather trying to share with you my own view on the current status quo, thru my own prism / optics. And which is of course subject to change, and hopefully influenced positively by advices like yours and others.

what we don't have and getting paralysis of analysis.

This is indeed the key problem. Too many aspects to analyze, and my rather complex / atypical situation (immigration, not owning a home etc, SHORT investment horizon etc). May seem simple, but try putting yourself also into my shoes for a bit

The "grandma's pantry jars" approach is just not a good investment methodology.

And why is it necessarily a bad mindset? What is wrong with being strongly ethical, being conservative, prudent, wanting to preserve capital and value and not necessarily "get rich over night" (without work - that's the "speculation" I was thinking about).

Many of these problems in the real world ... may be caused by things as simple as ... debt, smoke-and-mirrors-fractional-reserve-systems, inflating assets with the airpump and lacking fundamental values, etc... Who knows, maybe it's worth returning to a more "classic", and simple economical systems, ones who value the invididual, mutual trust etc. Eh, dreaming....

Thanks again!

 

[ILikeStarTrek]

Smihaila, thanks for the clarifications in your last post.

I do want to clarify one thing I said:

The "grandma's pantry jars" approach is just not a good investment methodology.

And why is it necessarily a bad mindset? What is wrong with being strongly ethical, being conservative, prudent, wanting to preserve capital and value and not necessarily "get rich over night" (without work - that's the "speculation" I was thinking about).

I didn't mean to imply it's a "bad mindset" but rather I said it is "not a good investment methodology." I meant "not good" => "not effective". Over time, the pantry jar loses money relative to inflation. Which is pretty much the main problem you are expressing now which inspired your post, as I understand it.

I have a question for you, because in your follow-up posts, you keep referring to a "SHORT investment horizon" and I don't understand that. In your original post, you did mention the possibility of buying a house in the next 3-5 years, and if you have money earmarked for the house down payment, I tend to agree with not putting those funds in the stock market. But you also said that you have saved "mid six-figures cash capital in Canada, and another mid six-figures capital in the U.S.", and you have an ongoing job where you are continuing to save money at a 70% rate. Surely the majority of all that money is *not* for the house (unless you plan to pay cash for a $1 Million or more house). You have after all posted on an "early-retirement" forum, and if much of this money is to be used for retirement, and since you said you are age 45, you could potentially live another 40+ years and gradually use those funds over the rest of your lifetime. So it seems to me that most of your money will have a long investment horizon, not a short horizon. Those are the funds I would consider investing in the stock market, instead of the 1.3% / 0.67% savings accounts you are currently using. If you keep all your money in the current savings accounts, you will have lost a great deal of money relative to inflation by the time you are in your 60s, 70s, 80s. But if I am misunderstanding the purpose / time frame for the money you were asking about in your original post, then please clarify.

Also along those lines:

"There is a 401k match with my employer, but considering my rather unstable future / residence status, I am reluctant in investing in 401k. As opposed to its Canadian equivalent (RRSP), one cannot withdraw from 401k at any time, without an additional surtax penalty (in Canada they can be a great investment strategy - for example withdrawing in years with no or low income)."

I don't understand your reluctance to use/get the 401k match. Again, you are speaking as if you will need to use absolutely all of your savings in the next few years. Why? Surely you will want to keep some funds invested to use when you are a bit older and retired. If you are currently saving about 70% of your income, and you probably only need to set aside 5% or so to get the 401k match, surely you will hardly miss that extra money in the current time frame. Even if you go back to Canada, you can keep the money in the 401k plan (or transfer to a US IRA if you prefer), and since you are age 45 then in 14 years (which is not really that long of a time) you can access the funds without penalty. At that point, however much money you have put in here, it will be doubled just based on the matching funds. And since you know this money will have a long investment horizon (14+ years), you can be more confident about investing these funds in the stock market. So again, I don't get why you are so reluctant, but this seems like more paralysis of analysis.

 

[smihaila]

Hi ILikeStarTrek,

Smihaila, thanks for the clarifications in your last post.

You're most welcome. And truly appreciate your insights.

I didn't mean to imply it's a "bad mindset" but rather I said it is "not a good investment methodology." I meant "not good" => "not effective". Over time, the pantry jar loses money relative to inflation. Which is pretty much the main problem you are expressing now which inspired your post, as I understand it.

Let me clarify more. While the inflation is the main problem that inspired my post (along with looking for investment strategies with a lower-risk than stocks), the "grandma's jars" metaphor which I was trying to use, is not about "jar of coins", but jars of jam, confiture, pickles, or whatever. The idea is to preserve the present value of your hard-earned assets, for future consumption / use. The jam (assuming it is asepticised via the traditional cooking preservation methods and not expiring) will preserve its value, hence invariant to inflation. I've borrowed this idea from some book I've read, it may have been "Your Money or Your Life", "The Wealthy Barber", or another, not sure.
So the mindset was to "find ways for capital value preservation, nothing more, nothing less". Something that is on par with inflation (the real one, not the CPI BS from both U.S. and Canada ), nothing more than that.

I have a question for you, because in your follow-up posts, you keep referring to a "SHORT investment horizon" and I don't understand that. In your original post, you did mention the possibility of buying a house in the next 3-5 years, and if you have money earmarked for the house down payment, I tend to agree with not putting those funds in the stock market. But you also said that you have saved "mid six-figures cash capital in Canada, and another mid six-figures capital in the U.S.", and you have an ongoing job where you are continuing to save money at a 70% rate. Surely the majority of all that money is *not* for the house (unless you plan to pay cash for a $1 Million or more house).

An absolutely correct observation! My current situation does not allow for an investment horizon longer than 5 year, since an anticipated house purchase is a must. And I'd like to buy such house full in cash, or with only a very little borrowing (10k-30k) because that may happen to be beneficial in terms of "credit management diversification" and even helping my 800+ credit score going up a little. A 3-bedroom, 2,500sqft+ (measured above grade) good house (and with good location) in the Denver / Boulder area is in within $450k - $550k range. I've got close to that lower bound of the range.

Considering the Canadian funds, you may say that I would be well covered. You see, my problem is that those funds are not readily accessible in U.S. denomination. When I moved to Colorado, at the end of 2013, the CAD$ was at exact parity with US$. But then within a couple of months, starting with 2014, the CAD$ has begun losing value. To the extent that now, $US 1 = 1.3x $CAD. During the first months of me being here in Colorado (the rest of the family was still in Canada), closely monitoring the forex markets and dollar parities were the least of my concern - obviously having to settle here, understanding the culture and way of life etc. Also back in Canada the family was kept busy with trying to sell the house. Having waited so long to see this current disadvantageous parity, was a big mistake of mine, I have to admit. Considering that 1:1 parity was rather atypical, not the norm by historical standards. But hey, we can't have a crystal ball.

So, I'm kind of sitting on the fence with that CAD cash, hoping for the conversion to become more favorable... I'm almost prepared to set things in motion to do a Norbert's Gambit.

Another idea for managing the CAD funds, would be to look for U.S. bank that can offer accounts in foreign denomination, and set some CDs or some other short-term fixed-income investments. They might return less than my 1.3% from Canadian banks, but somewhat I would feel my money closer to me (it's a strange feeling to be with the legs and the mind in 2 "worlds" and I know it's a bit irrational, but seeing the money outside the country gives me a sense of insecurity, can't explain it).

For the moment, I consider the CAD funds some form of "currency diversification" (including geographical market diversification) But obviously that's not a good strategy, as it is continuously eroded by inflation.

You have after all posted on an "early-retirement" forum, and if much of this money is to be used for retirement, and since you said you are age 45, you could potentially live another 40+ years and gradually use those funds over the rest of your lifetime. So it seems to me that most of your money will have a long investment horizon, not a short horizon. Those are the funds I would consider investing in the stock market, instead of the 1.3% / 0.67% savings accounts you are currently using. If you keep all your money in the current savings accounts, you will have lost a great deal of money relative to inflation by the time you are in your 60s, 70s, 80s. But if I am misunderstanding the purpose / time frame for the money you were asking about in your original post, then please clarify.

Exactly. You are beginning to feel my financial torment. Because this rather uncertain short-term situation (mostly relating to immigration status) is impacting my long-term plans, and preventing me from safeguarding a faster pace of growth for funds that are to be earmarked for retirement. Once I stabilize on the permanent residence front (with God's help), then I can immediately secure a house and then I would have more peace of mind: All the remaining cash liquidity would go directly into the long-term / stock portfolio, plus those future 70% of the new savings that I will make.

Also along those lines:

I don't understand your reluctance to use/get the 401k match. Again, you are speaking as if you will need to use absolutely all of your savings in the next few years. Why? Surely you will want to keep some funds invested to use when you are a bit older and retired. If you are currently saving about 70% of your income, and you probably only need to set aside 5% or so to get the 401k match, surely you will hardly miss that extra money in the current time frame.

Good question. My reluctance stems mainly from that 10% tax penalty (which is additional to the normal income tax on 401k withdrawals), which I would have to pay if things go south within the next 4-5 years, and forcing me to take the money out. This 10% surtax is a curious thing, that doesn't exist in Canada. I guess in its wisdom, the Government (also in some tacit agreement with private / commercial banks) wanted the 401k to be designated as a long-term investment vehicle, and thus discourage persons from withdrawing (well plus some hidden mercantile interests from the banks to have an additional form of "guarantee" that funds can stay in for long - you see, that's another hidden form of money non-relativism asymmetry - the one-sided "guarantee" ;-) ).

So, my (possibly irrational) reasoning is that I don't want to part with 10% of my money (and employer's matched money)

Even if you go back to Canada, you can keep the money in the 401k plan (or transfer to a US IRA if you prefer)

I may not want to go back to Canada (no ties there, too cold, and too socialist - btw they are now beginning to build covid-1984 detainment camps and Gulags), but one can never be sure of what the future holds.

The option of keeping the 401k (or a transformed version of it via IRA) is tempting, but as my present situation with about half of my cash sitting in another country / Canada, gives me a sense of insecurity (it is irrational, I know, it's like I "compartimentalize" and feel more at peace if the money is in the same region as where I currently am). Also, if one goes back to Canada, US 401k, IRA and Roth create all sorts of tax implications with the Canada Revenue Agency.

Out of those US-specific registered investment vehicles, it is the Roth that I seem to like the most: no strings attached, and it's similar to Canada's TFSA plans (Tax-Free Savings Accounts)...

and since you are age 45 then in 14 years (which is not really that long of a time) you can access the funds without penalty. At that point, however much money you have put in here, it will be doubled just based on the matching funds. And since you know this money will have a long investment horizon (14+ years), you can be more confident about investing these funds in the stock market. So again, I don't get why you are so reluctant, but this seems like more paralysis of analysis.

No, in this case it's not an "analysis paralysis" because after all, a 401k is not an actual investment, but rather an investment vehicle.

But your point about 14 years remaining until the age of 59 1/2 (age when 401k withdrawals will not be subject to the 10% surtax), has actually .... made my day! I simply forgot how old I am and that the time is relatively short until the 59.5 timeline! You have truly convinced me! I'll do it. And I thank you for this!

All in all, the overall current situation of mine, which I have tried to convey, is this: I feel like a nomad, with a tent and not catching roots somewhere. Becoming adverse to making any form of longer plan (financially and life-related in general), sitting always on alert and too vigilant. This state of affairs has added to my saver mindset, in a way that - I don't know how to explain it - makes me indifferent to material world, because even if I do not owe a cent to anyone, I feel like I don't own anything (of value) on this Earth and everything is illusion and dust in the wind. It's becoming a bit mystical / transcendental, because it made me feel more disconnected from the material world

Overall, it feels like "living for working" not the other way around - just be focused on the slave job, serve you bankster masters (or the feudal lords in Canada), and nothing else. Nothing to enjoy as personal (non-professional) satisfaction, other than seeing your kids evolve, and the great, heart-warming and smiling people in U.S. and especially in Colorado.

 

[smihaila]

Wait a minute...Could it be that the answer to my immediate problems is as simple as... to keep about 100K Canadian dollars still liquid (for emergency purposes), and re-enter the Canadian stock market with the rest??

You see, during my initial "capital accumulation" phase here in the U.S., the CAD funds were prevailing in sum over the US ones. So until a few years ago, my mind was perceiving the US portion of the capital only as "some small chunk to top-off the CAD part, so CAD conversion to USD is a high priority". But more recently, the US portion has equaled, if not overcome, the CAD part!

I was blind-sided by the initial situation and forgot to update and internalize it. I think I should re-align my objectives now, and consider the US$ assets as the most liquid and readily accessible source of capital for the short-term goal (house purchase), and allocate the CAD assets exclusively for the longer-term objectives / retirement.

Some important nuances about such strategy though:
- Canadian stock market is less diverse (mostly banks, energy, minerals, REITs and some utilities - the main index is made of 60 stocks - S&P / TSX 60)
- Investment costs a tad higher,
- Oh boy, it is always a hassle with keeping banking or online brokerage accounts open and active in Canada: all sorts of two-way authentication policies, aggressive inactivity periods (for example one of the saving accounts I hold in Canada, I just found today that it doesn't allow me to log in anymore, because of an idiotic policy that was put in place about a year ago, and which requires you to online sign-in at least once during each 30 or 45 day period, even if you have large amounts invested with them, and triggering end-of-month transactions via the posted interest).

Long time ago, I had an account with a rather unprofessional discount brokerage (questrade.ca) which was always a hassle to work with. But just before leaving Canada, I made sure to open up a WebBroker trading account with TD (of cash + un-registered variety). And I know that WebBroker (formerly TD Waterhouse) is very professional, and providing fast executions. So I might be using that, since it's linked to my primary banking at TD Canada Trust (TD's Canadian arm). So I could use TD as my main hub for money transfers, instead of doing all sorts of EFTs (Canadian's equivalent for ACH), which in Canada, more often than not, require mailing out a physical voided cheque (Canada is so nineteen century with financial account creations).

But psychologically, I would still feel more at peace with all the funds in one country, and not feeling like I'm doing something odd, when coordinating financial actions / managing money from outside a country.

Thanks again for making me understanding myself better.

 

[2cheap2eat]

Since you don’t know if you will be in the Country in the next 3-5 years, doesn’t make sense to buy a house. It’s an illiquid asset if you needed to leave the Country on short notice.

Maybe look for another apartment or rental homes, moving further out to cut your living costs.

 

[hotwired]

Reply

Just a quick back of the envelope list of thoughts.

1. I don't know the ins and outs of Canadian retirement plans so that leaves a huge hole in the value of my advice.

2. You MUST MUST MUST contribute at least the "match" to your 401K. This is the only free lunch in the universe. You put in 5% of your pay, they match you. YES, you probably have to put in x years before you're "vested" (you don't get to "keep" the match unitl you've been there 4-5 years usually). But I believe it's unthinkable to not just contribute every bit of what they will match. I'ts an immediate 100% return on your money.

3. Put 85% of your money into a 60/40 or 50/50 stock/bond index fund portfolio (or reasonable actively managed). Vanguard Balanced, or Vanguard total stock market (or world stock market) and Vanguard Total Bond market, OR (active) Vanguard Wellington. If you want to go super conservative, pick Wellesley Income over Wellington (like 40/60 vs. 60/40).

 

[FIREarly]

If you were me (since you asked) I would look carefully at your 401k selections and find a stock index fund with low fees like Vanguard or Fidelity and avoid buying individual stocks since you admit you are not savvy enough for that.

Vanguard Total Stock Market Index
VTSAX
Expense ratio: 0.04%

Charles Schwab Total Stock Market Index
SWTSX
Expense ratio: 0.03%

Fidelity Zero Total Stock Market Index
FZROX
Expense ratio: 0.00%

All of the above are possible options for you that I took from YouTube vlogger @OurRichJourney. The numbers should be accurate but they have not been double-checked. Please note, I am not a financial advisor and please make your own final decision after consulting a CPA.

 

[Davis65]

Value of the Canadian dollar

Don't get confused by the US and Canadian currencies having the same name. There is no reason why the Canadian dollar should ever = US$1. They are different currencies. In the same way, there is no reason that the US dollar should ever equal one euro or one pound. Sometimes the currencies happen to be equivalent by coincidence, but there is no economic reason for them to be so.

The Canadian dollar was created in 1858 to be equivalent to the US dollar because there was a lot more trade going across the border. Since then, the values of the currencies have fluctuated. In 1864, the Canadian dollar was worth US$2.78 when the US abandoned the gold standard. Since World War II, the Canadian dollar has fluctuated between US$1.06 and US$0.63.

Will the Canadian dollar go up if you wait? Yes. It will also go down. It will also stay around US$0.76 for a while. If you have inside information and are sure that the Canadian dollar will go up, then invest all of your money in Canadian dollar futures and retire rich.

But you probably don't have a currency value crystal ball, so I wouldn't let a false expectation of "returning to parity" influence your investment decisions.

 

[smihaila]

2. You MUST MUST MUST contribute at least the "match" to your 401K. This is the only free lunch in the universe. You put in 5% of your pay, they match you. YES, you probably have to put in x years before you're "vested" (you don't get to "keep" the match unitl you've been there 4-5 years usually). But I believe it's unthinkable to not just contribute every bit of what they will match. I'ts an immediate 100% return on your money.

3. Put 85% of your money into a 60/40 or 50/50 stock/bond index fund portfolio (or reasonable actively managed). Vanguard Balanced, or Vanguard total stock market (or world stock market) and Vanguard Total Bond market, OR (active) Vanguard Wellington. If you want to go super conservative, pick Wellesley Income over Wellington (like 40/60 vs. 60/40).

Thank you hotwired!

 

[smihaila]

Vanguard Total Stock Market Index
VTSAX
Expense ratio: 0.04%

Charles Schwab Total Stock Market Index
SWTSX
Expense ratio: 0.03%

Fidelity Zero Total Stock Market Index
FZROX
Expense ratio: 0.00%

All of the above are possible options for you that I took from YouTube vlogger @OurRichJourney. The numbers should be accurate but they have not been double-checked. Please note, I am not a financial advisor and please make your own final decision after consulting a CPA.

Thanks a lot for the Index Mutual Fund recommendations. Those have super-low MERs - that's great. One of the many advantages of being able to tap into the U.S. markets.

 

[smihaila]

Don't get confused by the US and Canadian currencies having the same name. There is no reason why the Canadian dollar should ever = US$1. They are different currencies. In the same way, there is no reason that the US dollar should ever equal one euro or one pound. Sometimes the currencies happen to be equivalent by coincidence, but there is no economic reason for them to be so.

The Canadian dollar was created in 1858 to be equivalent to the US dollar because there was a lot more trade going across the border. Since then, the values of the currencies have fluctuated. In 1864, the Canadian dollar was worth US$2.78 when the US abandoned the gold standard. Since World War II, the Canadian dollar has fluctuated between US$1.06 and US$0.63.

Will the Canadian dollar go up if you wait? Yes. It will also go down. It will also stay around US$0.76 for a while. If you have inside information and are sure that the Canadian dollar will go up, then invest all of your money in Canadian dollar futures and retire rich.

But you probably don't have a currency value crystal ball, so I wouldn't let a false expectation of "returning to parity" influence your investment decisions.

Good points. I am well aware that complete CAD:USD parity was the exception rather than the norm. It's just that seeing that manifesting for quite a while (between 2011 and end of 2013), was giving me some expectations

Going forward, considering Mr. Trudeau's level of competence in driving the Canadian economy out of the higher inflation and increasing unemployment rates, there is almost zero chance to see the CAD rising again. Hopefully it won't get as low as 1USD = 1.5CAD, like the US books were priced, in a not too distant past.

I might just bite the bullet and cross that bridge - via either a Norbert's Gambit or TransferWise.

Thank you.

 

[smihaila]

Since you don’t know if you will be in the Country in the next 3-5 years, doesn’t make sense to buy a house. It’s an illiquid asset if you needed to leave the Country on short notice.

In the worst case scenario (knock on wood), I could POA / delegate a friend to sell the house, or the relative from West Coast / Portland.

My thinking was that, since I cannot aim for long-term, riskier investments (at least not with the US$ part of the funds), buying a house would allow me to protect the cash against inflation, by counting more or less, on some appreciating house prices in the area.

Maybe look for another apartment or rental homes, moving further out to cut your living costs.

I'm sick of moving. I did that 4 times already during the last 7 years.
On the positive side, the place I'm currently renting has a very competitive price, a very understanding landlord, and no rent increase so far. I was even able to secure a 2-year lease, so I'm very happy with this landlord and place (price is significantly below market).

Thanks.

 

[smihaila]

Hi,

Quick status update on the 401k front: I've activated my 6% pre-tax contribution to the employer's plan, which is administered through Fidelity.

The investment choices are fairly limited (18 in total), divided into 3 main categories:

1. 4 x Objective-Based Funds (MER listed):
- Growth Fund: 0.33%
- Capital Preservation: 0.30%
- Income Fund: 0.35%
- Inflation Protection: 0.0256%

2. 3 x Passive (Index) Funds:
- International Equity: 0.06%
- US Equity Index Fund: 0.02%
- Bond Index Fund: 0.03%

3. 11 x Target Date Funds:
- MERs in 0.27-0.30% range

I went for a 100% allocation towards US Equity Index Fund, with a MER of 0.02%.

All those funds prospectuses don't seem to be publicly available ("brand customizations" which I always dislike, like department store mattresses), due to some bilateral agreements between Fidelity and the 401k plan sponsor.

The US Equity Index seems to have code = TFCZ, and I can see its info here (not sure if you will be able to see it):
https://workplaceservices.fidelity.com/mybenefits/workplacefunds/fees-and-prices/TFCZ

Please see its prospectus PDF attached here, just in case.

There is also an interesting option - via BrokerageLink, which I've also opened an account for. I am able to see a option where bidirectional one-time transfers between the main 401k account and BrokerageLink account, can be initiated, with max transfer limit = 95% of the 401k's total cash value. But I do not see an option for putting future paycheck contributions on auto-pilot, with destination = BrokerageLink.

Is anyone familiar with how Fidelity's BrokerageLink works? The 95% limitation stems, I guess, from the fact that they need a buffer/reserve for potential sell / fund exchange fees, which seem to apply to those Fidelity ZERO and NTF (NoTransactionFees) fund series.

Perhaps the availability of BL as an option for future contribution does not show up until a minimum first investment is made into BL (I've seen $200 being mentioned)?

Also, the BL route is pretty much locked-down by the employer. Namely, no investment vehicles other than Mutual Funds are allowed (no individual shares, no ETFs, no individual bonds, not even money market or CDs).

BUT, I still find a lot Mutual Fund diversity thru BL, like no-transaction-fee 3,600 mutual funds available.

Here's 3 of them that have caught my eye:

- FZROX - Fidelity ZERO Total Market Index Fund
https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/31635T708
MER = 0.00%

- FXAIX - Fidelity 500 Index Fund
https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315911750
MER = 0.015%

- FZIPX - Fidelity Zero Extended Market Index Fund
MER = 0.00%

The FZIPX seems to be a fair addition, and doesn't show any reasonable performance at all (-0.06% YTD, and -1.41% since inception).

In general, I'd be inclined to go for a domestic total equity market index fund. Like the FZROX, which also "happens" to have no MER.

What do you think? Is it worth going with the BrokerageLink route, which seems to be more involved and not sure about its availability for auto-pilot mode?

Thank you.

 

[Out-to-Lunch]

To save 2 basis points? I wouldn't. They are both total-market funds. If you had $100k in the account, the 2 bips would cost you $20/year. If you have to manually upload your funds each month you could easily lose (or gain!) much, much more than $20/year on random inadvertent market-timing moves.

What is your time worth to you?

 

[smihaila]

To save 2 basis points? I wouldn't. They are both total-market funds. If you had $100k in the account, the 2 bips would cost you $20/year. If you have to manually upload your funds each month you could easily lose (or gain!) much, much more than $20/year on random inadvertent market-timing moves.

What is your time worth to you?

You had exactly the same thinking as mine - did precisely the same $20/year calculation, and against the same 100k .

I wasn't sure that the 401k-provided US index fund was tracking a "total" index as broad as like FZROX (Fidelity ZERO Total Market Index Fund). The former is tracking the Russel 3000, while the latter states that it " seeks to provide investment results that correspond to the total return of a broad range of U.S. stocks." (benchmark index seems to be "F US Total Investable Mkt").

The one in 401k doesn't show the total fund's asset value, while the latter shows about 6 billion in assets.

They are both fairly new (2018 inception date), so not too much track record available. Asset allocation is almost identical, although the 401k holds more cash (0.26% vs. 0.02%) and more int'l diversification (1% foreign, spread as 0.70% in Europe, and 0.25% over Asia, Latin America, Canada/0.01%) vs just 0.01% int'l (Canada only) in latter.

Yeah, it's a wash. BrokerageLink may be worth only for other interesting mutual fund offering thru Fidelity, like Vanguard, iShares, etc, not sure.

Thanks!

 

[ILikeStarTrek]

smihaila,

I haven't posted any more in this thread for the past couple of weeks, but I'd like to say I am happy for you that you have made some breakthroughs in your thinking. When you started this thread, you had several reasons for not wanting to touch the stock market and for not wanting to get your 401k employer match. As a result of many of us answering your posts, you have rethought things. Now, you have signed up for your 401k matching funds, so that's great!

I'm not clear on whether you have done anything with the rest of your savings. In post #30 in this thread, you said, "Could it be that the answer to my immediate problems is as simple as... to keep about 100K Canadian dollars still liquid (for emergency purposes), and re-enter the Canadian stock market with the rest?" But in scanning through the rest of your posts after that, maybe I missed something but it's not clear to me whether you have ended up doing that, i.e. re-entering either the US or Canadian stock market with any of your existing funds.

For what it's worth - the US stock market just hit an all-time high today on the Pfizer coronavirus vaccine trial news. (I don't keep track of the Canadian market but I bet it also went up.) I know it's only one day and the market will continue to have ups and downs just like it always has, but if you jumped in over the past couple weeks, you got a nice little gain today. If you didn't, then you missed out today but there is always tomorrow!

 

[smihaila]

Hi ILikeStarTrek,

Glad to be in touch again.

I'd like to say I am happy for you that you have made some breakthroughs in your thinking. When you started this thread, you had several reasons for not wanting to touch the stock market and for not wanting to get your 401k employer match. As a result of many of us answering your posts, you have rethought things. Now, you have signed up for your 401k matching funds, so that's great!

Well, thanks to you and all the other forumists that helped, there was a slight change to my priorities and objectives. More particularly in regards to 401k, which upon comparing the "free money on the table" vs. the "10% excise tax / penalty", the former had prevailed. Because even if I wasn't able to keep the 401k until the age of 59 1/2 (or later), the employer's match plus the overall growth of a stock-centered investment allocation would outweigh that 10% penalty

Now in regards to being adamant to re-entering the stock market or not, it is still an aspect of immediate cash liquidity needs / short horizon vs. long term. I haven't decided yet to go full-throttle with the stock market (American or Canadian), so for the moment I am limiting the risk aversion only to those 6% pre-tax US$ contributions...

I'm not clear on whether you have done anything with the rest of your savings. In post #30 in this thread, you said, "Could it be that the answer to my immediate problems is as simple as... to keep about 100K Canadian dollars still liquid (for emergency purposes), and re-enter the Canadian stock market with the rest?" But in scanning through the rest of your posts after that, maybe I missed something but it's not clear to me whether you have ended up doing that, i.e. re-entering either the US or Canadian stock market with any of your existing funds.

I haven't made a more definitive decision yet. It isn't that simple...
But in general, regarding the Canadian assets, I feel like being more comfortable controlling all the investments in an aggregated / unified way. Which suggests the idea of converting everything to USD.

Not to mention that the investment opportunities here in the U.S. are more diverse and competitive: lots of online brokerage platforms to choose from, richer selections of MFs, ETFs, bond issues etc, lower expense ratios, and last but not least, the stock market indices here are tracking a broader market (all you have in Canada is S&P/TSX index which consists of 60 companies, and strongly over-allocated towards banks).

I did make one more move though: Found a more modern Canadian bank, which offers way more flexibility in terms of online-based transactions, larger transfer limits, and a special relationship with TransferWise. I'm in progress of centralizing all the assets by transferring out from the other banks / CUs into this new one. At the expense of a slightly higher risk with the FDIC protection (Canadian equivalent is named CDIC, and it protects only up to 100K per distinct legal account owner combination). I'll also test some electronic transfers and currency conversion between the new bank and TransferWise, but using some very small amounts first.

In parallel, I'm looking for US banks that can offer multi-currency accounts. Could anyone recommend something? I know that HSBC or Barclays are big names on international markets. I also need to take into the picture, the interest rate that they would pay for CAD.

For what it's worth - the US stock market just hit an all-time high today on the Pfizer coronavirus vaccine trial news. (I don't keep track of the Canadian market but I bet it also went up.) I know it's only one day and the market will continue to have ups and downs just like it always has, but if you jumped in over the past couple weeks, you got a nice little gain today. If you didn't, then you missed out today but there is always tomorrow!

Yeah, I'm mentally trying to distance myself from the psychological aspect (stress) of being in the stock market with max risk exposure, in this rather simple way: I consider the 6% hard-earned money that goes into the 401k as "not immediately needed" and willing to exclude it from any net asset calculation, and for a long time period (10 years+). Only in this way, at least for the moment, I can be more peaceful and able to conduct the next financial decisions more rationally...

Thank you.

 

[ILikeStarTrek]

Hi ILikeStarTrek,

Yeah, I'm mentally trying to distance myself from the psychological aspect (stress) of being in the stock market with max risk exposure, in this rather simple way: I consider the 6% hard-earned money that goes into the 401k as "not immediately needed" and willing to exclude it from any net asset calculation, and for a long time period (10 years+). Only in this way, at least for the moment, I can be more peaceful and able to conduct the next financial decisions more rationally...

smihala,

Yes, the mental/emotional aspect is the challenge and what keeps a lot of people from doing well in the stock market.

To tell you one story - My tax accountant is also a Financial Adviser. He once told me a few stories about that part of his job. He said he biggest challenges with his FA clients are to keep them from doing emotional/dumb things. Such as blowing through their money far above their budget. Or withdrawing/tranferring their money when stocks are at a low point. The 2008/9 crisis was hard for him and his FA clients. Some of his clients wanted to transfer all their money out of the stock market when it had lost a lot of money, so part of his job was to persuade them not to do that. In almost all cases he was successful. But one particular client had on the order of $1M in the stock market; he got spooked and was adamant about transferring all his money out of stocks so he wouldn't lose any more money than he already had. When he (the FA) couldn't convince his client otherwise, he had to act according to the client's instructions. Unfortunately this happened in mid-March 2009, and proved to be within a couple days of when stocks were at their lowest point in that financial crisis. He and the client parted ways, but he heard years later from someone who was a mutual friend that this client was so spooked that he kept all his money in things like CDs after the 2008/09 crash. So he had lost almost half of his $1M in 2008-9 and then he missed out on all the gains for the next 10 years and counting. He would have gained back all his losses and a lot more, but he didn't stay in the market.

My own story is the opposite. (Full disclosure, about half of my overall investments are rental houses, so it's easier for me to be agressive in my money-type investments since I have my rentals to fall back on in a worst-case scenario.) Even though conventional wisdom is to go down to a 60-40 stock/bond split approaching/after retirement, I have kept 90% of my money-type assets in stocks (with no bonds and 10% CDs/money market), even after retiring in 2018 (age 55 at the time). My portfolio is up something like 40% over the past few years compared to where I would be on the conventional 60-40 split. When the market crashed in March this year, it wasn't fun to watch that, but I took some comfort in the fact that I was still almost at a level where I would have been anyway on a 60-40 split. I figured it would be like 2008-9 and take 2-3 years or until a vaccine was distributed before stocks would go back up. I'm obviously pleased and very surprised that stocks are back up to another all-time high this fast.

So, even now I could live for another 30+ years, and I trust the stock market history which says that stocks may go down for a couple years at a time, but they are very unlikely to stay down for 10+ years. I would rather take that risk than the certainty that I would lose more and more money relative to inflation if I kept my money in FDIC-insured investments or even bonds for 30+ years. I hope that you can get to that same way of thinking in the near future.

Best wishes to you!

 

[HawaiiShrimp]

If I were you, I will start investing in US growth stock. I like to invest in companies with great growth potential. Having money in the bank making 1-2% interest is not a good way to invest. Focus on Return on Investment (ROI). I look for investment opportunty with a chance of at least 10% annual return.

If I were you, I will also focus on moving to a lower COL area. I won't consider premium schools in US. It's overpriced in my point of view.

 

[smihaila]

I trust the stock market history which says that stocks may go down for a couple years at a time, but they are very unlikely to stay down for 10+ years. I would rather take that risk than the certainty that I would lose more and more money relative to inflation if I kept my money in FDIC-insured investments or even bonds for 30+ years.

That's a truly inspiring statement, and concept. Thank you for sharing!

 

[smihaila]

If I were you, I will start investing in US growth stock. I like to invest in companies with great growth potential. Having money in the bank making 1-2% interest is not a good way to invest. Focus on Return on Investment (ROI). I look for investment opportunity with a chance of at least 10% annual return.

Let me be more blunt: Do you "own" a house?
If you were truly trying to put yourself into my situation, immigration situation included, and the ties with the other country and the little nest egg made there, and not securing a place of living of your "own" (quotes purposely placed, because some are not actually truly owning, the actual owners are still the banksters), would you still bet all the money on the stock market - knowing that you may need it within a 5-year time horizon?

If I were you, I will also focus on moving to a lower COL area. I won't consider premium schools in US. It's overpriced in my point of view.

The area where I currently live, is a God send. Much lower cost of living (Lafayette, CO), comparing to Boulder / Broomfield / Westminster, CO area. Even though it's practically within 7-10 miles distance from those. Maybe the only other areas that would compete with the place where I currently am, in terms of COL, may be Denver South i.e. Centennial or Highlands Ranch, CO.

And let's also be fair: Those "US premium schools" may not count to those who have already their kids gone thru them (or to families without kids), but they do count to those that are still of mid or high school age. The schools in Colorado are far from being great, to begin with. They aren't Long Island NY schools, for sure . Comparing to Canada, I am actually astonished by the fact that parents have to put a lot of effort here, to make sure they live in areas with medium-to-good schools. And scrubbing thru those school ratings websites like greatschools.org or niche.com.

The relationship between how rich or developed a neighborhood, or even a whole town is, and the level of quality of a public school, is mind blowing here. In Canada, it didn't matter too much where you'd put your tent, so to speak.

Another aspect to consider in terms of place of living: driving / commuting distance. While the traffic in the Denver-Boulder metro area is not (yet!) LA, NY, etc, the I-25 highway is horrendous. While I was working for a past company, located at about 45 miles (one-way) from my former place in Denver South, roughly about 6 months of commuting on I-25 had put a mark on me - almost giving me a heart disease! Luckily, I was inspired, and motivated enough, to put a stop to that.

The current employer is actually planning to build a site of their own (instead of commercially renting), and its new building will be at 4 miles from where I live, and all flat land. Biking instead of driving will be a very healthy thing to do.

Thank you.

 

[ZachTB]

Smihaila,

I'm a bit late, but here's my 2 cents:

It sounds to me as though you have a) quite a bit of uncertainty, and b) a pretty strong aversion to risk.

While I'm not a financial advisor, I am similarly in a situation with a fair amount of uncertainty but a high savings rate. So here's my advice based on your description of the scenario.

-I would not be eager to buy a house. Many houses in my area/price range (i.e. modest ranch-style homes) are going at 10-15% above their tax assessment. I believe the tax assessments are more realistic than the going market rate, so I'll let everyone else overpay.

Based on what I've read about the Boulder area, it is probably a similar situation, although you'd know better than I would. Also given that you do not have U.S. citizenship, that would further scare me off of buying. Rent a nice place, and let the landlord worry about fixing stuff, dealing with regulations and taxes, etc.

-Since you're risk-averse, a first step might be to keep a large portion of your money in cash.

Only you can know how much you're comfortable with, or what your family's expenses are. Given your level of risk aversion, probably *at least* 1 year's worth of expenses in cash--maybe more. Knowing you have this money instantly available will give you a psychological comfort level with having money invested in the market, even if it drops.

That way, next time stocks plunge--not if, but when--you'll have a sizable buffer that will allow you to shrug and say, "It'll go back up before I have to worry about withdrawals."

Or even better yet, you can say "Hey! A sale on stocks! Let's buy some more!"

-As for how to invest, I've been wrestling with asset allocation myself. For a long time, I've been a believer in the jlcollins Simple Path: https://jlcollinsnh.com/stock-series/

But as my assets grow and I continue to learn more, I'm starting to lean in the direction of Paul Merriman's approach described in these free e-books: https://paulmerriman.com/how-to-invest-series-complimentary-download/ or shown in the table here: https://paulmerriman.com/vanguard/

Feel free to tweak either approach to suit your own personal preferences. You could go with a jlcollins-like approach to start, but change the allocation from 80% stocks (VTSAX) / 20% bonds (VBTLX) to something more conservative, like 60 / 40 or 50 / 50.

Whatever makes you comfortable enough to stay in it for the long haul is most important. However, you should remember that the more you have in bonds, the lower your return will be.

When considered in combination with your $50k or $75k or $100k (or more) in cash, you should feel far more comfortable exposing your excess capital to stock market volatility. The stock market is still going to be the strongest engine for growth--and therefore defeating inflation--but also has the tendency to give you nausea if you're not committed to a long-term view.

-The reality of investing is that you have to master yourself and your own fear. The markets are going to do whatever they're going to do, regardless of your own greed, fear, or life circumstances. If the stock market drops like it did in March 2020, you can be confident that it'll go back up again over the long run (like they have since April).

-Also recall Warren Buffett's statement that "we're risk-averse, not volatility-averse." This highlights the point that volatility and risk are not the same thing, not if you're maintaining a long-term investing horizon.

-You should definitely take advantage of the 401(k), at least up to the company match. If you contribute 5% and they'll match that dollar-for-dollar, you would be wise to take advantage of the opportunity to instantly double your money!

Even if they have a scheme like my employer, where they contribute 50 cents for every dollar you contribute (up to a certain limit), that's still an instant 50% return on your money!

Your excess savings--over and above the 401(k) plus your cash reserves--could be invested in a taxable brokerage account. This would give you total liquidity, and you could pull that money out at any time. For example, if you wanted to take that money out to buy a house--either in the U.S. or in Canada--you could do that. You'd just be subject to capital gains taxes, assuming your investments have made money. This link explains the capital gains tax in some detail: https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

It's entirely possible that you could put some excess money into a brokerage account (say with Vanguard or Fidelity) now, and keep it there even if you end up moving out of the country. But that, of course, would depend on the rules of the brokerage. Since they're incentivized to keep money in-house--and since they're both huge companies that are international in scope--I'm sure they'd be willing to work with you to keep the money invested with them, even if they had to do some internal work to transfer the funds into an 'international' or 'Canadian' type of account.

-Given the complexities of your situation, especially the international piece of it, you would probably benefit--both psychologically and financially--from visiting a good, experienced financial planner.

I'd strongly recommend looking for someone with a CFP or PFS certification, and who charges an hourly or flat rate (rather than percentage of assets under management or something similar). Such a person should have a much better idea of your options if you were to leave the U.S., and may also have some unique knowledge that nobody in this forum would have.

 

[smihaila]

FroogalStoodent, thank you for your insights.

-You should definitely take advantage of the 401(k), at least up to the company match. If you contribute 5% and they'll match that dollar-for-dollar, you would be wise to take advantage of the opportunity to instantly double your money!

Even if they have a scheme like my employer, where they contribute 50 cents for every dollar you contribute (up to a certain limit), that's still an instant 50% return on your money!

I'm already contributing to 401(k). I don't think I've mentioned the employer's exact match ratio, but it is 50 cents for every dollar, up to 6%.
Technically, it's supposed to be min $0.5 and max $1.5, depending on company's performance. So at the end of each fiscal year, they add a bit more, as "make-up match". For example, their final match factor was $0.662 for the last (2020) fiscal year.

Just wished to remind that I had to consider many factors for my final decision, including the 10% excise tax penalty (I'm pretty sure you factored that in) put also in balance against the about 14 1/5 years until such additional tax no longer applies. As mentioned before, the Canadian 401k-equivalent, which is RRSP (Registered Retirement Savings Plan) is more flexible in that respect. Because it's not necessarily meant for long-term savings i.e. retirement, so one can be more "agile" about it and depending on the years when someone's income may be low enough, one could cash such plan in, with little to none overall income tax paid on the withdrawals (and no additional penalty).

It is usually not in my nature to like "strings attached" and socialist-like "incentives" to forcibly keep me into plans like 401k. Especially considering my U.S. residence status for the moment, it's not factor to be overlooked. But I must thank ILoveStarTrek for making me consider that a 14 1/5 waiting period, is not that long, and also for putting in balance the free-money-on-the-table accumulating high enough to compensate for that 10% potential penalty, should I decide to cash out earlier and leave.

It sounds to me as though you have a) quite a bit of uncertainty, and b) a pretty strong aversion to risk.

The level of uncertainty is exacerbated by the fact that I cannot control the immigration / residence aspect. Also the risk aspect is amplified by this uncertainty. Add also to the mix two types of priorities and needs / expectations that I'm personally having: one is short-term (securing a place of my own) and the other is long-term (securing a reasonable comfort of living during retirement, which btw is more difficult with only one breadwinner in the family).

I am similarly in a situation with a fair amount of uncertainty but a high savings rate.

That's great, congrats for incorporating that into your daily routine and overall lifestyle!

-I would not be eager to buy a house. Many houses in my area/price range (i.e. modest ranch-style homes) are going at 10-15% above their tax assessment. I believe the tax assessments are more realistic than the going market rate, so I'll let everyone else overpay.

Based on what I've read about the Boulder area, it is probably a similar situation, although you'd know better than I would.

Let's dwell a tad longer on the house aspect. You seem to view the property tax assessments on a fee-simple, detached, single-residence house, as some equivalent P/E ratio from the stock market?

I cannot generalize for all the U.S. States and cities, but here in Colorado, the lower property tax assessments are done on purpose, actually quite similarly to certain provinces and cities in Canada: they are planned to get in sync with more recent, market values, for later on. So it's like a phased-in, gradual increase, spread over a longer time period (5-10 years).

The Coloradans are actually very tax-adverse (a personality and mindset that I actually love), so at State level there is a law enacted that protects (and regulates) against unjustified tax increases, at many levels. It's called TABOR.

The property taxes, even in more expensive Colorado city areas such as Boulder, are much LOWER than what I've got to experience back in Ontario, Canada! To give an example: For a 1600sqft (measured above-ground) 3-bdrm detached house in a small town within 70 miles from Toronto, and bought for $310K CAD, one would pay $3,800 CAD. Here, for a much bigger house (2,500-3,000sqft above ground), you can find places outside Boulder asking only for ... $1,000 USD in annual property taxes.

Also given that you do not have U.S. citizenship, that would further scare me off of buying.

Why so much aversion towards buying a house? Even if I wasn't considering it an investment (many peoples make a mistake of considering their primary place to live also an investment), I could've bought a nice house for $400-450K about 1 or 2 years ago. And the median house prices (even with covid-1984) have soared to $550k - 650k in the meantime.

Would you consider the aspect of selling a house (as worst case scenario if I'm forced to leave more or less abruptly) as a more difficult thing to do than selling stock? In the sense that a stock portfolio could still be kept and sold much later than the moment of leaving?

The residential real estate market in the Denver-Boulder metro area is pretty hot, and I don't think I would have trouble selling a house relatively fast.

Rent a nice place, and let the landlord worry about fixing stuff, dealing with regulations and taxes, etc.

As a saver, you know very well that you can't necessarily get ahead with renting, especially if you're conservative (mind you: not because of one's personality but because of priorities and shorter-time horizons!) and don't wish to immerse full-throttle into the stock market.

It is also a psychological plus lifestyle aspect at play here: I am SICK of moving (even as radically as changing countries, you see) because my family and I feel like not getting roots, so the general feeling so far is of a nomadic kind of life. If I didn't have kids, maybe I could go on like this. Heck, even living in an RV and completely "detaching" myself from Government, oligarch and restriction of freedom, by becoming even more nomadic and preparing for even worse scenarios, if you know what I mean. But I don't wish to go that route, because I noticed I must counteract my "free spirited" mindset that seems to characterize me, and become more patient with things in life (I see myself as too impatient sometimes in life).

-Since you're risk-averse, a first step might be to keep a large portion of your money in cash.

The risk aversion is not necessarily "static": In the past I had other priorities (like saving to buy a house back in Canada, not having retirement funds accumulation in mid). Presently, while I am still contemplating a house purchase as objective, now I also realize that I must also think about retirement more (when you're younger time flies faster and you don't get to think about retirement necessarily).

The risk aversion stems from "not getting value from what I'm putting in", and from being burned in the past with Canadian "stock market" (which is less broad and diversified), and also after understanding myself better after financial incidents such as 2008.

[...] next time stocks plunge--not if, but when--you'll have a sizable buffer that will allow you to shrug and say, "It'll go back up before I have to worry about withdrawals."

I understand myself better now, and the key pain point is, as you said it very well in another statement, the risk itself not the volatility per-se. While I can live with volatility (assuming I have an alignment to a long-term investment horizon), a risk factor in my mind should be no more than what an informed decision allows (i.e. no un-calculated / foolish risks caused for example by getting into an exotic investment product that I cannot understand etc).

Or even better yet, you can say "Hey! A sale on stocks! Let's buy some more!"

That saying and way of thinking, is actually a double-edged sword. I used to think a lot like that. But tell that to someone who wants to exit the market, for example a retiree wanting to cash some stock out to survive! Please don't bring the argument that selling stock should be planned "ahead of time", because I call that simply BS!

-As for how to invest, I've been wrestling with asset allocation myself. For a long time, I've been a believer in the jlcollins Simple Path: https://jlcollinsnh.com/stock-series/

But as my assets grow and I continue to learn more, I'm starting to lean in the direction of Paul Merriman's approach described in these free e-books: https://paulmerriman.com/how-to-invest-series-complimentary-download/ or shown in the table here: https://paulmerriman.com/vanguard/
[...]
Whatever makes you comfortable enough to stay in it for the long haul is most important. However, you should remember that the more you have in bonds, the lower your return will be.

Thanks a lot for the investment suggestions. If I had a clearer (more deterministic?!) future ahead, especially with the US residency aspect, I'd know better what to invest into - fully 100% into stocks, because besides the need for a house, it is now clearer in my mind that I need to focus on growing those hard-earned cash assets more, for retirement (and to fight against the government crooks who want to steal our money thru inflation).

You know what my main problem is, currently (and hence my need for an alternate view / another take on the situation via opinions from early-retirement.org forum)? I feel like being frozen in time, and my future not being able to evolve properly, because of too many "variables" for the moment. And just saving, saving and again saving, and keeping hard-earned assets into pesky savings accounts (heck, I've recently moved all the US assets to another institution to get 0.91% APY now instead of the previous 0.67% ) seems to no longer be the best strategy.

-Also recall Warren Buffett's statement that "we're risk-averse, not volatility-averse." This highlights the point that volatility and risk are not the same thing, not if you're maintaining a long-term investing horizon.

Yes, Amen to that. Maybe I should buy one share of Buffet's, because after all he's considered the best (and not necessarily lucky) investor of all time, after Graham Bell?

It's entirely possible that you could put some excess money into a brokerage account (say with Vanguard or Fidelity) now, and keep it there even if you end up moving out of the country. But that, of course, would depend on the rules of the brokerage. Since they're incentivized to keep money in-house--and since they're both huge companies that are international in scope--I'm sure they'd be willing to work with you to keep the money invested with them, even if they had to do some internal work to transfer the funds into an 'international' or 'Canadian' type of account.

I don't understand. What's the advantage of keeping cash in cash brokerage accounts earning maybe 0.01% interest rate? There is nothing international about these brokerages (an aspect which one may consider as an advantage towards easily withdrawing, or moving, liquid cash around the countries). All these online discount brokerages look "international" only on paper, believe me because I've got to experience aspects like this first-hand. These companies are buried into government and financial regulations to such extent that they are bound by specific national / state rules.

So unless one goes with multi-portfolio accounts with big companies like HSBC, Citi Int'l Personal Bank (which has nothing to do with what you know as "Citi" btw), everything is "stationary" and bound to US addresses etc. Heck, last time I was having a lot of "frictions" with a crappy discount brokerage back in Canada, even WHILE still being in Canada, so the issues would be even more exacerbated when being in an international context.

So, in terms of managing cash liquidity, I still consider savings accounts (and short-term CDs) best. I also dislike bonds - I mean of the "bond FUNDS" kind, because their perpetuity selling and repurchasing different one so that some "fund administrator" needs to maintain some "objectives" (whose?? Not mine, for sure), is not good.

I never purchased an individual bond (for the purpose of holding to maturity) - maybe I should experiment with that.

-Given the complexities of your situation, especially the international piece of it, you would probably benefit--both psychologically and financially--from visiting a good, experienced financial planner.

I'd strongly recommend looking for someone with a CFP or PFS certification, and who charges an hourly or flat rate (rather than percentage of assets under management or something similar). Such a person should have a much better idea of your options if you were to leave the U.S., and may also have some unique knowledge that nobody in this forum would have.

Eh, I'm not sure how open-minded and truly international these fee-only advisors are. At the end of the day, it is only YOU who understands the current financial (and LIFE) situation better, and nobody else can have their best interest in mind, for YOU.

And Canada and US, from a financial point of view, are generally not super-different.

Such advisors, for example, cannot know anything about work visas, immigration, etc.

On a side note, I could buy my right of US citizenship right now, by investing half of million US$ into US economy - there are certain economical areas in the United States designated by the USCIS or Department of Labor as more in need for investments, and there is a special "US Investor program for citizenship path". But I wouldn't prefer to do that, because I wouldn't have remaining funds to buy a house.

I am still hopeful that CAD will gain more value against USD, so I'm waiting a bit on that front, and getting ready for a potential conversion to USD. Speaking of which I've been actively researching for multi-currency accounts in the US, for individual / non-business customers. It seems to be a rare thing here - I believe due to some law that insists on banks and other domestic institutions to not focus on foreign currency operations.

I was able to find so far (for those who might be interested):
HSBC (Expat account), TIAA Bank (high forex margin i.e. 1%), Cathay Bank, EastWest Bank and VectraBank in Colorado. But so far doing conversion from Canada via a service like TransferWise, or the Norbert's Gambit (buying super-stable stock in a company that is listed on both US and Canadian stock exchanges, journaling the purchase under the US-listed equivalent, and then selling it fast), are the best approach.


Thanks again for your help.

 

[ZachTB]

Lots to unpack here! Thanks for the additional detail that helps to clarify things a bit

Sounds like you're in good shape for the 401(k)/RRSP plans! That's wonderful news!

Regarding the house--prices in my area (PA) seem to be shooting up for no good reason other than the low interest rate. So everybody's buying because the monthly payments are low, not necessarily because the purchase price is a good deal. So, of course, sellers are jacking up prices, and people are paying those jacked-up prices because a banker tells them "yes, you can afford that monthly payment!" Homes I'd consider to be worth ~140k are selling for $160k. In a matter of days.

Owning a house is a lot of continuing expense and/or work. It's just a lifestyle choice that you have to consider based on your preferences and situation. This link here sums it up in a pretty memorable manner: https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

That's not to imply that home ownership is bad, as jlcollins points out. The whole post is merely an argument against the universal refrain of "a house is a great investment because it goes up in value!"

Selling a house is complex, time-consuming, and costly. If you're not certain that you want to purchase, I'd avoid it for those reasons alone.

The question is not whether the Denver/Boulder area is a hot real estate market NOW. The question is what it will be like if/when you want to sell (or need to sell, because--as you point out--you have no control over the citizenship/immigration matter).

I totally get being sick of moving--I've moved twice in two years! NOT fun. But my outsider's view, anyway, is that buying a home might not be the best idea right now. Once the citizenship issue is cleared up, my view on the matter would probably soften significantly.

As for 'buying stocks on sale,' I'd never advise that for a retiree or someone who needs the withdrawal! That's only for someone who expects to have time in the market for that investment to grow.

I'd like to clarify the brokerage comment. I mean that you can hold stocks and/or bonds and/or real estate investment trusts in a brokerage account. That money is taxable, so I think it's a better vehicle for stocks, on which you pay capital gains only when you take the money out. Bonds/REITs are subject to taxation whether you reinvest your dividends or not.

Like I said, you should probably consult an experienced professional on that matter, because I'm not sure if your non-US (I think you specified Canadian?) citizenship adds additional tax considerations. It might, or it might not. I'm definitely not a professional in the field, so I have no clue.

You DO have some experience in the matter, and it sounds like you're disinclined to use a brokerage. That's perfectly fine, I was just throwing an option out there--my thinking was that you could use a taxable (brokerage) account that would be yours, even if you were to move back to Canada, without the potential loopholes of a 401(k).

But if it would be a lot of hassle, that suggestion might not be worthwhile. Feel free to ignore anything or everything I suggested!

You could definitely purchase an individual bond if you want! Again, I'm not sure how that would be affected if you left the country. I wouldn't think it would be that complicated--since the gov. was happy to take your money, so you'd think it should be redeemable no matter where in the world you're at.

But then again, knowing how governments tend to work, I'm sure they'd love to put up some red tape for something like redeeming a bond...

I suggest fee-only advisors--specifically those with the CFP or or PFS designations--because as far as I'm aware, those are the ONLY advisors who are legally and ethically bound to the 'fiduciary' standard, meaning they have to make decisions in YOUR best interest.

They voluntarily put themselves through extra hoops [in time, effort, and expense] to achieve and maintain those designations, as well as subjecting themselves to additional penalty if they DON'T make decisions in the client's best interest. Paul Merriman explains it pretty thoroughly on p. 60 of "101 Investment Decisions."

Yeah, it sounds like that's a hazard of doing financial stuff in the U.S. Of course, the federal government wants everything denominated in U.S. currency, so they wouldn't want to make it easy for someone to deal in another currency.

It sounds like you have quite a bit of knowledge on the matter of citizenship/immigration/dealing with foreign assets. Since I have none, other than investing (through a U.S. company) in some mutual funds that hold international stock, I definitely bow to your expertise on the matter.

I just wanted to provide some pointers and resources for you to consider.