How I shaped my investment strategy after moving to the US

Published: May 26, 2021 at 9:26 am

Mr X is a US-based NRI. In this episode of reader-story, Mr X explains his current investment strategy with a bit of history and reasons to finalize this strategy. It might help a fellow investor in the same position. The investment choices were heavily influenced by the websites mentioned in the references section at the end of the post.

Background: Soon it will be two decades since I first came to know about the stock market back in 2003. Everyone I came across looked at as gambling and adored short term profits. I don’t remember anyone talking about long term wealth creation or creating a Retirement Portfolio using the capital market.

I opened my first Demat account in the year 2006 and was doing intraday trades for profits of 5 RS a share. It was fun to look at terminals with green/red graphs, read broker’s buy/sell reports fully. Later I realized it wasn’t much money and most of the profit goes as Brokerage charges.

By 2008 I moved to Mutual Funds as Stocks were not right for me. I didn’t find the time spent on trading worth the effort. But all my MF investing was only based on star ratings of MF and past return records. And I had no idea about US or International markets though I was working in an SNP 500 company with access to US Brokerage accounts for ESPP shares.

In short, I was investing and watching the Stock market for 10+ years but haven’t learnt even ABCD of Portfolio Management. All that I had learnt so far was a few basics of Personal Finance like skipping Money back policies, the Importance of Emergency fund and Term Insurance.


By 2017 I moved to the US and a year had gone in settling down. When I decided to resume Investing, I wasn’t sure where to start. I cannot invest in India Mutual Funds due to FATCA and other complications applicable to US Residents (I had moved my Indian MF to shares before moving to the US. But it was a concentrated portfolio of IT, Banking and FMCG. I wasn’t comfortable with it. So encashed it and used it for foreclosing a housing loan).

Googling landed me to Robo investment options like Betterment. I opened a Brokerage account with Vanguard and bought shares of Apple, Google, Microsoft and some random MF based on past returns. Just chasing stocks/MF based on returns without a clear Goal or Strategy is dangerous. But I don’t know what else to buy or manage existing ones.

Desperate searching landed me on the blog “Simple Path to Wealth”  and Ben Flix’s channel. After watching Pattu’s channel in 2020 I created an Excel sheet to track the XIRR of my investments rather than relying on numbers given by Brokerage statements.

Investment Strategy

With a hectic work schedule, I cannot spend much time doing active management of my portfolio. The goal of all the portfolios is to be as simple as possible with a clear plan for new investments and re-balance once a year.

Asset Allocation was fixed at 75% / 25%. I was 100% Equity so far, so I don’t find 75% Equity as aggressive. Equity allocation will be revised and gradually reduced in the coming years as I approach the mid-50s. I could not define a clear Target Corpus for Retirement or Kids Education Goal. As with all the US NRIs, I have no idea if my Retirement or Kids Education will happen in India or the US. Corpus will be more than enough for India and just barely enough for the USA!!!

Though I was investing without any plan in India, my Equity returns were much better than my Indian Real Estate (I calculated return after encashing!! I was just lucky). House bought in India is not for Investment and I am OK with it. So buying a house in the US is ruled out as I don’t find it attractive. Renting a Flat in a good School District will be the best option than buying a house in the outskirts.

VTSAX – First Trillion-Dollar Mutual Fund and VBTLX were enough for my Equity and Bond requirements. But I decided to add Int. Equity, Small cap value and REITs in a small percentage. So 10% allotted to International MF of Retirement Account, HSA was moved to Small Cap value for Stocks. Also added 10% Small Cap value and 10% INDA ETF (Covers 85% of the Indian market) to my Brokerage Account. Roth IRA account was opened to take advantage of Tax benefit and added VNQ-REIT just to have different Asset classes.

My 401K is with Fidelity which doesn’t have VTSAX. But I replicated VTSAX with 80% on FXAIX (S&P 500) and 20% on VIEIX (US market excluding S&P 500). FXNAX of Fidelity was equivalent to VBTLX of Vanguard and will be used for all Fidelity Retirement Accounts. I am happy that my Portfolio is diversified enough to match my risk profile and still simple enough to manage without many complications.

Current Asset Allocation

Retirement (Fidelity)

401K
  • 50% – FXAIX – FID 500 INDEX – Expense ratio – 0.015%
  • 15% – VIEIX – VANG EXT MKT IDX INS – Expense ratio – 0.05%
  • 10% – VTSNX – VANG TOT INTL STK IS – Expense ratio – 0.08%
  • 25% – FXNAX – FIDELITY U.S. BOND INDEX FUND – Expense ratio – 0.03%
Roth IRA
  • 75% – VNQ – VANGUARD REAL ESTATE ETF – Expense ratio – 0.12%
  • 25% – FXNAX – FIDELITY U.S. BOND INDEX FUND – Expense ratio – 0.03%
HSA
  • Cash – 4000$ for Medical Expenses
  • 75% – FIXSVX – FIDELITY SMALL CAP VALUE INDEX FD – Expense ratio – 0.05%
  • 25% – FXNAX – FIDELITY U.S. BOND INDEX FUND – Expense ratio – 0.03%
Brokerage (Vanguard)
  • 55% – VTSAX – Vanguard Total Stock Market Index Fund Admiral Shares – Expense ratio – 0.04%
  • 10% – VSIAX – Vanguard Small-Cap Value Index Fund Admiral Shares – Expense ratio – 0.07%
  • 10% – INDA – ISHARES MSCI INDIA ETF – Expense ratio – 0.69%
  • 25% – VBTLX – Vanguard Total Bond Market Index Fund Admiral Shares – Expense ratio – 0.05%

Conclusion

2020 showed me what a Bear market is and tested me as a DIY investor. My Portfolio was underwater for a few months during Mar-Apr 2020 even after a gain of two years (It was underwater in 2018 also but I had just started).

I had thoughts like, I should have held on to Cash waiting for this day, move entire Bonds to Stocks etc. But I didn’t do anything stupid. In fact, fear of Corona and life was more important those days than Portfolio drawdown. Similarly, I was sticking to my asset allocation even when the market recovered and continued to make new highs every month. I didn’t stop or postpone new investments as well.

I am now more matured and confident that my strategy and asset allocation will stay the course even if a recession or sideways market ahead down the line. Because my goals are clearly defined and taken care of in my Portfolio. Happy Investing !!!

References

This strategy was heavily influenced by the following blog/channels.

US

J LCollins Stock Series – Helped me to understand the US market and MF industry. My first encounter with Index funds was via this blog and really liked the low expense ratio and self-cleansing nature of indexes which are crucial for any long term Portfolio. My India MF investment in 2008 had ER of 2.25% and later I shifted to Direct MF with ER of 1.5% or so. But never expected ER can be as low as 0.05%.

 

Canada – International

Ben Felix– Lots of tips and useful info from a Professional Portfolio manager for DIY investors.

 

India

Freefincal.com

Freefincal’s YouTube channel

I wish I knew about Pattu’s blog a decade ago. He nicely explains to Indian investors how to apply Modern Portfolio Theory to Indian Markets. I also understood the importance of Goal-based investment from him. Associating a Goal to Portfolio is important to set the right time horizon and risk profile.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
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