Hi He man
A very interesting case study. I will repeat some of the points others make.
Your objective needs to be general, maximizing and protecting wealth. At 35, it's pretty meaningless to have an objective of "40k income in retirement". So don't bother with any calculations which purport to show how you might achieve this.
Interesting. This is contrary to several sources of info I've read so far, but it does have merit, and I am a bit of a generalist by nature. Basically, work hard, save and invest, exploit opportunities, be frugal, and it will work out. I'll accept that
If you continue to save and invest, you will accumulate wealth over the next 25 years. You should not borrow to invest as it dramatically increases risks. You do not need to take these sort of risks.
I accept the logic of this absolutely. But it does beg the following question for me: If I don't borrow, how will I ever be able to afford a home? I just don't see it happening without borrowing, unless I continue to live in the Middle East for many more years. In my case, this is possible, but unlikely. I have a feeling that my job here won't last much beyond another 2 or 3 years. If that happens, my plan would be to seek a similar role in Singapore or another Middle East country. Only as a last resort would I move back to Europe for work.
At your age, almost all of your investments should be in equities. You should derive much higher returns than other classes, and you can handle the short and medium term volatility.
I've been persuaded by you and Jim (and other sources) that this is correct for me.
As you don't know where you will end up, all your investments should be relatively liquid. Therefore, no property as an "investment". Property is an actively managed business and not a passive investment. The chances that you could identify a suitable property in Belize and manage it from a distance profitably are very low indeed.
Noted. Again, I've been persuaded. I am not interested in actively managing a business, especially not from home. WRT Belize, I had that more in a mind as a place where I'd buy a little house when 60 years old or so. For an investment property right now, I had been thinking Cork, Madrid, or somewhere in the Philippines (diverse, I know). Cork because I know it and because I think you could always fill a 2-bed apartment there; Madrid because it's a capital city with a lot going for it in the long-run and currently at decent prices; and the Philippines because my wife is from there, prices are cheap, and some places in Makati (which is the opulent quarter of Manila) or the student districts look set for a bright future.
But yes, you're right: Too difficult to manage given I don't know where we will be living 5 years from now. So equities will be the plan.
With a good income, and plenty of liquid investments, you do not need a €20,000 emergency fund. If you are mainly invested in equities, you can convert them to cash quickly if you need to.
Right now I have 22k euros sitting in a bank and it's doing nothing but wasting away slowly. This is a little sickening on the one hand, but on the other I do derive a lot of comfort from knowing it's there. In a worst-case scenario, wifey and me would have to move back to Ireland in two years' time, in which case we would have to rent a place, buy a car (possibly 2), wait ages for her to find a decent-paying job (accountant), and on top of all that, my net earnings would drop from 71k euro per year to 38k euro per year. Ouch! Now, wifey and I are pretty frugal, and we don't need or spend 71k currently; but what we save from it is our future-wealth-generator. This investable surplus will be gone if we have to move back to Ireland.
Also, if we go back to Ireland on a vastly reduced income, we certainly won't be able to buy a home and may well be condemned to renting long-term out of necessity. I would rather not convert whatever investments we have made to cash unless it is expedient to do so, because those investments are really to be locked away for 30 years.
So my general plan up to the end of 2015 is to keep 30k in cash to cover the drastic changes that would occur were we to move back to Ireland at a non-optimal time (this would allow for the retention of an emergency fund + a potential deposit *in case* for whatever reason we wanted to buy a place); and also, to have invested 70k euros in the stock market.
I'm curious if your advice would change with regard to keeping cash following the above explanation. I am very eager to hear your opinions as my fears may be unfounded.
Tax is a serious consideration which again argues against property. It may be useful for you to realise all your capital gains before you move to a tax paying jurisdiction. A property might be difficult to sell in that timeframe.
It is difficult to know what the tax situation would be were we to move back. My understanding is that capital gains on anything received before repatriating would be exempted; but all future capital gains would be taxable. This is indeed a serious concern - and frankly it's one of several reasons why I would be likely to go to Singapore if my Middle East career dried up.
It's almost impossible to time equity or housing markets. While you are invested in equities, it's quite possible that you will be participating in a bubble at some time during your 30 year holding period. To exploit the bubble, you will have to sell towards the top and buy in again towards the bottom. Very, very difficult to do, and probably not worth trying.
Fully agree with this -- this has been reiterated by the likes of Graham, Munger, Buffet and others and I do not doubt my inability to time peak markets, so I won't try. However, if prices tumble but long-term prospects look decent, then I would hope to be in a position to seize the opportunity. I think you need a bit of cash to do so, but we'll see.
