How should I invest in ETFs if I want to retire in 30 years with $600k-1m?

In this blog I will list some of my top Quora answers for the week. If you want me to answer any questions on Quora or Youtube, don’t hesitate to email me –

One of the more interesting questions I was asked this week was How should I invest in average ETFs if I want to retire in 30 years with $600k-1m?

It depends on a few things, including where you live, where you want to retire and many other things.

However, in general, remember these rules/facts

  1. Stock markets beat bonds long-term. Vanguard did a study and showed that 100% stocks beat 80%-20% long-term. 80%-20% beats 60% stocks and 40% bonds long-term:

2. Bonds occasionally beat stocks. They especially beat stocks during crashes (2020 and 2008) and during “lost decades” for markets like 2000–2010.

3. Volatility and stability aren’t the same thing. So stocks are more volatile than bonds, but that doesn’t mean they are riskier per see.

4. History is a decent guide but past returns can’t always be assumed to work in the future. For example, historically stocks long-term average was 6.5% adjusted for inflation, with bonds 3% above inflation. That is assuming dividends are reinvested. Long-term, there seems to be a decent chance the gap between bonds and stocks will increase with such low rates.

So based on the above, the best thing most people can do is:

  1. Be 90% in stock ETFs (for example half in the S&P500 and half in a worldwide index) and 10% in government bonds (ideally short-term government bond). The exact composition could differ between different investors though. A UK investor might want to have some in the FTSE and some in a worldwide index.
  2. Increase the 10% bonds to 20% in 15–20 years, especially if the returns are good
  3. Increase the 20% bonds to 25%-30% in 22–25 years, especially if the returns are good
  4. Increase the 25%-30% in bonds to 40%-50% in 30 years+

Doing the above is the safest thing to do long-term, alongside reinvesting the dividends.

As long as the ETFs are broadly diversified, it doesn’t make much difference. For example, the difference between the S&P500 and Total Stock Market Exchange is small over the long-term.

The important thing is having one international index, one bond index and one local index.

Niche picks like emerging markets and the Nasdaq are good for 10% of a portfolio at most.

How has wealth inequality made your life better?

Source: Quora

Wealth inequality should never make your life better. I say that not because I am a socialist.

Merely, you shouldn’t compare yourself to others all the time. What is better rationally?

To be semi-retired, worth $5m at 45, but living close to neighbours who are worth $10m on average, or being equally as poor as everybody else in your street?

The rational answer is the former, not the latter. It is more rationally to compare yourself to who you were yesterday:

Apart from that, Michael makes a lot of good points underneath. Essentially, the media gives out a lot of misleading information about wealth inequality.

Income and wealth inequality are very different. Wealth isn’t the same as income, and yet time and again the media leads with misleading headlines like “Bezos has made $70 billion since March”, implying he has liquidated that money (income).

It is a bit like implying you are getting rich because your house has gone up by 200k this year!

You might feel richer, but unless you liquidate it, you haven’t “made” that 200k.

I have lived in some societies that used to be very equal, including places like China and Cambodia.

I have seldom met an older Chinese or Cambodian person who wants to go back to those days. Being equal isn’t good if everybody is poor, repressed etc.

Even today, some of the richest societies are actually very unequal when it comes to wealth.

For example, some of the Nordic countries have very high wealth inequality despite having low income inequality.

A better question should be why there has been a big increase in wealth inequality.

I would argue that education and habits are a big contributor to this trend.

Those that invest in assets, even if they are middle-income, tend to get wealthy over time, if they start young enough.

I am sure we all know those “everyday millionaires” who are often middle-aged and middle-income.

Likewise, I know loads, and I mean loads, high-income but low wealth people.

There is a simple reason for this; they just spend as they go alone.

So wealthy and high-income aren’t always the same thing. Choices, decisions and behaviours all contribute.

With the high weighting of tech stocks in the S&P 500, is the FTSE 100 looking like a better investment for the next 5 years?

Source: Quora

In his final book, Vanguard Founder John Bogle made a distinction between the real investment return and the speculative return.

What is this formula?

Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio

However, this “formula” is for the investment return. The “intrinsic” investment return.

Based on this formula, the FTSE looks very undervalued. Its dividend yield has regularly been above 4.5% these years vs 2% for the S&P500.

Its p/e ratios also look very cheap –FTSE 100/250 CAPE Ratio & P/E 1998 – 2019

However, remember that markets aren’t always efficient, but they aren’t stupid either.

If the UK market looks undervalued, and indeed is undervalued in reality, markets are factoring in various risks.

Those risks could include political risks, including Brexit, and other issues in the UK and other undervalued markets in Europe and beyond.

Tech might have higher valuations now, but that doesn’t mean it will fall in the next 5 years.

It may do, or may not. As more money is going into S&P500 ETFs, many people are investing into the top 4 tech firms without knowing it!

So ironically, the trend of indexing is helping big tech indirectly.

It won’t go on forever, but remember people have been speaking about US Markets being overvalued relative to the UK for 5+ years now.

Every dog has its day in investing though – just look at the Chinese market (the Shanghai Composite) this year.

Great returns after years of underperformance. So I am sure the UK market will have its time in the sun again.

The important thing is to be diversified so you can take advantage of these trends.

US markets have periods of over-performance vs international stocks, and vice versa.

It goes in cycles:

What are the rules for investing in the U.S. market while living abroad?

Source: Quora

Many expats, Americans and non-Americans, want to gain access to the US Markets whilst reducing tax risks.

The answer to your question depends on if you are American or non-American. If you are non-American, or even one of the Americans who has renounced citizenship due to tax reasons, it is best to get access to US Markets with funds domiciled outside the US.

For example, regardless of whether you are a DIY investor or going through an advisor, it is best to invest in a non-US platform (say Swissquote, Saxo or whatever) rather than a US platform (Interactive Brokers, eToro as an example).

That is because there is always the small risk of US estate taxes, and other problems, even if the W8-Ben form is signed.

Second, it is best to buy the S&P500 domiciled on the London Stock Exchange, or indeed another stock exchange like Ireland, rather than on the NYSE.

People forget this basic fact. These days, you can buy the S&P500 ETF fund, in both Pounds and USD, on the London Stock exchanges and other exchanges.

Vanguard, BlackRock and iShares have all created USD products held outside the US, because they know about the estate and other potential taxes non-Americans could face. The fees and performance will be identical.

So by using a non-US broker, and investing in index funds or ETFs which are tracking the US Markets but are domiciled in Canada, the UK or Ireland, you can avoid the US tax web entirely.

Not just avoid it, but avoid many risks in the process. It is harder to do it this way if you want to buy individual shares rather than the whole market though.

If you are American, on the other hand, it can make a lot of sense to invest with a US-domiciled company that holds the money in America.

It is also essential that:

  1. People have a portable solution. If you are living in country A, and then you move to country B, it is important that the brokerage won’t close down your account. I will give you a simple example. I have a friend who opened up an account with the Dutch broker Derigo. He should have invested with a platform that is domiciled in a more tax-efficient country, such as Swissquote, but that is another issue (capital gains taxes and so on). What really hit him was he moved from an EU country to Asia. They closes down his account as they can only accept for 18 European countries. So that meant he had to sell his positions, go through hassles to open up another account and pay capital gains taxes. So going with a platform that can accept for at least 170–180 of the world’s 190+ countries is important. As an expat, you could be moved almost anywhere in some industries.
  2. As per the point made above, having a portable account domiciled in a country which doesn’t charge capital gains tax is important. Simple example. If you are an expat living in Saudi Arabia or the UAE (no capital gains tax) or somewhere like Singapore (no overseas income or capital gains taxes), you can pay 0% capital gains tax if you domicile your accounts with a broker based in a 0% capital gains country. This doesn’t apply to people from countries that tax by citizenship, like the US or Eritrea, but does apply to most nationalities.

So the bottom line is, with a little bit of planning, people can avoid tax risks associated with gaining exposure to the US markets as an expat

Is dollar cost averaging into an S&P 500 index fund worse than not investing at all?

Source: Quora

Of course not. Monthly investing (dollar cost averaging) is a good way to reduce risks.

Let’s face it as well, everybody needs to dollar cost average up to a point. 99% of people either have a salary or a business.

Less than 1% of people, maybe less than 0.1% of people, have one big lump sum and then that’s it.

If you do have a lump sum though, it is better to just put it in. Dollar cost averaging only beats a lump sum on about 33% of occasions:

There are two simple reasons for this. Firstly, markets do tend to go up. So unless you dollar cost average during a lost decade for markets, like from 2000 until 2010, you won’t “win” with this strategy.

Second, investing a larger sum of money will also allow you to invest more dividends.

Dollar cost averaging is just less volatile:

So the best thing to do is invest any lump sum you have, but then add monthly after that lump sum is put in.

Look at this year as an example. If somebody would have put in. $100,000 right at the peak in February, and $1,000 a month thereafter, they would have done much better than somebody who just tried to time the market.

They would have benefited from the market rebound, dividends and those small monthly payments would have allowed them to buy low in March, April and May.

Dollar cost averaging is perfect in stagnant or falling markets, but nobody knows when those times will arrive.

So doing both is perfect. Considering we have no choice but to dollar cost average up to a point, as nobody can ask their employer to pay 40 years salary upfront, that makes the decision easy.

With dollar cost averaging though, many people are uninspired in the early months, because the returns look small in USD, Pound or Euro terms.

Being “up by 10% this year” doesn’t sound like a lot when your monthly account has gone from $10,000 to $11,000.

It all adds up eventually though.

I’m a millennial and expected future HNWI by inheritance ($2.3M net worth). How do I create the basis today to duplicate the value of my future assets (up to $5M)?

Source: Quora

It depends what you want to achieve. If you are already in business at that point, you might want to use a percentage of the money for spending to improve that entity.

Assuming you want to increase the $2.3m to $5m from investing, the safest way is to invest long-term, not timing markets, reinvesting dividends etc.

It isn’t difficult to double your money investing if you are patient. Markets have 12x-15x since the early 90s in the case of the Dow and S&P500, and more in the case of the Nasdaq.

You don’t need to follow this formula exactly, but you will see the general trend – you need ideally a home-market index, an international one and a bond index.

Those allocations should depend on your age.

I could keep to portfolios like these:

Model portfolios for American citizens and expats under 40 –

60% US Stock Markets,

20% International stock markets,

10% Emerging stock markets

10% US short-term government bonds

Model portfolios for American citizens and expats over 40 –

50% US Stock Markets,

20% International stock markets,

5% Emerging stock markets

25% US government bonds

Model portfolios for American citizens and expats over 55 or close to retirement –

50% US Stock Markets,

20% International stock markets,

30% US government bonds

Model portfolios for British citizens and expats under 40 –

40% UK FTSE All Shares

40% International stock markets,

10% Emerging stock markets

10% Global government bonds index

Model portfolios for British citizens and expats over 40 –

35% UK FTSE All Shares

35% International stock markets,

5% Emerging stock markets

25% Global government bonds index

Model portfolios for British citizens and expats over 55 or close to retirement –

35% UK FTSE All Shares

35% International stock markets,

30% Global government bonds index

Model portfolios for European citizens and expats under 40 –

40% Euro Shares

40% International stock markets,

10% Emerging stock markets

10% Global government bonds index

Model portfolios for European citizens and expats over 40 –

35% European All Shares

35% International stock markets,

5% Emerging stock markets

25% Global government bonds index

Model portfolios for European citizens and expats over 55 or close to retirement –

35% European All Shares

35% International stock markets,

30% Global government bonds index

From the above figures, one can work out what kind of portfolio you should be aiming at, depending on your nationality. If you are from a country which hasn’t got a history of

For investors who want a diversified portfolio which includes REITs and international stocks, I would suggest the following portfolio:

10%- Global REIT ETF. Either iShares or Vanguard

55% – Vanguard Total World Stock Market ETF

35% – Vanguard short-term inflation protection securities ETF

Keeping to such portfolios will limit your risks, including currency risks, long-term and increase the chances of increasing your gains.

The key thing is keeping the faith during the numerous market downturns that will happen.

Look at the last one (this year) where up to 35% of people panic sold!

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