In this post, I have covered my starting portfolio as a US expat. I say “starting portfolio” because I know I will modify this as I invest more time and money($) into it. I want to share this post to show the path I took to reach where I eventually reach. This post will talk about FIRE with investment in US-based Exchange Traded Fund(ETFs) and stocks.
Up to now, on this website, I have posted about the basics of the FIRE path. I have covered topics like what is fire and my fire number. If you haven’t checked those and you are new to FIRE, I would recommend checking them out to get yourself familiar with the whole idea behind financial freedom.
I’m an expat in the US, how do I get started with my financial freedom journey?
There are multiple ways to achieve FIRE. Investments in the stock market are just one way to achieve it. Even in the stock market, there are multiple ways to invest, futures, options, stocks, mutual funds, etc, etc. To keep things simple for myself and target a long term wealth, I have just started with investing in ETFs and only a tiny bit of individual stock investments. Using this strategy keeps my portfolio simple and requires very little day-to-day attention.
Before starting to invest, you need to have a brokerage account. A brokerage account allows you to buy and sell investments, like stocks, ETFs, etc. Some of the common brokerages in the US are Robinhood, Fidelity, Interactive Brokers, Charles Schwab, and many more but I’m listing some from the top of my mind.
I started by signing up for Robinhood first. It was a pretty straightforward process. The most complicated(comparatively) part was to figure out if I’m a “US person” for tax purposes or not. When I signed up for Robinhood, I had only been in the US for 2 months. So technically I was not a US resident for tax purposes(as there are requirements like the substantial presence of 183 days and other requirements). Finally, after calling Robinhood support, I signed up as a non-US resident until I pass the US persons requirements. If you are also confused about this, call Robinhood and clarify. If you do signup as a non-US resident, you can later change your status on brokerage as your situation changes. The second brokerage I signed up with was Fidelity. The process was again kinda similar. You fill in your details and signup.
I’m not recommending any brokerage at this point as I’m also trying different options before finalizing on one. Either way, you should signup with any established broker you can. Most brokers allow you to move your assets from one broker to another for a small to no fee.
Brokerage account done, whats next?
Once I had my brokerage account, the next step was to fund the account. By the time I opened my brokerage account, I already had a US bank account so this step was straightforward. Initiate transfer and funds are instantly available in both Fidelity and Robinhood.
How to decide on portfolio allocation?
Once you are set up with everything, the next step is to figure out what to invest in. For someone with FIRE as their target, the best approach to passively manage investment is to invest in board-based indexes. This allows an investor to own a basket of stocks that are tracked in a major index. Examples of broad-based index funds are ETFs like VOO/SPY- tracks S&P 500, QQQ - tracks Nasdaq 100 index.
Why invest in broad-based indexes?
Investing in broad indexes makes sure that over the long-term your investments are not impacted by individual stock or sectoral movement. These ETFs make your portfolio less risky against changing political conditions, technical advances, bad debt, etc. When your invest in S&P500 like broad indexes, you are betting on the US economy. So long as the US economy keeps going up, your investments should also increase. Since its inception in 1926, even with multiple recessions like great depression, the dot-com bubble in 2000s, 2008, covid-19, the annualized return of the S&P 500 is around ~10.5%. Whereas many sectors that once boomed have become obsolete over time.
When deciding on my investment approach, I decided to invest in things that require the least amount of attention from my side. If something requires a significant portion of my daily attention, it is basically a job :) While I might be able to pick individual stocks and sectors that give me great returns, it will require constant monitoring to make sure I’m not missing an event that will cause my investments to go down within a day! This is not to say, I will avoid all stocks and sectoral ETFs but my majority of investments will be in ETFs(close to 80-90%).
My Portfolio(Jan 12th, 2021)
On this blog, my target is, to be honest about my investment and FIRE journey. So I will show exactly what I own at this point.
As you can see from the above images that my current allocation isn’t the same as my target allocation yet but it’s getting there. This is the portfolio I have built over Dec 2021 and Jan 2022. By the end of 2022, my target is to invest $100k so there is still a long way to go.
Why I choose these specific ETFs?
In this post, I won’t go into much detail about all the reasoning behind selecting one ETF over the other as there are so many options out there but I will give some basic details about each choice. In a future post, I would go into details of my choices and why I selected each one.
- VTI(Vanguard Total Stock Market): Seeks to track CRSP US Total Market Index. Does the weighted investments in large, mid, and small-cap companies. Expense ratio: 0.03%. Approximately tracks 100% of the US stock market. Holds 3900 stocks.
- QQQ(Invesco QQQ Trust): Tracks Nasdaq 100 i.e. 100 companies. Tech-focused and tracks all big tech companies like Apple, FB, Google, etc but also has health care, industrial exposure. Expense ratio: 0.2%
- VGT(Vanguard Information Technology ETF): Number of holdings 364. As the name suggests this ETF is tech-focused. Expense ratio: 0.1%
- VXUS(Vanguard Total International Stock ETF): Number of holdings 7,715. As the name suggests this ETF tracks the international market. This is great for getting international exposure to avoid putting all the investments in the US market. Expense ratio: 0.08%
- ARK, SMH: sectoral/experimental ETFs for me. Risky with potential for high rewards.
- AAPL(Apple): I love apple products and believe in the company so I allocate a small amount for this as well. This is the only stock I plan to hold for some time.
This sums up my current portfolio. If you remember, I mentioned above that a long-term investor should target a broad-based index fund. VGT deviates from that a bit as it’s a sectoral ETF that focuses on information technology. The reason why I allocate a significant chunk to this sector is that I’m very bullish on tech and believe that for a long time tech will lead the world.
Conclusion
Here it is, the start of my FIRE journey! After a long time of planning for it, I’m finally investing in the stock market and I can benefit from it as it grows. Hope this blog is useful in helping you start your FIRE journey. Let me know your thoughts.