Here's a case study of a purely hypothetical person who took a drastic step outlined in a previous article and moved to a tax haven for retirement. One of the things they don't always tell you about these moves is that some tax havens may not have well developed financial services, so you may be stuck with the limited investment choices provided by Vanguard Global Services.
Let's say this person divested partially out of his concentrated position by selling about half his concentrated portfolio. What should he do with the money, given the limited investment choices? I'm a big fan of simplicity, so I can see a few good choices:
- Global Stock Index Fund
- Emerging Market Fund
- Various bond funds
So what is our hypothetical friend supposed to do with the cash portion of his portfolio? My general thinking would be: 40% developed world markets, 10% emerging markets, 40% bond funds and 10% cash. The reason is that this gives him an overall 75% equity and 25% fixed income (remember, half his assets is still in that highly concentrated portfolio!). If you want to get more sophisticated you can slice and dice and eliminate the US components of the index, since that's already taken care of by the concentrated position (though I don't generally think that's a good idea, since if you have all your US holdings in one stock, it's quite possible for that one stock to do badly while the rest of the US goes on merrily on its way).
This should grant reasonable protection against a crash in equity markets or rampant inflation. Given that such a person is already able to live off of less than 1% of his assets, this makes his already relatively safe position even safer. Comments on this analysis is welcome.
No comments:
Post a Comment