AAP help for moonru

[moonru]

All,
I'm long time lurker here and this would be first post. I'm planning to R2I in 2010 and need AAP help from experts here. Here is the answers to the AAP questionnaire.

1. Return to India (R2I) or Live In America (LIA): R2I
2. Your current age: 35
3. Marital Status: Married
4. Number of dependents and ages: 0
5. Citizenship and/or Immigration status: Citizen
6. Retirement Age: 55
7. Is spouse also working? Yes
8. RNOR eligibility of you and your spouse (use the calculator in doc section) or how long you have been out of India? Two years
9. If you are a R2I, going to still work or semi-retire or retire? Work
10. When are you R2I? 2010
11. Annual savings: 70K (Taxable a/c), 20K (Tax-deferred a/c)
12. Annual expenses (excluding tax): 50K
13. House owner? No
14. What percentage of your total portfolio loss in a year makes you loose sleep? 30%
15. What are your short term(1 year) medium term (2-5 years) and long term (>5 years) financial goals?
Short-term goal: Nil
Medium-term goal: R2I setup (apartment purchase and infrastructure for R2I) at least 1 Cr.
Long-term goal: I would love to retire if assets can generate 50K INR @month forever
16. Do you have any loans? CC? Car loans? House loans? What is the current interest rate? No loan
17. You and your spouse’s participation in US retirement plans: Yes, 401K and IRA
18. Need to save money for your kids future US education? Do you have 529 plans? No.
19. If you are R2I, what percentage of your portfolio you want to leave in US? and where? Stocks? Bonds? Cash? 70/30 (US/India), 65/35 (Stock/Bond).
20. If you are LIA, do you have any insurance? Life, disability, long-term care? Total value of your policy? N/A
21. Do you have an emergency fund? How it is invested? Yes. ING direct
Current US Assets: ($732K)
Taxable Account (Stock):
VTSAX $252K
VTMSX $028K
VTMGX $136K
VFWIX $030K
VWO $024K
Tax-deferred Account (Stock):
DGEIX $035K
VGSIX $026K
-----------------------------------
Total $531K
-----------------------------------
Taxable Account (Bond):
I-BOND $023K
Tax-deferred Account (Bond):
VBMFX $064K
IICIX $025K
-----------------------------------
Total $112K
-----------------------------------
Taxable Account (Cash):
Various $089K

Current India Assets: ($170K)
Bond $146K (NSC/KVP/MIS/Senior Citizen Scheme)
Cash $024K

Thanks in advance for your valuable suggesation.

[moonru]

Gurus! About 20K down, 15 days and 237 views but no response.

[vivmat]

Hi Moonru,

I'm not a Guru by any stretch of the imagination, but here are my $.02

Overall, your asset base is impressive and you've picked some good funds, so congratulations. You are on your way to a more than comfortable retirement in India.

I would break down your portfolio into 3 chunks

1) Emergency fund = 30K (8 or so months of living expenses)
2) R2I and settling expenses = 1 Cr a you mentioned = $250K (alas the falling dollar!)
3) Retirement portfolio = balance of assets

For Goal 1 - Emergency fund - needed now

# ING direct = 30K

For Goal 2 - R2I expenses (home and settling) - needed 2 years from now

# India KVP/Senior Citizen etc = $146K
# India Cash = $24K
# ING balance (start sending to India between now and 2010) = $59K

That gives a total of $229K. For the remaining $21K, use your savings from salary every month and send that across to India. Invest in KVP, CD Cash etc like you have already done.

For Goal 3 - Retirement portfolio - long term

Current holdings = $643K

vtsax $252K
vtmgx $136K
vfwix $30K
vwo $24K
dgeix $35K
vgsix $26K
vbmfx $64K
iicix $25K
ibond $23K
vtmsx $28K

If you put these numbers into Morningstar XRAY your allocation comes up as follows (approx)

US Stocks = 50%
Foerign Stocks = 30%
Bonds/Cash = 20%

Some comments on your retirement portfolio

1) IMHO an 80:20 allocation is pretty aggressive, but if you can take that risk and live with it, thats fine. Since you are very close to meeting your retirement needs and have a large asset base, it might make sense to tone that down a bit, but that is your call to make.

2) Once you R2I, if you leave all the above funds in the US, then your bond allocation runs the risk of not keeping up with Inflation in India, so suggestion there would be to move the 20% bond allocation to India after your R2I. Looks like you can do that by diluting your I-bonds, VBMFX and IICIX. And you will be in RNOR period during that time.

3) Any reason why you are holding VFWIX, when you already hold VTMGX? Is it because of the advantage of claiming foreign tax credit and Canada exposure?

4) Also looks like your overall India exposure is quite low. You might want to consider increasing that some.

5) Looks like you are also quite US heavy in your stock allocation - if that is how you chose it, then that is fine, or you can tweak it a little to increase foreign allocation (including India).

6) Not sure of the purpose of the DGEIX - is it one of the only choices in your 401K and you were forced to pick it to maintain overall allocations?

OK thats it for now, let me know your thoughts on these suggestions and we can then discuss further

[moonru]

vivmat,
Thanks for your valuable response. I'll agree with your goal 1 & 2. Most probably continue to maintain and/or will implement.

1) IMHO an 80:20 allocation is pretty aggressive[/quote] I also believe it's pretty aggressive, although I think bond portion is about 28%. There is no need to take the risk. Only option to tone down it either buy bond on taxable account or buy bond in India. What's recommendation?

Any reason why you are holding VFWIX, when you already hold VTMGX? Is it because of the advantage of claiming foreign tax credit and Canada exposure?[/quote]VFWIX is recently became available & I love to transfer VTMGX and VGTSX into VFWIX but I have large capital gains on both funds that's why I'm not doing anything. However all new money is going to VFWIX. In past I bought VWO to compensate emerging market in VTMGX & it also have large capital gain.

Also looks like your overall India exposure is quite low. You might want to consider increasing that some.

5) Looks like you are also quite US heavy in your stock allocation - if that is how you chose it, then that is fine, or you can tweak it a little to increase foreign allocation (including India).[/quote]That's the reason I want gurus opinion. I don't know which India fund available and how to do it (keeping in mind about PFIC and other issue). What's your/other's suggestion?

Not sure of the purpose of the DGEIX - is it one of the only choices in your 401K and you were forced to pick it to maintain overall allocations? [/quote] This is an old 401K & if I have an option I can invest entire my equity portion into this single fund. IMO this is an excellent fund, I'm thinking about moving this 401K to IRA and buying VBMFX. It'll also reduce my equity portion.

[vivmat]

I also believe it's pretty aggressive, although I think bond portion is about 28%. There is no need to take the risk. Only option to tone down it either buy bond on taxable account or buy bond in India. What's recommendation?

I put in the following in Mornigstar XRAY and got 80:20. Maybe you are treating VGSIX (the REIT) as bond allocation? Anyways, if you choose to tone the equity allocation down, my suggestion would be to consider FD, or debt funds in India since you are R2I. Long term fixed income allocation should be held in India so it keeps up with India inflation. You can invest in your parents name to avoid PFIC consequences.

vtsax $252K
vtmgx $136K
vfwix $30K
vwo $24K
dgeix $35K
vgsix $26K
vbmfx $64K
iicix $25K
ibond $23K
vtmsx $28K


That's the reason I want gurus opinion. I don't know which India fund available and how to do it (keeping in mind about PFIC and other issue). What's your/other's suggestion?

For India equity allocation you can consider the following -

# MINDX - Matthews India fund (you can invest here thru a brokerage or directly thru Matthews)
# Equity Mutual funds in India invested in parents name to avoid PFIC
# Individual Stock portfolio in India