I Have Low Living Costs And Live Overseas With Extra Cash; Where Do I Put It?

So Paul gave me a shout out a few weeks ago with a question that I figured deserved a blog post to address it all – He lives overseas, has low expenses and therefore a few extra $$$ to spend.  He’s got a few funds he’s in and is looking to put his money to better use, but where?

So as always, before going on, read my disclaimer if you think my advice isn’t worthwhile because I’m NOT a financial advisor, just a guy that has looked into a few money issues myself over the years.

The Questions

Hey Hank

Great blog, I got here looking for investment ideas and have spent an hour wandering around the site.  I have a particular question I thought you might like.

The reason I’m looking for investing ops is that for the first time I have quite a bit of disposable income- I’m living and working in a developing country (Samoa) and get paid in the local currency, however my income income is well above what I need to live comfortable here.

The interesting thing is that the western Samoan tala is at an all time high against the weak dollar.  I wonder if I should hold off buying dollars and keep the Tala hoping the dollar still has a way to drop before it bottoms out – or start buying dollars right away and invest in stocks in the US.  I can get a CD at the local bank with a 6%apy for a 12 month deposit.

The difference in the Tala value against the dollar is as high as 15% more from the beginning of the decade.  I don’t really know how this stuff works – the only investments I have is a ROTH IRA with Vanguard (US and EURO indexes) and an 401k from an old job with a few 1000 in it.  Or should I just skip the dollars and buy a strong euro?   Any suggestions or suggested reading would be much appreciated.

Oh- another random question- I just noticed that Australian CDs (or term deposits as they call them) are getting 8% for a $5000 minimum for 12 months.  Is there anyway an American can invest in a Aussi CD without getting hit by their high taxes?

OK – some background- I’ve got a bit of debt- a student loan 15000$ more or less at 4.25%- on a ten year repayment schedule, I’m 30, unmarried – no family – and I’d say I’m not adverse to risk, just uninformed on particular stocks.

My company has no retirement plan but I DO have tax free money (since I work out side the US and make less than 80 grand a year) to invest.  I’ve probably got 20,000$ in USD in the states (making 3.5% at an on line bank) and another 10 or 15 grand over here in Tala.

I can get 6% on that if I lock it up in a CD for a year but with the exchange rate likely to change I don’t know if I feel comfortable doing that- I can get 5% for 6 months.  I’ve got about 8000$ in one of two Vanguard indexes which I picked without much thought other than the low expense ratio

Vanguard Growth Index Fund Investor Shares




Vanguard European Stock Index Fund Investor Shares

The big picture is that while my living costs are low and I have time to think about it I’d like to get my money working for me so in ten to 15 years I can move comfortably to to some developed country like the US or Italy.

My only plan now is to max the ROTH out every year, try to transfer Tala to USD when the exchange rate is good and… the big question is how to take advantage of the down turn in the US markets- try to buy a house in some depressed area?

Try to figure out what stocks are undervalued by fearful investors?  Something else?  I’d like to pop somewhere between 30 and 50,000 into some sort of investments this year- I live cheap, so the majority of my income can start working for me as soon as I get informed enough not to waste it on a poor investment.
Looking forward to hear what you think
Cheers
Paul

The Replies

Ok, first off, thanks for stopping by Paul!  Glad to see you’re getting some value out of the site!

First thing is the currency rate from the Samoan Tala to the US Dollar.  I’m not an exchange guru by any means either, but I have been known to gamble in the past.  Depending on YOUR threshold for volatility it’s a decision you’re going to have to dig on.

Personally, when I hear you say “the interesting thing is that the western Samoan tala is at an all time high against the weak dollar.  I wonder if I should hold off buying dollars and keep the Tala hoping the dollar still has a way to drop before it bottoms out“, I say you’ve got $ in the bank, literally.  You’re getting the best exchange rate that you’ve ever seen.  I’d certainly think about buying the cheap dollars now.

On the other side though, I am a gambler so I might not take the high exchange rate now to invest but certainly some; in my situation (wife, 2 kids, mortgage, etc) I’d probably stick 50-60% cashed out into USD and put into something I think will do well in a down economy.  People always need food, shelter, and medicine – I’d look to those niches in deciding where to put the $.  I don’t dig on stocks all that much, for advice there I might as Kevin @ 20smoney.com.

On the high interest of the Australian CD

8% CD in an Australian bank does sound like it’s a tempting offer, but also keep in mind when you go overseas with you money you’re giving up the FDIC isured umbrella that US banks offer for your cash.

Secondly, you’re subjecting your money to foreign banking rules and regulations. Have you read all the rules they have about the deposit?  Seeing big $ in the mirror at that “guaranteed” rate makes us overlook the risks; but they’re likely there still.

Is the bank a valid bank?  I’ve seen banks go up and down with what they’re offering and in the fine print mention that the term “CD” doesn’t always mean what it means in your place of residence.

Look into it and ask a lot of questions.  I’d look deep into the fine print on it for sure.  8% is a pretty hefty “guarantee” so I’d be sure to inquire within because as they say, if something looks too good to be true, it probably is.

On Your Background

“I’ve got a bit of debt- a student loan 15000$ more or less at 4.25% – on a ten year repayment schedule.” 

Nothing wrong there, depending on where/how you got the loans, most of that interest is a write-off anyway and at 15k, you’re not paying much of a monthly payment.  I’d let that sit for now if you’ve got a few extra bucks.

I’m 30, unmarried – no family – and I’d say I’m not adverse to risk, just uninformed on particular stocks

Red flag alert there – uninformed about anywhere you’re putting your money isn’t worth putting it in. In my experience, stocks aren’t for the beginning investor; heck, I don’t even have anything in direct stocks right now. I don’t feel I’m well informed about them enough either.

That being said, I’d stick to something a little less volatile for now if you’re looking to invest. If you’re not sure about where the $ is going, mutual funds provide a buffer for you in having someone else worry about what the stocks IN that mutual fund are doing.

“My company has no retirement plan but I DO have tax free money (since I work out side the US and make less than 80 grand a year) to invest.  I’ve probably got 20,000$ in USD in the states (making 3.5% at an on line bank) and another 10 or 15 grand over here in Tala.

Depending on what you’re using that 20k for that is in The States, I’d assume it is in a high-yield savings or MMA at 3.5% and that isn’t bad, depending on what you’re saving for and your risk tolerance.  If you’re just putting it there because you don’t know where else to put it, I might look into some decent funds that could crank out more than that.

However, if your risk tolerance and the market situation is a bit scary, that’s perfectly fine letting it gain 3.5% too.  It’s up to you.  Again, just my advice if I were in your shoes, I’d put at least some of it elsewhere.  Everyone recommends 3-6 months of emergency funds in a high-yield account somewhere, but I find that 2-3 is fine by me.  Especially with my credit card there as an emergency itself.

The 10-15k in Tala could also probably find a new home without a lot of hassle; is it doing anything there or just hanging out in a bank?

Your Current Funds

I’ve got about 8000$ in one of two Vanguard indexes which I picked without much thought other than the low expense ratio:

Vanguard Growth Index Fund Investor Shares




Vanguard European Stock Index Fund Investor Shares

Both those funds actually aren’t too bad for picking them out of a hat!  VIGRX has a good expense ratio (0.22%) and is a LargeCap composed of Microsoft, IBM, Cisco.  It’s tracking the MSCI US Prime Market Growth index so it is stable for sure.  Morningstar is only giving it a 3 star rating.  LargeCaps aren’t going to climb as high as fast, but are certainly stable. I’d probably keep this one in the mix.

VEUSX is in the same boat (0.12% expense), LargeCap Value fund that chugs along, but doesn’t do much spectacular.  It’s tracking the MSCI Europe Index; again stable, but nothing to write home about.  With the 35k-ish you have floating around between Tala and the US, I may keep these 2 there and use your other money in something else that may fit your risk tolerance a little better.

Where I’d Go From Here

“…the big question is how to take advantage of the down turn in the US markets- try to buy a house in some depressed area?

Try to figure out what stocks are undervalued by fearful investors?  Something else?  I’d like to pop somewhere between 30 and 50,000 into some sort of investments this year.”

You’ve certainly got a good handful of disposable income that you can send out to work for you this year, and a conveniently similar amount in question at my giveaway I’m hosting this week.

In your shoes now, you sound like you’ve got a fairly decent tolerance to risk and being single always helps too, but it sounds like you’re a little green in the investing realm.  That being said there, it may be a good venture to start out just maxing your ROTH out and decide on a few funds that hit your risk profile.

With the remainder I may still consider looking at a few low risk mutual funds that would be able to keep you moving forward if you do decide to start looking into individual stocks.  If you’re running on that route, I would be sure to check out the Personal Finance blogosphere as they’ve got loads of info on the individual stock side as well.  I’d recommend 20sMoney, TheWildInvestor, and PegasusLetter for starters; or even mess around with any of the many “pretend stock markets“.

If you’re looking to invest in real-estate, there is definitely some good options and places to do it today.  One of the big keys to real-estate buying is finding the economy growing but the cost of land hasn’t caught up yet.   One of those places I’ve heard is the Frisco, Texas area.  Land is cheap and companies are putting up call centers and data centers all over the place.

If you’re looking to invest in your OWN ideas, research, dig, track, investigate a LOT before you send any money anywhere.  I wrote a post on this a while back, and I’ve been taken to the cleaners on that front myself.

You’ve clearly done a very good job getting money, and now you’ve just got to do the legwork to protect and grow it.  There’s no magic pill anyone can give you (myself included) that shows where you should put your money, but digging in the personal finance blogosphere is a good start!

photos by: /showmeone//-babo/ /96483949@N00//felipeskroski/

Filed Under: advicefinancial educationInvestingReaders RequestsROTH IRA

  • Thanks for the shout out. This is a fantastic article with very in-depth advice. When it comes to personal finance, Hank’s the man.

    Kevin at 20s Money’s last blog post..I’m In A Good Position Financially, What Can I Do To Take My Personal Finances To The Next Level?

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  • Kimberley

    Hi Hank,

    I have shares with Edward Jones and although my former EJ broker allowed me to buy and sell shares, my current EJ broker claims I am not allowed to do so. (I am a U.S. citizen living and working in Ireland.)

    I know my former broker had a friend of mine sign some documents to give her permission to authorize trades on my behalf–and my current broker knows this–but my current broker says it is not legal to trade securities in the U.S. while I am living in Ireland. Which broker is correct?

    Many thanks for your assistance.

    Kind regards,
    Kimberley

  • He could buy a corproate bond etf or fund. Thay way he make smoney every month. I like investing over seas incase Us dollar goes dow or inflation goes up in the US. I think gmac has highest cd that is fdic insured in the states.

    High yield savings’s last blog post..Best high yield certificate of deposit rates.