Hey PF, I could really use some advice. I’ve already done some research but I’m not finding helpful information. Also, I know that there is an r/expatfinance but it’s a very small community so I figured I’d have better luck here.
I am a 26yo US citizen that moved to the Netherlands in February for work. I consider myself an expat because I intend to move back to the States, but there is no plan for when that will be. It could be three years or ten or more; I’m kind of winging it. I had spoken to some other US expats about how they invest and manage finances before I made the move, but I’m learning that it’s much more complex than I had understood it to be.
Looking at the PF Prime Directive chart, I’m at Step 4. I have an emergency fund and by living frugally I’ve been able to pay off all my debts. Now, I’ve got a steady stream of cash and I want to start investing it. When I moved, my original plan was to max out my 401k, then a personal IRA and then get into Mutual Funds.
Well. There are the problems with that plan.
The problems:
- I no longer qualify for IRA contributions. Apparently, expats can only make IRA contributions on income that is above the amount excluded by the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE). Basically, the limit is $100,000, so if I made $110,000 a year, I could use $10,000 to contribute to an IRA. But I don’t make more than 100k, so an IRA is not an option.
- I can no longer contribute to the 401k I had in the states. When I called the bank about it, they said that neither I nor my employer can pay into this account, and unless I want to pay a penalty I also can’t move the funds anywhere. 401ks can only be funded by US earned income, and it can only be rolled over (such as into an IRA) if I switch employers. I transferred offices within my company to move abroad, so: same employer, but no US earned or taxed income. The money that is there will grow and shrink with the market, but otherwise it’s just going to sit there.
- I am not permitted to invest in mutual funds. For example, from this article: “Fidelity, Schwab, and other brokerage houses announced that they will no longer allow U.S. persons living outside the United States to invest in U.S. mutual funds.”
This one frustrates me the most. From all the research I’ve done, mutual funds seem to be the right kind of investment vehicle for me, and I actually feel like I understand them as opposed to ETFs or other choices. Every US expat I spoke to before moving said that they put their money into mutual funds, and even the article linked above says to just do it anyway by using a US address on all the paperwork. I’ve seen many resources online that recommend the same. But…wouldn’t that be considered fraud? - Realistically, I can’t invest in foreign mutual funds. Apparently most non-US financial institutions won’t sell mutual funds to a US citizen because of the hassle of doing the reporting and the consequences of getting it wrong. I’ve heard that it’s possible but not worth it. When I set up a bank account in the Netherlands, their direct advice was that if I intend to move back to the States, don’t invest abroad.
- I don’t want to rely on my Netherlands retirement pension. My employer is required by Dutch law to set up a pension for me, but my understanding is that the system here ramps up the contributions over time and really only starts earning me money after I’ve been in the Dutch workforce or a while (like 10-20 years). I can’t say with confidence that I’ll be here that long, and I can’t manage how much is put in while I am here. For that and other reasons, I want to keep the pension as my retirement Plan B instead of Plan A.
So. Reddit. Please help. I’m at a loss here, I don’t know what options are left to me. I have a brokerage account with Charles Schwab (with a very small amount invested in mutual funds from before moving) and their advice was to invest in ETFs. I’ve read up on ETFs, but to be honest I don’t feel like I understand them well enough yet to put my money there. What I liked about mutual funds is that they seem like a very low-maintenance approach to investing. Buy them, let them sit and grow, sell them 10+ years later when the time comes. That’s my comfort level with investing, at the moment.
Other options I’ve seen are to create my own “mutual fund” by going out and buying individual stocks or to invest in property. Creating a “mutual fund" seems way over my head and investment experience level. Also, I’ve considered property, but I’m hesitant given the uncertainty around how long I’m going to live in any one place (my company could always send me to another country in a year or something), and I’d need to save for a while for a down payment anyway.
In short, I would really appreciate any answers to these questions:
- What options are left to me for long term investments?
- What would be the consequences of investing in US mutual funds anyway? I’m not asking you to advise me to do something I shouldn’t, but I want to feel fully informed about this issue.
Some info on my finances:
After taxes, I bring home €3270 per month (with some variation. +/- €30)
On average, I have €700ish left over each month that I can invest/put to savings. I think it will get closer to €1000/month once I’m done with setting up costs, such as buying furniture.
Savings:
Discover bank - $20k in a high interest savings account for my emergency fund.
Netherlands bank - €3000 in savings so I have euros on hand for emergencies. At the end of each month, I take whatever I didn’t spend from that month’s paycheck and transfer it to dollars in my US accounts.
Debt:
None. I use credit cards to pay for most expenses to get airplane miles, but I pay it off every month.
I think for someone in their 20s, I’m in a pretty stable financial situation. It’s been a mix of good habits and good luck to get here and I want to make the best of the situation I’m in to prepare for the future and some large costs I know I'm going to have eventually. The idea that I don’t know what to do now has been really stressing me out.
tl;dr What can an investing noob do with their money when they can't invest in a 401k, IRA, mutual funds of any kind, or property?
Submitted July 17, 2018 at 09:25AM by throwymcthrowaway135 https://ift.tt/2uJ9FQO
