It was great speaking to you the other day and I hope that you found it informative. I have concluded the following report from the information you gave me.
Financial Goals
According to our conversation, you are 59 years old and you have been working in China for the past 5 years. You aim to have a balanced portfolio of 150,000 USD, which achieves higher returns than you would get from the interest back in the U.S. bank. Additionally, you would like to set up a 60,000 USD educational fund with the expectation to get to 200,000 USD in the next 18-year timeframe to fund your son’s college education. Listed below are the financial goals I outlined for you:
- Put together a balanced portfolio of 150,000 USD with growth but it must be able to maintain wealth in any market conditions based on your needs (focusing on fixed Interest and stable investments)
- Put together an educational fund from a principle of 60,000 USD aiming to achieve 200,000 USD within 18 years based on research and apocopate to your risk profile
- Ensure that you are fully protected financially when moving back to the U.S.
Personal Circumstances
- You stated that you are 59 years old. You have a Mongolian wife and a small child.
- You are presently working in China but you intend to move back to the U.S.
- You have not stated any health concerns.
Following our discussion, I aid you to fully review your circumstances above in light of full disclosure that the information given is relevant.
Next Steps
- Read and review the Key Financial Plans and Options for balanced growth portfolio to ensure that it is appropriate for you and look at what portfolio model is more applicable.
- Read and review the recommendations about the education plan to ensure which option is suitable for you and your circumstances.
- Read the recommendation to ensure that you are fully protected.
Key Financial Plans and Options
The bond for 150,000 USD options
According to your information, you currently have 150,000 USD liquid from the property investment in the U.S., which you would like to invest in a balanced growth portfolio to gain returns over a 10-year timeframe. You would like to achieve higher growth than the bank’s interest rate while keeping a cautious approach to protect the wealth in any market conditions.
After some researches, I found a suitable product for Americans. It offers tax benefits, which also suits your desired portfolio requirements of fixed interest. It is a stable portfolio which is not exposed to equities (which you had a bad experience in 2008) meaning that it is not volatile. In addition, it will not only maintain the wealth yet allows for potential growth.
The issuer, UAB plc, is a “passive foreign investment company” (PFIC) for U.S. federal income tax purposes. Holders of a UABs and the underlying funds are designed to be “qualified election fund” (QEF) compliant and provide the necessary information for proper reporting. Opting to treat the PFIC as a QEF should be done on the advice of the individual’s tax adviser. By making a QEF election, investors will be able to report capital gains and/or ordinary income tax based on the underlying PFIC reports.
Fund Selection
I use the following criteria to select your funds based on your preferences:
1) Using two independent rating agencies (S&P and Morningstar) to ensure that all the funds are 4 stars of the majority of the conservative portfolio (5 stars being the max with both rating agency) and no fund is under 3 stars.
2) Ensuring that each of the major funds has at least 100 million USD equity and every fund is from major investment fund that is suitably accredited.
3) Ensuring that the average expectation of each fund in line with its objective for over the last 5 years
About the Rating Agencies used
- Morningstar
Morningstar is a leading global provider of independent investment research, conducted by a team of over 100 fund analysts worldwide. Morningstar is highly regarded by investment experts for its in-depth research which can help you assess different funds and their potential role in your investment portfolio. Their analysts employ a rigorous appraisal procedure which is reviewed on a regular basis.
They are highly experienced and recognized in the market as providing a clear focus for the investor through the quality, independence and depth of their research. Morningstar rates investments from one to five stars based on how well they’ve performed in comparison to similar investments, after adjusting for risk and accounting for all relevant sales charges.
- S&P
Standard & Poor’s (S&P) is a leading index provider and data source of independent credit ratings. It is also the provider of the popular S&P 500 Index.
Financial Planning Guideline (using financial planning guideline template)
Table 1 shows the finical planning guideline and your portfolio based on your aspirations and timeframe. We will use this table as a template to modify accordingly
TABLE 1
| Conservative | Moderate | Balanced | Growth | High Growth | |
| Time Frame | 2 years | 3 years | 5 years | 7 years | 10 years + |
| Return Objective | CPI+ 1% | CPI + 2.5% | CPI + 3.5% | CPI + 5% | CPI + 6% |
| Int. Equities | 21% | 38% | 44% | 53% | 55% |
| Int. Properties | 5% | 10% | 14% | 17% | 20% |
| Fixed Interest | 50% | 38% | 26% | 13% | 0% |
| Alternatives | 0% | 0% | 10% | 15% | 25% |
| Cash | 24% | 14% | 6% | 2% | 0% |
(CPI is the level of inflation that currently stands at 2%).
Option 1 Balanced Growth Portfolio
Balanced Growth Portfolio Model – looking to achieve net 5-6% per year produced from stated above.
| SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % |
| Global Fixed Income | Ishares | iShares SHORT MATURITY BOND ETF | 16.13% |
| U.S Fixed Interest | Ishares | iShares 1-3 TREASURY BOND ETF | 16.02% |
| Fixed Interest | Bloomberg | SPDR BLOOMBERG 1-3 MONTH T-BILL ETF | 16.02% |
| Corporate Fixed Interest | Bloomberg | SPDR BLOOMBERG INVESTMENT GRADE ETF | 16.01% |
| Fixed Interest short term | PIMCO | PIMCO ENHANCED SHORT MATURITY ETF | 15.95% |
| High yield Fixed Interest | iShares | iShares GLOBAL HIGH YIELD CORP BOND TRUST | 3.52% |
| Emerging Markets Fixed Income | iShares | iShares JP MORGAN EM BOND ETF | 2.5% |
| U.S Fixed Income | iShares | iShares TIPS BOND ETF | 2.01% |
| U.S fixed Income | iShares | iShares US TREASURY BOND ETF | 2.01% |
| Global Equity | iShares | iShares CORE S&P 500 ETF | 1.57% |
| Emerging Markets | Ishres | iShares MSCI EMG MKTS INDEX ETF | 1.53% |
| Alternative | SPDR | SPDR GOLD TRUST | 1.51% |
Outcome 1 Balanced Growth Portfolio outcome
From the balanced growth portfolio on a basis of average return 6% per year, it shows an increase of 118,627 USD over the 10-year investment timeframe.
| Year | Initial Investment | Additional Interest | Balance | |
| 1 | $150,000 | $9,000.00 | $159,000.00 | |
| 2 | $9,540.00 | $168,540.00 | ||
| 3 | $10,112.40 | $178,652.40 | ||
| 4 | $10,112.40 | $189,371.54 | ||
| 5 | $11,365.29 | $200,733.84 | ||
| 6 | $12,044.03 | $212,777.87 | ||
| 7 | $12,766.67 | $225,544.54 | ||
| 8 | $13,532.67 | $239,077.21 | ||
| 9 | $14,344.63 | $253,421.84 | ||
| 10 | $15,205.31 | $268,627.15 | $118,627 |
Outcome 2 Balanced Portfolio
From the balanced portfolio on a basis of average return 4% per year, it shows an increase of 72,036 USD over the 10-year investment timeframe.
| Year | Initial Investment | Additional Interest | Balance | |
| 1 | $150,000 | $6,000.00 | $156,000.00 | |
| 2 | $6,240.00 | $162,240.00 | ||
| 3 | $6489.60 | $168,729.60 | ||
| 4 | $6,749.18 | $175,478.78 | ||
| 5 | $7,019.15 | $182,497.94 | ||
| 6 | $7,299.92 | $189.797.85 | ||
| 7 | $7,491.91 | $197,389.77 | ||
| 8 | $7,895.59 | $205,285.36 | ||
| 9 | $8,211.41 | $213,496.77 | ||
| 10 | $8,539.87 | $222,036.64 | $72,036 |
Conclusion of The Fund Selection
- With a cautious approach guided by the guidelines and adjusted for your preferences, the portfolio would give a stronghold against a downfall in equity, but it is still driven by a diversified range of fixed income assets to give growth.
- The chosen fund is allowed to returns to the United States, thus not required to move assets back to the U.S. Also, it allows Liquidity that is typically monthly.
- Low fees, there is an annual management fee of 0.35% (35bps) charged on the outstanding assets of the UAB, above the costs of the underlying funds. There are no other costs of the UAB, such as, initial fees or redemption fees.
- It is backed by large corporate banks as a custodian.
- Ability to have your wife as a beneficiary.
Educational Fund
Based on the information that you are looking to save 200,000 USD for your 5-year-old son’s education to study in a university in the U.S. and you have the current principle of 60,000 USD. You would like to take some growth but still look at a conservative model portfolio, which gives the average return of 6% a year as a feasible target.
We can look at a more growth-orientated portfolio with several options for a monthly income additional to add the benefits of compound interest and dollar cost averaging to achieve the goal.
First, with the assumption of the principle 60,000 USD over the period of 18 years (which your son would be 23 years old) but the fund will be withdrew at the 14th 15th year when he starts collage. After calculation, there is still a shortfall with the current rate of interest based on 6%.
| Assets | Current Value USD |
| Principle | 60,000 |
| Average Yearly growth | 6% |
| 13 year time (when needed to take out age 18) | 127,976 |
| Shortfall at 13 year time frame | 72,024 |
| Total extra need to fund | 72,024 |
Examples of Recommended Educational Fund Options
After the extensive analysis on your present situation and some researches on ‘how much it will cost to go to University in the U.S. factoring in inflation’, I would recommend an ‘International Educational Plan’ which enabling you to compound the growth.
There are many expats currently using this plan for saving for University in the U.S., U.K. and Australia. It will offer a tax-efficient and secure format to increase your profitability, maximize your savings growth and ultimately allow you to flexibly build towards both your sons education target and other (currently unforeseen) financial needs.
The table below represents three alternative options to reach the required (200,000 USD) amount with a 60,000 USD principle that will assist you to reach the recommended shortfall amount (57,000 USD) for a desired education plan. There are three options with an average rate balanced portfolio.
| Present Value of Assets (USD) | Compounded term | Duration | Amount Monthly USD | Interest | Total Interest (USD) | Total Additions(USD) | Ending Balance( USD) |
| 60,000 | Monthly | 13 Years | 400 | 5% | 80,386.29 | 62,400.00 | 202,786.29 |
| 60,000 | Monthly | 15 years | 300 | 5% | 93,343.03 | 54,000.00 | 207,343 |
| 60,000 | Monthly | 18 Years | 250 | 5% | 120,964.76 | 54,000.00 | 234,964.76 |
To achieve the education recommended saving for, these are examples for three different options that you may take:
Option 1
With the principle of 60,000 USD, saving the desired amount at the duration of 13 years (when your son turning 18) by adding 400 USD per month. It allows you to opt for fixed interest account or conservative portfolio. The total return would be 202,786.29 USD. You also have a flexible option to move between a fixed interest account and a growth account thought out the duration of the education period.
Option 2
With the principle of 60,000 USD, saving the desired amount at the duration of 15 years (when your son turning 20) by adding 300 USD per month. The total return would be 207,343 USD. You can take an option as an annuity or move to a more fixed interest portfolio (CPI level 2%), allowing the take out at an ad hoc basis.
Option 3
Taking a longer view up to 18 years taking up (and over) the University period of 22(23), by adding 250 USD a month. After 18 years, you would look at a lump sum of 234,964.76USD. This would still be funded throughout the duration of the study but give you the option to take out at an ad hoc basis when enters University.
Additional Information on Educational Fund
Having researched specifically for your educational fund plan by using up-to-date market creditable resources based on the U.S. educational report, I have found the following recommendations:
As a guideline Indicated on how much will be needed in light of U.S. education, it is recommended that one should have a saving to date 131,000 USD (add to inflation at the present value of 2%) this would equate needing to save 240,691 USD.
According to the report, the annual income saving for an 18-year plan are 300 USD or 1/3 of the income. (https://www.thebalance.com/deciding-how-much-to-save-for-college-4151683)
Besides the business insider research, I have researched some specific resources for your personal circumstances. According to the data for U.S education as of 2019, it shows:
https://www.businessinsider.com/how-much-to-save-every-month-for-college-calculation
In your case of the education plan, it depends on what education choice is wanted. For the option over 15-yearperiod, it suggests to aim towards saving 736 USD per month for private college tuition.
Recommendations
Life Insurance
With your current situation of looking to go back to the U.S. with a child and spouse, I would recommend that you have a look at life Insurance options either offshore or in the U.S. to ensure that full provisions are taken. A link below is the comparison of U.S. based life insurance. I am happy to assist you with the offshore options if needed.
Will
I would highly recommend that an updated will is implemented.
