Family Guy Finding Out

[FamilyGuy]

I am 31 with wife (27) and 2 kids (2 and 1).
single income family
122.5k and 15k bonus before taxes.

currently renting at $1200. Signed a contract for 1750 SQ feet townhome at 260k in a positively booming area (Apex NC).
Paying only 5% down and 30-year mortgage. Interest rate not finalized..expecting ~4%. Monthly payments will be $1700 I believe.
The value of the home is at $280k since contract which I think is a nice thing.

I own 1 home in India worth $120k all paid. (Two 1BHKs (rented out) on 2nd floor and one 2 BHKs first floor where my parents are living). 
I own a land in India at $23k
I own some gold today's market price at 12.5k
I purchased an apartment in India for 62.5k...5 years loan..1 year complete..my down payment was 12.5k (so my principal paid would be 20k)

I'm paying few investment policies policy 1 -> 3k per year and policy 2 -> 2.5k per year.
policy 1 payment is for 10 years (total 30k) and will return 35k in 15 years and another 42k in 20 years. (total 77k)
policy 2 payment is for 18 years (total 45k) and will return total 78k in 18 years and offer life insurance.
so 155k in next 20 years. This is mainly to help my kids' college/wedding.

I've invested in our family business - which returns 5.6k per year flat for a one-time investment of 18.7 k....
my 401k - only started few months back and investing 401k at 15% and right now has 9.5k

summary:

what i own:
 
home 1 : 120 k
home 2: 20k
home 3: 13.5k
real estate : 23k
family investments: 18.7k
401k: 9.5k
current savings in hand: 9k 
indian policies: 7.8k paid

total : $221k


income:
122.5k+15k bonus before tax
rental income: $2.8k yearly (It is very less in US standards but significant in India)
investment income: $5.6k yearly

total yearly: $143k

debts:
credit card debts: $4.6k total (parents flight tickets, mac book, washer/dryer etc)
auto payments: $381 per month. Will be done by Sep of this year.
home loan india : $42k (planned to be done in next 4 years)
mortgage usa:  $246k (30 year mortgage at ~4% interest)

total: $292.6k

We are at savings rate of 46% and will increase to 51% when credit cards/car loan is done. This is just on base pay not including bonus.

Please tell me if I'm doing good, bad or ugly? I appreciate your suggestions.
Some of the investments may not be idle - but I always prefer to put my eggs in different baskets - like gold/real estate/family business/investment policies/401k etc.

i'm planning to get back to India in my early 40s but i'm not very sure.
i like my job except for that monday morning thing :)...so really not thinking about retirement.
I just wanted to be in a position where going for work is only optional. I'd love that.

[aroberson77]

Are housing prices in the Raleigh area spiking?  I just bought a house near Winston-Salem, 190k for 2300 sqft.  You have a decent amount of investments so I would focus on reducing your tax footprint.  Max out your IRA contributions and maybe look at other tax sheltered accounts.

Are you trying to reduce spending at all or just continue your current lifestyle?  I would also check out the speadsheet in the sticky to calculate when you could be FI

[PapaBear]

First of all, I guess you are off to a great start to early retirement and investing. Let me share a few observations that stood out when looking at your portfolio:

As long as your long-term location plans are not yet finalized, I would try to diversify your portfolio as much as possible. If I look at your current asset allocation, you have quite a lot of different assets, but if you consider their value, you might be quite heavily invested on the (illiquid) real estate side and might be exposed to quite some currency risk. Maybe drafting your own investment strategy including a target asset allocation might help you to get a clear picture of your desired setup in the long run.

Current asset allocation by asset class:
-  4% cash
-  4% stock/bond market (depending on your asset allocation in your 401k)
-  3% Investment/insurance policies 7.8k (I guess this behaves similar to bonds)
-  6% real estate US
- 70% real estate India
-  8% other investment
-  5% commodities (gold)
234k

Asset allocation by currency:
(I assumed that your family business shares as well as your indian investment policies are in Indian rupees)
- 19% USD
- 81% INR

Asset allocation by liquidity:
-  9% liquid or semi-liquid (cash + commodities)
- 91% rather illiquid (Real estate, investment policies, family business shares, 401k)

Of course, this asset allocation will shift in the future as you build equity with your US house and invest further in your 401k, but it also shows that you are not that diversified yet. Therefore, as long as your long-term location plans are not yet finalized, I would try to diversify and balance the investments further.

As a starting point, I would try to
- Increase liquidity (e.g., in the shape of an emergency fund)
- Increase stock and bond exposure (US and international), preferably in tax-advantaged accounts
- Decrease currency risk by increasing USD investment

The investment order might help you in your decisions where to invest further:
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

What are you currently doing with your INR cash-flows? Are you breaking even between rental and business income and paying the INR mortgage and the investment/insurance policy? If there is a surplus that you want to keep in India or you cannot repatriate to the US, you could also investigate investing via an Indian stock broker that offers low cost index funds (although I'm not sure if that could have an effect on your US taxes, so consulting a professional might be worthwhile).

[FamilyGuy]

@ aroberson77 I'm not sure about Raleigh but Apex's market which is close to Cary is increasing. I signed the contract in Dec for $256 plus some upgrades so it was $260.
Now same units are selling for $280.

Spending wise I think I'm already okay because I'm frugal by nature. My only problem there is sometimes I get stupid to buy some expensive ones like MacBook and then cry over it.

I wanted to double check if my investments are okay and any suggestions for better investment options. The problem for me investing in IRA is I can take the money only after 59 and I'm not sure if I will be in the US after 30 years from now...I may be settled down in a small town in India.

[aroberson77]

That is good, I would look at diversifying though and investing in funds that give stable returns find put how your IRA will work if you are in India when you can withdraw w/o penalties

[SwordGuy]

I wouldn't invest any more money Indian rental property.  The returns don't seem very good for the amount invested.

[marty998]

You are also locked in for a very long time on those Indian Insurance Bonds(?)

Seems like you only just started them last year... I'd personally look at more flexible options - you don't really know how your circumstances will change over the course of 2 decades.

[FamilyGuy]

First of all, I guess you are off to a great start to early retirement and investing. Let me share a few observations that stood out when looking at your portfolio:

As long as your long-term location plans are not yet finalized, I would try to diversify your portfolio as much as possible. If I look at your current asset allocation, you have quite a lot of different assets, but if you consider their value, you might be quite heavily invested on the (illiquid) real estate side and might be exposed to quite some currency risk. Maybe drafting your own investment strategy including a target asset allocation might help you to get a clear picture of your desired setup in the long run.

Current asset allocation by asset class:
-  4% cash
-  4% stock/bond market (depending on your asset allocation in your 401k)
-  3% Investment/insurance policies 7.8k (I guess this behaves similar to bonds)
-  6% real estate US
- 70% real estate India
-  8% other investment
-  5% commodities (gold)
234k

Asset allocation by currency:
(I assumed that your family business shares as well as your indian investment policies are in Indian rupees)
- 19% USD
- 81% INR

Asset allocation by liquidity:
-  9% liquid or semi-liquid (cash + commodities)
- 91% rather illiquid (Real estate, investment policies, family business shares, 401k)

Of course, this asset allocation will shift in the future as you build equity with your US house and invest further in your 401k, but it also shows that you are not that diversified yet. Therefore, as long as your long-term location plans are not yet finalized, I would try to diversify and balance the investments further.

As a starting point, I would try to
- Increase liquidity (e.g., in the shape of an emergency fund)
- Increase stock and bond exposure (US and international), preferably in tax-advantaged accounts
- Decrease currency risk by increasing USD investment

The investment order might help you in your decisions where to invest further:
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

What are you currently doing with your INR cash-flows? Are you breaking even between rental and business income and paying the INR mortgage and the investment/insurance policy? If there is a surplus that you want to keep in India or you cannot repatriate to the US, you could also investigate investing via an Indian stock broker that offers low cost index funds (although I'm not sure if that could have an effect on your US taxes, so consulting a professional might be worthwhile).

Thanks very much. I'm investing income from India in those long-term investment policies.  Also, I looked at investment order and below are my comments.

WHAT           
0. Establish an emergency fund to your satisfaction   - I feel comfortable having 4k in hand anytime. More than that I can use credit cards at that time. I already have this. 
1. Contribute to your 401k up to any company match - Doing this already.             
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. - Working on it. I cut around 10% contribution to 401k (after company match) temporarily to pay credit card debt of 4.6k. This will reflect in my pay check next month and will be able to close all credit card debt by Dec.             
3. Max HSA - I already have 2.5k in it and company is dropping 1.5 k every year. I'm not contributing anything from my end.         
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level 
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra.           

For the points 4 to 8 - what would be the best option for someone who wants to stay in US till 40 and never come back to US after?
Would you prefer to still do tax saving investments - money after 59 years  OR invest in taxable accounts? This area is grey for me and very confusing.

[FamilyGuy]

You are also locked in for a very long time on those Indian Insurance Bonds(?)

Seems like you only just started them last year... I'd personally look at more flexible options - you don't really know how your circumstances will change over the course of 2 decades.

Yep. That locking thing is really bothering me as well. But it is also disciplining me to save a set amount. Do you think their returns are worth it?

policy details:
 policy 1 -> 3k per year and policy 2 -> 2.5k per year.
policy 1 payment is for 10 years (total 30k) and will return 35k in 15 years and another 42k in the 20th year. (total 77k)
policy 2 payment is for 18 years (total 45k) and will return total 78k in 18 years and also offer life insurance.
so 155k in next 20 years.

[FamilyGuy]

I wouldn't invest any more money Indian rental property.  The returns don't seem very good for the amount invested.

Agreed on the rental property one. Rents are very low for investments in India.

I was crazy about real estates in India. What I would repeatedly see there is for people to buy lands in suburbs and hold it for next 20 or so years and sell it for unbelievable rates.

[marty998]

I hear the bureaucracy there is insane regarding realestate.

Having said that, I suppose with 1.3+ billion people fighting over land... there's a lot of demand and not enough supply.

[PapaBear]

For the points 4 to 8 - what would be the best option for someone who wants to stay in US till 40 and never come back to US after?
Would you prefer to still do tax saving investments - money after 59 years  OR invest in taxable accounts? This area is grey for me and very confusing.

This is a rather difficult question. I don't know anything about Indian taxation and/or India-US tax treaties, but a quick google-search came up with a few helpful links:
http://timesofindia.indiatimes.com/nri/other-news/NRI-back-in-India-Heres-what-to-do-with-your-401k/articleshow/11633158.cms
http://www.abhinavgulechha.com/401k-ira-return-india/
http://sanjivcpa.com/moving-back-to-india-what-should-you-do-with-401k-plan/   (I especially like the emphasis of changing plans in the beginning of the video - with kids growing up here, staying in the US could always be a possibility that should not be neglected)

So it seems like there a quite a few ways to access your 401k in India. Thus, my assumption is that the tax savings with your income and marginal tax rate are still worth it.
You also might want to investigate the RNOR status for NRIs returning to India as well as some experiences that people share on Quora and similar platforms.
It seems like there are a few setups that allow you to keep the 401k while paying minimal tax in India. One of the components seems to be selling and repurchasing all 401k assets in the last year of RNOR status without triggering a wash sale in the US - to make sure that the baseline for the later capital gains taxation in India is reset.
Some people who returned to India treat their 401k as their personal international diversification and plan to pay e.g. their kids US college tuition out of their US 401k funds.

If you are worried about only being able to access your 401k after 59.5, then you should have a look at the Roth conversion ladder mentioned here and elsewhere
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/
http://www.madfientist.com/how-to-access-retirement-funds-early/
However, you might want to check whether this works in your Return-2-India setting.

3. Max HSA - I already have 2.5k in it and company is dropping 1.5 k every year. I'm not contributing anything from my end.         

From a purely US-based perspective, you might want to consider maxing out this one every year, since it also works great as an retirement account:
see e.g.,: http://www.madfientist.com/ultimate-retirement-account/
However, with your plans of moving back to India, you might want to investigate access options from abroad or cash-out options specifically for the HSA first.

Do you think their returns are worth it?

I quickly estimated the Internal rate of return for your two investment policies (see screenshot below).
If I entered all the cash flows correctly, the first policy should be about 8% return and the second about 5.5%. Given an inflation rate of about ~5% in India in the past years, 3% real return seems okay, 0.5% real return is a bit low, even with life insurance. You might want to compare that to any other available savings plan in India.
Usually, mixing life insurance with investment is not a good idea. Splitting it into a term life insurance to insure the risk + a proper investment is usually the better deal and offers way more transparency.

You can replicate the results yourself in Excel using the IRR formula. Please note that the results vary depending on whether you treat the payouts as happening at the beginning of the year or the end of the year (=beginning of next year)