Help for a clueless Hungarian?

[Brumhartt]

Hello Fellow Mustachians!

So I saw that there are some Europe oriented topics but many of them assume we are all in the Euro zone within the EU.

Unfortunately that is not the case. I am from Hungary, where we use HUF. The country is small, so is our market (I think).

I'd just like some help from some other more informed mustachians of my options here. We don't have things like 401K and such US fancy things :P
From what I understand we also have an interest tax of 16% on the interest (not the stash).  So my question is: living in this small country where the government isnt doing very well imho, so I don't have much faith in our local market, with our small currency which seems to be constantly going down lately, what my options might be? Investing in the UK Vanguard is out of the question for a looooong time since its 100K GBP minimum.... that's like 11 years of my income after taxes, spending 0.

So I don't know. Do I buy the local BUX? which seems to be futures? (Not completely sure im still researching the local market but I am going very slowly as I understand very little of the whole stock market thing, especially everything being in Hungarian so I have to figure out what the hungarian terms equal to in english, where at least i have a small knowledge to start off on.)

Do I just try to buy SPY and eat the currency risk? Is it even a viable idea?

If anyone could help a lost junior mustachian I'd very very much appreciate it.

Thank you!

[Expatriate]

You can also invest by buying exchange-traded funds (ETFs) using a stock market broker, for example DeGiro (https://www.degiro.hu). It's a low-cost broker, not amazing in terms of service or features, but it has an easy to understand interface (good for novice traders) and is otherwise fine for investing in ETFs.

I'm not familiar with Hungary's tax legislation, but using brokers like these you can at least invest your 'free' wealth in virtually any tradeable fund,  including the (ETF versions of) the often-quoted Vanguard funds. In other words, most of the options being discussed on early retirement websites such as MMM are available to you as well.

What's left is draft an investment strategy and then stick to it.

[Brumhartt]

Oh wow, thank you!
I was trying to find brokers with not much luck, probably because I wasn't sure what I was looking for.

Then now I just have to figure out how an ETF strategy differs from the general "Shove everything into Vanguard index and forget about it".

If you don't mind and have an Explain me like im five explanation, I'd be very thankful, meanwhile I'll do my research!

Thank you one more time! It's a big help!

[Expatriate]

You can do the same, e.g. put everything in a single, broad ETF. But which is the big question.

I get the impression most in the US invest primarily in US funds. That's fine, because it's the largest developed market in the world, so lots of diversification (which you'll want always!), and most are multinationals anyway.

For us Europeans it's less simple. You are in Hungary, so you might prefer to stay local. However, I'm pretty sure the local Hungarian index does not provide sufficient diversification. You could invest Europe-wide (e.g. in the EuroStoxx 600) but that is still not sufficient from a diversification perspective.

You could go for an ETF based on a developed world equity index (e.g. MSCI World, which is 55% US) as main fund, and combine it with smaller holdings in e.g. the Hungarian index and/or other asset classes (bonds, real estate). Browse through etfdb.com or justetf.com and you'll see the options are limitless.

Hence... decide on a strategy that works for you! You can't do a lot wrong if you stick to low-cost ETFs (expense ratio below, say, 0.30%?) and go for 'buy and hold'. Don't try to time the market.

[NP]

Hungary is a small country with a weak economy and serious structural problems that aren't likely to be remedied any time soon. This brief article by a former deputy chairman of the Hungarian National Bank is a good summary of why Hungary is in a precarious situation: http://hungarianspectrum.org/2015/08/21/julia-kiraly-the-not-surprising-economic-slowdown/

I cannot predict what this is going to mean for investment returns, I'm not suggesting that now is a good time to short Hungarian stocks. However, I think it's prudent to consider Hungarian securities highly speculative at this point. I see no place for a large position of such risky assets in a long-term buy and hold portfolio regardless of whether or not you live there.

[Brumhartt]

Hungary is a small country with a weak economy and serious structural problems that aren't likely to be remedied any time soon.

I cannot predict what this is going to mean for investment returns, I'm not suggesting that now is a good time to short Hungarian stocks. However, I think it's prudent to consider Hungarian securities highly speculative at this point. I see no place for a large position of such risky assets in a long-term buy and hold portfolio regardless of whether or not you live there.

Yes, that's why I guess I'll just buy the international stocks. Is it feasible to buy US market vanguard ETF stocks? I just dont have much faith in the local market so I'd try to avoid buying anything, but I am also not sure if it makes any sense or not?

[NP]

We don't have things like 401K and such US fancy things

Tax-advantaged long-term savings accounts are, in fact, available in Hungary, e.g. TBSZ and NYESZ. I don't know much about them and cannot comment on whether they'd be appropriate for you, but you should read up on them if you haven't already.

Yes, that's why I guess I'll just buy the international stocks. Is it feasible to buy US market vanguard ETF stocks? I just dont have much faith in the local market so I'd try to avoid buying anything, but I am also not sure if it makes any sense or not?

Yes, it is feasible, for example, through the online brokerage that was recommended above.

Buying foreign ETFs makes perfect sense for you in my opinion, but I wouldn't recommend investing in the U.S. only. It's a huge economy but it's still smaller than the rest of the world and its relative size is slowly shrinking as other countries are catching up. There's no need to put all eggs in one basket and take such risks, since cheap global equity ETFs are easily available. You could own multiple ETFs for proper diversification, or if you'd like to keep it simple, pick a capitalization-weighted global ETF that includes not only developed countries but also some emerging markets, like the Vanguard FTSE All-World UCITS ETF. Even if the ETF is denominated in USD, you may be better off with one domiciled in Europe for tax reasons.

[Brumhartt]

Yes, it is feasible, for example, through the online brokerage that was recommended above.

Buying foreign ETFs makes perfect sense for you in my opinion, but I wouldn't recommend investing in the U.S. only. It's a huge economy but it's still smaller than the rest of the world and its relative size is slowly shrinking as other countries are catching up. There's no need to put all eggs in one basket and take such risks, since cheap global equity ETFs are easily available. You could own multiple ETFs for proper diversification, or if you'd like to keep it simple, pick a capitalization-weighted global ETF that includes not only developed countries but also some emerging markets, like the Vanguard FTSE All-World UCITS ETF. Even if the ETF is denominated in USD, you may be better off with one domiciled in Europe for tax reasons.

Thanks! Yea I need to learn about diversification. It sounded a lot more simple when you read the advice other people gave "Just buy X Vanguard index and you're good", so I thought I'd just follow that advice but I suppose you're right.

Even if the ETF is denominated in USD, you may be better off with one domiciled in Europe for tax reasons.

Could you expand on it? I'm not sure I understand this part.

Thanks again! I'm learning a lot.

[NP]

Thanks! Yea I need to learn about diversification. It sounded a lot more simple when you read the advice other people gave "Just buy X Vanguard index and you're good", so I thought I'd just follow that advice but I suppose you're right.

Diversification is a complex topic, and if you'd like to understand all aspects of it, you'll have to learn a lot, indeed. That shouldn't discourage you, however, as many of the good solutions to that problem are extremely simple: A single Vanguard index is exactly what I suggested above as a simple solution! It's just I recommend a global index (with a huge allocation to U.S. equities) rather than a purely U.S. one.

Even if the ETF is denominated in USD, you may be better off with one domiciled in Europe for tax reasons.

Could you expand on it? I'm not sure I understand this part.

The U.S. government may tax you unfavorably if you own U.S. domiciled ETFs as a foreigner, and Hungary or the European Union may also tax you unfavorably if you own ETFs not domiciled there. You could get taxed twice and you may or may not be able to get that money back and even if you can, it may not be easy.

I'm not an expert on this topic, I simply suggest that you do some research. Perhaps others with investing experience in Europe can give you specific advice.