Portfolio with a foreign flavor
When Larry Parnell and Christine Schueller married in 2002, they found themselves wrestling with an unexpected international issue -- the merger of their investment portfolios.
Parnell, an American from Cambridge, had a portfolio of US stocks and mutual funds, while Schueller, from Freising, Germany, owned German stocks and real estate in Bavaria. Combining the two meant grappling not only with fluctuating currencies but also two sets of national laws governing everything from investments to taxes to inheritance.
The couple is currently shopping for both a condo in Cambridge and a hybrid car, but they plan to perhaps return to Germany one day. Figuring out a financial strategy to deal with all those variables was something they weren't sure they could tackle on their own. So Parnell and Schueller -- computational biologists who met at a scientific conference -- decided to apply for a Boston Globe Money Makeover.
''We're unsure how to balance these investments both in terms of percentage of our total net worth and in terms of the two continents," Parnell, 41, and Schueller, 43, wrote in their application.
Fee-only financial adviser Christiane Delessert, of Delessert Financial Services in Waltham, gave the couple a quick lesson in global economics on a personal scale. Delessert, herself a Swiss citizen, has had to navigate these issues with her own multinational portfolio.
Her advice to the couple:
Keep the dollar-based portfolio separate from the euro-based portfolio, and then rebalance periodically, using currency variations as opportunities to sell high and buy low.
Right now, the bulk of the couple's $1.3 million in assets is in euro-based investments, which include three inherited residential properties owned wholly or in part by Schueller. The remaining 28 percent is in dollar-based investments, including a variety of tax-advantaged retirement accounts.
Advising the couple to keep that 72 percent-28 percent split between the euro and the dollar, Delessert said the two should fully diversify both investment pools. Each portfolio should have between 65 percent and 70 percent of assets in equity investments -- stocks, stock mutual funds, and real estate, for example -- with the rest in fixed income.
The equity portion of each portfolio should then be diversified to include small, mid-sized, and large companies, with assets allocated equally between value investments -- those out-of-favor companies with greater promise of return -- and growth investments -- those that the market has priced higher because of proven performance.
The goal, she said, is to make sure that the couple gets on average a 6 percent annual return after taxes on their money. By using a series of financial forecasts, Delessert showed the two how their income, frugal lifestyle, aggressive savings, and a return of between 5 percent and 6 percent could actually leave them with between $8.6 million and $15 million in assets when the oldest turns 90. And those scenarios include the purchase of a $550,000 condo as well as a new car in the next year.
Delessert said each portfolio should have about 15 percent of funds invested internationally.
One unexpected issue turned out to be the estate plan. Neither Schueller nor Parnell has a will, but both were stunned to learn of the complexities created by their current citizenship status. Because Schueller isn't a US citizen, she doesn't qualify for the unlimited marital deduction that would allow her husband to pass all of his assets to her estate tax-free upon his death. Schueller would need a special trust -- called a qualified domestic trust or QDOT -- to avoid paying the full US estate tax bill upon her husband's death.
To be considered for a Money Makeover, fill out the form at www.boston.com/business/personalfinance, or call 617-929-2916 and ask for an application.
