10 Best investment options for H1B visa holders in the US

When I first came to US for studies, investing was never on my mind. Back in India, I grew up in a family who saved as much as possible and invested in FD and Savings accounts which offered considerable interest. Investing in stocks was frowned upon in the family as my mother compared it to gambling.

When I got a job and started earning, I saved the money in regular savings accounts. I did not invest it anywhere else. I was always worried about investing not knowing about my future in the country. Will I get a H1B visa? What would happen if I got a H1B visa but it wasn’t renewed? Why should I invest in a retirement account if I may not even be in the country. After a long time did I realize how much money growth I had missed over the years.

I randomly came across the F.I.R.E ideology while I was browsing Travel Hacking strategies on reddit one day. The concept of Financial Independence spoke to me. The more I read and got financially literate, the more I explored opportunities for investments and diversifying assets. The earlier you start investing the better. It will surely pay out in the long run, literally.

Why is investing important?

Saving money and Investing money are not the same. Saving insures your present and near future is secured. The money you saved will not grow. However, it is indirectly guaranteed that your money will lose value each day because of inflation. Investing gives your savings the potential to grow at a higher rate of return over a long period of time. Your money will make you more money. The choice of Savings Vs Investing depends on your personal financial and life goals.

Here are some best investment options for H1B visa holders –

1. High Yield Savings Account (HYSA)

Big banks such as Chase, Bank of America, Wells Fargo offer miniscule interest on their savings accounts. These rates are significantly lower compared to the national inflation rate. It is a good idea to build an emergency fund with a bank that offers High Yield Savings Accounts that pay a slightly higher interest rate on your money. Depending on your personal situation, an emergency fund is the amount that you need for the next 3-6 months if your income ceases to exist.

Your cash loses value everyday because of inflation

2. Certificate of Deposit (CD)

Many banks offer something known as the certificate of deposit (CD). This is equivalent to a fixed deposit offered by banks in India. The risk level is very low and so is the reward. CD interest rates are a bit higher than HYSA but still below inflation.

3. 401k Plans

Instead of granting pensions to employees, most companies offer 401k Plans. 401k is a retirement account, which means you can withdraw money from it when you reach the age of 59 and a half without paying an early withdrawal penalty of 10%. There are some exceptions to this rule such as the IRS rule of 55 and withdrawing money as a downpayment for your primary house.

When you contribute money to your 401k account, you can invest that money in the equity market through stocks, bonds and REITs. The investment options depend on the brokerage your company partners with.

401k is essentially free money that you shouldn’t lose on. It is highly recommended to max out a 401k, at least up to your employer match. Also, you fund 401k with “pretax” money meaning the contributions are taken from your paycheck before taxes are deducted. You will pay taxes when you retire.

4. Traditional IRA

Some companies do not offer 401k plans. Whether your company does or does not, you can always open an IRA account-Individual Retirement Account with a brokerage. Your contributions to a traditional IRA is also tax-deductible, just like a 401k. Depending on the brokerage of your choice, you can decide on the asset class and funds available for investment. IRA contribution limits can be found on the IRS website.

5. Roth IRA

Roth IRA is different than traditional IRA in the sense that the contributions are post-taxed. That means you pay taxes today and reap the benefits in the future without paying a single dollar on the compounded interest, dividends and capital gains. You can choose any brokerage of your choice to open a Roth IRA. There are limits on how much you can contribute to a Roth IRA based on your income(Adjusted Gross Income-AGI) and filing status. Checkout the annual contribution on the IRS website.

6. Health Savings Account

If you have a High Deductible Health Insurance Plan(HDHP), I highly recommend opening a Health Savings Account (HSA). Your employer will most likely contribute(free money) to your HSA account twice a year. The contribution is usually around $600 for individual plans and $1250 for family health plans. Even if you sign up for the HSA account and contribute $0, your employer will stay contribute their share. HSA is a great tool because the money you contribute to it is pre-taxed and the money you spend from it for medical expenses is also not taxed. So it is a no-brainer benefit you should certainly take advantage of.

A lot of people aren’t aware but you can invest your money that’s sitting in a HSA account. Depending on your has provider, you will have the option of investing your partial or entire HSA dollars in the equity market. The funds available for investment vary from one provider to another.

Fidelity and Lively are some good ones to begin with if your employer does not provide a HSA account.

7. Employee Stock Purchase Plan (ESPP)

An Employee Stock Purchase Plan(ESPP) is a company offered program in which employees of a company can buy the company stock at a discounted price on a regular basis. The stock purchase is made through your payroll deductions. If you don’t want Uncle Sam cutting into your profits, don’t sell the stocks within a year of purchase as you will be taxed at the short-term capital gains tax rate. When to sell your company stock depends on your personal financial goals and objectives. You can either load-up on the company stock or sell some  and diversify your portfolio.

8. Taxable Investment accounts

Unlike retirement plans, taxable accounts offer the flexibility of withdrawal of your money. However, there are no tax benefits with such accounts. You can open an account with brokerages like Vanguard, Robinhood or M1 and begin investing today. You can also try robo-advisors like Wealthfront

The basic asset classes are:

• Stocks or Equities (ETFs, mutual funds, index funds, REITs etc.)
• Bonds
• Money market also known as cash equivalents

When you are creating a portfolio, some helpful tips are:

Tip 1: Minimize investment fees – These days, most brokerages do not charge commission fees or stock trades. However, if you are investing in mutual funds, there is a certain expense ratio associated with it. Try to keep this number as low as possible. If your portfolio is actively managed, a good expense ratio is considered to be anywhere between 0.5%-0.75%. For passive index funds, it is around 0.2%.

Tip 2: Invest in index funds or commission-free ETFs- Index funds and their equivalent ETFs carry less fees as lesser human involvement is required to manage the fund. Index funds that track the S&P 500 and NASDAQ are few such examples.

Tip 3: A simple rule of thumb for portfolio split for beginners to follow is-

The percentage you invest in bond funds = (Your age) minus 10. The rest goes in stocks. Eg. If you are 30, you may invest 20% in bonds and 80% in stocks.

A few of my favorite brokerage accounts are-

9. Real Estate Investments

Over the last decade, Real Estate investments have provided great return on investment. Buy a property and rent it out for cash flow and possibly, appreciation. Before you start investing in real estate, it is advised that you understand concepts such as CAP rate, cash-on-cash return and overall ROI.

One caveat with this option is that H1B visa holders aren’t allowed to hold an active role in any business or venture. Your visa allows you to work for only one employer. RE may need adequate involvement.

You may have to hire a property management company who looks after your real estate property. Some of their tasks include finding a tenant, collecting monthly rent, communicating maintenance and repairs request for the properties. This can be considered as passive investment depending on your situation.

Another option is house hacking, wherein you buy a house, live in part of it and rent out the rest. The rental also helps pay your mortgage.

You can also invest in a Real Estate Investment Trust (REIT) with Robinhood or M1 or in a crowdfunded real estate portfolio with Fundrise

I highly recommend you consult a qualified attorney to discuss specific details for this investment option.

Real Estate has been providing great ROI historically

10. FCNR

Foreign Currency Non Resident Account or FCNR is a type of fixed deposit available for NRIs in India. FCNR is held in a foreign currency such as USD. This means that you are protected against forex rate risks. FCNR rates in India are usually higher than the interest rates you get with a CD or HYSA in the US. This is a low risk, low reward investment option. To create a FCNR, you can wire your principal amount to the Indian bank and decide on the term. After maturity, you can repatriate the principal and interest back to your US bank.

Include the international wire transfer fees that banks charge when you calculate the returns on such an investment.

Do you know of other good investment options for H1B holders in the US? Share your thoughts in the comments below

*Disclaimer – The ideas expressed in this article is not financial neither a legal advice. The opinions mentioned here are solely for educational purposes, and my own perspective.