Schwab or Vanguard for account when living abroad?

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Topic Author
gst
Posts: 26
Joined: Wed Oct 08, 2014 10:33 am

Schwab or Vanguard for account when living abroad?

Post by gst »

I'm currently permanent resident in the United States and have no intentions of moving back to my home country (Austria) or of giving up that status. Currently I hold most of my net worth in a Wealthfront account, but due to the recent discussions about brokers that close the accounts of expats I've started to look into what would happen if I ever decided to move back to my home country.

Wealthfront told me that I wouldn't be able to keep my account as a non-resident. So I'd definitely like to move my money away from there to avoid having to sell everything at once in case I decide to move to another country. I could use an ACAT transfer for some of the funds, but I'd rather use a broker where I wouldn't have to move away at some future point. Also, after an ACAT transfer I'd end up with a higher number of funds than number that I'd be willing to manage manually.

It appears that the best alternatives for my requirements would be a three-funded portfolio at either Vanguard (VBTLX, VTSAX, VTIAX) or Schwab (SWTSX, SWISX, SWLBX). I asked both of them: Vanguard told me that I wouldn't have to close my account if I move to another country, Schwab told me that I would have to switch my US account to one of their international account types. However, this information doesn't fully match the postings I've found in the forum here, that claim that Vanguard doesn't allow expat account (e.g., http://www.bogleheads.org/forum/viewtop ... 10773&f=10).

So right now I see the following options:

1) Use Vanguard account to buy Vanguard mutual funds. If Vanguard closes the account I can still convert them to ETFs and move them somewhere else (although I'd rather not do this)

2) Use Schwab account to buy Vanguard ETFs and probably pay a higher fee than #1.

3) Use Schwab account to buy Schwab mutual funds. Main problems are that 1) the tracking error appears to be higher and that 2) SWISX only contains developed countries, so I would have to buy at least one additional fund to also cover emerging markets.

Any suggestions for a certain option, or any options above that will definitely be a bad choice? I think that I would prefer Vanguard, but if the chance of me being able to keep that account as an expat would be too low, I'd rather use a Schwab account.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: Schwab or Vanguard for account when living abroad?

Post by bpp »

It is a fluid situation, and what looks workable now may not be in the future when, and if, you ever decide to move back. So I'd not worry about it too much yet.
But FWIW, option 1) looks reasonable to me for now.
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in_reality
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Re: Schwab or Vanguard for account when living abroad?

Post by in_reality »

gst wrote: I asked both of them: Vanguard told me that I wouldn't have to close my account if I move to another country,
Vanguard let me keep my account (with dividends reinvested) but I couldn't buy anything new.
gst wrote:Schwab told me that I would have to switch my US account to one of their international account types.

So right now I see the following options:
gst wrote: 1) Use Vanguard account to buy Vanguard mutual funds. If Vanguard closes the account I can still convert them to ETFs and move them somewhere else (although I'd rather not do this)
I think your choices would be:

1) keep the funds at Vanguard until you sell them
2) transfer the Vanguard mutual funds to a Schwab International Account (and hold them with reinvestment there) [this is what I did]
3) change your mutual funds into ETFs before you notify Vanguard of your address change (or you won't be able to convert) and then transfer the ETFs.
gst wrote:
2) Use Schwab account to buy Vanguard ETFs and probably pay a higher fee than #1.
$8.95/transaction. [dividend reinvestment is free]
gst wrote:
3) Use Schwab account to buy Schwab mutual funds. Main problems are that 1) the tracking error appears to be higher and that 2) SWISX only contains developed countries, so I would have to buy at least one additional fund to also cover emerging markets.
I'd prefer the Schwab ETFs myself. International isn't as easy though since you need SCHF (large cap) 85%, SCHC (mid/small) 10% and SCHE (emerging) 15%.

If you do move to Austria, you won't be able to buy anymore Schwab mutual funds. You will be restricted to ETFs unless things change.
gst wrote:
Any suggestions for a certain option, or any options above that will definitely be a bad choice? I think that I would prefer Vanguard, but if the chance of me being able to keep that account as an expat would be too low, I'd rather use a Schwab account.
I think you have good choices here. Schwab is said to be about to introduce their "robo" service comparable to Wealthfront. Not sure what it will be like or if it's available to their International account holders.

Personally, I wouldn't want my money in Wealthfront if there was a chance I'd move overseas and have to liquidate it. If you can easily transfer the holdings in-kind then that is another story. Not sure what you're holding there.
Karamatsu
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Re: Schwab or Vanguard for account when living abroad?

Post by Karamatsu »

There's no way to know what the restrictions will be in the future, so I think the most important thing is to invest in what you want while maintaining flexibility. ETFs are easier to move around and, at present, don't have the kinds of restrictions that are common to mutual funds, but of course they do involve trading costs and often trade at a premium to the NAV, so much depends on how you plan to fund your investments.

Likewise, regarding brokers, maybe the best strategy would be to open accounts at both brokers now, so you have a customer history and can be grandfathered in if/when reporting requirements change.
Topic Author
gst
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Re: Schwab or Vanguard for account when living abroad?

Post by gst »

Thanks for the responses!

So I've decided to sell my Wealthfront portfolio (tax isn't an issue here as I opened it at the beginning of the year and it's only something like +3%) and buy a variation of the 3 fund lazy portfolio instead (adding international bonds to the mix). Due to wash sale regulations I won't be able to immediatelly buy VTSAX, as I have the ETF version in my Wealthfront portfolio, but I should be able to buy all the other funds (for international stocks Vanguard doesn't use VTIAX, but splits it up into VEA and VWO).

My plan:

35% Vanguard Total Stock Market Index Fund VTSAX
35% Vanguard Total International Stock Index Fund VTIAX
15% Vanguard Total Bond Market Index Fund VBTLX
15% Vanguard Total International Bond Index Fund VTABX

Does this sound like a reasonable approach?

Also, am I correct in my assumption that selling VEA and VWO and then immdiatelly buying VTIAX isn't a wash sale? None of the securities is substantially identical, but the combination of VEA and VWO would be somewhat identical to VTIAX.

Main reason for my decision for Vanguard was that I 1) would prefer mutual funds as long as I live in the United States and 2) in case I should move somewhere else I can still convert all of the Vanguard mutual funds to ETFs and move them somewhere else.

If there would be an unhedged Vanguard version of VTABX I would prefer that one (I consider currency "risk" additional diversification), but given that there's no matching Vanguard fund going with VTABX appears to be the best approach.
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kramer
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Re: Schwab or Vanguard for account when living abroad?

Post by kramer »

If there is a net gain in your original holding and you sell it to buy something else, there is no wash sale issue because you don't have a loss, even if your new purchase is substantially identical. So you can immediately purchase the new holding.
Topic Author
gst
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Joined: Wed Oct 08, 2014 10:33 am

Re: Schwab or Vanguard for account when living abroad?

Post by gst »

Thanks! I wouldn't have realized that. Yes - there's a net gain on VTI, so it appears that I can buy all of those funds immediately.
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corner559
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Re: Schwab or Vanguard for account when living abroad?

Post by corner559 »

Vanguard let me keep my MF's but wouldn't allow me to open a brokerage account.
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