Live off portfolio NOW (non US)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Live off portfolio NOW (non US)

Post by ebblv » Fri Jan 27, 2017 8:27 pm

- I am not a US citizen.
- I was a temporary resident, but soon I will be living in the Dubai, UAE which does not have any taxes.
- I want to setup a passive investment portfolio that I'd like to live off starting now.
- I want to minimize dividends and other US taxable income, I will pay flat 30% taxes on those. W8-BEN-E will apply.
- I want to prefer capital gains as they are tax free for me.
- I want to plan to remove 2.5% of current asset value every year.
- I want to adjust for 3% inflation every year.
- A 5% return post expenses & taxes will sustain me for 50+ years. Obviously I'd like more return and more years ;)

- I will setup a company for my holdings and invest via the company to avoid estate taxes in the event of my death.
- I will keep 3 years of my yearly expenses in cash. Each year I will withdraw one more years projected usage to keep this current.

- At a high level, I think I need a 4 fund style portfolio. But I'm wary of the risk of putting a lot of my savings in a single fund and wondering if I should be splitting it across many funds of a similar category.
- What funds are good for my case?
- What should I be reviewing and how often once I setup this up?
- How often should I rebalance?
- Is there anything special I should/can do to insure my investments?

- I think I should use Interactive Brokers to manage my investments since it seems like the easiest way to invest as a non US resident.

- This is my very first pass and I'm terribly unsure, but I think I should do:
45% VUSD -- Expense Ratio: 0.07%
25% VGTSX -- Expense Ratio: 0.18%
20% VBMFX -- Expense Ratio: 0.16%
10% BNDX -- Expense Ratio: 0.15%


-- a n00b

User avatar
Watty
Posts: 11797
Joined: Wed Oct 10, 2007 3:55 pm

Re: Live off portfolio NOW (non US)

Post by Watty » Sat Jan 28, 2017 7:55 am

It would be good to edit your post and add the fund names instead of just the ticker symbols.

ebblv wrote:- I will setup a company for my holdings and invest via the company to avoid estate taxes in the event of my death.


It would be good to get expert tax advice on that, also review that every few years since tax laws can change.

ebblv wrote: At a high level, I think I need a 4 fund style portfolio. But I'm wary of the risk of putting a lot of my savings in a single fund and wondering if I should be splitting it across many funds of a similar category.


The total stock and bond mutual funds already own basically all the stock and bonds so they are well diversified.

Buying multiple funds instead is sort of like saying that you don't want to just have a cheesburger for lunch so you will have a meat patty and roll with a piece of cheese instead. When you put them all together they are really the same.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Vanguard for non US resident or equivalent indexes

Post by ebblv » Sun Jan 29, 2017 2:42 am

[Thread merged into here, see below. --admin LadyGeek]

I'm considering these 3 funds to make up most of my portfolio:

VBIAX | Vanguard Balanced Index Fund Admiral Shares
VTIAX | Vanguard Total International Stock Index Fund Admiral Shares
VTABX | Vanguard Total International Bond Index Fund Admiral Shares

I'm confused about access to these as a non US resident. I understand I need to pay flat 30% on dividends and that capital gains are not taxed, and I'll be filing a W8-BEN (and I'll have a CPA handle the taxes).

I will also most likely be doing this using an offshore trust (setup with help from professionals), does that change the answers?

Do I have access to these funds directly from Vanguard?

If the answer is "no", is there some amount at which this answer changes?

If the answer is "no", can I get access thru another broker, and if so, is Interactive Brokers a good one to use if all I want is these 3 funds and nothing else.

If the answer is a definitive "never", are there equivalent funds available to non US residents?

Lou354
Posts: 485
Joined: Sun Apr 03, 2016 10:51 pm

Re: Vanguard for non US resident or equivalent indexes

Post by Lou354 » Sun Jan 29, 2017 3:44 am

Check out the International Domiciles page in the wiki.
https://www.bogleheads.org/wiki/Outline ... _domiciles

User avatar
BeBH65
Posts: 861
Joined: Sat Jul 04, 2015 7:28 am

Re: Vanguard for non US resident or equivalent indexes

Post by BeBH65 » Sun Jan 29, 2017 4:30 am

- most likely you will not be able to buy US-mutual funds without a US-residency. ETF's variants can be bought on the US- stock exchanges.
- most likely a trust will not be able to use a w8-Ben, which in my understanding applies to individuals.
- why would you want/need to buy international stocks+bonds, via an US detour, and hence pay US-taxes on it due to the detour?

Also look at the answers on your other posts.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

User avatar
BeBH65
Posts: 861
Joined: Sat Jul 04, 2015 7:28 am

Re: Live off portfolio NOW (non US)

Post by BeBH65 » Sun Jan 29, 2017 4:43 am

Hi,

1. First you need to decide on your asset allocation (split bonds/equity== split protection/growth). What is your risk tolerance? What is your timeline? How much are you willing too loose without changing your AA? (Knowing stock markets have been known to loose 50% in a year).
2. There are some simulators that you can use (firecalc, portfolio visualiser). Be careful with them. Also 5% expected return might need a risky AA.

See also the answers on the other threads you started + perform searches on our wiki and forum.

Come back here with additional questions.

Regards,
Last edited by BeBH65 on Sun Jan 29, 2017 1:04 pm, edited 2 times in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Sun Jan 29, 2017 4:54 am

You should go with US Permanent Portfolio. You have a number of threads on it here, and they have their own forum for additional advice.

SurferD
Posts: 136
Joined: Sun Mar 22, 2015 12:38 am

Re: Live off portfolio NOW (non US)

Post by SurferD » Sun Jan 29, 2017 5:42 am

Hi ebblv,

Im also in UAE and Non Resident Alien US and I use IB,

My advice is look at ETF funds domiciled in Ireland and don't use US based funds, look at VWRD for Equity and IUAG for bonds for example (also do a search on here for similar threads for NRA investors and tax etc) there have been many in the past.

As far as IB goes I think this is the best option and I use them and Ive been very happy to date,

Lastly look on Facebook for the local UAE Boglehead investor group, they hold regular meetings
Good luck
SurferD

ebblv wrote:- I am not a US citizen.
- I was a temporary resident, but soon I will be living in the Dubai, UAE which does not have any taxes.
- I want to setup a passive investment portfolio that I'd like to live off starting now.
- I want to minimize dividends and other US taxable income, I will pay flat 30% taxes on those. W8-BEN-E will apply.


- I think I should use Interactive Brokers to manage my investments since it seems like the easiest way to invest as a non US resident.

- This is my very first pass and I'm terribly unsure, but I think I should do:
45% VUSD -- Expense Ratio: 0.07%
25% VGTSX -- Expense Ratio: 0.18%
20% VBMFX -- Expense Ratio: 0.16%
10% BNDX -- Expense Ratio: 0.15%
-- a n00b

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Vanguard for non US resident or equivalent indexes

Post by galeno » Sun Jan 29, 2017 9:41 am

Our USA-NRA port: 40% VWRD + 20% VDTY + 20% VDCP + 15% ITDP + 5% CASH.

All but IDTP are Ireland domiciled Vanguard ETFs. IDTP is an Ireland domiciled Ishares ETF.

Welcome to our (USA-NRA Boglehead) world.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

User avatar
LadyGeek
Site Admin
Posts: 41611
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Live off portfolio NOW (non US)

Post by LadyGeek » Sun Jan 29, 2017 9:58 am

ebblv, Welcome! To give you appropriate advice, it is best to keep all of your portfolio information together in one discussion. I merged your second post into here.

The wiki has some background info: Interactive Brokers

Your question regarding taxation is here: Understanding fund return breakdown for tax purposes (W8-BEN)
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sun Jan 29, 2017 10:41 am

Sorry for the split threads! This is great information -- I will do some more reading and come back with questions.

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Sun Jan 29, 2017 10:52 am

AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sun Jan 29, 2017 5:09 pm

Thanks for all the suggestions, now I'm doing research knowing that I can't access the more typical Vanguard funds. It's sad really, I really liked the idea of VBIAX | Vanguard Balanced Index Fund Admiral Shares, I could have put 80%+ in that one fund and things would have been simple!

Seems like I'm going to have to split across a few funds to achieve my goals.

At a high level I want this split:

07% Cash
65% US Stock
18% US Bond (Government + Corporate)
05% International Stock
05% International Bond

--

For US Stock, I'm thinking about:

VUSA | S&P 500 UCITS ETF
OCF of 0.07%
Con: Lower diversity

Is there a Total US Stock ETF domiciled in Ireland that would be a better? Can't seem to find one :/

--

For US bonds, I like galeno's suggestions of:

VDTY | Vanguard USD Treasury Bond UCITS ETF
OCF of 0.12%
Con: Very small and new?

VDCP | USD Corporate Bond UCITS ETF
OCF of 0.12%
Con: Small and new?

I love that these are Vanguard and domiciled in Ireland, but wondering if the "newness" is a concern. Should I be looking at other non Vanguard funds here instead? SurferD's suggestion of IUAG | iShares US Aggregate Bond UCITS ETF USD looks very good too. Higher OCF of 0.25%, but it's been around for a bit longer and has more net assets.

--

For International Stock, initially my goal was to target developed markets outside of the US. But if I want to stick with Vanguard, then the closes thing I like is again galeno's suggestion of VWRD | FTSE All-World UCITS ETF which includes ~50% US and isn't non-US only like my original plan of VTIAX | Vanguard Total International Stock Index Fund Admiral Shares. So I'm thinking I bump this from 5% to 10%, and reduce my US Stock only fund from 65% to 60% to end up in a similar place as before:

VWRD | FTSE All-World UCITS ETF
OCF of 0.25%
Con: Complicates the US Stock setup somewhat.

---

For International Bond, I still haven't figured out what to go with. LQDE| iShares $ Corp Bond UCITS ETF USD | OCF 0.20% looks interesting which is 80% US and 20% non-US bonds. One thing I could do is do 23% of this instead of splitting it across 3 funds.

--

To summarize:

07% Cash
60% US Stock | VUSA | S&P 500 UCITS ETF | OCF 0.07%
12% US Bond Government | VDTY | Vanguard USD Treasury Bond UCITS ETF | OCF 0.12%
06% US Bond Corporate | VDCP | USD Corporate Bond UCITS ETF | OCF 0.12%
10% All World Stock | VWRD | FTSE All-World UCITS ETF | OCF 0.25%
05% International Bond


--

SurferD, thanks for pointing me to that group! I can't wait to go to one of the meetups once I've moved there!

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Sun Jan 29, 2017 7:40 pm

The newness is not a problem. We have bought and sold VWRD, SUAG, VDTY, VDCP, and IDTP with no problem. Bid/ask spreads are reasonable.

We always use limit orders. No problems at all.

Forget USA domiciled MF or ETFs. Bad idea. Read that page I suggested. Especially the first 3 on USA-NRA taxation.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

SurferD
Posts: 136
Joined: Sun Mar 22, 2015 12:38 am

Re: Live off portfolio NOW (non US)

Post by SurferD » Mon Jan 30, 2017 3:40 am

I agree with galeno, hes the sage when it comes to NRA expat investing. I bought IUAG and VWRD after similar posts to this almost two years ago now and so far they have been good and Im happy with both. IUAG does a good job of diminishing the downswings when VWRD drops sometimes, so all good so far :) thanks galeno

galeno wrote:The newness is not a problem. We have bought and sold VWRD, SUAG, VDTY, VDCP, and IDTP with no problem. Bid/ask spreads are reasonable.

We always use limit orders. No problems at all.

Forget USA domiciled MF or ETFs. Bad idea. Read that page I suggested. Especially the first 3 on USA-NRA taxation.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Wed Feb 01, 2017 8:41 pm

galeno, I've read so many of your posts and they have been tremendously helpful. You rock!

I understand the importance of taxes with US domiciled funds vs Irish domiciled funds. Another thing that I've learnt with the information you guided me to is that this may also simplify the inheritance tax aspect, specifically with US domiciled funds I would have needed an offshore trust so I would not get hit by inheritance tax, but with Irish domiciled funds I'm in the clear!

This is great! Now the next question I'm wondering about is what bank to use. I don't want to use a UAE bank for my funds, I frankly don't trust them enough. I think Singapore banks are good for me, proximity wise, and they are highly rated. Any thoughts on this and suggestions on if a trust is still beneficial for other reasons?

PS: I'm also trying to do the math for my portfolio (specifically TR/MR/OCF/TER and apply that against my projected AWR + some guesstimates on returns) like you have in your signature and elaborated on in some of your posts -- is there a tool that helps with this by any chance?

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Wed Feb 01, 2017 9:02 pm

Hmm, looks like proximity wise Basel, Switzerland is actually better. Those are the 2 places I've seen repeatedly as good locations with highly rated banks.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Thu Feb 02, 2017 2:51 am

Just keep on using your US banking accounts from the time you were there. Nothing beats US banking system when it comes to convenience and costs. Cash in US accounts is estate tax exempted and you have FDIC insurance on it.

In general, for non-US people I think US is the best "offshore" jurisdiction. Hopefully the current administration will eliminate estate tax so then we can buy US domiciled ETFs.

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Thu Feb 02, 2017 5:08 am

The "cash" allocation for USA-NRAs can be dicey. Especially for those of us who live in "developing economies" AKA third world countries.

We have about 5% of port in cash. All of it in USD. Almost all in a Panamanian bank. Panamanian banks are safer than Costa Rican banks. They also do not charge a sneaky 8% "dividend tax" on ALL interest income.

We also feel that it's not safe to have large USD bank accounts in CR. Call me paranoid but it seems that people who have large bank accounts in CR become targets for "express kidnappings". I feel that CR bank employees sell this information to the criminals.

Our Panamanian bank will pay us 3.5% for 1 yr CD. Our CR bank will pay 3.2% (net). And a FDIC insured USA bank 1 yr CD will pay 1.3%.

This means that our CR and Panamanian banks, for whatever reasons, is 270% more risky vs the USA bank.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Fri Feb 03, 2017 1:08 am

Interesting, so I can keep the cash in US accounts, invest in Irish domiciled funds, and not be affected by US dividend tax (directly) or inheritance tax? Still wondering if a non-US bank would be preferable here.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Fri Feb 03, 2017 4:11 am

ebblv wrote:Interesting, so I can keep the cash in US accounts, invest in Irish domiciled funds, and not be affected by US dividend tax (directly) or inheritance tax? Still wondering if a non-US bank would be preferable here.


Yes, also if for your fixed income portion of portfolio you buy treasuries directly (instead of through an ETF) you are exempted from interest taxes and estate taxes on your treasury holdings. Most US brokerages will let you buy treasuries for free, so zero commission and zero ongoing charges (as opposed to a fixed income ETF).

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Fri Feb 03, 2017 5:44 am

Correct. If you use IB as your broker you can do all that. Brokered USA FDIC insured brokered CDs are available. We elect NOT to use them.

Since we already have a Panamanian IBC, it was a simple step to open a Panamanian bank account. This is a very common practice of Costa Ricans and other Latin Americans.

Our 5% cash allocation is laddered like this: 20% cash, 20% 3 mo CD, 20% 6 mo CD + 20% 9 mo CD + 20% 12 mo CD. Cash yield = 1.78%.

Without the little cash CD ladder our net port yield = 2.00%. With it port yield = 2.09%. A nice little yield bump.

ebblv wrote:Interesting, so I can keep the cash in US accounts, invest in Irish domiciled funds, and not be affected by US dividend tax (directly) or inheritance tax? Still wondering if a non-US bank would be preferable here.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

Maple
Posts: 7
Joined: Fri Aug 07, 2015 11:46 pm

Re: Live off portfolio NOW (non US)

Post by Maple » Sat Feb 18, 2017 8:18 pm

galeno,

You are a great source of information on NRA investing. Thanks for sharing your experience with us.

I read the links you suggested, and many other posts.

galeno wrote:Start your reading here: https://www.bogleheads.org/wiki/Outline ... _domiciles


galeno wrote: ... Forget USA domiciled MF or ETFs. Bad idea. Read that page I suggested. Especially the first 3 on USA-NRA taxation.


This leads me to questions regarding withholding taxes for NRA investing in US domiciled ETFs. It is frequently stated on this board that dividend withholding taxes are 30% (sometimes reduced by tax treaty to 15%). I understand how that would be the case for ETFs comprised of US equities, but what about US domiciled ETFs comprised of non-US equities (ex: VXUS, VWO, etc.)? Shouldn't those have a lesser (or zero withholding), and if not can the withholding be recovered by filing with the IRS?

IRS "Publication 519 (2016), U.S. Tax Guide for Aliens", chapter 2 states: "A nonresident alien usually is subject to U.S. income tax only on U.S. source income ... dividend income received from domestic corporations is U.S. source income. Dividend income from foreign corporations is usually foreign source income."
https://www.irs.gov/publications/p519/ch02.html#en_US_2016_publink1000222213

Also, one of our own wiki pages contains data showing 0% withholding tax for VXUS: "A test using a TD Ameritrade account and a selection of US-domiciled ETFs: MUB, BIV, LQD, BNDX, VIG, VTI and VXUS, shows that all had tax withheld at 30% from the dividends distributed, with the exception of MUB and VXUS. MUB holds US municipal bonds (which are tax-exempt from US federal taxes); VXUS holds stocks of non-US companies."
https://www.bogleheads.org/wiki/Nonresident_alien_taxation

For me, understanding the nuances of tax withholding (and final US tax obligation) as a function of ETF underlying asset is key in determining whether Irish domiciled ETFs are worthwhile vs US domiciled analogues. If indeed there are no US withholding fees (or more importantly no US final taxes) for US domiciled ETFs comprised of foreign equities, and given the extra variety and cheaper cost of the US ETFs (ERs, bid/ask spreads), then the US ETFs seem better. I left inheritance tax aside for the purpose of this discussion.

I hope my comments/questions are contributory to this thread. If moderators, or others, prefer I could begin a new thread instead.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Sun Feb 19, 2017 1:39 am

Maple wrote:
This leads me to questions regarding withholding taxes for NRA investing in US domiciled ETFs. It is frequently stated on this board that dividend withholding taxes are 30% (sometimes reduced by tax treaty to 15%). I understand how that would be the case for ETFs comprised of US equities, but what about US domiciled ETFs comprised of non-US equities (ex: VXUS, VWO, etc.)? Shouldn't those have a lesser (or zero withholding), and if not can the withholding be recovered by filing with the IRS?



You are buying an ETF which is a financial product in itself. If it's domiciled in US, it's a US product no matter what it holds inside and you get taxed 30% on dividends from such a product. Even more extreme than what you point out is that, for example, if you hold TLT (ETF that holds long term US treasuries) you'll pay 30% dividend tax since interest that treasuries pay is paid out to you as a dividend from an ETF, but if you hold US treasuries directly you will pay 0% interest tax as a NRA.

I doubt you will lose even if you buy ETFs that hold foreign stuff since ETF providers, as US companies, probably have privileged or no tax rates in the corresponding countries. The same way as if you buy Ireland-based ETFs, you pay only 15% dividend tax since Irish ETF providers have tax treaty with US and you profit from it.

Maple
Posts: 7
Joined: Fri Aug 07, 2015 11:46 pm

Re: Live off portfolio NOW (non US)

Post by Maple » Sun Feb 19, 2017 6:11 pm

Tylenol Jones wrote: You are buying an ETF which is a financial product in itself. If it's domiciled in US, it's a US product no matter what it holds inside and you get taxed 30% on dividends from such a product ...


Tylenol Jones,

Thanks for your reply.

I think I understand your statement and I also think I understand the withholding data presented in this forum's non-resident alien taxation wiki (https://www.bogleheads.org/wiki/Nonresident_alien_taxation). It seems the two are in disagreement, so how can we reconcile them?

In the non-resident alien taxation wiki, US domiciled ETF dividends for MUB and VXUS are NOT taxed/withheld at 30% (in fact it is 0%). Does anyone care to share direct experience on dividend withholding tax rates for more ETFs (preferably US domiciled holding foreign equity assets)?

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Mon Feb 20, 2017 1:55 am

That would be fantastic if I'm wrong. Actually I was basing my opinion on my experience at a major US broker who was withholding dividend tax on VEU and then their customer service rep justified it along the lines of what I have said in my previous post. I haven't bothered to check or recover money from IRS.

If such ETFs are indeed considered as foreign situated property than maybe there is no even estate tax on them?!

Yoica
Posts: 2
Joined: Tue Jan 24, 2017 10:15 am

Re: Live off portfolio NOW (non US)

Post by Yoica » Mon Feb 20, 2017 8:49 am

Estate tax for NRA has been brought up a couple of times in this thread. I was under the impression Estate Tax was based on whether or not you use a US-based broker or not? Because based below quote from the Boglehead NRA taxation wiki it refers to US brokers or am I reading this wrong?

The reason I mention this that in the Netherlands we have a Dutch broker that offers quite a number of ETFs w/o trading fees. I'm not sure about other countries, but it might be worth checking out.

US estate taxes
In absence of a suitable estate tax treaty, US estate tax would be due.

In case the account holder (US non-resident alien) passes away, the US will levy up to 40% estate tax [7] on US assets over the value of $60,000 USD [8]. This includes US-domiciled holdings such as ETFs, as well as cash sums in a US-based brokerage account. [9]

"Upon the death of the beneficial owner, the U.S. brokerage firm is forbidden under U.S. tax law from transferring the assets from the decedent’s account until the IRS has concluded its estate tax audit." [10]

Worth mentioning that local estate taxes may apply as well in absence of an estate tax treaty, causing double taxation.

Erwin
Posts: 1929
Joined: Fri Apr 27, 2007 11:16 pm

Re: Live off portfolio NOW (non US)

Post by Erwin » Mon Feb 20, 2017 9:02 am

galeno wrote:Start your reading here: https://www.bogleheads.org/wiki/Outline ... _domiciles


Galeno,
Do you know how the us taxes the accummuling Irish ETFs? Does it take the 15% on dividends although they are reinvested? If yes, does ishares, vanguard adjust the cost of the etf due to the 15% loss?
Erwin

User avatar
BeBH65
Posts: 861
Joined: Sat Jul 04, 2015 7:28 am

Re: Live off portfolio NOW (non US)

Post by BeBH65 » Mon Feb 20, 2017 9:59 am

Erwin wrote:
galeno wrote:Start your reading here: https://www.bogleheads.org/wiki/Outline ... _domiciles


Do you know how the us taxes the accummuling Irish ETFs? Does it take the 15% on dividends although they are reinvested? If yes, does ishares, vanguard adjust the cost of the etf due to the 15% loss?


Hi Erwin,

The US tax is a withholding tax. The tax is taken before the dividends are being transferred to the Ireland based ETF.
For Ireland based Etf's receives 85% of the dividends. Accumulating etfs will then reinvest that 85%. Distributing Etf's will distribute the received dividends to the investor. The investor will be further taxed based on his country of residence, other other tax regime applicable to him.

Regards
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Thu Mar 09, 2017 1:49 am

I'm getting close to being able to execute on my allocation! I've revised it because I think I can reduce risk while still meeting my goals. But I'm having a difficult time understanding how/if my fixed income allocations are correlated well with my equities and are protecting me.

galeno, my fund choices are pretty much what you're doing, except instead of your VWRD only equities setup I have half & half of VUSA & VWRD.

To reiterate, my goal is live off my portfolio with a AWR of about 2% or so.

25% | 0.07 | VUSA | Vanguard S&P 500 UCITS ETF
25% | 0.25 | VWRD | Vanguard FTSE All-World UCITS ETF
20% | 0.12 | VDTY | Vanguard USD Treasury Bond UCITS ETF
15% | 0.12 | VDCP | Vanguard USD Corporate Bond UCITS ETF
10% | 0.25 | IDTP | iShares TIPS UCITS ETF
3% | CD
2% | Cash

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Thu Mar 09, 2017 3:34 pm

I like your FI allocation.

Regarding equities you should define what type of Boglehead investor you are. Home biased USAmerican? Or do you think 0.2% extra cost is worth diversifying outside of just USA equities?

VUSA will cost you 0.36% per year. VWRD will cost you 0.57% per year.

As of 30, Jan 2017 VWRD = 53% USA equities (15% tax) + 39% developed non-USA (7.5% tax) + 8% EM (11.2% tax).


ebblv wrote:<snip>galeno, my fund choices are pretty much what you're doing, except instead of your VWRD only equities setup I have half & half of VUSA & VWRD.

To reiterate, my goal is live off my portfolio with a AWR of about 2% or so.

25% | 0.07 | VUSA | Vanguard S&P 500 UCITS ETF
25% | 0.25 | VWRD | Vanguard FTSE All-World UCITS ETF
20% | 0.12 | VDTY | Vanguard USD Treasury Bond UCITS ETF
15% | 0.12 | VDCP | Vanguard USD Corporate Bond UCITS ETF
10% | 0.25 | IDTP | iShares TIPS UCITS ETF
3% | CD
2% | Cash
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Fri Mar 10, 2017 11:33 am

I like your FI allocation.


Thanks! Coming from you this calms me even though I don't know you :)

Home biased USAmerican?


I'm not entirely sure what that means.. Me and my wife will be NRAs soon.

Or do you think 0.2% extra cost is worth diversifying outside of just USA equities?


I would like some international exposure for my equities. Like you said with this allocation I get just under 12% of my total portfolio in international stock, and 38% in US stocks. I think this is worth the 0.2% extra cost to me.

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Fri Mar 10, 2017 6:19 pm

If you want international exposure then you should go 100% VWRD. You do realize, however, that this is a discussion about which color sprinkles are better: rainbow vs chocolate.

As an USA-NRA I prefer the rainbow sprinkles (VWRD). USAmerican persons John Bogle and Warren Buffet say the the cheaper one color chocolate sprinkles (VUSA) are enough.

ebblv wrote:<snip>

I would like some international exposure for my equities. Like you said with this allocation I get just under 12% of my total portfolio in international stock, and 38% in US stocks. I think this is worth the 0.2% extra cost to me.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sat Mar 11, 2017 4:20 am

galeno wrote:this is a discussion about which color sprinkles are better: rainbow vs chocolate


But I want both! I want a US biased portfolio with a good chunk dedicated to the S&P500 index (based on the same advice you mentioned), and this seems like a good way to get that. It also will help save me a little in costs even after considering additional costs of having an additional fund in my portfolio.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Sat Mar 11, 2017 5:49 am

It's a nice portfolio but I would hold all treasuries directly through a US broker which lets you buy them commission free. As a NRA you pay no tax on interest and no ongoing charges compared to ETF that has ongoing charges and you have to pay tax on dividends.

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sat Mar 11, 2017 5:18 pm

Tylenol Jones wrote:It's a nice portfolio but I would hold all treasuries directly through a US broker which lets you buy them commission free. As a NRA you pay no tax on interest and no ongoing charges compared to ETF that has ongoing charges and you have to pay tax on dividends.


I was trying to do research around this and ran into 2 things which maybe you can help me with:

1. Researching estate tax implications for this has been difficult. Do you have something you could point me to? Aren't US treasury bonds considered US situs assets and impacted by the usual estate taxes?

2. What treasuries do I buy to replace VDTY? It's made up of 100 or so bonds. I'm not sure I understand enough to know what to replace it with. How would it impact me when time comes to rebalance my portfolio?

Maple
Posts: 7
Joined: Fri Aug 07, 2015 11:46 pm

Re: Live off portfolio NOW (non US)

Post by Maple » Sat Mar 11, 2017 9:32 pm

I'm interested in researching the UCITS ETFs to learn more about what is available. Is there a screener website, or two, generally viewed as being the best for aggregating/sorting/screening all the UCITS ETFs? I can go to the individual fund family pages (iShares, Vanguard, etc.), but was hoping a single site aggregated everything.

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Sun Mar 12, 2017 1:38 am

It's just so much easier to just buy, hold, and rebalance VDTY. The ER=0.12%. It appears that 100% of the interest income passes to the investor (no dividend tax) with bond ETFs. At least that's what happened with our SUAG.

Tylenol Jones wrote:It's a nice portfolio but I would hold all treasuries directly through a US broker which lets you buy them commission free. As a NRA you pay no tax on interest and no ongoing charges compared to ETF that has ongoing charges and you have to pay tax on dividends.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Wed Mar 15, 2017 12:30 am

ebblv wrote:
Tylenol Jones wrote:It's a nice portfolio but I would hold all treasuries directly through a US broker which lets you buy them commission free. As a NRA you pay no tax on interest and no ongoing charges compared to ETF that has ongoing charges and you have to pay tax on dividends.


I was trying to do research around this and ran into 2 things which maybe you can help me with:

1. Researching estate tax implications for this has been difficult. Do you have something you could point me to? Aren't US treasury bonds considered US situs assets and impacted by the usual estate taxes?

2. What treasuries do I buy to replace VDTY? It's made up of 100 or so bonds. I'm not sure I understand enough to know what to replace it with. How would it impact me when time comes to rebalance my portfolio?


1. See page 3 of this document. There is a nice table summarizing everything. https://www.credit-suisse.com/media/pb/ ... aliens.pdf

2. See under "Characteristics" https://www.vanguard.co.uk/uk/portal/de ... Code=BOND##overview

Average maturity 7.5 years 7.5 years

So you can have a ladder or bonds with this average maturity if you are accumulating, or you can just buy 10 year bond and replace it with a new one every 5 years or so. You have many options and you have control of bond duration.

Tylenol Jones
Posts: 250
Joined: Mon Sep 14, 2009 6:54 am

Re: Live off portfolio NOW (non US)

Post by Tylenol Jones » Wed Mar 15, 2017 12:42 am

galeno wrote:It's just so much easier to just buy, hold, and rebalance VDTY. The ER=0.12%. It appears that 100% of the interest income passes to the investor (no dividend tax) with bond ETFs. At least that's what happened with our SUAG.


Sure, but in my experience those with little invested like to squeeze out each penny, and for those with large amounts even 0.12 becomes significant money. I'm holding them directly since I've read somewhere that if you can eliminate an intermediary it's worth it (even if it's Vanguard).

VDTY has only 5M in assets so I guess there is a significant spread + commission fees + 0.12 + less flexibility wrt controlling duration + additional intermediary. It all adds up.

msk
Posts: 535
Joined: Mon Aug 15, 2016 10:40 am

Re: Live off portfolio NOW (non US)

Post by msk » Wed Mar 15, 2017 5:32 am

You are not a US citizen. Do not buy US-based (situs) ETFs, Vanguard or otherwise. Buy Ireland-based or London-based (UCITS) and your dividend withholding tax drops to 15% (from 30%). I am under similar circumstances and I have used two routes. For many reasons I have determined that my best choice is 90% IWDA (iShares World Developed, Accumulating, pays no dividends) and 10% EIMI (Emerging Markets, also accumulating). I have split my holdings in two:

1. Held via Gulf Baader Capital Markets (last I heard they want a minimum of $50k to open an account for their omnibus brokerage). They also exist in Dubai and charge 0.3% commission to purchase any ETF, but then you do not pay any further fees, such as custody fees. Since you purchase and sell only once over a lifetime, your total cost in commissions is 0.6%. Advantage: nil complications when you die. Your heirs take the probate papers (presumably validated in Dubai) and they get the cash. Disadvantage? Country risk. If Dubai goes the way of Yemen, the first thing any revolutionary government will do is freeze all forex transactions. IMHO negligibly low risk for Dubai. Baader Bank is German. Gulf Baader is their subsidiary.

2. Held via Interactive Brokers. Advantages: very low buy/sell commissions. Disadvantages? We do not know how future US governments will handle Estate Tax for foreigners. Currently, as long as you do NOT own US-situs assets (NO US-based Vanguard Funds!) your heirs should be OK. I have tried to minimize this Estate Tax risk even further by opening the brokerage account with wife as joint co-owner with rights of survivor. I die, wife cashes out the account. Both myself and DW die in a plane crash or whatever, the kids may have a headache, or not. One aspect you ought to be aware of is that Interactive Brokers need proof of your Dubai residency status. Not as easy as you might expect. E.g. they will settle with a Utilities bill, ownership deed of your house, home insurance policy or similar. But the document must have YOUR name (+your wife's?) in English, complete with a street address. If you have such a paper the process is very quick.

I have invested 7 figures in each of the above routes. Remaining risk: What if iShares goes bust a la Madoff? Well, they do have trillions of other people's money, so I won't be alone... I do not invest in bonds with the current very low interest rates. Withdrawals: 5% of your portfolio value once a year (yes, it fluctuates) will keep you inflation protected for 50 years. I back tested it for 1966 to 2016. If 5% is very ample for your needs then you really do not need to do any withdrawing a year or two ahead of the time you need the cash. E.g. when the markets are up you need only 2% that year and when the markets collapse you withdraw 4%. As long as you keep below 5% p.a. the remainder should keep up with inflation.

User avatar
galeno
Posts: 1035
Joined: Fri Dec 21, 2007 12:06 pm
Location: Alajuela, Costa Rica

Re: Live off portfolio NOW (non US)

Post by galeno » Wed Mar 15, 2017 5:16 pm

I bought VDTY via IB using a limit order. I bought very close to the "ask". I started at "ask" and increased the offer by $0.01 until it cleared. It took about 20 minutes to buy all the shares I wanted.

The spread was minimal. Next year I'll note the percentage between bid and ask.

Tylenol Jones wrote:VDTY has only 5M in assets so I guess there is a significant spread + commission fees + 0.12 + less flexibility wrt controlling duration + additional intermediary. It all adds up.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

vanadis
Posts: 1
Joined: Thu Nov 10, 2016 8:58 am

Re: Live off portfolio NOW (non US)

Post by vanadis » Thu Mar 16, 2017 5:05 am

msk

I have the exact same allocation. Also Dubai based.

Went down the IB route. Electronic bank statement was enough as proof of residence (pdf)

Many here seem to be worried about estate tax risk. Hmm, how difficult is it to show your beneficiaries how to liquidate stock assets? Or at least leave some instructions; sell then transfer to predefined and saved account. . Will the broker somehow know you've died? Unlikely. Also, to my knowledge, you are liable to pay IRS taxes, not your broker..
Furthermore I'm thinking that most of us will not die a sudden death, there will be time to manage these things.

An overlooked benefit of having your portfolio with IB is the insurance offered. SIPC coverage of 500k (max 250k cash) plus Lloyd's of London $30 million. https://www.interactivebrokers.com/en/i ... ngth&p=acc
With that in mind, I'm not worried about broker going bust. Lehman Bro customers were SIPC covered.. http://www.sipc.org/

OP mentioned setting up corporation to avoid estate tax risk. I wouldn't bother due to above mentioned reason and:
"U.S. real estate owned by the NRA through a foreign corporation is not included in an NRA's estate. The corporation must have a business purpose and activity, lest it be deemed a sham designed to avoid U.S. estate taxes."
https://en.wikipedia.org/wiki/Estate_ta ... ted_States

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Fri Apr 21, 2017 6:51 am

galeno, I've finally begun executing on this portfolio on IB and wanted to confirm that VUSD, VWRD, VDCP, VDTY are on the LSE and IDTP is on the LSEETF (at lease according to IB). Does this sound right to you? Thanks!

SurferD
Posts: 136
Joined: Sun Mar 22, 2015 12:38 am

Re: Live off portfolio NOW (non US)

Post by SurferD » Mon May 01, 2017 5:57 am

ebblv wrote:galeno, I've finally begun executing on this portfolio on IB and wanted to confirm that VUSD, VWRD, VDCP, VDTY are on the LSE and IDTP is on the LSEETF (at lease according to IB). Does this sound right to you? Thanks!
Sounds right to me..I also own those funds

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Mon May 01, 2017 7:03 am

Thanks for the confirmation!

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sat May 06, 2017 11:08 pm

I've been selling off more of my old investments and moving to this portfolio. But one thing worrying me about 2 of the bond ETFs I've decided to go with is the volume. This is the data I'm looking at:

VDCP: Vanguard USD Corporate Bond UCITS ETF
https://markets.ft.com/data/etfs/tearsh ... CP:LSE:USD

VDTY: Vanguard USD Treasury Bond UCITS ETF
https://markets.ft.com/data/etfs/tearsh ... TY:LSE:USD

The volume for both is really low for what I'm planning on investing here. The daily volume is some distance away from what I want to put in. Is this wise? How would this even work? Are these funds just not the right thing for me? I assume a fund grows because there are more buy orders than the volume satisfies, and the fund managers go buy more of the underlying securities?

How will this affect me when I want to sell? I don't expect to buy/sell as much as I buy in my initial round when rebalancing, but what happens if I do decide to sell everything for some reason? Does the fund shrink in the same way as it grows and the fund managers go sell the underlying securities as needed?

SurferD
Posts: 136
Joined: Sun Mar 22, 2015 12:38 am

Re: Live off portfolio NOW (non US)

Post by SurferD » Sun May 07, 2017 12:20 am

ebblv wrote: But one thing worrying me about 2 of the bond ETFs I've decided to go with is the volume. This is the data I'm looking at:

VDCP: Vanguard USD Corporate Bond UCITS ETF
https://markets.ft.com/data/etfs/tearsh ... CP:LSE:USD

VDTY: Vanguard USD Treasury Bond UCITS ETF
https://markets.ft.com/data/etfs/tearsh ... TY:LSE:USD

The volume for both is really low for what I'm planning on investing here. The daily volume is some distance away from what I want to put in. Is this wise? How would this even work? Are these funds just not the right thing for me? I assume a fund grows because there are more buy orders than the volume satisfies, and the fund managers go buy more of the underlying securities?

How will this affect me when I want to sell? I don't expect to buy/sell as much as I buy in my initial round when rebalancing, but what happens if I do decide to sell everything for some reason? Does the fund shrink in the same way as it grows and the fund managers go sell the underlying securities as needed?
Perhaps galeno can answer better than me as he has more experience but I think low volumes are an issue that worries me too that is why I have most of my bond holdings in IUAG https://markets.ft.com/data/etfs/tearsh ... AG:LSE:USD which has higher volumes. I have not tried to sell any VDTY or VDCP yet as I am in the accumulation phase but volumes are something to consider and may be an idea to spread your funds around a bit rather than put all into one fund.

The other thing to consider is these are very new funds VDTY and VDCP inception dates are only last year: 02/24/2016 and I assume (maybe galeno can confirm) that as time goes on more people will buy into the funds which means they will grow and so will the volumes. Another consideration is they both have lower ERs 0.12% than IUAG for example which is 0.25%.
Regards
SurferD

ebblv
Posts: 16
Joined: Wed Jan 25, 2017 4:10 pm

Re: Live off portfolio NOW (non US)

Post by ebblv » Sun May 07, 2017 7:24 am

http://www.etf.com/etf-education-center ... anism.html explains it quite well. I guess this means the bid/ask is where one would indirectly pay for creation or redemption. In stocks ETFs I imagine liquidity of the underlying securities makes this process seamless. What happens with bonds? I thought they don't tend to be as liquid. Especially curious about your thoughts galeno!

Post Reply