Invest in foreign ETFs (€)

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mavenleek
Posts: 23
Joined: Tue Apr 11, 2017 10:31 am

Invest in foreign ETFs (€)

Post by mavenleek » Wed Apr 19, 2017 12:01 pm

Hi!

I'm a foreign national living in the US for some time now and started investing only recently in ETFs. I have some money in a German bank account in € and would like to wire the money in the US to start investing with it. However, I would like to invest in € to not have to bear the risk of currency fluctuation. I've looked at Charles Schwab but unfortunately none of their trading accounts allow to buy foreign ETFs (even their Global account).

Would you have any recommandation to invest in € with a US brokerage account? I could maybe use my German account but because I'm taxed in the US, this will make things really difficult...

ATLCPA
Posts: 11
Joined: Tue Oct 04, 2016 8:07 am

Re: Invest in foreign ETFs (€)

Post by ATLCPA » Wed Apr 19, 2017 12:07 pm

Check into Interactive Brokers...

Kind Regards,

mavenleek
Posts: 23
Joined: Tue Apr 11, 2017 10:31 am

Re: Invest in foreign ETFs (€)

Post by mavenleek » Wed Apr 19, 2017 1:27 pm

Thanks for the suggestion. IB seems to be a good solution.

I was thinking that I could also transfer € to $ and invest it ETFs that are exposed to the European market and € currency. Any gain in the exchange rate would be immediately reflected in the $ valuation. Does it make sense?

TedSwippet
Posts: 1397
Joined: Mon Jun 04, 2007 4:19 pm

Re: Invest in foreign ETFs (€)

Post by TedSwippet » Thu Apr 20, 2017 3:30 am

mavenleek wrote:I'm a foreign national living in the US for some time now and started investing only recently in ETFs. I have some money in a German bank account in € and would like to wire the money in the US to start investing with it. However, I would like to invest in € to not have to bear the risk of currency fluctuation.
For US tax reasons, specifically onerous and protectionist PFIC tax and reporting rules you will want to entirely avoid holding any non-US domiciled ETFs or funds.

Though I haven't checked, my guess would be that no US domiciled ETFs use € as their base or trading currency.
mavenleek wrote:I was thinking that I could also transfer € to $ and invest it ETFs that are exposed to the European market and € currency. Any gain in the exchange rate would be immediately reflected in the $ valuation. Does it make sense?
That's going to be by far the least US tax-disastrous way of managing things.

In a sense you'll be converting twice here, once from € to $ explicitly, and once from $ to € implicitly within the fund, so in that respect it won't be as efficient as buying € ETFs directly. But over a long enough period the US PFIC rules could consume up to 100% of your gains (more with penalties for getting anything wrong in filing) in € ETFs, whereas the forex losses are one-off.

mavenleek
Posts: 23
Joined: Tue Apr 11, 2017 10:31 am

Re: Invest in foreign ETFs (€)

Post by mavenleek » Thu Apr 20, 2017 4:07 pm

Thanks for the info and the pointers regarding the PFIC tax and reporting rules.

So what are my real options? I feel hesitant converting my € to $ mostly because I would be converting at the lowest rate of the past 5 years. In addition, I'm not excluding to going back to Europe at some point in the future.

Is there a way to invest in $ and be leveraged for a rise of the € currency?

TedSwippet
Posts: 1397
Joined: Mon Jun 04, 2007 4:19 pm

Re: Invest in foreign ETFs (€)

Post by TedSwippet » Thu Apr 20, 2017 4:42 pm

mavenleek wrote:So what are my real options? I feel hesitant converting my € to $ mostly because I would be converting at the lowest rate of the past 5 years. In addition, I'm not excluding to going back to Europe at some point in the future.
If you do convert € to $ at a 'low' rate and then immediately buy US domiciled funds or ETFs that invest in € assets, say EU stocks, you have in effect turned round and converted the $ back to €, this time at a mirror-image 'high' rate. You can think of this as the second action unwinding the first.

This is not quite frictionless, though. You incur explicit forex fees on moving € to $ initially, and implicit ones on each trade where you use $ to buy a fund or ETF that holds € assets, but these will be by far the lesser evil in comparison with PFIC. Long term your investment will track both the fund or ETF's index and the $/€ exchange rate. (As you already said upthread, any gain in the exchange rate would be immediately reflected in the $ valuation.)
mavenleek wrote:Is there a way to invest in $ and be leveraged for a rise of the € currency?
Assuming you don't actually mean 'leveraged' but rather just want something forex-neutral, then as noted above, investing in a US domiciled and $ denominated fund or ETF that holds € assets fits the bill. For example, VGK or one of its mutual fund equivalents.

mavenleek
Posts: 23
Joined: Tue Apr 11, 2017 10:31 am

Re: Invest in foreign ETFs (€)

Post by mavenleek » Thu Apr 20, 2017 5:02 pm

For converting € to $, I'm lucky to have a friend that needs to do exactly the opposite in the coming weeks, so I would not induce any forex fees.

I think it's a better outcome that having the money sitting on my account in Europe!

Thanks a lot for your advice!

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