Advice on currency risk and investing [Greece ex-pat]

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nolamesa
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Advice on currency risk and investing [Greece ex-pat]

Post by nolamesa » Tue Oct 10, 2017 9:48 pm

Hi everyone,

I am originally from Greece but currently living and working in the US and I would like to start investing. Given I am quite risk averse (having seen a couple of market crashes in my time) it has taken a long time and research to get to that decision but this forum helped :)

I really like the simplicity of the 3 fund portfolio but I am not sure how well it applies in my case. My plan is to return to Greece in the next 2-3 years and try to retire as early as possible. So there's a couple of things that are unclear to me:
1. If I open a brokerage account in the US will I be able to keep investing once I lose my US resident status? My understanding is that I can keep doing it but taxing might be complicated.
2. What is the best 3 fund alternative for people planning to retire in Europe (all my savings and salary are currently in USD)? I've found this related thread but the taxation discussion makes it unclear if it's a good idea or not.

Any thoughts/ideas would help, thanks!

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in_reality
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Re: Advice on currency risk and investing [Greece ex-pat]

Post by in_reality » Wed Oct 11, 2017 5:41 am

nolamesa wrote:
Tue Oct 10, 2017 9:48 pm
Hi everyone,
Hi and welcome.
nolamesa wrote:
Tue Oct 10, 2017 9:48 pm
I am originally from Greece but currently living and working in the US and I would like to start investing. Given I am quite risk averse (having seen a couple of market crashes in my time) it has taken a long time and research to get to that decision but this forum helped :)


So you've seen the recoveries too then right?
nolamesa wrote:
Tue Oct 10, 2017 9:48 pm
I really like the simplicity of the 3 fund portfolio but I am not sure how well it applies in my case. My plan is to return to Greece in the next 2-3 years and try to retire as early as possible. So there's a couple of things that are unclear to me:
The principles of the three fund portfolio work for everyone. Maybe you will have slightly different funds, but generally the same.

You need to use US domiciled funds (sold on a US exchange) as a US resident. How would Greece tax things if you kept your investments in the US after going back? It's unfavorable for Italians to do that I believe. What about Greeks?

Also, is there an Estate tax treaty with the US. If not, anything over $60k would get taxed at too high of rates.

Knowing that will help you decide to keep your money in US funds after you move back or not.
nolamesa wrote:
Tue Oct 10, 2017 9:48 pm
1. If I open a brokerage account in the US will I be able to keep investing once I lose my US resident status? My understanding is that I can keep doing it but taxing might be complicated.
It depends on the broker. Vanguard requires you to maintain US residence. Some report Vanguard allows them to invest from overseas, but that is likely only for those who opened before regulation enforcement (particularly on mutual funds) was tightened.
nolamesa wrote:
Tue Oct 10, 2017 9:48 pm
2. What is the best 3 fund alternative for people planning to retire in Europe (all my savings and salary are currently in USD)? I've found this related thread but the taxation discussion makes it unclear if it's a good idea or not.
First, the currency of your salary and savings doesn't matter. If you buy a EURO zone fund, your currency exposure is the EURO and not the USD even though you use USD to buy it and get USD back when you sell. If the EURO strengthens, you would get more USD back when selling but then you need more USD to buy EURO (to spend in retirement) so you are back to where you were before selling. In other words, your holdings are all that matter.

The exact funds depend a little on where you end up holding your assets.

The thread you quoted was for a US citizen. US citizens can't use Ireland domiciled funds for tax reasons. So again, you need to figure out what you should be holding when you go back to Greece. You will have an option US or Ireland domiciled and should decide based on taxation.

Interactive Brokers is a commonly recommended US broker for people in your case. You can get US domiciled funds there now, and keep buying them after you move back. If it's better to hold non-US domiciled funds after you move (for tax reasons - maybe estate tax worries, or an accumulating fund is preferential), those funds are also available at Interactive Brokers. So you could sell US domiciled holdings and buy Ireland domiciled ones (which often have a tax advantage). Of course, there is tax if you sold but that might just be your cost for needing to use US domiciled funds now but not later.

Anyway, IB has a minimum fee of $10 month unless you are above $100k. Commission would come out of that so if you made two trades a month, that's maybe $8 right there (not sure on exact charges but you can look that up). Their fee schedule is a little complicated but generally cheap.

As an expat myself, I say this -- look into taxation. Then plan where to hold the funds (US or Ireland) and if you will switch. Then find a broker who will let you do that for a low cost. This is when you will start to decide which funds.

I suspect you will find Interactive Brokers to be the best choice, but I don't know what would be available to you in Greece.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

Krischi
Posts: 62
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Re: Advice on currency risk and investing [Greece ex-pat]

Post by Krischi » Wed Oct 11, 2017 6:36 am

in_reality wrote:
Wed Oct 11, 2017 5:41 am
So you've seen the recoveries too then right?
There is now a full lost generation in Greece's markets, much worse than Japan, as evidenced by https://tradingeconomics.com/greece/stock-market. There haven't been any full recoveries to speak of since the crash of the early 2000s. I can't say I blame the OP for their stance.
in_reality wrote:
Wed Oct 11, 2017 5:41 am
You need to use US domiciled funds (sold on a US exchange) as a US resident. How would Greece tax things if you kept your investments in the US after going back? It's unfavorable for Italians to do that I believe. What about Greeks?
I agree that taxes are the big thing to consider, and the Greek tax code is in a league of its own. Even though I haven't lived there in six years and am not even a citizen of Greece, I still have annual hassles with it through the sole virtue of being married to a Greek. One thing in particular to check is whether funds domiciled in the eurozone make things less complicated than outside of it from a Greek taxation perspective.

Krischi
Posts: 62
Joined: Tue Dec 02, 2014 2:23 pm

Re: Advice on currency risk and investing [Greece ex-pat]

Post by Krischi » Wed Oct 11, 2017 6:53 am

Also see this source at https://home.kpmg.com/xx/en/home/insigh ... e-tax.html as a starting point, perhaps. I wouldn't consider the information authoritative - especially since not even the country's own civil authorities can't keep their facts straight -, but it should provide enough nuggets for digging further:
Foreign exchange gains and losses

Both residents and non-residents may maintain foreign currency accounts with banks in Greece. Such accounts may be credited with any foreign currency which arises from Greece or abroad, including foreign bank notes and foreign exchange which is purchased with Euros. No tax relief is available for foreign exchange losses and foreign exchange gains are not taxable per se.

Due to capital controls, opening a new bank account is in principal forbidden by the law. Nevertheless, specific exemptions are explicitly provided. Moreover, the Special Committee of the Ministry of Finance is competent to allow the opening of a bank account after a reasoned request.

nolamesa
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Joined: Tue Oct 10, 2017 9:35 pm

Re: Advice on currency risk and investing [Greece ex-pat]

Post by nolamesa » Wed Oct 11, 2017 10:44 pm

Thanks for the replies, they were really helpful!

So here's what I've gathered so far given your suggestions:
Fidelity would allow me to keep investing after I move out of the US and currently doesn't have any restrictions according to their representatives.

Regarding the taxes, I've googled a bit and it looks like EU domiciled mutual funds are tax free (does that make sense? sounds fishy to me..), while non-EU ones are taxed with 15% on capital gains. I've asked from an accountant to get more info on that. Having said that the tax system is ridiculously volatile in Greece and things can change radically any day but it is what it is I guess. Regarding the tax treaty this is the one I can find and I'm not sure if there's anything related to the Estate tax you mention (I believe there isn't). Can you send me more info on what the are the tax implications of not having an Estate tax treaty?

About the advice on using Interactive Brokers, why would I need to go with them for US domiciled funds? Wouldn't it be the same to use Fidelity and then sell them and buy EU domiciled ones from another broker? Btw what is the tax in this case, the usual tax on capital gains?

Lastly could someone give me a suggestion on the ETFs I should be looking at in Fidelity (or elsewhere) that would give me a good balance between USD and EUR to avoid currency risk?

Thanks a lot!

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in_reality
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Re: Advice on currency risk and investing [Greece ex-pat]

Post by in_reality » Wed Oct 11, 2017 11:18 pm

nolamesa wrote:
Wed Oct 11, 2017 10:44 pm
Thanks for the replies, they were really helpful!

So here's what I've gathered so far given your suggestions:
Fidelity would allow me to keep investing after I move out of the US and currently doesn't have any restrictions according to their representatives.

Regarding the taxes, I've googled a bit and it looks like EU domiciled mutual funds are tax free (does that make sense? sounds fishy to me..), while non-EU ones are taxed with 15% on capital gains. I've asked from an accountant to get more info on that. Having said that the tax system is ridiculously volatile in Greece and things can change radically any day but it is what it is I guess.
Sorry I am not help. But if you continue holding in the US after moving back, I think the US will tax your dividends. Maybe there is a treaty in place. There is discussion on this here someplace but I can't find a thread right now.
nolamesa wrote:
Wed Oct 11, 2017 10:44 pm
Regarding the tax treaty this is the one I can find and I'm not sure if there's anything related to the Estate tax you mention (I believe there isn't). Can you send me more info on what the are the tax implications of not having an Estate tax treaty?
Amount overs $60 are hit with a tax for non-US residents of places without a treaty.

It seems Greece has a treaty with the US, so from an estate tax standpoint you could hold US domiciled funds.
As long as the decedent who transfers the asset by bequest or is neither a U.S. citizen nor a foreign national domiciled in the United States, no U.S. estate tax is imposed on the transfer.
http://estate.findlaw.com/planning-an-e ... road-.html
nolamesa wrote:
Wed Oct 11, 2017 10:44 pm
About the advice on using Interactive Brokers, why would I need to go with them for US domiciled funds? Wouldn't it be the same to use Fidelity and then sell them and buy EU domiciled ones from another broker? Btw what is the tax in this case, the usual tax on capital gains?
You are correct and can do exactly that. And yes, it's the usual tax on capital gains to liquidate.

If you find a broker better than IB to hold your non-US domiciled funds, by all means that is what you should do. IB ofter gets recommended due to it's costs. Another advantage of Interactive Brokers is that you can hold both - US or non-US domiciled funds. So it would seem to simplify that process if you wanted to do it over a couple of years or suddenly wanted to tax loss harvest and get back into the market without waiting for a transfer.

Do note, that if you hold at Fidelity and move back to Greece, you might be able to keep holding at Fidelity and have dividends reinvested if you chose (but not buy new stocks). So you could sell out over time to if that were an advantage I believe. Not 100% sure on their rules, but that's what Vanguard did to me.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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