Treat offsite EUR cash as bond portion, or transfer to US?

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blueredgreen
Posts: 20
Joined: Thu Dec 28, 2017 6:00 pm

Treat offsite EUR cash as bond portion, or transfer to US?

Post by blueredgreen » Sat Jan 13, 2018 7:50 pm

Hello all,

I am German citizen living in the US (resident alien), and I have about 145k€ ($175k) in a German checking account that I cannot really invest properly due to US laws (= no mutual funds or ETFs due to PFIC). Because of that, I am a bit lost as to what to do with it, and I was hoping you all have some ideas.

My US portfolio has a proper 70/30 split right now, but including the German money, my cash portion is way to large. I was thinking about treating the German cash as part of the bond portion, i.e. increasing the US equity side accordingly. What do you think about that?

Alternatively, I could transfer the German money via wire transfer, but all options that I looked are way to expensive (~ 0.5 - 1%) due to the currency conversion...

Any ideas?

Thank you all very much in advance!

Best
Peter

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in_reality
Posts: 4388
Joined: Fri Jul 12, 2013 6:13 am

Re: Treat offsite EUR cash as bond portion, or transfer to US?

Post by in_reality » Sun Jan 14, 2018 2:51 am

blueredgreen wrote:
Sat Jan 13, 2018 7:50 pm

I am German citizen living in the US (resident alien), and I have about 145k€ ($175k) in a German checking account that I cannot really invest properly due to US laws (= no mutual funds or ETFs due to PFIC). Because of that, I am a bit lost as to what to do with it, and I was hoping you all have some ideas.

My US portfolio has a proper 70/30 split right now, but including the German money, my cash portion is way to large. I was thinking about treating the German cash as part of the bond portion, i.e. increasing the US equity side accordingly. What do you think about that?

Alternatively, I could transfer the German money via wire transfer, but all options that I looked are way to expensive (~ 0.5 - 1%) due to the currency conversion...
Hi,

Yes you can count cash as part of your bond holdings.

I think you could also wire Euro from your bank to an Interactive Broker's account (they are a US broker who operates all over the world - we often recommend them for people who can't open an account in the US). Currency conversion is quite cheap then to buy an ETF- $2 if my math is correct. https://www.interactivebrokers.com/en/i ... ssion&p=fx

The two downsides to IB are:
1) minimum fee if you have less than $100k [doesn't apply to you]
2) customer service is geared towards experienced traders. There are online guides and such but it's not the simplest to use (for example the fee schedules are a little complex). Typically though it's the cheapest both for forex and commissions (unless #1 above applies).

Another example of 2) is the wire transfer. I think you fill out a deposit notification at IB, and then tell your German bank the details that IB gives you.
Deposit notifications allow us to efficiently identify your incoming funds for proper credit to your account and to ensure that funds retain their originating currency of denomination.

* Explicit instructions on where and how to send the funds will be provided after you complete the deposit notification. The instructions will vary according to your location and type of funds.
* Checks or wires sent to IB without completed deposit notifications will be held until we can contact you to complete one.
* A deposit notification does not move your funds. You must contact your bank or broker to complete the transfer.
* Cancellation of the deposit notification will not stop Interactive Brokers from presenting the check for payment.
* To notify us of a deposit of funds, complete a deposit notification on the Fund Transfers page in Account Management or during your initial application process.
... from https://www.interactivebrokers.com/en/index.php?f=1544

Anyway, if you don't want to keep 145k€ in cash and have to use US domiciled ETFs, I don't know of a better way.

But as always, you perhaps should understand Estate Taxes before transferring all your assets to the US. Germany and the US have an agreement but I am not familiar with the terms.

blueredgreen
Posts: 20
Joined: Thu Dec 28, 2017 6:00 pm

Re: Treat offsite EUR cash as bond portion, or transfer to US?

Post by blueredgreen » Sun Jan 14, 2018 10:28 am

Thanks for bringing this to my attention. I thoroughly looked at their site and what they offer, and it does seem like this would solve my problem, i I understand everything correctly. Technically it's the same what Schwab would do for me, but with much much cheaper EUR->USD conversion fees, right? It also seems way out of my league though. I am afraid that I'll be overwhelmed with all of this, and that I'll accidentally sell my soul by pressing the wrong button. The screenshots on their site look quite scary to a non-trader.

So if I understand correctly, I'll be able to ...
1. open a USD brokerage account at IB
2. deposit my EUR money via a wire transfer (SEPA, i.e. IBAN/BIC)
3. convert it to USD
4. and trade US-domiciled ETFs like VTI, BND and such

And all that for $2 (excluding the German bank fees of ~50€), because I am meeting all the minimums?
Did I get that right?

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