Help! Wanting to start investing (but from Japan)

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Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Help! Wanting to start investing (but from Japan)

Post by nomy » Thu Mar 15, 2012 1:39 am

All,

First of all, thank you for reading this!
This might be a long post, but after trying to research everything I finally broke down and decided to ask some of you experts here. :happy
I'm a complete newbie at this stuff

Situation:
U.S. Citizen
Japanese resident
Age: around 30
Married to a NRA (non-resident alien)
75% chance of staying in Japan for good
$30k-40k gathering dust in a low interest Japanese bank :oops:
One U.S bank account barely being used

Hope
Begin investing for retirement for my wife and I
Provide financial freedom when we get old

I like the boglehead's investment strategy so I'm wanting to try diversifying my assets and maximizing IRAs, but I have a lot of questions and concerns:

About IRAs
I qualify to contribute into an IRA (mainly because I usually go on business trips to the US).

1. How do I contribute? Do I need an American bank account to open an Roth/401k account for me?

2. Do I need a U.S. address? I hear some banks/investment firms allow foreign addresses.

3. Would I just simply move money within limit into the account (between Jan 1 and April 15)?

4. (Big question here) When I retire, does Japan recognize American IRAs so they don't tax it as income?
I saw a post here at http://www.bogleheads.org/forum/viewtopic.php?t=3468 where someone said it isn't

1040
5. First time doing the IRS forms married (and to a NRA). I have two decent choices it seems:
- File married separately, claim wife as an exemption (she has no US income)
- File married jointly, get increased tax credit by filing jointly

The only difference I'm seeing here is that married jointly gains me more credit.
So would there be any advantages for filing separately you think?

About Investing
6. Does anyone have any suggestions for moving currency cheaply between two bank accounts in different currencies? :moneybag
The post office here limits overseas bank transfers and its about $30
Local bank transfers but its high at about $90

7. I've been looking around at outlets for investing in Japan, but the only decent one I found was Rakuten securities. The option for buying foreign stock is outrageous though (about $26). Are there any investors living in Japan who use a Japanese broker? If so which ones are good. If not, do you chose an American broker and exchange everything online through an American bank?

8. If investment is done through an American bank <--> American broker, how does one report the income to Japan?

9. Any advice on this long journey into investment? :o My family never really invested and I just realized that I should be! (Near 30 years old)

-----------------
:arrow: I probably asked too many questions for one post and will thus turn off anyone wanting to reply, but any answers would be greatly appreciated!

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robolove
Posts: 119
Joined: Sat May 31, 2008 2:23 pm
Location: Tokyo

Re: Help! Wanting to start investing (but from Japan)

Post by robolove » Thu Mar 15, 2012 12:19 pm

Hi,

I stayed on this course the past three years: http://www.bogleheads.org/forum/viewtopic.php?t=51799 Happy too!

Only changes since that post.
* I file jointly now. (Turbo Tax is my friend)
* Earmark % of this portfolio for my one year old. (Instead of opening a 529, etc.)
* Before: Lump sum to Vanguard using http://www.golloyds.com/index/en
* Now: Opened up a U.S. Bank Account over Thanksgiving and lump sum to this Bank Account using lloyds again. Transfer to Vanguard. The dividends are sent to checking.

I used my parents address to open an account with Vanguard and changed it to my Japan address a few months later.

Don`t think about it too much. Just start... ...without touching your "emergency fund."

http://www.bogleheads.org/forum/viewtop ... f=1&t=6211
http://www.bogleheads.org/wiki
http://www.bogleheads.org/forum/viewtop ... 10&t=88005
http://www.taxesforexpats.com/expat-res ... urces.html

This forum is a gold mine.

(Sorry if I did not answer your questions. I don`t know.)

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Thu Mar 15, 2012 7:37 pm

robolove wrote:Hi,

I stayed on this course the past three years: http://www.bogleheads.org/forum/viewtopic.php?t=51799 Happy too!
WOW! Very good and helpful information here.
Will take me some time to parse through it and make a list of any questions I have from your experiences.
(Will look at it today)

Only changes since that post.
robolove wrote: * I file jointly now. (Turbo Tax is my friend)
I've always wondered about using tax reporting software but was afraid that it wouldn't be able to handle complex situations such as having a NRA and me with some US income and then if I had investments and IRAs would it be able to properly calculate etc etc. Do you recommend it for all your needs?
robolove wrote: * Now: Opened up a U.S. Bank Account over Thanksgiving and lump sum to this Bank Account using lloyds again. Transfer to Vanguard. The dividends are sent to checking.
According to Japanese tax laws, if you are a resident of over a few years than you are also liable to pay tax on overseas income (such as dividends). I think you can write it off on the Japanese tax return, but you still need to do it. (Am I correct?)
I used my parents address to open an account with Vanguard and changed it to my Japan address a few months later.
Are there benefits of having a Vanguard account in comparison to other banks? I also plan to use Vanguard investments, but could I use another bank for ease? Please tell me what you think why it is beneficial.

Don`t think about it too much. Just start... ...without touching your "emergency fund."
Will read asap :D
And will probably reply again :o

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Thu Mar 15, 2012 8:45 pm

Could you go more in-depth about earmarking a portion of your portfolio?
What is this exactly?

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robolove
Posts: 119
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Location: Tokyo

Re: Help! Wanting to start investing (but from Japan)

Post by robolove » Thu Mar 15, 2012 9:52 pm

"I've always wondered about using tax reporting software but was afraid that it wouldn't be able to handle complex situations such as having a NRA and me with some US income and then if I had investments and IRAs would it be able to properly calculate etc etc. Do you recommend it for all your needs?"
My situation is not too complex, however, Turbotax saved me hours of work that I did not want to do. From reading the threads on the Turbo Tax Support Forum, there are plenty of US customers residing overseas with super complex situations.

"According to Japanese tax laws, if you are a resident of over a few years than you are also liable to pay tax on overseas income (such as dividends). I think you can write it off on the Japanese tax return, but you still need to do it. (Am I correct?)
I really do not know. My employer pay an international tax vendor to do our taxes. I think because of the tax treaty between U.S. and Japan, If you pay U.S. taxes on your U.S. investments, Japan cannot tax it. So, the vendor never questions me about foreign income.

"Are there benefits of having a Vanguard account in comparison to other banks? I also plan to use Vanguard investments, but could I use another bank for ease? Please tell me what you think why it is beneficial."
Vanguard provides Low costs solutions. Bogleheads stresses low costs, stay the course, and simplicity.... and promotes Vanguard religiously.

Since I do not understand nihongo I will not touch any of the local products.

Since I`m still in the accumulation phase and years away from retirement, I focus on saving for retirement, for my son, and sticking to our budget.

Could you go more in-depth about earmarking a portion of your portfolio?
What is this exactly?
Until I understand the other investment vehicles available for overseas children, I want to keep things simple. Currently, whatever I put aside for my son each month, monetary gifts from family, monthly allowance from the Japanese Government, it all goes to Vanguard. I just keep track of what belongs to him.

example:
Every three months I lump sum to Vanguard at least 540,000 JPY
90,000 JPY for Son (I put aside 10,000 JPY / month for him x 3 + 60,000 JPY from the Jap Govt.)
450,000 JPY for retirement (150,000 x 3)

In the future, I will withdraw what belongs to him + interest earned and either give it to him or open up something on his behalf.

My biggest suggestion is to not use your emergency fund to get started. :!:

Hope I made some sense.

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Thu Mar 15, 2012 11:33 pm

Great information!
Now: Opened up a U.S. Bank Account over Thanksgiving and lump sum to this Bank Account using lloyds again. Transfer to Vanguard. The dividends are sent to checking.
Why chose a U.S. bank over vanguard? Is Vanguard's upkeep more than a regular bank's?

Also, do you know if you're able to set up an IRA account easily from overseas?

User avatar
robolove
Posts: 119
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Location: Tokyo

Re: Help! Wanting to start investing (but from Japan)

Post by robolove » Fri Mar 16, 2012 12:07 am

Why chose a U.S. bank over vanguard? Is Vanguard's upkeep more than a regular bank's?
Well, you can transfer money from any institution in Japan to Vanguard directly.

I opened a Credit Union Account with zero monthly fees so that dividends from Vanguard can be transferred there instead of being automatically reinvested.

So, in addition to my own money, whenever I transferred money to my Vanguard account, I would include those dividends to rebalance my asset allocation

Since I have family in the states, it`s cheaper for them to gift money for my son. Vice Versa.

Also, It`s good to have some sort of presence in the states.
Also, do you know if you're able to set up an IRA account easily from overseas?
By IRA - If you mean 401K, Roth, etc.
http://www.taxesforexpats.com/expat-tax ... iates.html
There are other threads on this forum that promote this view.

So, I opened a taxable account with Vanguard with no problem.

Karamatsu
Posts: 1342
Joined: Mon Oct 27, 2008 2:42 am

Re: Help! Wanting to start investing (but from Japan)

Post by Karamatsu » Fri Mar 16, 2012 6:54 am

Welcome to the club!
1. How do I contribute? Do I need an American bank account to open an Roth/401k account for me?
You'll need to have a custodian for the IRA. The simplest thing is to use your stock broker since you will undoubtedly want to use the IRA funds to purchase investments. Banks typically have very limited, high-priced offerings. FDIC-insured banks are still good for things like CDs and cash, though.
2. Do I need a U.S. address? I hear some banks/investment firms allow foreign addresses.
Schwab allows you to set up an account with a foreign address. You just have to go through some procedures for identification. I'm wary about the tactic many people mention, opening the account with a US address (friend, relative) and then switching to your real foreign address. I asked Vanguard about this and they said that it was unacceptable, but refused to explain why. Reading between the lines, I think they may face some potential liability, perhaps under US reporting regulations, and so the only way they will ignore such a situation is if they are able to claim that you deceived them when setting up the account. In other words, they transfer the liability to you. So given that, I think the best choice is to go with a broker that openly accepts foreign accounts. It's always better to be on the up-and-up.
3. Would I just simply move money within limit into the account (between Jan 1 and April 15)?
I'm only familiar with the way it's done at Schwab, which is simply an online transfer between your regular taxable brokerage account and your IRA, You can do it any time (up to the tax filing deadline for the year). Many people move the funds in the first week of January, just to get the money into a protected account ASAP.
4. (Big question here) When I retire, does Japan recognize American IRAs so they don't tax it as income?
As far as I know, Japan does not treat distributions from a Roth IRA as non-taxable. On the other hand, you're still young and there is a totalization agreement between the US and Japan that allows your work credits in the US to count toward credits for the Japanese retirement insurance scheme. But how that will play out 30-40 years from now is anybody's guess. We may all be speaking Chinese by then.
5. First time doing the IRS forms married (and to a NRA). I have two decent choices it seems...
Filing jointly is often the simplest way, and lets you take advantage of the higher standard deduction, but if your spouse makes significant income it may be advantageous to file separately (or in her case, not at all). If you want to do things on your own, the best strategy might be to do your taxes both ways and see what gives you the lowest overall tax bill, but I imagine there can be complexities and you might want to have a chat with a professional. There are a lot of discriminatory rules applied to people who file separately (different limits, etc) since obviously the IRS knows you're doing this to reduce taxes, and they hate that.
6. Does anyone have any suggestions for moving currency cheaply between two bank accounts in different currencies?
For sending money from Japan to a US broker, one option is to use a bank like Citibank that has branches in both countries and allow you to maintain balances in multiple currencies. On the US side a transfer from one of these accounts seems to appear as a domestic transfer, so you don't get hit for higher fees that some US banks charge for inbound foreign wire transfers. In addition, some brokers (like Schwab) have accounts directly with banks here in Japan. You transfer yen to that account (FBO your brokerage account number) and the funds magically appear in your US brokerage account as dollars. This avoids the transfer charge, and the exchange rate seems OK.
7. I've been looking around at outlets for investing in Japan, but the only decent one I found was Rakuten securities.
It's usually better to use a US broker for anything except purely Japanese investments. US brokers are just all-around better when it comes to fees, support, web site quality, offerings, and trade execution. The other thing you have to be aware of is that any sort of fund or ETF based in Japan will come under the IRS rules for Passive Foreign Investment Companies (PFIC) and are a huge headache. If you'll be following a Boglehead index fund strategy then you almost have to use US-based funds. The consequences of using foreign funds, and getting the PFIC stuff wrong, are extreme. They treat you like a criminal.

But if you find yourself wanting to invest in Japanese stocks, you could something like Rakuten. Beware that there are some differences with the way it's done in the US. Many stocks have to be purchased in round lots of 100, for example, and of course, be very certain that you know what the web site is telling/asking you before you click! As far as government bonds go, the best choices are probably kojin-muke savings bonds. You can buy those at banks, brokers, and the post office each quarter. I just get them at the post office. Simple, commission-free, though you have to answer a bunch of dumb questions.
8. If investment is done through an American bank <--> American broker, how does one report the income to Japan?
It's pretty much the same as when you file a US return. The US broker will send you a 1099 form. Take the numbers for interest, dividends, and capital gains from there, convert the values to yen, and enter those on your Japan tax return. You might want to attach a copy of the 1099 to your return but sometimes it's better to minimize the information you give away. Beware that the rules and the taxation are in flux right now, with most taxation rates on capital gains and dividends scheduled to go up. Whether that actually happens or not depends on politics but at this point it seems inevitable.

Dealing with taxes can be extremely complicated, both on the Japan and US side. Although there is a rumor that governments have tried to eliminate double-taxation through treaty arrangements, it's really not true and they will both take as much from you as they can get. Form 1116, where you claim the foreign tax credit, is quite complex, and you might want to consider having professionals do your returns for a couple of years, then once you see how they do it, venture out on your own. But the rules are always changing, so you have to be careful. On a positive note, the NTA is very helpful -- not at all like the IRS. If you have questions and are in a city with many foreigners, you can just go in and ask them. Best to get replies in writing, though.

There are a lot of subtleties on the US side, too, due to the way Japan does its taxation.
9. Any advice on this long journey into investment?
Take your time. Develop an asset allocation that will let you sleep no matter what happens (usually that means dialing down the risk from your initial AA plan). Invest in yourselves (education, training, experience). Be extremely careful about taxes and never assume that just becaue something is fair or reasonable, the IRS will see it that way.

plats
Posts: 402
Joined: Mon Dec 31, 2007 9:46 pm

Re: Help! Wanting to start investing (but from Japan)

Post by plats » Fri Mar 16, 2012 3:56 pm

About Schwab: This is the first time I've heard about being able to transfer funds without a fee. Do you have experience doing that?

To the OP: Since you have a US bank account, I guess you have a US address. I would use that to open a Vanguard account and change to your Japan address afterward.

About Turbo Tax: I was happy to discover that the March 15 update finally supports e-file with foreign addresses.

Topic Author
nomy
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Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Sat Mar 17, 2012 4:08 am

Schwab allows you to set up an account with a foreign address. You just have to go through some procedures for identification. I'm wary about the tactic many people mention, opening the account with a US address (friend, relative) and then switching to your real foreign address. I asked Vanguard about this and they said that it was unacceptable, but refused to explain why. Reading between the lines, I think they may face some potential liability, perhaps under US reporting regulations, and so the only way they will ignore such a situation is if they are able to claim that you deceived them when setting up the account. In other words, they transfer the liability to you. So given that, I think the best choice is to go with a broker that openly accepts foreign accounts. It's always better to be on the up-and-up.
I might use Schwab, but they have a $25,000 minimum balance fee and I can't just have that money laying around in the account doing nothing. Or does that mean I just have to deposit that much and then do trades with that money with no problem. Little confused about that.

I was going to do Vanguard, but yea using a US address when you dont reside in the US then switching to your real Japanese address sounds a bit shady. If anything were to happen with my funds because of that I would be furious so I think I will just go with Schwab OR interactive brokers.com or Zecco.com. They both aren't as huge as Schwab of course but large firms none the less! They both accept US citizens living in Japan as customers
As far as I know, Japan does not treat distributions from a Roth IRA as non-taxable. On the other hand, you're still young and there is a totalization agreement between the US and Japan that allows your work credits in the US to count toward credits for the Japanese retirement insurance scheme. But how that will play out 30-40 years from now is anybody's guess. We may all be speaking Chinese by then.
This is kind of scary, but then again you're right that the laws will mostly like change when I retire in 30 years for better or worse...

I cant go for a traditional IRA because my money has already been taxed correct? I don't have a company to put the money in for me.

And thanks for the advice! All of you

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Sat Mar 17, 2012 8:46 am

I've been looking at some brokers and I've narrowed it down to three:

Zecco
Kind of scary. Hear a lot of bad reviews about these guys, but a lot of people say that have no problem.
Fees seem small!
$30 annual IRA fee :(
Leaving seems troublesome with all the wire fees.

Schwab
Big bank. So trustworthy?
Minimum balance is $25,000
No markup of price on bonds, Notes, CDs
Transfer out of assets $50
Wire Out Fee $25 (probably domestic, but i need intl)
Wire In Fee $0

USAA
The most trustworthy of the bunch. I don't hear anything bad about them.
Minimum balance is $0 i think
International wire out transfers $35
Nothing shady about these guys, but fees may add up. Good thing is they have 25 free trades within 90-days when i sign up.

Karamatsu
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Joined: Mon Oct 27, 2008 2:42 am

Re: Help! Wanting to start investing (but from Japan)

Post by Karamatsu » Sat Mar 17, 2012 9:25 am

About Schwab: This is the first time I've heard about being able to transfer funds without a fee. Do you have experience doing that?
Do you mean the service where you transfer funds to their Japanese domestic account? I've done that a few times and the only fee in that case is whatever the bank charges. The account itself is at Citibank, but unfortunately you can't do the transfer from an ATM and have to go to a clerk, so the bank charges a little bit. Transfers between Schwab accounts (like from a taxable account to an IRA) seem to be free. Actually they have these special domestic accounts in many different countries, so it's convenient.

As for the minimum balance, that's not a cash balance. They just want you to have $25K in assets in the account. You could have them in stocks, bonds, CDs, whatever. Also I'm pretty sure the minimum is lower for an IRA... it almost has to be since the maximum you can contribute in any given year is $5000 ($6000 after you turn 50), so they have to allow for people just starting out. If you have questions about their services just send them mail. They're usually pretty quick.
I cant go for a traditional IRA because my money has already been taxed correct?
I'm not exactly sure what you mean there. Assuming you have non-excluded earned income (and are under the limits) I'm pretty sure there is no problem contributing to a traditional IRA, but of course you might want to check with a pro about that. Mistakes with IRAs can be very costly.

Karamatsu
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Joined: Mon Oct 27, 2008 2:42 am

Re: Help! Wanting to start investing (but from Japan)

Post by Karamatsu » Sat Mar 17, 2012 9:49 am

As for brokers, I've been using Schwab for more than 15 years. They had some ups and downs but seem to have gotten back on track since "Chuck" took back the reins. You can buy/sell shares in Schwab's ETFs commission-free, so it's a pretty good deal for an index investor. Of course, the down-side of being at the same broker for that long is that I don't have anything else to compare to!

Karamatsu
Posts: 1342
Joined: Mon Oct 27, 2008 2:42 am

Re: Help! Wanting to start investing (but from Japan)

Post by Karamatsu » Sat Mar 17, 2012 9:55 am

Regarding the domestic (Japanese) transfer account, to get the details go to "Transfers and Payments" under the "Accounts" tab on the web site, click "Inbound Wires," and look at the bottom of the page for "International Transfer (Foreign Currency)." They have some PDF files there with the account information, etc. The information for Japan reads:

Destination Bank: Citibank N.A., Tokyo
SWIFT ID: CITIJPJT
Bank Code: 0401
Branch Number: 730
Account Name: CSGS—JPY Trade Master Account
Account Number: 0-159051-404
Bank Address: Akasaka Park Building, 5-2-20 Akasaka, Minato-ku, Tokyo
107-6105, Japan
(To ensure your account is properly credited, provide the 8-digit account
number and name listed on your Schwab account.)

but don't take my word for it! I might have set up an account with just those numbers ;-)

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Sat Mar 17, 2012 10:32 am

Karamatsu wrote:Regarding the domestic (Japanese) transfer account, to get the details go to "Transfers and Payments" under the "Accounts" tab on the web site, click "Inbound Wires," and look at the bottom of the page for "International Transfer (Foreign Currency)." They have some PDF files there with the account information, etc. The information for Japan reads:
Great! I get rid of international wire transfer fees with this! Schwab it is then

plats
Posts: 402
Joined: Mon Dec 31, 2007 9:46 pm

Re: Help! Wanting to start investing (but from Japan)

Post by plats » Thu Mar 22, 2012 7:56 am

Karamatsu wrote:
About Schwab: This is the first time I've heard about being able to transfer funds without a fee. Do you have experience doing that?
Do you mean the service where you transfer funds to their Japanese domestic account?
No. You said a transfer to US Schwab from Japan would be free using a Citi account and I was wondering about this as all of us expats here in Japan have been trying to find the cheapest way to send money back home. Can you confirm this is possible?

Topic Author
nomy
Posts: 17
Joined: Thu Mar 15, 2012 12:28 am

Re: Help! Wanting to start investing (but from Japan)

Post by nomy » Thu Jun 28, 2012 2:55 am

Thanks for the help everyone.
Let me tell you my experience with Charles Schwab and opening an account from Japan

Preparing documents for Charles Schwab
----------------------------------------
1. I had to mail a copy of my utility bill (to prove my address), passport copy, application form, bank balance copy to their
international office in America. The process went smooth with one of their people keeping in contact with me the entire
time answering any questions. Never waited more than 24-hours.

Note: The bank balance needs to be applied for from the (zandaka shoumei shinsei sho) allow 2-weeks to get it in the mail.
The other documents should be easy to copy.

2. I was then contacted to open up my schwab account. I had to call support (about a 2,3 minute wait) to
be able to access the account. There you log in and set up a password and etc.

Depositing money
----------------------------------------
The entire point of using a schwab account was because
1. they have a yen based account in Tokyo that you can deposit into bypassing silly currency exchange fees.
2. they allow non-US resident US citizens an account. (Few banks allow this)

First, you need to fill out the application for remitance with declaration (gaikoku soukin iraisho)
- The applicant's address name & address is your name & address. Easy breezy.
- The beneficiary's name is just like Schwab's transfer PDF says "CSGS-JPY Trade Master Account"
- The beneficiary's address will be "san francisco, california, usa"
- The A/C to be credited is "0-159051-404" according to Schwab's transfer PDF
- Bank code "0401 / CITIJPJT"
- The A/C with bank & branch name is "Citibank N.A., Tokyo"
- The A/C address is "Shinagawa, Japan"
- The soukin shurui (deposit type) is "domestic transfer to others"
The rest of the details are easy to understand.
Make sure you put down your name, account numbe (and year of deposit if needed)

Costs only 800 yen to deposit.
Transfer only took 24hrs and confirmed through my bank book.
I only saw a $3 descrepency between my wired funds and the funds that arrived in my schwab account based on
that days TTS rate

Making your first trade
----------------------------------------
I logged in and was easily able to make some ETF buys. It all worked smoothly.

That's my report :wink:

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