Vanguard US or Australia

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MaxxB
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Joined: Wed Oct 03, 2018 9:50 pm

Vanguard US or Australia

Post by MaxxB » Sun Apr 14, 2019 7:46 pm

Hello,

I am a US citizen and an Australia citizen.
I can open a vanguard account in US or Australia and I am just trying to figure it out according to 3 fund portfolio
However, I am not sure if I want to invest in Australia bond market since there is so much going on with the aussie dollar.

So my question plainly is should I invest in US market and create 3 fund portfolio?
Or are there benefits to investing in Australian market at the moment?

Thanks very your time.

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oldcomputerguy
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Re: Vanguard US or Australia

Post by oldcomputerguy » Mon Apr 15, 2019 5:30 pm

This topic is now in the "Non-U.S. Investors" forum. (mod oldcomputerguy)
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

QuantOfAsia
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Re: Vanguard US or Australia

Post by QuantOfAsia » Mon Apr 15, 2019 8:28 pm

US taxpayers investing in Aussie funds are likely to face PFIC tax issues; I'm not not aware of any similar issues with Aussies buying US funds, though believe you have some reporting and tax requirements if you are an Aussie resident.

Vanguard AU has some AUD bond and AUD-hedged stock ETFs I haven't seen US equivalents of, but it's easy enough to hedge some or all of your bond investments back into AUD if that's what you want to do. I have yet to meet someone who can accurately predict which way AUD/USD or any other exchange rate will go, so prefer to simply hedge the bond exposure I need for the next few years, and don't bother hedging stock exposure beyond that.

Valuethinker
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Re: Vanguard US or Australia

Post by Valuethinker » Tue Apr 16, 2019 4:02 am

MaxxB wrote:
Sun Apr 14, 2019 7:46 pm
Hello,

I am a US citizen and an Australia citizen.
I can open a vanguard account in US or Australia and I am just trying to figure it out according to 3 fund portfolio
However, I am not sure if I want to invest in Australia bond market since there is so much going on with the aussie dollar.

So my question plainly is should I invest in US market and create 3 fund portfolio?
Or are there benefits to investing in Australian market at the moment?

Thanks very your time.
Ted Swipett (sp?) writes knowledgeably about these things. Swippet?

Basically as a US citizen I think you can only invest in US-domiciled funds, to avoid the PFIC problem. So Australian funds are just not an option (don't know what applies to Superannuation, how that works for US taxes).

Yes the Australian currency is volatile. Andrew9999 and I have many discussions about this here (he is an Australian who lives in SE Asia, I believe).

The rule of thumb is to hold your bonds in your home currency - the currency you consume in. That might not work for you.

Given PFIC etc I think you would be fine to hold a Global Government Bond fund or ETF, hedged into USD (or unhedged). There should be many low cost ones, US-listed.

You will then have basis risk (liabilities in AUD, assets in USD) but in the long run I think that can be managed, and if your salary and (possibly) equity in your house are in AUD then you've got plenty of AUD exposure already.

If your equities are currency unhedged then this will provide a counterbalance to the AUD swings. Sometimes you will win from it, sometimes you will lose.

When you get within 10 years of retirement you are going to have to think harder about currency risk. If retiring in Australia then holding, directly, Australian govt bonds for example. You might also think about renouncing your US citizenship (for tax reasons) - there is a procedure.

typical.investor
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Re: Vanguard US or Australia

Post by typical.investor » Tue Apr 16, 2019 4:36 am

MaxxB wrote:
Sun Apr 14, 2019 7:46 pm
I am a US citizen and an Australia citizen.
I can open a vanguard account in US or Australia and I am just trying to figure it out according to 3 fund portfolio
If you live in Australia, and Vanguard doesn't let you open an US account (by regulation they aren't supposed to sell mutual funds to non-US residents), I would try Schwab Australia. That will give you access to the US domiciled funds that you need. I think it's possible to use them in a super (Australian retirement program) although don't know the detail -- look into SMSFs [self-managed super funds].

I agree the rule of thumb is generally to hold your bonds in the currency you plan to spend in retirement.

AlohaJoe
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Re: Vanguard US or Australia

Post by AlohaJoe » Tue Apr 16, 2019 4:56 am

MaxxB wrote:
Sun Apr 14, 2019 7:46 pm
So my question plainly is should I invest in US market and create 3 fund portfolio?
Or are there benefits to investing in Australian market at the moment?
Where you open your account has nothing to do with what you invest in.

You can open your account in the US but invest 100% in Australian equities.

Or you can open an account in Australia and not invest a single dollar in Australian equities.

IIRC, Vanguard Australia's funds are actually domiciled in the US so -- at the moment -- there are no PFIC issues with them. That said, I also recall that Vanguard has suggested they are looking into re-domiciling some of them in Australia in the future. To be safe, I'd just stick with US domiciled assets.

Australia used to have PFIC & CFC taxation but rolled it back maybe a decade ago, so investing in US domiciled assets doesn't cause any particular headaches.

In general, US brokerages are smarter, better, and cheaper than Australian brokerages. So I'd open an account in the US if you can.

typical.investor
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Re: Vanguard US or Australia

Post by typical.investor » Tue Apr 16, 2019 5:03 am

AlohaJoe wrote:
Tue Apr 16, 2019 4:56 am
IIRC, Vanguard Australia's funds are actually domiciled in the US so -- at the moment -- there are no PFIC issues with them. That said, I also recall that Vanguard has suggested they are looking into re-domiciling some of them in Australia in the future. To be safe, I'd just stick with US domiciled assets.
I don't believe that is true.

Australia Vanguard's U.S. Total Market Shares Index ETF is (VTS).

Unless ASX Limited (the Australian Securities Exchange) was moved to the US, I wouldn't use that fund as a US person since it's not US domiciled.

ETFs available via Schwab Australia are US domiciled.

andrew99999
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Re: Vanguard US or Australia

Post by andrew99999 » Tue Apr 16, 2019 8:14 am

There are actually a couple of US domiciled funds on the ASX.

VTS which is VTSAX
VEU whici is VTIAX

It is literally the same funds, they just show it in AUD and allow you to buy it on the ASX, and is the same ER as the US funds (because they are the US funds).

Here is a list of funds and their current domicile.
https://en.wikipedia.org/wiki/List_of_A ... aded_funds

Aussies have issues with them and avoid them these days instead going with Aussie domiciled ETFs to avoid US estate tax b.s. so I don't know if Vanguard will re-domicile them to Australia like iShares did with all their funds last year, but right now they are still US domiciled.

I don't know if any of this is useful to your particular situation though - just throwing it out there in case it is.

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