Non-US-resident beginner with large initial investment

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lemming
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Joined: Tue Mar 05, 2013 1:27 am

Non-US-resident beginner with large initial investment

Post by lemming » Tue Mar 05, 2013 2:30 am

Hi all,

I'm hoping that the kind folk here can help me out in my situation. I was co-founder of a company that we sold last year so I now have low-single-digit millions in the bank, and I need to invest it. Some time ago I read the Boglehead's guide to investing and William Bernstein's Investor's Manifesto, but I have to re-read them since I've forgotten some of the details. But I'm totally convinced that indexing is the way to go, I just need to decide how to structure it.

I'm 40, my wife is 36. We're planning for a normal, comfortable lifestyle, not so much lavish parties and yachts. We have no debt.

One complicating factor is that I'm not a US resident (I'm from New Zealand), so Vanguard is not available to me. I could use Vanguard in Australia but their costs seem to be higher and I would have to convert the money to AUD before investing since it's currently in USD in a bank account in the US. It seems that some of the large US brokers allow accounts from non-residents (TD Ameritrade and maybe Fidelity), and they seem to have good options for buying commission free ETFs so I was planning to go that way.

By the general rules of thumb I should be somewhere between 80/20 and 60/40 stock/bond split, but I was considering going fairly conservative since I should already have enough for a comfortable lifestyle. So somewhere between 60/40 and 50/50 probably. That said, I'm not particularly risk averse and Vanguard's portfolio recommendation tool recommends 70/30.

I'm not particularly interested in finance or investing, so I'm looking for an uncomplicated solution. I was planning to get a Total US Stock/Total International/Total Bond mix - I'm not interested in subdividing much further than that into niche categories. I'll be looking to buy and hold until we need the money, which for the vast bulk of it should be a long way off. We'll be setting up an emergency fund and so forth as well as taking out enough to take it easy for a while before we go back to work - that'll go into term deposits, probably.

Questions:

1. Are ETFs a good choice here? It seems that I can get them commission free and they're easier to buy from overseas.

2. In terms of specific ETF's, I was looking at Total Stock Market (VTI) or Dividend Appreciation (VIG) for US, FTSE All-World (VEU) or Total International Stock (VXUS) for ex-US and Total Bond Market (BND) for bonds. Would these be good choices? Are there others I should be considering?

3. Is anyone aware of any trickiness using a US broker from overseas?

4. I've really only been considering Vanguard funds - should I be considering Fidelity Spartan, for example, since I can't go through Vanguard anyway?

5. Is there anything else I should be considering? Except taxes, obviously - they're extremely complicated in my situation and I'm still investigating all the implications.

Thanks for any and all advice!
Last edited by lemming on Tue Mar 05, 2013 10:12 pm, edited 1 time in total.

rocket
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Re: Beginner with large initial investment

Post by rocket » Tue Mar 05, 2013 8:13 am

lemming wrote:Hi all,
One complicating factor is that I'm not a US resident (I'm from New Zealand), so Vanguard is not available to me.

What's the deal about Vanguard and non-US citizen ??
Read 4-fund portfolio.

menlo
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Re: Beginner with large initial investment

Post by menlo » Tue Mar 05, 2013 12:07 pm

lemming wrote:Questions:

1. Are ETFs a good choice here? It seems that I can get them commission free and they're easier to buy from overseas.

2. In terms of specific ETF's, I was looking at Total Stock Market (VTI) or Dividend Appreciation (VIG) for US, FTSE All-World (VEU) or Total International Stock (VXUS) for ex-US and Total Bond Market (BND) for bonds. Would these be good choices? Are there others I should be considering?

3. Is anyone aware of any trickiness using a US broker from overseas?

4. I've really only been considering Vanguard funds - should I be considering Fidelity Spartan, for example, since I can't go through Vanguard anyway?

5. Is there anything else I should be considering? Except taxes, obviously - they're extremely complicated in my situation and I'm still investigating all the implications.


Congratulations on the successful sale of your company. I can't see any reason not to use ETFs - I use them even though I have to pay a modest broker fee for each purchase/sale. The low-cost Fidelity index funds are also fine substitutes for Vanguard funds - I hold both myself. I think your plan of holding a simple portfolio (3-4 funds) is the perfect low maintenance approach. In terms of AA, the standard advice is just choose the allocation you're comfortable with and will stick to in periods of both "over" and "under" performance. Personally, I lean toward 80/20 and 70/30 - but that's my risk preference, not yours. I'm not sure I know enough to speak to the tax issues.

lemming
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Re: Beginner with large initial investment

Post by lemming » Tue Mar 05, 2013 9:31 pm

rocket wrote:What's the deal about Vanguard and non-US citizen ??


It's not being a non-citizen, it's being non-resident when you open the account. They do talk about accepting W8-BEN forms, which is the form you have to fill in as a non-resident to ensure they don't withhold tax, so I guess if you open your account as a resident and then leave the US that's ok.

lemming
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Re: Beginner with large initial investment

Post by lemming » Tue Mar 05, 2013 9:36 pm

menlo wrote:Congratulations on the successful sale of your company. I can't see any reason not to use ETFs - I use them even though I have to pay a modest broker fee for each purchase/sale. The low-cost Fidelity index funds are also fine substitutes for Vanguard funds - I hold both myself. I think your plan of holding a simple portfolio (3-4 funds) is the perfect low maintenance approach. In terms of AA, the standard advice is just choose the allocation you're comfortable with and will stick to in periods of both "over" and "under" performance. Personally, I lean toward 80/20 and 70/30 - but that's my risk preference, not yours. I'm not sure I know enough to speak to the tax issues.


Great, thanks menlo. One tax issue is dividends - as a non-resident no tax is withheld on capital gains, but it is withheld (at 30% or 15% if you have a decent double-tax agreement) on dividends. Ideally I'd minimise the dividend payouts because that complicates tax returns pretty badly. Would I normally have to choose anything to get automatic dividend reinvestment or do certain funds do it and not others?

livesoft
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Re: Beginner with large initial investment

Post by livesoft » Tue Mar 05, 2013 9:40 pm

You may get more knowledgeable eyeballs by changing your thread subject to something like:
"Non-resident Beginner with ...." or "NZ citizen non-resident ...."

I see in the bogleheads wiki (hard to search in the wiki for some reason) that


"As of this writing, the only US-based brokerage which is known to be willing to
"As of this writing, the only US-based brokerage which is known to be willing to an account for someone with a non-US address (including a US person) is Schwab, which offers the Schwab One International account, with a $10,000 minimum starting account balance requirement.

Japan-based brokerages

Many brokerages and investment houses place restrictions on what kinds of accounts they allow US persons to open, or refuse to deal with US persons entirely. Fidelity Japan and Citibank Japan both refuse to allow US persons to open investment accounts entirely. Rakuten, SBI and "

OTOH, Schwab is not found at all in the http://www.bogleheads.org/wiki/UK_Investing link.
This signature message sponsored by sscritic: Learn to fish.

lemming
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Re: Non-US-resident beginner with large initial investment

Post by lemming » Tue Mar 05, 2013 10:15 pm

Thanks for the advice, I've changed the thread subject.

I went part-way through the TD Ameritrade account opening process and their form is definitely set up for non-residents, although they may decline the account later I guess. Fortunately I do have a stable US mailing address, ITIN and US bank account, all of which helps a lot. I'll report back here once I've decided on a broker and tried it out.

Red-y
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Re: Non-US-resident beginner with large initial investment

Post by Red-y » Tue Mar 05, 2013 11:38 pm

Is there a reason why you're not repatriating the proceeds of selling the company to New Zealand? That would simplify your tax life immensely. Are you planning to return to the US in the future and want to have money available there to fund expenses on your return?

asset_chaos
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Re: Non-US-resident beginner with large initial investment

Post by asset_chaos » Tue Mar 05, 2013 11:42 pm

You may want to go to https://americas.vanguard.com/institutional/home.htm and look at the offshore funds Vanguard has set up in Ireland for use of non-US investors. Or call up Vanguard and ask them what you can do with them offshore. You will be able to invest in US dollars without having to convert to any other currency. Vanguard's Irish funds are only a subset of what they offer in the US, but everything crucial to a nice, conservative indexed portfolio is there. These funds are more costly than the US domiciled funds but are less costly than Vanguard Australia, e.g. global stock index fund 50 bp, US government bond index fund 30 bp, all investor shares. You can get over the hurdle that prevents regular individuals from using these funds, which is that minimum investment per fund is $100k.
Regards, | | Guy

lemming
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Re: Non-US-resident beginner with large initial investment

Post by lemming » Tue Mar 05, 2013 11:58 pm

Red-y wrote:Is there a reason why you're not repatriating the proceeds of selling the company to New Zealand? That would simplify your tax life immensely.

It would definitely simplify my tax life immensely, but there really aren't good options here that I've found. Apart from the fact that the NZD is extremely high right now, there are exactly 5 ETFs on the NZ stock exchange, and they only hold NZ and Australian stocks. The cheapest broker I've found charges 0.3% for the NZX and 0.6% for overseas. From what I've been able to find the mutual fund situation is similarly unappetising. Also, from a personal point of view my wife and I aren't sure we'll be living in NZ indefinitely and USD is as good as anything to hold right now. If we do decide that we're planning to be here indefinitely I'll consider moving my investments at that point - as a returning citizen I get a 4-year exemption on taxation of overseas investments anyway. There is also no capital gains tax here in case I decide to move them later.
Last edited by lemming on Wed Mar 06, 2013 12:01 am, edited 1 time in total.

lemming
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Re: Non-US-resident beginner with large initial investment

Post by lemming » Wed Mar 06, 2013 12:00 am

asset_chaos wrote:You may want to go to https://americas.vanguard.com/institutional/home.htm and look at the offshore funds Vanguard has set up in Ireland for use of non-US investors.

Thanks for the tip, I'll definitely call Vanguard tomorrow and see what they say.

Karamatsu
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Re: Non-US-resident beginner with large initial investment

Post by Karamatsu » Wed Mar 06, 2013 12:46 am

I use Schwab as a non-resident and have no problems, so if things don't work out at TD they're certainly an option. But that said, I think with your level of assets any broker should be happy to make an arrangement of some kind if you talk to them in person. General statements on web sites are the "safe" answers and don't necessarily reflect all of the options.

As for the allocation, if it were me I'd be tempted to recognize that I have the capital I need and therefore no requirement to put it at risk. As such, the strategy advocated by Zvi Bodie in his Risk Less and Prosper might be just right for you, at least as a base. It's easy to feel you're not risk-averse when you're flush with success of the sale it seems like there's more money available than you can imagine needing, but there will be a lot of people out there offering to separate you from that cash, and it's surprising how fast $10M can evaporate. The core asset that Bodie focuses on is TIPS, and since you're not a US citizen I suspect interest and adjustments on US treasury bonds may even be (US) tax-free for you (but check the arrangement with NZ). But in any case I certainly agree with your idea... if finance isn't an interest then find an allocation that you can rely on and then get on with the other things in life!

PS The only tricky thing I've ever run into when dealing though a US broker as a non-resident is that they've very reluctant to let you invest in mutual funds, and of course, their tax reporting is completely US-centric, so you may have to make adjustments for local tax rules.

TedSwippet
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Re: Non-US-resident beginner with large initial investment

Post by TedSwippet » Wed Mar 06, 2013 2:16 pm

If you're not a US citizen, research the estate tax angles carefully. US domiciled ETFs and funds held by foreigners may be liable to US estate taxes. And NRAs are allowed a mere $60k US estate tax exemption (contrast with a US citizen's $5.25MM).

JD
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Re: Non-US-resident beginner with large initial investment

Post by JD » Wed Mar 06, 2013 11:21 pm

TedSwippet wrote:If you're not a US citizen, research the estate tax angles carefully. US domiciled ETFs and funds held by foreigners may be liable to US estate taxes. And NRAs are allowed a mere $60k US estate tax exemption (contrast with a US citizen's $5.25MM).
Correct, but the OP indicated that he may stay indefinitely in the US. If this is the case then I believe the tax issue is less complicated than, say in Europe & NZ.
The OP may want to consult few professionals such as tax expert, accountant and financial advisor as well as the advice that he may get from Vanguard, Schwab and this board. This is a lot of money and the worse thing to do, imho, is to rush to a decision. Taking the time needed to study and examine things out from all angels is probably the best to do at this time.

TedSwippet
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Re: Non-US-resident beginner with large initial investment

Post by TedSwippet » Thu Mar 07, 2013 4:40 am

JD wrote:
TedSwippet wrote:If you're not a US citizen, research the estate tax angles carefully. US domiciled ETFs and funds held by foreigners may be liable to US estate taxes. And NRAs are allowed a mere $60k US estate tax exemption (contrast with a US citizen's $5.25MM).
Correct, but the OP indicated that he may stay indefinitely in the US.

I don't see that said anywhere. OP appears to be a NZ citizen who has lived temporarily in the US without taking out permanent residency, made some money, and now plans to live either in NZ or elsewhere outside the US. If that's the case, leaving assets in the US raises the ugly spectre of US estate tax. His wife's citizenship may also be an issue -- if not US there's no unlimited marital exemption from the estate tax. Oh, and also US gift tax between non-US citizens.

NRAs who directly hold anything in the US other than say, a plain bank account, are walking into a tax minefield. A holding company is one solution. Keeping assets away from the US entirely is another.

lemming
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Re: Non-US-resident beginner with large initial investment

Post by lemming » Thu Mar 07, 2013 5:37 am

Thanks again for all the great advice everyone, I'm still researching. Ted is right, I have no plans at this stage to live in the US - in fact I have never been resident in the US. For various reasons my money is there in USD and the US offers by far the most attractive investment options, but it does seem to be very complicated. Unfortunately my simplest tax option (simply bring the cash back to NZ) is probably the least attractive from an investment point of view. Vanguard Australia or the aforementioned Ireland-domiciled funds may be the best solution.

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