A few questions before the final plunge [30 yo, foreign investor]

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Vision
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A few questions before the final plunge [30 yo, foreign investor]

Post by Vision » Sun Jun 12, 2016 3:38 am

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retiredjg
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Re: A few questions before the final plunge [30 yo]

Post by retiredjg » Sun Jun 12, 2016 10:01 am

I would use Total International (VXUS) because it is more complete than FTSE All World Except US (VEU) which does not contain small caps.

I would use BND (Total Bond) rather than BNDX (International Bond) because I want US bonds. However, there would be no problem with using a small portion of the International Bond fund.

REIT is strictly personal preference. It is NOT tax-efficient, so hold it in a tax-advantaged account such as an IRA.

You didn't indicate what types of accounts you have available. It is also unknown if you have immigrated and are now a US citizen or if you are a resident alien or non-resident alien. This might affect your tax situation.

I do not worry about the lawsuit.

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Vision
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Re: A few questions before the final plunge [30 yo]

Post by Vision » Sun Jun 12, 2016 10:56 am

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retiredjg
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Re: A few questions before the final plunge [30 yo]

Post by retiredjg » Sun Jun 12, 2016 11:50 am

Sorry, I didn't understand that you actually live outside the US. I thought you were working here or something.

Yes, the LifeStrategy Growth Fund contains all the things that a typical US investor might want. It does contain US and non-US stocks and some US and non-US bonds. Whether it contains the ratios you want might be a different question. For example, it contains more US stocks and more US bonds than non-US stocks and bonds. A foreign investor like you might (or might not) want more non-US investments.

Ignore my comments about tax-efficiency. I was talking about income taxes for money earned while living in the US. It may not apply to you at all.

I'm afraid I can't help with your questions. It might be helpful if you put "foreign investor" in your title or something. That might attract the attention of people who can actually help you.

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raven15
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Re: A few questions before the final plunge [30 yo]

Post by raven15 » Sun Jun 12, 2016 12:19 pm

There is no need to overweight the US if you live in Lithuania. I would make VXUS 50% of the stock portion.

BND vs BNDX. BND is obviously in US dollars, and BNDX is hedged to effectively be in dollars. Currency fluctuations can be a major source of volatility so Euros may be a better denomination for bonds. If you can't get a good Euro bond fund, then go for BND because at least it has a higher yield.

No to REIT's.

Three funds is simple enough. If you are desperate for simplicity there is always VT.
It's Time. Adding Interest.

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JPH
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Re: A few questions before the final plunge [30 yo]

Post by JPH » Sun Jun 12, 2016 12:48 pm

raven15 wrote:There is no need to overweight the US if you live in Lithuania. I would make VXUS 50% of the stock portion.
I don't think it matters much where you live. IMO team loyalty does not count. Invest in the country that you believe in. Or diversify across several. In my case my choice of a bond fund is only about safety. If I make any money with a bond fund it is icing on the cake.
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

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BeBH65
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Re: A few questions before the final plunge [30 yo]

Post by BeBH65 » Sun Jun 12, 2016 1:44 pm

Dear Vision,

Please have a look at this wiki page on the taxation by the US of 'non-resident-aliens'.
Unless your country has good tax-treaty with the US it is unlikely that US-domiciled funds will be good for you.

Irish-domiciled ETFs might be a better option for you: nonresident_alien_with_no_US_tax_treaty_and _Irish_ETFs

On this page on EU_investing you find even more info.

I recommend that you update the title of your opening post to draw the attention that you are not based in the US.

Don't hesitate to come back here once you know if you want to use Us funds or not.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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raven15
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Re: A few questions before the final plunge [30 yo]

Post by raven15 » Sun Jun 12, 2016 4:04 pm

JPH wrote:
raven15 wrote:There is no need to overweight the US if you live in Lithuania. I would make VXUS 50% of the stock portion.
I don't think it matters much where you live. IMO team loyalty does not count. Invest in the country that you believe in. Or diversify across several. In my case my choice of a bond fund is only about safety. If I make any money with a bond fund it is icing on the cake.
As far as I know the most reasonable explanation for US investors to overweight the US is to minimize unnecessary currency volatility. If your currency is not dollars then I don't see a reason, unless you feel you know more than the global markets do.
It's Time. Adding Interest.

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Re: A few questions before the final plunge [30 yo]

Post by TedSwippet » Sun Jun 12, 2016 4:38 pm

BeBH65 wrote:... Unless your country has good tax-treaty with the US it is unlikely that US-domiciled funds will be good for you.
Lithuanian residents pay a 15% tax treaty rate on dividends, so no significant disadvantage there. Estate tax is still a worry, though. Lithuania has no estate tax treaty, so a US estate tax liability would start at $60k total US holdings, and take up to 40% of the balance above the exclusion.

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Vision
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Re: A few questions before the final plunge [30 yo]

Post by Vision » Mon Jun 13, 2016 3:32 am

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AlohaJoe
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Re: A few questions before the final plunge [30 yo]

Post by AlohaJoe » Mon Jun 13, 2016 5:21 am

TedSwippet wrote:Estate tax is still a worry, though. Lithuania has no estate tax treaty, so a US estate tax liability would start at $60k total US holdings, and take up to 40% of the balance above the exclusion.
I think the estate tax one isn't much of a worry in practice. I read somewhere (can't find a link, so maybe I hallucinated it) that there was some trivially small number of IRS filings for NRA estate tax (i.e. far far less than you would reasonably guess there should be).

Also, any estate tax is 30-70 years away for the OP and a lot can change.

Most people never leave estates anyway. I wouldn't let the Estate Tax Tail wag this dog. Start gifting away before you die. Or put things in a trust. Or just sell everything (depends on your local country's treatment of capital gain, step up basis, etc, etc, etc). Or whatever. They all seem like pretty small problems compared to the massive problem of poor investment choices.

Of course, I would still check to see if there are non-US domiciled version available for similar costs. If there is, then sure go with that. If not, I wouldn't lose any sleep over it.

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in_reality
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Re: A few questions before the final plunge [30 yo, foreign investor]

Post by in_reality » Mon Jun 13, 2016 5:28 am

Vision wrote:
TedSwippet wrote:
BeBH65 wrote:... Unless your country has good tax-treaty with the US it is unlikely that US-domiciled funds will be good for you.
Lithuanian residents pay a 15% tax treaty rate on dividends, so no significant disadvantage there. Estate tax is still a worry, though. Lithuania has no estate tax treaty, so a US estate tax liability would start at $60k total US holdings, and take up to 40% of the balance above the exclusion.
I see. Does it happen automatically? Does broker pay the tax for me, or do I have to pay it once I cash out on my own?
For estate taxes, it's automatic in that assets are frozen until the estate is settled and taxes are paid. Not sure about dividends. I think they'd be withheld automatically.
Vision wrote: I would be investing about $5000 USD (maybe higher depending on salary) twice a year.
I'd use driveweath.com since they will open an account for you ($5 charge for the paperwork).

Interactive Brokers would be $120/year (after you get $10k and and $240 before that). drivewealth would be what two $2.95 trades?

As you approach $60,000, you can think about moving the assets to Interactive Brokers. The monthly fee is waived at $100,000 I believe, so you'd only have around 4 years of paying the $10 monthly fee. Also, commissions are deducted from that so you could also rework your portfolio in that time to get everything converted over to Ireland denominated funds for simplicity so you aren't holding both. Not sure what that would mean from a capital gains standpoint, but from a commission standpoint it'd be free up to the $10 monthly minimum.

Interactive Brokers states ACATS (securitites) transfers are free, but DriveWeath charges $50 + $0.10/position (for cost basis info). Still cheaper than IB brokers now and cheaper than the estate tax once you reach that point.

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in_reality
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Re: A few questions before the final plunge [30 yo]

Post by in_reality » Mon Jun 13, 2016 5:34 am

AlohaJoe wrote: Also, any estate tax is 30-70 years away for the OP and a lot can change.

Most people never leave estates anyway. I wouldn't let the Estate Tax Tail wag this dog. Start gifting away before you die. Or put things in a trust. Or just sell everything (depends on your local country's treatment of capital gain, step up basis, etc, etc, etc). Or whatever. They all seem like pretty small problems compared to the massive problem of poor investment choices.
Tax free Gift giving by NRAs is limited. Trusts will cost more than using Interactive Brokers (see my previous post).

If the OP has a family in time, it would be especially frightening to get suddenly sick or in an accident knowing that up to 40% of your hard work is going to evaporate suddenly should you not be able to pull through.

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Re: A few questions before the final plunge [30 yo]

Post by TedSwippet » Mon Jun 13, 2016 6:43 am

AlohaJoe wrote:I think the estate tax one isn't much of a worry in practice. I read somewhere (can't find a link, so maybe I hallucinated it) that there was some trivially small number of IRS filings for NRA estate tax (i.e. far far less than you would reasonably guess there should be).
Probably this article from CNBC. For now, unenforced -- and perhaps currently unenforceable -- US tax law, then. For now. But consider how many dusty tax laws have recently been newly invigorated as the US hunts for pennies behind the sofa.
AlohaJoe wrote:Also, any estate tax is 30-70 years away for the OP and a lot can change.
Or, being morbid, it could be an issue tomorrow. Old age is not the only cause of death.
AlohaJoe wrote:Of course, I would still check to see if there are non-US domiciled version available for similar costs. If there is, then sure go with that. If not, I wouldn't lose any sleep over it.
Details of Vanguard's non-US domiciled funds are here. Costs can be higher, but not necessarily deal-breakingly so. Mostly it depends on what you want to hold.

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in_reality
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Re: A few questions before the final plunge [30 yo]

Post by in_reality » Mon Jun 13, 2016 7:28 am

TedSwippet wrote:
AlohaJoe wrote:I think the estate tax one isn't much of a worry in practice. I read somewhere (can't find a link, so maybe I hallucinated it) that there was some trivially small number of IRS filings for NRA estate tax (i.e. far far less than you would reasonably guess there should be).
Probably this article from CNBC. For now, unenforced -- and perhaps currently unenforceable -- US tax law, then. For now. But consider how many dusty tax laws have recently been newly invigorated as the US hunts for pennies behind the sofa.
That misses the point a little. That is for US situs assets held overseas. Overseas financial institutions won't do much to enforce payment of US tax obligations. Maybe though, as Ted suggests, that will be changed in the future as the US looks for more spare change.

In the meantime today, US brokers will require an IRS Form 5173 showing estate taxes have been paid before any release of funds. "Upon the death of the beneficial owner, the U.S. brokerage firm is forbidden under U.S. tax law from transferring the assets from the decedent’s account until the IRS has concluded its estate tax audit." -- http://international.schwab.com/public/ ... _NonUS.pdf

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Re: A few questions before the final plunge [30 yo]

Post by TedSwippet » Mon Jun 13, 2016 11:13 am

in_reality wrote:That misses the point a little. That is for US situs assets held overseas. Overseas financial institutions won't do much to enforce payment of US tax obligations. Maybe though, as Ted suggests, that will be changed in the future as the US looks for more spare change.
From this article, seemingly published in 2015:
FFIs Wary of Liability for Unpaid U.S. Estate Taxes

As the amount of unpaid estate tax on U.S. stocks that were owned by nonresident aliens continues to soar, tax professionals say foreign financial institutions holding securities for the estates of deceased NRAs are becoming more skittish about transferring the assets to heirs out of concern that they could be on the hook if the proper amount of U.S. tax isn't paid.
...
Besides being exposed to estate taxes on their holdings of U.S. situs securities when they have little or no other connection with the U.S., NRAs are at a significant disadvantage relative to U.S. citizens and residents. While the exemption for the taxable estate of a U.S. citizen or resident is now $5.43 million, the exemption available to an NRA is only $60,000, unless modified by treaty.
...
Patel said his firm recently handled a significant case involving a French institution that refused to release assets from an NRA's estate until it received an IRS transfer certificate indicating that the estate tax had been paid.
As a former US resident and now an NRA, my personal opinion is that any involvement with the IRS, no matter how small, is too much. Over the few years that I've watched it, US tax law for both US persons abroad and for NRAs has worsened dramatically, and I see no sign whatsoever of a reversal in the tide.

Even though I live in a country with all three of tax treaty, estate tax treaty, and FATCA intergovernmental "agreement", I do not and would not hold US assets directly, especially where perfectly acceptable non-US substitutes exist. Perhaps that's just me...

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