Moving from US to EU lazy portfolio

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Topic Author
Benjiii
Posts: 2
Joined: Sat Jan 05, 2019 11:18 am

Moving from US to EU lazy portfolio

Post by Benjiii » Tue Jan 08, 2019 8:43 am

Hi!

I'm a pretty novice investor, 31 years old, living and working in Spain.
I've looked quite a bit into the lazy portfolio retirement strategy a couple of years ago and chose to use the following plan with a monthly allocation used to always rebalance the portfolio.

Stocks (90%)
  • 50% VTI
  • 50% VXUS
Bonds (10%)
  • 50% IEAC (corporate bonds)
  • 50% CBE3 (short term government bonds)
Those last ETFs are in euros as I heard my bond allocation should be in my own currency.

That was my initial strategy (that I've been using around 3 years) but a half a year ago my broker (IB) forbid me from buying more US based stocks so I'm kinda stuck there with my VTI and VXUS position. I can sell them but can't buy anymore so no way to keep going or even rebalance.


I've read about your EU suggested portfolio (the accumulating one) and my idea is to keep my US based ETFs (to avoid paying tax if I sell them) and from now on buy the suggested EU ones.
  • SWDA: Global, developed markets Large+Mid
  • EIMI: Emerging mkts IMI : Large+mid+small
  • WSML: MSCI World developed markets Small Cap

So I have several questions:
  • Does everything makes sense until now?
  • For a long term strategy should I add the small cap ETF (WSML) into the mix? It is marked as optional and the TER is higher than the previous 2.
  • What should be the distribution of stocks value between SWDA / EIMI or SWDA / WIMI / WSML. I was using 50% VTI and 50% VXUS (value not stock number obviously) because the US market is supposed to be 50% of the world market. But now with those new ETFs I don't know.
  • How would you handle rebalancing my frozen position of VTI and VXUS in the future? None of the new ETFs are equivalent to the old ones so I'm really not sure how to tackle this.
  • Is the 90% stock 10% bond (will be increasing the bond ration by one every year) good enough in case the stock market crashes and I need to sell bonds to buy stocks an rebalance the portfolio?
  • The bond ETF recommended in your EU portfolio (AGGH) has a lower TER than the ones I was buying. Do you guys recommend moving to that one instead?
Thank you so much for your help. Hope my explanations were clear. :)

TedSwippet
Posts: 2024
Joined: Mon Jun 04, 2007 4:19 pm

Re: Moving from US to EU lazy portfolio

Post by TedSwippet » Tue Jan 08, 2019 11:22 am

Benjiii wrote:
Tue Jan 08, 2019 8:43 am
50% VTI, 50% VXUS
Just a quick side-note ... Spain has no estate tax treaty with the US, so if your US situated holdings exceed $60k you run the risk of losing up to 40% of the excess over that to US estate taxes should the worst occur. If you keep hold of these two ETFs rather than sell them, you will want to watch out for this.

DJN
Posts: 211
Joined: Mon Nov 20, 2017 12:30 am

Re: Moving from US to EU lazy portfolio

Post by DJN » Tue Jan 08, 2019 11:56 am

Hi,
just for your information have a look at this page on asset allocation: https://www.bogleheads.org/wiki/Asset_allocation which I find helpful in deciding on allocation.
The suggested EU portfolios are trying to suggest simple BH solutions for EU investors (and others).
The addition of small cap is a nuance. My approach is try and keep things very simple until such time as I know why I would want to add something or change something from the very basic.
If your US domiciled funds are below $60,000 then no sweat as Mr Swippet has said.
The choice of accumulating v distributing should be made on the basis of your tax residency rules. Does Spain seek to tax dividends and / or does it allow capital appreciation to build? https://www.bogleheads.org/wiki/Investi ... n#Taxation
good luck,
DJN

Valuethinker
Posts: 37277
Joined: Fri May 11, 2007 11:07 am

Re: Moving from US to EU lazy portfolio

Post by Valuethinker » Tue Jan 08, 2019 12:38 pm

Benjiii wrote:
Tue Jan 08, 2019 8:43 am
Hi!

I'm a pretty novice investor, 31 years old, living and working in Spain.
I've looked quite a bit into the lazy portfolio retirement strategy a couple of years ago and chose to use the following plan with a monthly allocation used to always rebalance the portfolio.

Stocks (90%)
  • 50% VTI
  • 50% VXUS
Bonds (10%)
  • 50% IEAC (corporate bonds)
  • 50% CBE3 (short term government bonds)
Those last ETFs are in euros as I heard my bond allocation should be in my own currency.

That was my initial strategy (that I've been using around 3 years) but a half a year ago my broker (IB) forbid me from buying more US based stocks so I'm kinda stuck there with my VTI and VXUS position. I can sell them but can't buy anymore so no way to keep going or even rebalance.


I've read about your EU suggested portfolio (the accumulating one) and my idea is to keep my US based ETFs (to avoid paying tax if I sell them) and from now on buy the suggested EU ones.
  • SWDA: Global, developed markets Large+Mid
  • EIMI: Emerging mkts IMI : Large+mid+small
  • WSML: MSCI World developed markets Small Cap

So I have several questions:
  • Does everything makes sense until now?
  • For a long term strategy should I add the small cap ETF (WSML) into the mix? It is marked as optional and the TER is higher than the previous 2.
  • What should be the distribution of stocks value between SWDA / EIMI or SWDA / WIMI / WSML. I was using 50% VTI and 50% VXUS (value not stock number obviously) because the US market is supposed to be 50% of the world market. But now with those new ETFs I don't know.
  • How would you handle rebalancing my frozen position of VTI and VXUS in the future? None of the new ETFs are equivalent to the old ones so I'm really not sure how to tackle this.
  • Is the 90% stock 10% bond (will be increasing the bond ration by one every year) good enough in case the stock market crashes and I need to sell bonds to buy stocks an rebalance the portfolio?
  • The bond ETF recommended in your EU portfolio (AGGH) has a lower TER than the ones I was buying. Do you guys recommend moving to that one instead?
Thank you so much for your help. Hope my explanations were clear. :)
If you are an American citizen or green card holder then pfic ruled apply. Non US funds are basically impossible due to tax.

If you are EU resident no European broker will now sell you US listed funds.

Topic Author
Benjiii
Posts: 2
Joined: Sat Jan 05, 2019 11:18 am

Re: Moving from US to EU lazy portfolio

Post by Benjiii » Tue Jan 08, 2019 6:30 pm

Thanks for the tips.

Didn't know about the estate tax but it is less than 60k so all good for now.

Spain actually taxes dividends if they are distributed but not if they are internally reinvested so I think the accumulating portfolio makes more sense.

So if I keep it simple and just go with SWDA and EIMI for stocks what ratio would you recommend? I'm thinking 80/20 as this is more or less the distribution of stock market between developed and emerging countries. Makes sense?

Valuethinker
Posts: 37277
Joined: Fri May 11, 2007 11:07 am

Re: Moving from US to EU lazy portfolio

Post by Valuethinker » Wed Jan 09, 2019 5:23 am

Benjiii wrote:
Tue Jan 08, 2019 6:30 pm
Thanks for the tips.

Didn't know about the estate tax but it is less than 60k so all good for now.

Spain actually taxes dividends if they are distributed but not if they are internally reinvested so I think the accumulating portfolio makes more sense.

So if I keep it simple and just go with SWDA and EIMI for stocks what ratio would you recommend? I'm thinking 80/20 as this is more or less the distribution of stock market between developed and emerging countries. Makes sense?
That's about the right ratio. I would probably be 85/15 on the basis that if I look at what's in EM I don't particularly like it - heavy weighting towards China, Chinese internet stocks (but things have probably changed in the last few months). But that's tinkering at the margin.

kserio
Posts: 1
Joined: Mon Sep 03, 2018 4:47 am

Re: Moving from US to EU lazy portfolio

Post by kserio » Wed Jan 09, 2019 8:41 am

Benjiii wrote:
Tue Jan 08, 2019 6:30 pm

Spain actually taxes dividends if they are distributed but not if they are internally reinvested so I think the accumulating portfolio makes more sense.
If the fund accumulates or distributes you pay 15% from dividends in US anyways, in that case isn't it better to just 'match' your country tax rate by paying some extra percents?

Example for my country - tax rate from realized gains and from dividends is always flat 19%.
So if I get a fund that accumulates and sell it after few years I would have to pay 19% from the difference (and lose 15% paid in US).
But if I had a distributing fund then from each dividend I would have to pay extra 4% of tax but then when selling, funds value would be lower so tax would be smaller.

Not sure if it is the same situation in your country.

indexfundinvestor.eu
Posts: 23
Joined: Sun Oct 14, 2018 7:56 am
Contact:

Re: Moving from US to EU lazy portfolio

Post by indexfundinvestor.eu » Sat Jan 12, 2019 2:16 pm

So if I keep it simple and just go with SWDA and EIMI for stocks what ratio would you recommend? I'm thinking 80/20 as this is more or less the distribution of stock market between developed and emerging countries. Makes sense?
Since the funds are hierarchical and they sort of sum up to become bigger funds. I tend to look at what is the ratio in MSCI's all world index (ASCWI). According to their website, MSCI World is ~88% of their all world index and MSCI EM the remaining 12%. That is if you use free float market cap as the basis of your decision.

MSCI also has a blog post in which they discuss other measures (e.g. GDP, full market cap).

Given that I'd lean on using 12% for MSCI Emerging Markets. Potentially up to 15%.

TedSwippet
Posts: 2024
Joined: Mon Jun 04, 2007 4:19 pm

Re: Moving from US to EU lazy portfolio

Post by TedSwippet » Sat Jan 12, 2019 2:39 pm

kserio wrote:
Wed Jan 09, 2019 8:41 am
If the fund accumulates or distributes you pay 15% from dividends in US anyways, in that case isn't it better to just 'match' your country tax rate by paying some extra percents?... Example for my country - tax rate from realized gains and from dividends is always flat 19%. So if I get a fund that accumulates and sell it after few years I would have to pay 19% from the difference (and lose 15% paid in US). But if I had a distributing fund then from each dividend I would have to pay extra 4% of tax but then when selling, funds value would be lower so tax would be smaller.
You don't say which country you are from, but in general most countries only allow foreign tax credits for direct taxes paid by investors. Any indirect ones paid internally by the funds before the investor receives the dividend are usually not reclaimable.

In that case, you would pay 19% on distributing dividends, but without being able to get a credit for the US's 15% from your local tax authority. That makes accumulating and distributing ETFs broadly equivalent for you, although you do get a bit of a gain in accumulation funds from being able to delay the 19% you would pay on distributed dividends until you finally sell the shares (so a 'tax-deferred' roll-up for you, then).

The only way you could get to pay US dividend taxes directly would be to own US domiciled ETFs. If your country has a US tax treaty that offers a 15% US rate, then you could claim that as a foreign tax credit. If it has no treaty though, your US rate becomes 30% and so you lose -- the maximum you could claim against local taxes would be 19%, leaving you 11% out of pocket. And you may also have to contend with the threat of outrageous US estate taxes on balances above $60k; quite a few countries have US income tax treaties, but only a handful have US estate tax treaties as well.

andrew99999
Posts: 246
Joined: Fri Jul 13, 2018 8:14 pm

Re: Moving from US to EU lazy portfolio

Post by andrew99999 » Sat Jan 12, 2019 8:43 pm

indexfundinvestor.eu wrote:
Sat Jan 12, 2019 2:16 pm
According to their website, MSCI World is ~88% of their all world index and MSCI EM the remaining 12%. That is if you use free float market cap as the basis of your decision.
Well that changed quickly! Just a few months ago it was 10%.

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