Help to build a three fund portfolio with non-US ETF

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Topic Author
adraywin
Posts: 4
Joined: Sun Jan 22, 2017 11:18 am

Help to build a three fund portfolio with non-US ETF

Post by adraywin » Tue Feb 07, 2017 1:53 am

Hello,
I'm a 27 years old French currently working in Hong Kong and paid in HKD currency. I have just opened my broker account with Interactive Broker which seems to be the most cost effective.

My goal is to build a simple three-fund portfolio and I have already read a lot of posts on the forum to try to find people with similar situation as mine.
As I have never invested before, I feel a bit stressed and excited before taking the plunge that's why I would like to have some feedback.

My idea is to have a three fund portfolio, ideally something that would be similar to this:

60%: Vanguard Total Stock Market Index Fund (VTSMX)
20%: Vanguard Total International Stock Index Fund (VGTSX)
20% Vanguard Total Bond Market Fund (VBMFX)

or the ETF version:
60%: Total Stock Market ETF (VTI) 0.05%
20% Vanguard Total International Stock Index Fund (VXUS) 0.11%
20% Vanguard Total Bond Market ETF (BND) 0.06%

But because I'm french and working in Hong Kong, I can't have access to the Vanguard mutual fund and I don't want to purchase US ETFs due to the real estate tax. and avoid the 30% tax on dividends. That's why, I was thinking of going with the following three-fund portfolio, which is the closest I managed to find:

scenario 1:
60%: iShares Core MSCI World UCITS ETF (IWDA) 0.20%
20%: iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI) 0.25%
20%: US Aggregate Bond (IUAG) 0.25%

scenario 2: same as above, but I add VUSD in order to minimize expense ratio of my portfolio, however VUSD and IWDA got some overlapping, I wonder if I would be over complicating things just to save on the expense ratio but ending up paying more in transaction costs to rebalance
48%: iShares Core S&P 500 UCITS ETF (CSPX) 0.07%
16%: iShares Core MSCI World UCITS ETF (IWDA) 0.20%
16%: iShares Core MSCI Emerging Markets IMI UCITS ETF (EIMI) 0.25%
20%: US Aggregate Bond (IUAG) 0.25%

Note:
- No capital tax gain in Hong Kong
- No dividends tax in Hong Kong, so I will only pay 15% tax on dividends since the IWDA, EIMI and IUAG are based in Ireland (there is a treaty between USA and Ireland)
- I prefer accumulative ETFs, that's why I decided to go with IWDA and EIMI instead of VWRD, and CSPX instead of VUSD (all domiciled in Ireland)
- IUAG distribute its dividends, I can't find a better similar ETF that reinvest its dividends, any suggestion ?
- I can't find a way to fit small caps in my portfolio while keeping a simple three-fund portfolio, any suggestion ?
- I want to invest an initial lump sum, but I don't know if it's better to split this lump sum it into several investment as I read about Dollar-Cost Averaging. Also, I will keep on investing monthly a part of my salary that I will save.

I would welcome your feedback/opinion. Thank you very much in advance for your help.

Regards

Topic Author
adraywin
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Re: Help to build a three fund portfolio with non-US ETF

Post by adraywin » Fri Feb 10, 2017 8:08 am

Any feedback please?

ATope
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Re: Help to build a three fund portfolio with non-US ETF

Post by ATope » Fri Feb 10, 2017 10:21 am

Hi.

You could replace IUAG with intermediate treasury bonds (3-7 year) (CSBGU7) and/or Inflation linked Govt bonds (IDTP).
ishares offers these as accumulating ETFs in USD.
I remain torn between IUAG and the above two.
I have been working on a similar portfolio, trying to balance Vanguard availability, tax, accumulating vs distributing etc. etc.
Your choice is similar to mine, although I went for a couple of Vanguard funds:

Vanguard FTSE All-World UCITS ETF VWRL
Vanguard FTSE Emerging Markets ETF (USD) VDEM
SPDR MSCI WORLD SMALL CAP UCITS ETF (USD) WDSC
iShares $ Treasury Bond 3-7yr USD Acc USD CSBGU7
iShares USD TIPS UCITS ETF Acc USD IDTP

Part of me still loves the simplicity of:
70% VWRL
30% IUAG

Ok, they pay dividends, but rebalance once per year and only 2 funds to pay fees on.

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BeBH65
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Re: Help to build a three fund portfolio with non-US ETF

Post by BeBH65 » Fri Feb 10, 2017 1:31 pm

Hi,
1- Scenario 1 seems good - you might want to extend your bonds to a global bond fund not only USD. Even vanguard advises some non-USD bonds for US-based investors.
2- have a look in some of the country pages in the "international domicile" pages of the wiki, for confirmation or inspiration.
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

Topic Author
adraywin
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Re: Help to build a three fund portfolio with non-US ETF

Post by adraywin » Mon Feb 13, 2017 3:13 am

thank you for your feedback. I will look into global bond funds.

Would you suggest to invest a lump sum or split it to make use of Dollar-Cost-Averaging ?

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galeno
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Re: Help to build a three fund portfolio with non-US ETF

Post by galeno » Mon Feb 13, 2017 6:24 am

If you DO NOT need accumulating ETFs, you should use VWRD/VWRL for equities.

For bonds use SUAG/IUAG. Keep it simple.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

ATope
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Re: Help to build a three fund portfolio with non-US ETF

Post by ATope » Mon Feb 13, 2017 8:21 am

KISS philosophy is good!!!
Out of interest, and a personal question so feel free to decline to answer, but what is your past 5Y pre-tax return on the 2 ETF portfolio, Galeno? Ballpark % is fine (assuming fees & taxes etc. with your broker will be different to mine and others)

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galeno
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Re: Help to build a three fund portfolio with non-US ETF

Post by galeno » Mon Feb 13, 2017 4:54 pm

The Ireland domiciled ETFs are new. VWRD has a 3 yr return = 15.84%. SUAG 5yr return = 6.69%. 3 yr return = 12.56%.

We began using 60% VWRD + 35% SUAG + 5% CASH in Jan 2014.

Our current port as of Jan 2017: 40% VWRD + 15% IDTP + 20% VDCP + 20% VDTY + 5% CASH.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

alinm
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Re: Help to build a three fund portfolio with non-US ETF

Post by alinm » Sun Apr 02, 2017 7:04 am

Hi adraywin,
sorry to crash your thread, but I'm in a somewhat similar scenario (european living in HK using an IB account) and wanted to ask if you did some research on whether IB HK allows you to keep your account or they force you to move it when you leave Hong Kong?

I asked 2 guys at IB: first said I can keep it (that was before I opened it) 2nd guys said I will have to move it.
I will move to Japan later this year, and I'm afraid they will ask me to relocate my account to IB Japan.
In the first 5 yrs in Japan you don't have to pay taxes on income realized outside Japan (and I don't plan living more than 5 years in Jp anyway), so I don't want to move my account there, as I will need to pay hefty taxes.
Do you happen to know if IB will let us keep the account in HK, leaving to us the responsibility to report dividends & capital gains in the country where we live in after relocation?

Topic Author
adraywin
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Joined: Sun Jan 22, 2017 11:18 am

Re: Help to build a three fund portfolio with non-US ETF

Post by adraywin » Mon Apr 03, 2017 12:10 pm

Sorry I don't have the answer.
My bet is that you will be able to keep your account but still need to be compliant to law ? IB will not be responsible and will probably not force you to close your account.
Just like when you leave a country you are supposed to close your bank account and do all the paperwork but your bank will not ask you to close it, not their responsibility. Just my guess.

brXrfeu
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Re: Help to build a three fund portfolio with non-US ETF

Post by brXrfeu » Sun Apr 16, 2017 9:07 pm

IShares has recently launched the accumulating version of SUAG. This is good news for those of us non us-tax treaty NRAs who need to use accumulating Bond ETFs for tax purposes.
https://www.ishares.com/uk/individual/e ... (acc)-fund

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Maple
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Re: Help to build a three fund portfolio with non-US ETF

Post by Maple » Sun Apr 16, 2017 10:39 pm

brXrfeu wrote:IShares has recently launched the accumulating version of SUAG. This is good news for those of us non us-tax treaty NRAs who need to use accumulating Bond ETFs for tax purposes.
https://www.ishares.com/uk/individual/e ... (acc)-fund
Agreed, good to see the accumulating version, IUAA. In fact, it is so new (listed April 13, according to iShares) that I couldn't yet find any quote data for it on the LSE website (http://www.londonstockexchange.com/exch ... DEUET.html).

Exchange Ticker Currency Listing Date
London Stock Exchange IUAA USD 13-Apr-2017

thibaulthib
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Re: Help to build a three fund portfolio with non-US ETF

Post by thibaulthib » Mon Nov 19, 2018 10:57 am

Hi all,

Upping the post, I'm also French, 28 yo, living and working in Singapore.

My portfolio consist of (80%):
- VUSD (40%)
- IWDA (15%)
- EIMI (5%)
- VGT (10%) because I believe in the technology lol (I won't go beyond 10% in sector ETF)
- REITs in Singapore (10%)

I want to invest 20% in a bond ETF, but I don't know what is best for me between the 3 following:
- IUAG/SUAG (100% US)
- AGGG/AGGU (USD 45% Euro 25%, Japanese Yen 17%, British Pound 5%, Canadian Dollar 3%, Australian Dollar 2%)
- IGLO/IGLA (USD 45% Euro 25%, Japanese Yen 25%, British Pound 7%, Canadian Dollar 2%)

Since I don't know where I will retire, that I'm French, and work in Singapore, I guess I should be going for a global bond ETF such as AGGG or IGLO, but I'm not sure my reasoning is correct...

Can you confirm?

Thanks!

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BeBH65
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Re: Help to build a three fund portfolio with non-US ETF

Post by BeBH65 » Mon Nov 19, 2018 11:41 am

A neutral equity position would be about 90% IWDA, and 10% EIMI.
With your proposition you are tripling up on US technology, and neglecting most of the developed world: Europe, UK, Japan, Singapore.

In the BH philosophy bonds are used for stability, preferable (hedged to) your home curreny to avoid currency volatility.
So indeed a global bond fund, unhedged (because you don't know to which ccy you would hedge). Choose between aggregate and government.
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

thibaulthib
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Re: Help to build a three fund portfolio with non-US ETF

Post by thibaulthib » Mon Nov 19, 2018 7:02 pm

BeBH65 wrote:
Mon Nov 19, 2018 11:41 am
With your proposition you are tripling up on US technology, and neglecting most of the developed world: Europe, UK, Japan, Singapore.
Thanks BeBH65! How to invest in Europe, UK, Japan and Singapore: just by giving a bigger weight to IWDA?

Neus
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Re: Help to build a three fund portfolio with non-US ETF

Post by Neus » Wed Mar 13, 2019 9:14 am

galeno wrote:
Mon Feb 13, 2017 6:24 am
If you DO NOT need accumulating ETFs, you should use VWRD/VWRL for equities.

For bonds use SUAG/IUAG. Keep it simple.
Sorry but i can't help to ask, is there a good reason to not choose accumulating ETF?

I think accumulated ETF is better in any situation than distributing ETF?

The only problem i can see might be the provider (Blackrock) instead of Vanguard :(

InnocentAbroad
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Re: Help to build a three fund portfolio with non-US ETF

Post by InnocentAbroad » Wed Mar 13, 2019 11:20 am

alinm wrote:
Sun Apr 02, 2017 7:04 am
Hi adraywin,
sorry to crash your thread, but I'm in a somewhat similar scenario (european living in HK using an IB account) and wanted to ask if you did some research on whether IB HK allows you to keep your account or they force you to move it when you leave Hong Kong?

I asked 2 guys at IB: first said I can keep it (that was before I opened it) 2nd guys said I will have to move it.
I will move to Japan later this year, and I'm afraid they will ask me to relocate my account to IB Japan.
In the first 5 yrs in Japan you don't have to pay taxes on income realized outside Japan (and I don't plan living more than 5 years in Jp anyway), so I don't want to move my account there, as I will need to pay hefty taxes.
Do you happen to know if IB will let us keep the account in HK, leaving to us the responsibility to report dividends & capital gains in the country where we live in after relocation?
You can keep your Interactive Brokers HK account, but it will be limited so that you can only trade on international exchanges. If you want to trade Japan domestic products you will also have to open an Interactive Brokers Japan (IBSJ) account. As you pointed out, non-permanent residents are not taxed on non-Japan sourced income, so you probably don't want this.

If you file W8-BEN then your USA withholding will be reduced from 30% to 10%. This makes some US domiciled ETFs cheaper to own than Ireland based ones. My experience is that IB will recalculate the withholding for all dividends received that year and refund the difference.

Roughly speaking, Japan now taxes capital gains of non-permanent residents globally. However, stocks acquired before becoming resident in Japan are exempt. Check the rules and consider tax gain harvesting and re-jigging your portfolio before becoming resident.

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galeno
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Re: Help to build a three fund portfolio with non-US ETF

Post by galeno » Wed Mar 13, 2019 12:55 pm

I like distributing funds. We are retired. We like to keep about 5% of port in CASH. That's how we start the year.

We use the 4% rule. 2.6% comes from dividend and interest income. The other 1.4% comes from selling shares.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

Neus
Posts: 117
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Re: Help to build a three fund portfolio with non-US ETF

Post by Neus » Thu Mar 14, 2019 4:34 am

galeno wrote:
Wed Mar 13, 2019 12:55 pm
I like distributing funds. We are retired. We like to keep about 5% of port in CASH. That's how we start the year.

We use the 4% rule. 2.6% comes from dividend and interest income. The other 1.4% comes from selling shares.
I see, thank you

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Epsilon Delta
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Re: Help to build a three fund portfolio with non-US ETF

Post by Epsilon Delta » Thu Mar 14, 2019 4:47 pm

Neus wrote:
Wed Mar 13, 2019 9:14 am

Sorry but i can't help to ask, is there a good reason to not choose accumulating ETF?

I think accumulated ETF is better in any situation than distributing ETF?
In countries that tax dividends as they accrue*, accumulating funds have no advantage and can make tax reporting more difficult.

* Which is the rule rather than the exception.

Neus
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Re: Help to build a three fund portfolio with non-US ETF

Post by Neus » Fri Mar 15, 2019 8:57 am

Epsilon Delta wrote:
Thu Mar 14, 2019 4:47 pm
Neus wrote:
Wed Mar 13, 2019 9:14 am

Sorry but i can't help to ask, is there a good reason to not choose accumulating ETF?

I think accumulated ETF is better in any situation than distributing ETF?
In countries that tax dividends as they accrue*, accumulating funds have no advantage and can make tax reporting more difficult.

* Which is the rule rather than the exception.
I see, thank you for the explanation

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BeBH65
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Re: Help to build a three fund portfolio with non-US ETF

Post by BeBH65 » Fri Mar 15, 2019 9:16 am

Accumulating fund save you the cost of reinvesting the dividends, and in the countries where the dividends are not taxed (more then you would think - always check this for your country) the full 100% of the dividends are generating extra return. Also many countries do not have capital gains tax - another gain for the investor based in that country.
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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