Why as a EU person should I invest in EU stocks or international stocks?

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Topic Author
Vision
Posts: 259
Joined: Tue Apr 02, 2013 3:16 am

Why as a EU person should I invest in EU stocks or international stocks?

Post by Vision » Wed Jul 24, 2019 7:06 pm

I don't understand why people say I should invest in international or EU or whatever stocks if I'm not a US citizen. What is the main logic behind this?

>Currency risk
I still have that, since my brokers have USD not EUR as currency.

[OT comments removed by admin LadyGeek]

If the rule is to keep the portfolio simple, why would I have anything other than us stock index (VTI) and US Bond Index (BND) in it? Why do I even need international exposure like VXUS? What do I gain from it?

IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?

If I choose 60% VTI and 30% VXUS, 10% BND, then I'm effectively weighting 60% more in US than international non-US. But why? Why 60% more, why not 40/40? Why this arbitrary number?

This confused my 5 years ago when I started indexing and still confuses me as I will need to restart indexing strategy and can't settle for the indexes to use.

dboeger1
Posts: 53
Joined: Fri Jan 13, 2017 7:32 pm

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by dboeger1 » Wed Jul 24, 2019 8:02 pm

I can't and won't answer much of your post, but I can address this point:
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
A purely mathematical reason is that VTI/VXUS provides more diversification at a lower cost than VT. If you look at their individual ETF pages, you'll see that VTI/VXUS have way more assets under management, allowing them to hold more stocks, and the expense ratios are lower. VT is great for simplicity, but it's hard to argue that the underlying assets or expense ratios aren't inferior. The extent to which the difference matters is quite personal; the additional costs of VT are quite small in absolute terms for the majority of investors. I recently switched from VT to VTI/VXUS, not because I cared about the differences, but because I was actually in the process of splitting up Target Date funds to make my investments more consistent in appearance across various accounts, so it just felt natural to convert everything to a 3-fund US/international/bond portfolio.

As for why you should choose US vs. international and in what ratios, people much more informed than me have beaten that horse to death on these forums. I'm like you. I just like to think in terms of global indexing. That being said, there are purely mathematical reasons for skewing one way or another, such as differences in expense ratios or tax implications. Generally speaking, international investments will cost US investors a bit more, so some US investors choose to skew towards VTI to account for that. I have no idea how that differs for people in Europe.

andrew99999
Posts: 493
Joined: Fri Jul 13, 2018 8:14 pm

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by andrew99999 » Wed Jul 24, 2019 10:11 pm

Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
Do this.
But use a non US domiciled version.
PassiveInvestingAustralia.com

Topic Author
Vision
Posts: 259
Joined: Tue Apr 02, 2013 3:16 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by Vision » Thu Jul 25, 2019 3:05 am

andrew99999 wrote:
Wed Jul 24, 2019 10:11 pm
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
Do this.
But use a non US domiciled version.
Why to buy a non US domiciled version? Problem is - my broker is in US, so I only have US domiciled securities available.

Valuethinker
Posts: 38788
Joined: Fri May 11, 2007 11:07 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by Valuethinker » Thu Jul 25, 2019 3:24 am

I don't really understand what you are asking because you are using tickers rather than fund names (and you don't provide any links to the funds).

You should have the globally diversified equity index, with the global weightings (55-60% of that will be US stocks).

You should have a bond fund hedged into Euros, most probably.

DJN
Posts: 482
Joined: Mon Nov 20, 2017 12:30 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by DJN » Thu Jul 25, 2019 3:29 am

Hi,
if you are not a US domiciled person then for most people its best not to buy US domiciled funds.
Read here: https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
Yah shure

TedSwippet
Posts: 2408
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by TedSwippet » Thu Jul 25, 2019 3:36 am

DJN wrote:
Thu Jul 25, 2019 3:29 am
if you are not a US domiciled person then for most people its best not to buy US domiciled funds.
For info, previously discussed with the topic author in this thread: viewtopic.php?f=22&t=193146

glorat
Posts: 233
Joined: Thu Apr 18, 2019 2:17 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by glorat » Thu Jul 25, 2019 7:36 am

Vision wrote:
Thu Jul 25, 2019 3:05 am
andrew99999 wrote:
Wed Jul 24, 2019 10:11 pm
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
Do this.
But use a non US domiciled version.
Why to buy a non US domiciled version? Problem is - my broker is in US, so I only have US domiciled securities available.
The hint from the forum is to get a better broker.

I was in your situation originally... I opened a US brokerage account because the brokerage was cheap and the commission and the US ETFs had super low expense ratios like VTI having less than 0.1%. I thought I'd won the bogleheads principles by following all the US based advice and clearly getting things super cheap.

Until I saw the 30% withholding tax on the incoming dividends and realised that could be 15% if I'd invested in Ireland domiciled funds. The difference is worth over 0.6% a year. You do the maths!

TedSwippet
Posts: 2408
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by TedSwippet » Thu Jul 25, 2019 8:20 am

glorat wrote:
Thu Jul 25, 2019 7:36 am
Until I saw the 30% withholding tax on the incoming dividends and realised that could be 15% if I'd invested in Ireland domiciled funds. The difference is worth over 0.6% a year. You do the maths!
For context, the topic author is -- or at least, I think they are, based on some old posts from several years ago -- in Lithuania. If so, then Lithuania has a 15% treaty rate with the US on dividends. That is the same as Ireland's, so no actual damage in that area from using US domiciled funds holding US stocks rather than Ireland domiciled ones.

However, holding non-US stocks through US domiciled ETFs could still be tax-inefficient, due to the avoidable (yet not avoided) 15% loss of dividends to US tax. And Lithuania has no US estate tax treaty, so a direct threat of US tax of between 26%-40% of the balance of everything above $60k there if the worst occurs, then.
Last edited by TedSwippet on Thu Jul 25, 2019 1:38 pm, edited 1 time in total.

Topic Author
Vision
Posts: 259
Joined: Tue Apr 02, 2013 3:16 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by Vision » Thu Jul 25, 2019 1:32 pm

dboeger1 wrote:
Wed Jul 24, 2019 8:02 pm
I can't and won't answer much of your post, but I can address this point:
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
A purely mathematical reason is that VTI/VXUS provides more diversification at a lower cost than VT. If you look at their individual ETF pages, you'll see that VTI/VXUS have way more assets under management, allowing them to hold more stocks, and the expense ratios are lower. VT is great for simplicity, but it's hard to argue that the underlying assets or expense ratios aren't inferior. The extent to which the difference matters is quite personal; the additional costs of VT are quite small in absolute terms for the majority of investors. I recently switched from VT to VTI/VXUS, not because I cared about the differences, but because I was actually in the process of splitting up Target Date funds to make my investments more consistent in appearance across various accounts, so it just felt natural to convert everything to a 3-fund US/international/bond portfolio.

As for why you should choose US vs. international and in what ratios, people much more informed than me have beaten that horse to death on these forums. I'm like you. I just like to think in terms of global indexing. That being said, there are purely mathematical reasons for skewing one way or another, such as differences in expense ratios or tax implications. Generally speaking, international investments will cost US investors a bit more, so some US investors choose to skew towards VTI to account for that. I have no idea how that differs for people in Europe.
That makes sense, but if I choose VTI+VXUS in what proportions?
andrew99999 wrote:
Wed Jul 24, 2019 10:11 pm
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
Do this.
But use a non US domiciled version.

Could you recommend a non US domiciled version? Also, I'm restricted by my broker which only holds US domiciled securities, but if you can tell me which non US domiciled version would be equivalent then I'd check with other brokers for options.
Valuethinker wrote:
Thu Jul 25, 2019 3:24 am
I don't really understand what you are asking because you are using tickers rather than fund names (and you don't provide any links to the funds).

You should have the globally diversified equity index, with the global weightings (55-60% of that will be US stocks).
Why is US stock 55-60%? Why not split it 50/50 with us/non US?
Valuethinker wrote:
Thu Jul 25, 2019 3:24 am
You should have a bond fund hedged into Euros, most probably.
What are such bond funds? And where do I find them?
DJN wrote:
Thu Jul 25, 2019 3:29 am
Hi,
if you are not a US domiciled person then for most people its best not to buy US domiciled funds.
Read here: https://www.bogleheads.org/wiki/Outline ... _domiciles
DJN
My broker is US based, so I don't have a choice.
The hint from the forum is to get a better broker.

I was in your situation originally... I opened a US brokerage account because the brokerage was cheap and the commission and the US ETFs had super low expense ratios like VTI having less than 0.1%. I thought I'd won the bogleheads principles by following all the US based advice and clearly getting things super cheap.

Until I saw the 30% withholding tax on the incoming dividends and realised that could be 15% if I'd invested in Ireland domiciled funds. The difference is worth over 0.6% a year. You do the maths!
So which Ireland Domiciled Funds do you recommend? Which brokers?

WAIT! I have an idea...what if instead of buying US stock index and paying the 30% withholding tax we just hold Berkshire Hathaway which pretty much will mimic index, but has no tax on dividends because their aren't any dividends?
For context, the topic author is -- or at least, I think they are, based on some old posts from several years ago -- in Lithuania. If so, then Lithuania has a 15% treaty rate with the US on dividends. That is the same as Ireland's, so no actual damage in that area from using US domiciled funds holding US stocks rather than Ireland domiciled ones.
Where can I see info on this tax treaty and US tax treaties with other countries? Seems not too bad, but is there a way to get that 15% to 0%?
However, holding non-US stocks through US domiciled ETFs could still be tax-inefficient, due to the avoidable (yet not avoided) 15% loss of dividends to US tax. And Lithuania has no US estate tax treaty, so a direct threat of US tax of between 26%-40% of the balance of everything above $60k there if the worst occurs, then.
I don't fully get this part. Does this mean it would be better for me to hold only US stock not international? So VTI/BND would be fine?

If this is the case, can't I reduce that tax for dividends to 0 by replacing i with berkshire hathaway stock that pays no dividend?

TedSwippet
Posts: 2408
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by TedSwippet » Fri Jul 26, 2019 2:31 am

Vision wrote:
Thu Jul 25, 2019 1:32 pm
Where can I see info on this tax treaty and US tax treaties with other countries?
This wiki page summarises the ETF domicile decision for residents of various countries:

Nonresident alien's ETF domicile decision table - Bogleheads

You can find US income tax and estate tax treaties here:

United States Income Tax Treaties A to Z | Internal Revenue Service
Estate Gift Tax Treaties International | Internal Revenue Service
TAX TREATY LAW | Tax Treaties and Related Agreements (Beta Version)

Valuethinker
Posts: 38788
Joined: Fri May 11, 2007 11:07 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by Valuethinker » Fri Jul 26, 2019 3:01 am

Vision wrote:
Thu Jul 25, 2019 1:32 pm
dboeger1 wrote:
Wed Jul 24, 2019 8:02 pm
I can't and won't answer much of your post, but I can address this point:
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
A purely mathematical reason is that VTI/VXUS provides more diversification at a lower cost than VT. If you look at their individual ETF pages, you'll see that VTI/VXUS have way more assets under management, allowing them to hold more stocks, and the expense ratios are lower. VT is great for simplicity, but it's hard to argue that the underlying assets or expense ratios aren't inferior. The extent to which the difference matters is quite personal; the additional costs of VT are quite small in absolute terms for the majority of investors. I recently switched from VT to VTI/VXUS, not because I cared about the differences, but because I was actually in the process of splitting up Target Date funds to make my investments more consistent in appearance across various accounts, so it just felt natural to convert everything to a 3-fund US/international/bond portfolio.

As for why you should choose US vs. international and in what ratios, people much more informed than me have beaten that horse to death on these forums. I'm like you. I just like to think in terms of global indexing. That being said, there are purely mathematical reasons for skewing one way or another, such as differences in expense ratios or tax implications. Generally speaking, international investments will cost US investors a bit more, so some US investors choose to skew towards VTI to account for that. I have no idea how that differs for people in Europe.
That makes sense, but if I choose VTI+VXUS in what proportions?
andrew99999 wrote:
Wed Jul 24, 2019 10:11 pm
Vision wrote:
Wed Jul 24, 2019 7:06 pm
IF the whole point is to mimic the world index then why would I not buy a world total stock index like VT instead?
Do this.
But use a non US domiciled version.

Could you recommend a non US domiciled version? Also, I'm restricted by my broker which only holds US domiciled securities, but if you can tell me which non US domiciled version would be equivalent then I'd check with other brokers for options.
Valuethinker wrote:
Thu Jul 25, 2019 3:24 am
I don't really understand what you are asking because you are using tickers rather than fund names (and you don't provide any links to the funds).

You should have the globally diversified equity index, with the global weightings (55-60% of that will be US stocks).
Why is US stock 55-60%? Why not split it 50/50 with us/non US?
If you have a global fund weighted by market capitalisation, US stocks will be around 55-60%.
Valuethinker wrote:
Thu Jul 25, 2019 3:24 am
You should have a bond fund hedged into Euros, most probably.
What are such bond funds? And where do I find them?
There are plenty domiciled in Ireland, including Vanguard funds. If you cannot access the funds, you can access the ETFs.

I don't know of any such funds listed in USA, but it's possible they exist.

msk
Posts: 1342
Joined: Mon Aug 15, 2016 10:40 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by msk » Fri Jul 26, 2019 3:34 am

Unfortunately I was in the same situation of having a US broker, TDAmeritrade, that did not offer anything but US situs ETFs and stocks, basically only those approved for purchase by US tax residents. Switched to Interactive Brokers and much happier now. There are others who may be suitable for your tax residency. On this chat group there is quite often over-emphasis on minutiae that may not matter all that much, e.g from Vanguard you could invest worldwide via VT (US based) or VWRD (Ireland based). VT has much more funds and thus has lower charges (but that 30% withholding tax on dividends if you happen to have the wrong tax residence) while VWRD has a higher annual charge but less tax withholding (15%? but you never see it anyway). So you do not get the full 0.6% difference but there is a difference nevertheless. VT tracks 8000+ stocks while VWRD tracks <4000 so while there is potential for tiny divergent performances in 20+ years, it is not predictable which will do better for you. The performance difference between the SP500 and VT is huge (so far) by comparison. No clue what the future will hold or even which will be the favorable one to follow. Endless prognostications and arguments have been tabled. I have been in the market for 4 decades and I recall clearly when the world market was dominated by Japan. Now it is dominated by the US. So decide how much you wish to bet on the US (many choose 100%) and bet accordingly by splitting your ETFs. I feel 55% is OK, so I simply buy VWRD and similar. The world markets will do their own thing, regardless of my judgement, and am happy with that. So, for me (non US taxpayer) my current stance is Interactive Brokers, 100% VWRD (and similar, e.g. accumulating ETFs like IWDA, WSML and EIMI but that's just extreme laziness not to have to bother with investing VWRD dividends every quarter). Change brokers and be happy.

Topic Author
Vision
Posts: 259
Joined: Tue Apr 02, 2013 3:16 am

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by Vision » Mon Aug 12, 2019 9:38 am

msk wrote:
Fri Jul 26, 2019 3:34 am
Unfortunately I was in the same situation of having a US broker, TDAmeritrade, that did not offer anything but US situs ETFs and stocks, basically only those approved for purchase by US tax residents. Switched to Interactive Brokers and much happier now. There are others who may be suitable for your tax residency. On this chat group there is quite often over-emphasis on minutiae that may not matter all that much, e.g from Vanguard you could invest worldwide via VT (US based) or VWRD (Ireland based). VT has much more funds and thus has lower charges (but that 30% withholding tax on dividends if you happen to have the wrong tax residence) while VWRD has a higher annual charge but less tax withholding (15%? but you never see it anyway). So you do not get the full 0.6% difference but there is a difference nevertheless. VT tracks 8000+ stocks while VWRD tracks <4000 so while there is potential for tiny divergent performances in 20+ years, it is not predictable which will do better for you. The performance difference between the SP500 and VT is huge (so far) by comparison. No clue what the future will hold or even which will be the favorable one to follow. Endless prognostications and arguments have been tabled. I have been in the market for 4 decades and I recall clearly when the world market was dominated by Japan. Now it is dominated by the US. So decide how much you wish to bet on the US (many choose 100%) and bet accordingly by splitting your ETFs. I feel 55% is OK, so I simply buy VWRD and similar. The world markets will do their own thing, regardless of my judgement, and am happy with that. So, for me (non US taxpayer) my current stance is Interactive Brokers, 100% VWRD (and similar, e.g. accumulating ETFs like IWDA, WSML and EIMI but that's just extreme laziness not to have to bother with investing VWRD dividends every quarter). Change brokers and be happy.
Thanks, Vanguard recently introduced accumulating ETF called VWRA. What do you think of that?

assyadh
Posts: 68
Joined: Tue Sep 18, 2018 12:44 pm

Re: Why as a EU person should I invest in EU stocks or international stocks?

Post by assyadh » Mon Aug 12, 2019 6:33 pm

Vision wrote:
Mon Aug 12, 2019 9:38 am
msk wrote:
Fri Jul 26, 2019 3:34 am
Unfortunately I was in the same situation of having a US broker, TDAmeritrade, that did not offer anything but US situs ETFs and stocks, basically only those approved for purchase by US tax residents. Switched to Interactive Brokers and much happier now. There are others who may be suitable for your tax residency. On this chat group there is quite often over-emphasis on minutiae that may not matter all that much, e.g from Vanguard you could invest worldwide via VT (US based) or VWRD (Ireland based). VT has much more funds and thus has lower charges (but that 30% withholding tax on dividends if you happen to have the wrong tax residence) while VWRD has a higher annual charge but less tax withholding (15%? but you never see it anyway). So you do not get the full 0.6% difference but there is a difference nevertheless. VT tracks 8000+ stocks while VWRD tracks <4000 so while there is potential for tiny divergent performances in 20+ years, it is not predictable which will do better for you. The performance difference between the SP500 and VT is huge (so far) by comparison. No clue what the future will hold or even which will be the favorable one to follow. Endless prognostications and arguments have been tabled. I have been in the market for 4 decades and I recall clearly when the world market was dominated by Japan. Now it is dominated by the US. So decide how much you wish to bet on the US (many choose 100%) and bet accordingly by splitting your ETFs. I feel 55% is OK, so I simply buy VWRD and similar. The world markets will do their own thing, regardless of my judgement, and am happy with that. So, for me (non US taxpayer) my current stance is Interactive Brokers, 100% VWRD (and similar, e.g. accumulating ETFs like IWDA, WSML and EIMI but that's just extreme laziness not to have to bother with investing VWRD dividends every quarter). Change brokers and be happy.
Thanks, Vanguard recently introduced accumulating ETF called VWRA. What do you think of that?
It is an amazing option. I expect AUM to pick up quickly.

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