[Georgia] Investing from tax haven

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Topic Author
Rosales
Posts: 19
Joined: Thu Apr 30, 2020 8:43 pm

[Georgia] Investing from tax haven

Post by Rosales » Thu Apr 30, 2020 9:27 pm

Hi folks!

Country of Residence: Georgia (0% foreign dividend tax, 0% foreign capital gains tax, 30% US tax and no estate tax treaty).
Age: 33
Currency: USD 200k
Broker: Interactive Brokers
Debt: none
Desired Asset allocation: 60% stocks (VUAA or IWRA) / 40% cash @ bank accounts (up to 4% interest depending on the type of the account).
Possible monthly contributions: 1k

In relation to stocks, more inclined towards VUAA rather than IWRA, since I don't see anyone outperforming the US stock market, and past results suggest the same. VUAA also has lower TER even considering 15% tax.
So should I put 120k in as a lump sum now or divide it and invest gradually in 4-5 steps maybe? Eg 1 step a month.
In relation to bonds, am I right to ignore them if I can divide cash between 1-1,5% interest current account and 3-4% 1-2 yr term deposit? The bank is largest in Georgia with BB- rating from Fitch, listed on LSE. There's also another similar bank to diversify credit risk.

Any criticism/suggestions welcome.

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galeno
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Re: [Georgia] Investing from tax haven

Post by galeno » Fri May 01, 2020 10:31 am

As a non-USA person you should invest a MAXIMUM of 55% in USA domiciled equities.

American Bogleheads could hold 100% USA equities. Non-USA equities have HIDDEN dividend withholding taxes. That makes non-USA equities more expensive for them.

Non American Bogleheads should hold the FTSE all world all cap equity index. USA domiciled equities are more expensive for us. They also have much higher valuacions.

Topic Author
Rosales
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Re: [Georgia] Investing from tax haven

Post by Rosales » Fri May 01, 2020 11:00 am

galeno wrote:
Fri May 01, 2020 10:31 am
As a non-USA person you should invest a MAXIMUM of 55% in USA domiciled equities.

American Bogleheads could hold 100% USA equities. Non-USA equities have HIDDEN dividend withholding taxes. That makes non-USA equities more expensive for them.

Non American Bogleheads should hold the FTSE all world all cap equity index. USA domiciled equities are more expensive for us. They also have much higher valuacions.
Yes, USA domiciled equities for Non Americans are more expensive taxwise, but in case of VUAA vs VWRA the latter has TER 0.22, which basically makes it less expensive overall.
If we assume 2% dividends, then:

VUAA 0.07 + 0.3 (2%*0.15) = 0.37 (my choice)
VWRA 0.22 + 0.22 (2%*0.11) = 0.44

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galeno
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Re: [Georgia] Investing from tax haven

Post by galeno » Fri May 01, 2020 4:36 pm

You believe USA equities will out-perform non-USA. I believe the opposite. Let's see who's right over the next 10 years.

BTW. The correct TER for VWRA = 0.22* + (2.29*0.12) = 0.49%. 0.05% more. The dividend yield on non-USA equities is higher vs USA stocks. The L1WT+L2WT on VWRA = 11.61% which rounds to 12%.

"If we assume 2% dividends, then: VUAA 0.07 + 0.3 (2%*0.15) = 0.37 (my choice). VWRA 0.22 + 0.22 (2%*0.11) = 0.44"
USA-NRA. 50/50. TER = 0.44%. Exp real CAGR = 2.0%. AWR = 4.0%.: Port: 40% VWRD + 05% VDEM + 05% WSML + 10% IDTP + 20% VDCP + 15% VDTY + 05% CASH.

glorat
Posts: 549
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Re: [Georgia] Investing from tax haven

Post by glorat » Sat May 02, 2020 2:54 am

Rosales wrote:
Fri May 01, 2020 11:00 am
Yes, USA domiciled equities for Non Americans are more expensive taxwise, but in case of VUAA vs VWRA the latter has TER 0.22, which basically makes it less expensive overall.
If we assume 2% dividends, then:

VUAA 0.07 + 0.3 (2%*0.15) = 0.37 (my choice)
VWRA 0.22 + 0.22 (2%*0.11) = 0.44
Not a totally fair comparison because VWRA is charging you extra not-only for international benefit but also is uniquely the only fund that mixes in emerging market exposure at a reasonable cost into a single ETF.

A better comparison would be Vanguard S&P 500 vs Vanguard Developed World. Here's one I did before (the results will be the same for your accumulating equivalents)

VDEV (Vanguard Developed World)
Net Assets Attributable to Holders of Redeemable Participating Shares (“Net Assets”) 350,661,628
Total Expenses 565,808. (0.16% that year but announced will be 0.13% going forward)
Foreign Withholding Tax (877,262). (0.25% TER equivalent)

Total expense+tax ratio: 0.38%

VUSD (Vanguard S&P 500)
Net Assets Attributable to Holders of Redeemable Participating Shares (“Net Assets”) 22,781,514,262
Total Expenses 16,562,659. (0.07%)
Foreign Withholding Tax (79,389,011) (0.35% TER equivalent)

Total expense+tax ratio: 0.42%

Conclusion: For a lower combined expense VDEV offers higher diversification at a lower cost. The only reason to choose VUSD otherwise is if you have conviction the S&P will outperform in the future 0.04% more than the market anticipates

ref: https://global.vanguard.com/portal/site ... &docId=959

Topic Author
Rosales
Posts: 19
Joined: Thu Apr 30, 2020 8:43 pm

Re: [Georgia] Investing from tax haven

Post by Rosales » Sat May 02, 2020 1:00 pm

glorat wrote:
Sat May 02, 2020 2:54 am

Conclusion: For a lower combined expense VDEV offers higher diversification at a lower cost. The only reason to choose VUSD otherwise is if you have conviction the S&P will outperform in the future 0.04% more than the market anticipates

ref: https://global.vanguard.com/portal/site ... &docId=959
Could you explain the "0.04% more than the market anticipates" bit? How does market anticipate that?

glorat
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Re: [Georgia] Investing from tax haven

Post by glorat » Sat May 02, 2020 10:37 pm

Rosales wrote:
Sat May 02, 2020 1:00 pm
glorat wrote:
Sat May 02, 2020 2:54 am

Conclusion: For a lower combined expense VDEV offers higher diversification at a lower cost. The only reason to choose VUSD otherwise is if you have conviction the S&P will outperform in the future 0.04% more than the market anticipates

ref: https://global.vanguard.com/portal/site ... &docId=959
Could you explain the "0.04% more than the market anticipates" bit? How does market anticipate that?
I mean *you* have the conviction to anticipate that the market has undervalued World vs S&P 500 by more then a 0.04% year to make this active bet on the S&P 500 worthwhile since that is the extra expense cost you have in overweighting the S&P more than market cap.

Personally (and most bogleheads), we don't try to beat the market, we try to get average diverse market returns at lowest cost. On that principle, VDEV is superior to VUSD on both counts

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galeno
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Re: [Georgia] Investing from tax haven

Post by galeno » Sun May 03, 2020 6:55 am

I agree with glorat.

Topic Author
Rosales
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Joined: Thu Apr 30, 2020 8:43 pm

Re: [Georgia] Investing from tax haven

Post by Rosales » Fri May 22, 2020 4:19 pm

Hey folks,

I wonder how does one include home equity (rental and used for living) in their asset allocation? Should this be done at all?
Would be nice if someone could give an example.

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Schlabba
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Location: Netherlands

Re: [Georgia] Investing from tax haven

Post by Schlabba » Sat May 23, 2020 7:32 am

Rosales wrote:
Fri May 22, 2020 4:19 pm
Hey folks,

I wonder how does one include home equity (rental and used for living) in their asset allocation? Should this be done at all?
Would be nice if someone could give an example.
The point of having an asset allocation is managing risk. So it is up to you and your specific circumstances what you consider the risk involved in your life and with your rental.

My rental isn't included in my AA. The rent simply decreases my cost of living and therefore I can keep a smaller emergency fund / less bonds. My bonds/EF is still on the conservative side of 18 months cost of living.
I know my tenant works in healthcare so I am not worried she would loose her job to a pandemic.

Edit: I measure risk in terms of months of living without having to sell my long term assets.
Secretly a dividend investor. Feel free to ask why.

Topic Author
Rosales
Posts: 19
Joined: Thu Apr 30, 2020 8:43 pm

Re: [Georgia] Investing from tax haven

Post by Rosales » Sat May 23, 2020 10:24 am

Schlabba wrote:
Sat May 23, 2020 7:32 am
Rosales wrote:
Fri May 22, 2020 4:19 pm
Hey folks,

I wonder how does one include home equity (rental and used for living) in their asset allocation? Should this be done at all?
Would be nice if someone could give an example.
The point of having an asset allocation is managing risk. So it is up to you and your specific circumstances what you consider the risk involved in your life and with your rental.

My rental isn't included in my AA. The rent simply decreases my cost of living and therefore I can keep a smaller emergency fund / less bonds. My bonds/EF is still on the conservative side of 18 months cost of living.
I know my tenant works in healthcare so I am not worried she would loose her job to a pandemic.

Edit: I measure risk in terms of months of living without having to sell my long term assets.
In my case rental income is the only source of income, it covers monthly expenses and I can also invest from it around 1-1,5k per month, depending on other non-essential expense. More inclined not to include rental in AA, but having it might allow me to go for more aggressive AA. Like 70/30 rather than 60/40.

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