EUR currency strategies for US investors

[stocksurfer]

I'm wondering what options I have to move some of our cash allocation (plus some short term bond allocation) from USD to EUR.
The background is that we're dual citizens and are planning moving to Europe so I'd like to increase EUR exposure and decrease USD exposure. We're in retirement (~60) and live off the "forced" dividends produced by our investments (about 50/50 stock/bond split).

The first option is to just convert USD to EUR. However, none of the banks I use (incl. Fidelity) have multi-currency accounts. We closed some (expensive) european bank accounts a few years ago to simplify taxes . I moved some EUR into a Wise account but for large amounts my comfort level with that company is somewhat limited (largely unregulated, no human to contact, etc).

I purchased some non-USD-hedged bond funds to get started (IGOV, IBND, IHY Vaneck International High Yield Bond ETF, HYXU iShares International High Yield Bond ETF) but these are not cash equivalents. (I'm OK with not being 100% EUR.) We hold some broad EU and xUS stock ETFs but these are not cash equiv either.

I looked at EUR Ultrashort bond ETFs like XEON Xtrackers II EUR Overnight Rate Swap UCITS ETF but even if they were available to me (I read some are available through IB) I assume they open the PFIC can of worms.

We could try to open some European bank account. Without jumping onto a plane it looks like we could open a foreign domiciled bank account if we go down a private banking option. Alternatively, some of the EU neo-banks offer accounts to US residents, but they seem to be in&out of this market periodically and personally feel great for transactional cash-on-hand but not for savings.

Am I missing any options?

[TallBoy29er]

I was just looking at this myself. Here is a listing on Wise's site that shows some of the institutions that let you do this:
Wise

[TedSwippet]

I looked at EUR Ultrashort bond ETFs like XEON Xtrackers II EUR Overnight Rate Swap UCITS ETF but even if they were available to me (I read some are available through IB) I assume they open the PFIC can of worms.

Certainly a PFIC. However, if managed right - that is, electing mark-to-market tax treatment - it seems that a money market or similar fund effectively escapes any actual PFIC tax punishment(*). The reason is that a distributing money market ETF produces its entire return as dividends and has (for all intents and purposes) zero capital gain. Paying income tax rates on mark-to-market unrealised gains is largely a non-issue where the unrealised gain averages to zero.

Perhaps something like iShares Euro Government Bond 0-1yr UCITS ETF? Distributing, and if you look at the chart in EUR and excluding dividends you'll see a nice 'sawtooth' pattern, averaging out to a flat NAV. Could be something to consider. (My guess though is that you'll find it hard to access these ETFs as a US investor.)


(*) Aside from the major pain and potential expense of filling out copies of form 8621; IRS estimates just under 40 hours to complete.

[stocksurfer]

I was just looking at this myself. Here is a listing on Wise's site that shows some of the institutions that let you do this:
Wise

Thanks for the pointer. I hadn't seen that list. Interesting that they don't list IB. HSBC was recently in the news for reducing its int'l retail banking if I understood correctly. I guess I'd have to look more into that. I wonder how Citi Int'l compares to opening an account with one of the many European/Swiss private banks. Prob time to contact them.

I looked at EUR Ultrashort bond ETFs like XEON Xtrackers II EUR Overnight Rate Swap UCITS ETF but even if they were available to me (I read some are available through IB) I assume they open the PFIC can of worms.

Certainly a PFIC. However, if managed right - that is, electing mark-to-market tax treatment - it seems that a money market or similar fund effectively escapes any actual PFIC tax punishment(*). The reason is that a distributing money market ETF produces its entire return as dividends and has (for all intents and purposes) zero capital gain. Paying income tax rates on mark-to-market unrealised gains is largely a non-issue where the unrealised gain averages to zero.

Perhaps something like iShares Euro Government Bond 0-1yr UCITS ETF? Distributing, and if you look at the chart in EUR and excluding dividends you'll see a nice 'sawtooth' pattern, averaging out to a flat NAV. Could be something to consider. (My guess though is that you'll find it hard to access these ETFs as a US investor.)


(*) Aside from the major pain and potential expense of filling out copies of form 8621; IRS estimates just under 40 hours to complete.

Very interesting insight! I have the feeling the easiest way to get access to some of those ETFs would be through IB, but prob need to be a "professional investor", which I'd probably struggle to get to, plus IIRC it takes several quarters of accumulating a sufficient qty of trades to qualify.

[Valuethinker]

I'm wondering what options I have to move some of our cash allocation (plus some short term bond allocation) from USD to EUR.
The background is that we're dual citizens and are planning moving to Europe so I'd like to increase EUR exposure and decrease USD exposure. We're in retirement (~60) and live off the "forced" dividends produced by our investments (about 50/50 stock/bond split).

The first option is to just convert USD to EUR. However, none of the banks I use (incl. Fidelity) have multi-currency accounts. We closed some (expensive) european bank accounts a few years ago to simplify taxes . I moved some EUR into a Wise account but for large amounts my comfort level with that company is somewhat limited (largely unregulated, no human to contact, etc).

I purchased some non-USD-hedged bond funds to get started (IGOV, IBND, IHY Vaneck International High Yield Bond ETF, HYXU iShares International High Yield Bond ETF) but these are not cash equivalents. (I'm OK with not being 100% EUR.) We hold some broad EU and xUS stock ETFs but these are not cash equiv either.

I looked at EUR Ultrashort bond ETFs like XEON Xtrackers II EUR Overnight Rate Swap UCITS ETF but even if they were available to me (I read some are available through IB) I assume they open the PFIC can of worms.

We could try to open some European bank account. Without jumping onto a plane it looks like we could open a foreign domiciled bank account if we go down a private banking option. Alternatively, some of the EU neo-banks offer accounts to US residents, but they seem to be in&out of this market periodically and personally feel great for transactional cash-on-hand but not for savings.

Am I missing any options?

For the cost of a plane and a trip home, I'd consider just "jumping on a plane"? Although the sticking point might well be no permanent local address.

As long as you can pass Anti Money Laundering checks, you should be good.

If you are not High Net Worth Individuals (usually $1m+ assets, but it varies) then I suspect getting an international banking account could be a pain/ difficult.

[Valuethinker]

I'm wondering what options I have to move some of our cash allocation (plus some short term bond allocation) from USD to EUR.
The background is that we're dual citizens and are planning moving to Europe so I'd like to increase EUR exposure and decrease USD exposure. We're in retirement (~60) and live off the "forced" dividends produced by our investments (about 50/50 stock/bond split).

The first option is to just convert USD to EUR. However, none of the banks I use (incl. Fidelity) have multi-currency accounts. We closed some (expensive) european bank accounts a few years ago to simplify taxes . I moved some EUR into a Wise account but for large amounts my comfort level with that company is somewhat limited (largely unregulated, no human to contact, etc).

I purchased some non-USD-hedged bond funds to get started (IGOV, IBND, IHY Vaneck International High Yield Bond ETF, HYXU iShares International High Yield Bond ETF) but these are not cash equivalents. (I'm OK with not being 100% EUR.) We hold some broad EU and xUS stock ETFs but these are not cash equiv either.

High Yield bond funds expose you to a lot of volatility. In essence, they have equity risk. Take a look at their performance in 2008/9 or 2010-12 (the Eurozone Greece crisis)? Or just about any crisis.

[stocksurfer]

If you are not High Net Worth Individuals (usually $1m+ assets, but it varies) then I suspect getting an international banking account could be a pain/ difficult.

Neither the permanent address nor the min assets are a real hurdle, although the jet lag and getting sick on the plane are...
What I haven't been able to figure out is whether the private banks really offer interesting services to a boglehead style investor or not. E.g., offering direct indexing or similar to compensate for the fact that US citizens can't buy UCITS funds, and/or preparing all the IRS data...

High Yield bond funds expose you to a lot of volatility. In essence, they have equity risk. Take a look at their performance in 2008/9 or 2010-12 (the Eurozone Greece crisis)? Or just about any crisis.

You're right, thanks for the reminder!

[typical.investor]

I'm wondering what options I have to move some of our cash allocation (plus some short term bond allocation) from USD to EUR.
The background is that we're dual citizens and are planning moving to Europe so I'd like to increase EUR exposure and decrease USD exposure. We're in retirement (~60) and live off the "forced" dividends produced by our investments (about 50/50 stock/bond split).

Am I missing any options?

I would consider move some stocks to VGK Vanguard FTSE Europe (good - 0.060% ER, not so good - 23% UK so not EUR) or iShares MSCI Eurozone ETF (good - large- and mid-cap equities from developed market countries that use the Euro as their official currency, not so good - 0.51% ER).

[aspiring_kiwi]

For currency, and not just stocks, here are another couple of options:

1) Some US banks offer foreign currency accounts and CDs. Everbank was pushing this several years ago, and it appears they still offer both: https://www.everbank.com/diversified-in ... currencies

2) If you invest at interactive brokers (which is also known for being expat-friendly, alongside the state dept credit union and sometimes schwab), you can hold long positions in foreign currencies. They also have rock bottom forex trading costs of $2 per $100K, you get the market price, and can use limit orders. They do pay interest on Euros, though a few years ago, that interest rate was negative.
https://www.interactivebrokers.com/en/a ... -rates.php

(note that the first 10K in euros doesn't earn interest)

[stocksurfer]

Thanks for the new suggestions!

Some more that I've uncovered:
- ISHG (and BWZ) are Int'l short term treasuries (~1.8yr avg dur), not quite cash equiv, ISHG is more Europe than Asia, BWZ is evenly split
- FXE is basically 100% Euros (there are other FX<something> Invesco ETFs for other currencies)

I don't quite understand why FXE has an ER of 0.4%, as far as I can tell they're "simply" holding Euros... I also don't fully understand the 2.13% distribution yield (TTM): is that essentially the result of interest on the cash? I'm probably completely confused...

[Valuethinker]

If you are not High Net Worth Individuals (usually $1m+ assets, but it varies) then I suspect getting an international banking account could be a pain/ difficult.

Neither the permanent address nor the min assets are a real hurdle, although the jet lag and getting sick on the plane are...
What I haven't been able to figure out is whether the private banks really offer interesting services to a boglehead style investor or not. E.g., offering direct indexing or similar to compensate for the fact that US citizens can't buy UCITS funds, and/or preparing all the IRS data...

High Yield bond funds expose you to a lot of volatility. In essence, they have equity risk. Take a look at their performance in 2008/9 or 2010-12 (the Eurozone Greece crisis)? Or just about any crisis.

You're right, thanks for the reminder!

Honestly you'd have to engage with a Private Bank and ask. They must deal with US taxpayers all the time, and it's huge risk for them if in any way they aid or abet tax evasion. So they will have programmes and policies. The big hassle is the cost (I am thinking something like 1% of Assets Under Management, but I am not sure).

Also I have read with Direct Indexing you are then basically trapped to your provider, given the complexity of unwinding it.

On travel. You obviously are hit worse by these things than many are. I don't find jetlag East to West difficult (just stay up late). West to East (my home trip) can be quite brutal. Motion sickness? I assume you've tried the usual drugs? I have noticed that, as the jet stream has become generally more unstable (due to the warming of Arctic waters) the ride across has become bumpier (but the ride back to Europe has become faster due to tail winds).

One caveat. During the Greece Crisis (and Cyprus also) there were restrictions placed on withdrawals from local banks. Cyprus deposits in the Bank of Cyprus over the 100k Euro deposit insurance limit were diluted by 60%. The Eurozone contains a critical structural flaw: currency union without banking union (ie no central bailout authority with the fiscal backing of the EU states collectively).

So. Be careful of local banks, if you come from a country small enough or peripheral enough that the government cannot bail it out (recall the scale of the Credit Suisse takeover by UBS, which was only achieved by Swiss government intervention). If you hold securities, as opposed to deposits, you should be relatively safe - but PFIC will then hit you? So you might want to directly hold very safe government bonds. (Although I think that generates a tax problem in the USA re exchange rate gains/ losses?). Rental properties might be another way around PFIC, although I don't generally recommend these (because of all the risks, tenant issues etc).