Pay Broker or Invest on my own? US Expat not able to use firms like Vangaurd

[kakka_carrot_cake]

Hi everyone. I am a US citizen living abroad (I have dual nationailty and dont have plans on returning to live in the US). I have been told that I cannot open up a Retirement Account in the US if I do not pay income tax, so I want to open a Brokerage Account to invest in the stock market with a long term hold strategy. A broker offered to handle my investments (about 130K) for a 1% annual fee. Is this wise? Or is it best to learn how to invest on my own? I would ideally use a firm like Vangaurd that has great do-it-yourself options and UX, but Vangaurd does not allow US expats to use their services (it requires you to be a permanent resident). Any suggestions?

 

[siyabong]

@kakka_carrot_cake If you have a US address of a friend/relative you can use, you'll be able to have a VG brokerage account. They seem to operate on a don't ask-don't tell policy as far as expats go.

 

[james24essex]

@kakka_carrot_cake I believe Schwab appears to be the most friendly to overseas US citizens. They have a section on their website: https://international.schwab.com/expatriate-essentials

Note that you will not be allowed to buy mutual funds, but can buy stocks, bonds and ETFs.

If you are in the EU, you may find it difficult to buy US-listed ETFs legally unless you can be certified as a professional/accredited investor. I think you can get around this by hiring your broker to do it as well.

 

[treesd]

@kakka_carrot_cake It's really tough as an US citizen to invest as an expat. If you want to use fidelity, schwab, vanguard, you need a US address which would put you in a gray area legally. Since you don't plan on returning to the US I would avoid doing this because it would probably mess up taxes down the road in your resident country.

I would try to find a lower fee broker that let's you buy US ETFs (can't really do mutual funds abroad) from your resident country. I would say that there is a slim chance on this but who knows. If the 1% broker does your taxes for you and offers some guidance then it is probably nearly worth the fees. In theory, your investment should easily cover the 1% in gains each year and with that factored in your yield should still far outpace other investing options (bonds). It is also worth being as tax compliant as possible in your resident country.

Remember to avoid PFICs and check local laws to avoid other tax issues.

 

[kggg]

@kakka_carrot_cake Source for this statement? I had and continued to use and invest in my vanguard account while I was a work expat in EU and will expat again soon and had been told this is not an issue.

 

[treesd]

@kggg Vanguard, Fidelity, Schwab, etc are all really difficult to deal with as a US expat. You need a US residence to officially purchase most of their offerings. You can get around that by using a family member's US mailing address or leaving yours US based but doing so is technically illegal (they will freeze your account if they care, they don't really).

Since OP doesn't plan on returning to the US, it is better to stick with something that is accurate in the country of residence on the long run.

 

[alexstore06]

@treesd

You can get around that by using a family member's US mailing address or leaving yours US based but doing so is technically illegal

How is this illegal? What specific laws is one breaking by doing so?

 

[zachgreenlee]

@kakka_carrot_cake Research shows having a financial advisor on account adds between 2% and 4% net of fees every year - not bad. More importantly though a good financial advisor should be adding value every quarter to a value of multiples of your 1%.

This could include for example:
- Tax strategies to ensure you’re not paying more to the IRS (or anywhere else) than you need to
- Cash flow modeling - making sure you have the right money in place to live the lifestyle you want both now and in the future
- Estate planning
- Investment management (an ETF is fine but by definition you are just buying the market)
- Protecting the people and things you love should anything bad happen (insurance)

If you’re just looking to accumulate more wealth then you can find a cheap brokerage account and with some very basic knowledge invest into an Exchange Traded Fund (ETF) which buys shares for you in all the companies in the market. If you’re looking to really plan for your future then you should hire a professional- same reason you should hire a lawyer, accountant etc.

 

[alexstore06]

@zachgreenlee

adds between 2% and 4% net of fees every year - not bad

what? that's really bad. To justify even a 2% fee (and many charge more), the advise should consistently beat the market by that amount, and none does.

All the things you've listed are really basics. "insurance" lol.

 

[zachgreenlee]

@alexstore06 “Net of fees”.

That means after the associated fees have been taken into consideration, and it’s an industry average.

You’re balking at paying a 2% adviser fee (a ludicrously high fee in most countries) because it will… give you more money back than you paid in fees on top of the returns you’re getting from your investment? That doesn’t make much sense to me.

Regarding consistent market outperformance by investment managers - this is really just the passive/active debate, and the answer is that you can have both, it’s not binary. A good financial adviser should be putting you in actively managed funds when there is clear market outperformance, and moving entirely to passive when there isn’t the outperformance to justify the fee on those funds. The other thing to consider is asset allocation (geographic, industries etc), most diy investors just dump into an etf which only covers one market.

Insurance may be basic for you, that’s good to hear, but the amount of people I’ve seen with crappy insurance products which won’t provide adequate cover - or just no cover at all - tells me that this is an area people need guidance on. Easy example is the importance of life cover for stay-at-home parents.

 

[alexstore06]

@zachgreenlee Okay, can we see this research which "shows" that?

A good financial adviser should be putting you in actively managed funds when there is clear market outperformance, and moving entirely to passive when there isn’t the outperformance to justify the fee on those funds

This means there are no "good financial advisers" as I haven't even heard of anyone who was able to beat the market by 2%+ constantly.

 

[zachgreenlee]

@alexstore06 Yes, just google something like ‘do financial advisers add alpha’. There are multiple sources, which is the reason for the range I gave. Fidelity is the most often cited as they update regularly, and have multiple geographies studied - but they are not the only source. Interestingly (in my opinion) some of the greatest benefit comes from the behavioral finance element.

Re market outperformance, you’re confusing asset managers with financial advisors. Different job (though there is crossover).

As I said before, this is the active/passive debate, very old news, and is generally an academic nonsense because it assumes that the investor will remain either entirely invested in active funds, or entirely in passive funds. It’s true that over time (usually about 3 years) asset managers will come off the boil and underperform the market for a time, and when that happens the investor can be moved to passive for that portion of their asset allocation. Where there is alpha to be captured it should be.

I like talking to successful DIY investors like yourself as I fundamentally believe that markets and investment should be accessible for all, so if you don’t mind how you make your asset allocation decisions? Or are you just putting everything into the US market? Given you’re an expat, how are you hedging against currency fluctuations?

 

[alexstore06]

@zachgreenlee So you don't have the research, and expecting me to google that?

Are you a financial advisor?

 

[zachgreenlee]

@alexstore06 Yes, it’s very easy.

I am qualified to provide financial advice.

Why are you ignoring my questions?

 

[zachgreenlee]

@alexstore06 What a weird way to reply lol

https://googlethatforyou.com?q=do financial advisors add alpha

At the end of the day you don’t need to pay for financial advice, you do you buddy. You already said you’re happy with not having any alpha which is a bit strange but absolutely fine. Wish you all the best

Edit: was going to offer to put in contact with advisors in your jurisdiction who don’t charge 2% (!?) but I think would be wasted.

 

[alexstore06]

@zachgreenlee So instead of posting the link to actual research which you quoted, you posted "how to google it"? This is the best evidence you don't have any research, and not worth wasting time with.

 

[micah888]

@kakka_carrot_cake I am a US citizen living abroad for 27 years. I have always maintained a US brokerage account using an address of a trusted relative. After having kids abroad (also US citizens, but never lived there), I opened accounts for them at Schwab using the same address of the trusted relative. I have never revealed that I reside abroad to any financial institution in the US. At most, I will say that I am working overseas. I use my Google number as my US phone for all of my US accounts — this costs nothing and works well once you get it configured.

In the first years after moving abroad I made the mistake of opening accounts with several local financial institutions and putting money in local investment products. After discovering what a big mess I had created for US tax and reporting, I closed all of them except one basic checking account for crediting my salary — everything else is in the US or sheltered under my nonresident alien spouse.