Vanguard ETFs vs Admiral shares as US expat

[daylejoy]

I'm a bit confused if I should be looking at Vanguard ETFs or Admiral shares. I'm interested in investing in ETFs and Index Funds, but I was under the impression that mutual funds were a no go for me as an expat. (I have a vanguard brokerage account in the US, with a US mailing address and $35,000 sitting in a settlement fund. I'd ideally like to make regular investments into ETFs with a dollar-cost averaging strategy and let the funds sit and grow over the years. (specifically 80/20 stocks/bonds). I read that if I invest more than $10,000 in a vanguard ETF it will automatically be converted to admiral shares.

Anyone have any experience with this?

Template formatter appears to be broken so doing this manually:

Personal​

Age: 32

Country: Germany

Nationality: USA

Married: Yes

Children: No

Income​

Employment: Salaried

Gross Income: 80000

Tax Rate: 36%

Net Income: 51199

Other Income: 0

Expenses​

Accommodation: 1000

Other Expenses: 1000

Assets​

Cash: 35000

Investments: 0

Real Estate: 0

Car(s): 0

Liabilities​

Mortgage(s): 0

Student Loan: 0

Car Loan(s): 0

Personal Loan(s): 0

Credit Card Debt: 0

 

[sharonleesanders]

@daylejoy you're right that being a US citizen residing in Germany, officially you cannot be sold US-domiciled ETFs or Mutual funds (eg. Vanguard funds you mentioned), and if you buy a non-EU-domiciled fund (say an ETF based in Ireland) then you will be heavily penalised come US tax time.

You still have a US account with Vanguard using your old US address... This means they'll still sell you US-based funds, until they find out you're not actually resident there. Eg. if you ask them to mail your statements to your German address, they may close your account.

If you're comfortable with the risk, go that route.

 

[tootsiepop52]

@sharonleesanders Why can't a us citizen in Germany buy us domiciled ETFs?

 

[sharonleesanders]

@tootsiepop52 The US issuers of ETFs don’t provide enough info to meet EU consumer protection law, specifically the relatively new PRIIP regulations.

Here is a decent article on the topic: https://www.justetf.com/ch/news/etf/us-domiciled-etfs.html

I’ll repeat my warning as well: US citizens should not buy the non US domiciled funds either. This is because we get screwed come tax time because of a rather punitive part of US tax code that, for whatever reason, treats such non-US funds as tax evasion vehicles that are to be suppressed with punitive filing requirements and punitive tax rates.

 

[tootsiepop52]

@sharonleesanders Can you send money back to the US and buy from there? Assuming your broker let's you?

 

[elizabethj0nes]

@daylejoy I pulled up Vanguards largest fund, the Vanguard 500 Index Fund. You can see that there are two shareclasses for this fund (technically three but they have scope out the institutional investor which requires a minimum $5B into another document).

If you look at page 1 (pdf page 3), you can see that Admiral shares offer much lower fees to investors with more invested in the fund. It's effectively the fund passing on some economies of scale to your investment.

I've had this happen with Fidelity funds before where one I put in enough money, I sold out of one call and bought the cheaper one. If Vanguard will do it automatically then even better for you - you don't have to monitor or be aware of this. The downside is if you have to manually do it and didn't know about it.

Why do you think that ETFs are worse for expats than mutual funds? Only the typical differences should apply on whether you should invest via a ETF or mutual fund exist but I'm not aware of anything special for expats. I personally hold both as a US expat. Now my local country (UK) views some funds differently but that is not related to if they are ETF/MFs but that's another issue. Don't know about Germany's tax rules though.

 

[dusseldorf]

@daylejoy I am jealous that you already have a vanguard account. Because of the auto-reinvestment of dividends, I probably would buy VTWAX *if* I had a Vanguard account.

As an American expat without an existing Vanguard account, my only option is to buy ETFs through Interactive Brokers. Because of US law, it's illegal to own financial products in a country other than the US unless you are resident there (so if you move, you have to sell). So realistically, American expats (who don't already have a vanguard acct) can ONLY buy US-Domiciled ETFs. (not mutual funds, not ETFs domiciled elsewhere).

You should be fine to buy the US domiciled mutual fund as you already have the account. Mutual funds are not illegal for expats, they're just impossible.

The best source for US expat-specific investing advice for newbies is Andrew Hallam's book Millionaire Expat. His facebook group is also useful for questions like this.

There's a decent rundown of the situation from a fiduciary financial advisor site: https://thunfinancial.com/home/amer...okerage-accounts-american-expats-closed-2015/

I'm not in Europe, so you may need to look into the tax implications there as well.

As a side note, dollar cost averaging is more expensive than lump sum investing (assuming you have the cash in hand now as you state) because of the opportunity cost and trading fees accrued.

 

[greekorthodox123456]

@dusseldorf Late to the party here but thanks for your comment, it was exactly what I’ve been searching this sub for. I am in a similar situation (US expat without a US Vanguard account) looking to start investing for retirement. The options for buying HMRC-reporting US domiciled ETFs are limited if you don’t have a US account, IB being one of the few who will deal with expats without a US address. Have you been able to find HMRC-reporting ETFs via Interactive Brokers?

EDIT: I think I’ve mistakenly assumed you’re in the UK, so I think my question might have been misdirected. Sorry about that!

 

[tootsiepop52]

@dusseldorf So, American expats living abroad can still buy us domiciled ETFs? Like VTI, etc

 

[sharonleesanders]

@daylejoy If you don’t tell your broker that you reside in Germany, yes. If they discover that you do they may suspend your account or (as in my case with Schwab) restrict your account to prevent you from buying us-domiciled funds.