Asset management vs Indexing

[NN6]

First of all I am aware that in the majority of cases indexing beats any type of active asset management. However, as an American living in Europe it is quite difficult to buy index funds, so I am wondering if investing in asset management stocks is the best way to relatively safe returns for me?

I compared Brookfield Asset Management, Berkshire Hathaway, and the S&P500 on porfoliovisualizer.com and found that over most periods these to asset managements slightly outperformed the S&P500. Any thoughts on making monthly contributions to buying these stocks instead of indexing or regular stock picking? Other asset managements that might be worth considering?

[GilesMM]

What is difficult about buying index funds from anywhere in the world? Open an account online and get going.

[nereo]

What is difficult about buying index funds from anywhere in the world? Open an account online and get going.

Many US-based brokerages will not allow foreign clients from a majority of countries.  As I understand it, it’s part of the complex world of international banking laws.  AS such, it isn’t as simple as “open an account at Vanguard/Shwalb/Fidelity/etc and invest”.  Many, many countries have banking laws which essentially require buying and selling whole shares of companies through a licensed broker (note that this was essentially how things were in teh US up until the late 1990s).  Often buying shares of an ETF carry a hefty commission for the broker, which negates their usefulness to individuals who want to make transactions that are just a few hundred dollars at a time.
It’s easy to overlook just how easy investing has become in the US and forget that most of the world does not have such low-cost and legal access to the markets.

[NN6]

What is difficult about buying index funds from anywhere in the world? Open an account online and get going.

Basically to invest into index funds in Europe they need a KID which US index funds do not provide. Investing in European ETFs is not possible for punitive tax  reasons due to the PFIC regulation.

[habanero]

Can't you as an US citizen hold the funds in an US based account?

I think one of the reasons banks in Europe don't like US clients is due to the worldwide taxation policy the US has. Everywhere when I banking services they ask if I'm a US citizen. No idea what happens if I answer "yes" on that (Im not an US citizen so I don't lie just to make that clear)

[nereo]

Can't you as an US citizen hold the funds in an US based account?

I think one of the reasons banks in Europe don't like US clients is due to the worldwide taxation policy the US has. Everywhere when I banking services they ask if I'm a US citizen. No idea what happens if I answer "yes" on that (Im not an US citizen so I don't lie just to make that clear)

Be very careful how you answer this.  I was a US citizen living abroad for about a decade, and twice I had my US accounts frozen because I did not have (or they could not verify) a valid US mailing residential address and because I failed the "substantial presence test".  I couldn't even make pre-scheduled monthly deposits into my account from my US employer.  If you are living abroad and they know (or find out) that you are living abroad you might lose normal access to your US brokerages.  If you are trying to access the brokerage abroad and are not using a VPN, the website will often block access (which, according to Fidelity, is a first-level fraud protection system).

[GilesMM]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee.

[GilesMM]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee. I had no internet access issues from abroad either, but perhaps they are stricter now.

[nereo]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee.

Exactly. The key aspects are to 1) be a US citizen or permanent resident and 2) maintain a permanent US address.  For those who cannot meet these prerequisites, their investment options into index funds and ETFs may be constrained.

[GilesMM]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee.

Exactly. The key aspects are to 1) be a US citizen or permanent resident and 2) maintain a permanent US address.  For those who cannot meet these prerequisites, their investment options into index funds and ETFs may be constrained.

The OP is an American already, so no issue there. Setting up a mailing address is trivial.

[nereo]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee.

Exactly. The key aspects are to 1) be a US citizen or permanent resident and 2) maintain a permanent US address.  For those who cannot meet these prerequisites, their investment options into index funds and ETFs may be constrained.

The OP is an American already, so no issue there. Setting up a mailing address is trivial.

Yes, but... (#3)

[Telecaster]

I can't comment about buying ETFs from Europe, but the OP's plan looks okay to me.  BRK is very large, very diversified company.  Basically like owning a no-fee mutual fund.  BAM is conservative, focused on making money, not losing money.  I think both of those are good choices.

[vand]

Just because BRK has outperformed the S&P throughout its history doesn't mean it will keep doing so. It will be more and more difficult for them to keep doing so given their size - when you are the 5th or 6th largest "company" in the world the number of other companies that you can invest in that are both large enough and good enough to materially improve your own performance is a very small fraction of the market overall.

In fact, if you measure BRK's alpha it has been declining with each decade, and in the 2010s was negative.

[MustacheAndaHalf]

I believe Interactive Brokers (IBKR) supports international clients, and US expats as well.  That could be one avenue to invest in US-based ETFs and stocks.

Are you aware the US dollar was recently 1:1 with the Euro?  Converting foreign currency into US dollars could become a drag on performance as you convert US dollars back to your local foreign currency.

[PDXTabs]

I lived and worked abroad off and on (mostly on) from 2003 to 2018.  I  maintained my US-based bank and investment accounts and freely moved funds between them.  Also moved funds between US bank and foreign banks, although today that may be easier to do with crypto currency.  I used US addresses for my bank and investment activities.  The only issues I had were sometimes dealing with dreadful foreign banks and their kooky rules and the occasional wire transfer fee.

Exactly. The key aspects are to 1) be a US citizen or permanent resident and 2) maintain a permanent US address.  For those who cannot meet these prerequisites, their investment options into index funds and ETFs may be constrained.

The OP is an American already, so no issue there. Setting up a mailing address is trivial.

Yes, but... (#3)

I'm not sure that it is criminal to lie to your bank about where you live if you aren't committing fraud and you make sure to pay all of your taxes.

But yes, AFAIK US citizens in the EU are now in a world of hurt between UCITS, PRIIPS, and KID on the EU side and FATCA and PFIC taxation on the US side. Also, FATCA reporting is so onerous that plenty of brokerages just won't touch you if they find out your are a US citizen, even in non-EU countries.

I don't even think that a Schwab International or Interactive Brokers account can get you around this at this point, unless you lie and tell them that you live in some non-EU country. Unless perhaps you can get certified as a "professional" which would usually require half a million euros AFAIK.

EDITed to add: and I'm not sure that there is anything Vanguard could even do to make a US domiciled PRIIPS+KID compliant ETF as I'm pretty sure that UCITS requires that the fund be domiciled in the EU which makes it a PFIC.

[GilesMM]

I'm not sure that it is criminal to lie to your bank about where you live if you aren't committing fraud and you make sure to pay all of your taxes.

...

Many banks no longer require a mailing address to open an account online (e.g. https://www.usbank.com/bank-accounts/checking-accounts/what-you-need-to-open-a-checking-account.html. Vanguard will allow you to open an account as long as you have a US mailing address (no requirement to live there).  They also offer international accounts for some countries (but not Norway) if for some strange reason one was unable/unwilling to arrange a US mailing address.

[NN6]

Thanks for the feedback! I kind of made my peace with not buying index funds because I do not have a mailing address in the US and want as little administrational and legal trouble as possible. So my main quesion is, are the suggested asset managements suitable alternatives? It seems some of you agree it is not a terrible choice (due to good diversification) but I maybe shouldn't expect to beat the market.

[habanero]

Thanks for the feedback! I kind of made my peace with not buying index funds because I do not have a mailing address in the US and want as little administrational and legal trouble as possible. So my main quesion is, are the suggested asset managements suitable alternatives? It seems some of you agree it is not a terrible choice (due to good diversification) but I maybe shouldn't expect to beat the market.

Don't know how much you have to invest, but you can also replicate the index pretty well by buying a basket of shares, you need 46 individual names to capture half the S&P 500 index weights. The correlation of this basket to the index is likely to be very high, the downside is that over time you are likely to own today's winners rather than tomorrow's. I've never really looked into it myself, but there are probably resources out there on how to obtain the maxium correlation to the index with the minimum number of names you own.

[LightStache]

Thanks for the feedback! I kind of made my peace with not buying index funds because I do not have a mailing address in the US and want as little administrational and legal trouble as possible. So my main quesion is, are the suggested asset managements suitable alternatives? It seems some of you agree it is not a terrible choice (due to good diversification) but I maybe shouldn't expect to beat the market.

Don't know how much you have to invest, but you can also replicate the index pretty well by buying a basket of shares, you need 46 individual names to capture half the S&P 500 index weights. The correlation of this basket to the index is likely to be very high, the downside is that over time you are likely to own today's winners rather than tomorrow's. I've never really looked into it myself, but there are probably resources out there on how to obtain the maxium correlation to the index with the minimum number of names you own.

When I was overseas I kept my U.S. brokerages and eventually opened up a digital mailbox as others have suggested, but my primary reason for doing that wasn't related to banking. I moved back to the U.S. six years ago and kept it because it's so useful for $15/mo.

But if you're resistant to that solution I'd do something similar to what @NN6 recommends, except I'd just invest 5% in 20 companies to keep it a little simpler. BRK has a 60 TTM PE right now?!? Seems like quite the name brand premium. Sure go ahead and throw 5% of your investment portfolio at it, but don't bet the house.

[Malossi792]

One might consider direct indexing at a brokerage that allows buying fractions of shares, but it's not set-and-forget at all.

[GilesMM]

When I was overseas I kept my U.S. brokerages and eventually opened up a digital mailbox as others have suggested, but my primary reason for doing that wasn't related to banking. I moved back to the U.S. six years ago and kept it because it's so useful for $15/mo.
...

Friends, neighbors, relatives, co-workers, even employers will let you share a mailing address.  There are also mail services that will forward the paper for you or digitize it and email it.  RV nomads use these as they have no permanent address. E.g. https://www.crazyegg.com/blog/best-virtual-mailbox/

[Telecaster]

Thanks for the feedback! I kind of made my peace with not buying index funds because I do not have a mailing address in the US and want as little administrational and legal trouble as possible. So my main quesion is, are the suggested asset managements suitable alternatives? It seems some of you agree it is not a terrible choice (due to good diversification) but I maybe shouldn't expect to beat the market.

I think they are.  You may or may not beat the market.  You won't know for years.   But those choices are reasonably safe and unlikely to underperform by any significant amount.   If your goal is simplicity I think it is a good way to go. 

[index]

I would diversify a lot more than BAM or BRK.B if you cannot buy the funds. If I had to make my own index with as little trading fees as possible, I would buy:

45% BRK.B - financials, transportation, energy, tech
15% BAM - utilities and real estate
10% UNH - healthcare
10% MMM - industrial
10% PG - consumer staple
10% HD - consumer discretionary