Author Topic: investing into Vanguard's index funds from outside the US ?  (Read 13549 times)

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
investing into Vanguard's index funds from outside the US ?
« on: January 19, 2017, 05:58:02 AM »
Greetings,

after doing some reading and research I decided to invest into index funds, namely the ones Vanguard offers (VTSMX)...

Now the problem is, as a non-US resident, there's no way for me to create an account if I am not mistaken.

I am 22 and new to investing and don't have a good overview of all the possibilities... therefore a specific question on you more experienced guys:

Is there a way for me to invest into Vanguard index funds through an Europe-based broker ?

Also, I've seen specifically for the VTSMX there's a a minimum of $3000 initial investment - what I am after is having a set sum of money deducted from my bank account on a monthly basis. (100 euro let's say). Would this be possible ?

Thanks a lot.

I am happy to provide any further details / info if necessary.

nereo

  • Senior Mustachian
  • ********
  • Posts: 11573
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: investing into Vanguard's index funds from outside the US ?
« Reply #1 on: January 19, 2017, 06:37:32 AM »
As you've realized, you cannot use Vanguard as your broker if you are not a US citizen or residing in the US.  I believe this is because of international laws.  Vanguard has other offices in a variety of countries, but unless you are in one of those countries you will be out of luck, too.

BUT... you really don't need to invest with Vanguard at all.  The fund you mentioned (VTSMX) is simply a US total market index fund. There are literally dozens of other brokerages that will offer this same fund in-house.  You can also purchase shares of total-market index funds as an ETF (electronically traded fund). THe only key is to make sure that whatever you use has a low annual fee (it should be < 0.5%, and preferably < 0.2%). Vanguard is the most popular choice around here because they have the lowest fees of anyone (except the US Government, but basically only military can invest there). 

Yes, it would be possible to have 100 euro deducted from your bank account monthly and invested - but this is all dependent on your broker.

What country are you in?

jinga nation

  • Handlebar Stache
  • *****
  • Posts: 1351
  • Location: 'Murica's Johnson
  • Left, Right, Peddlin' Shite
Re: investing into Vanguard's index funds from outside the US ?
« Reply #2 on: January 19, 2017, 06:55:27 AM »
McCloud, where do you live?

If UK, see this: http://monevator.com/compare-uk-cheapest-online-brokers/

And here are some lazy sample portfolios: http://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: investing into Vanguard's index funds from outside the US ?
« Reply #3 on: January 19, 2017, 08:56:58 AM »
You could invest in US-listed Vanguard ETFS, which are a share class of the index funds Vanguard offers to US-based investors. If you're interested in VTSMX, try VTI. It's the ETF that corresponds to VTSMX: https://personal.vanguard.com/us/funds/snapshot?FundId=0970&FundIntExt=INT

Two important things to note:

- This isn't viable for investors from some countries for tax reasons. Be sure you're not getting hit with taxes in the US and your home country. If you live in the EU, look into the Vanguard ETFs that are domiciled in Ireland. Their tax treatment may be more favourable for you.
- Don't invest in just the US. Diversification is the only free lunch you're likely to get, so invest globally. Look into VTI's international sibling: Vanguard Total International Stock Market ETF (VXUS: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=3369) or a one-stop international fund like Vanguard Total World Stock ETF (VT: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=3141) or its Irish cousin Vanguard FTSE All-World UCITS ETF (VWRL: https://www.vanguard.nl/portal/site/loadPDF?country=nl&docId=6016).

In principle you can't buy ETF shares for a fixed sum each month, but as nereo said some brokers do allow you to do just that with ETFs.

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #4 on: January 20, 2017, 02:37:11 AM »
beautiful, thanks guys.

I've done further reading on this topic in the meantime and came to the exact conclusion - that ETFs through an EU broker would be my best choice.
But you've provided even more precise info, which is very useful to me.

So basically, there's no way to invest directly into index funds from within EU, right ?

"if you were looking at a holding period of one year, you would be required to hold over $60,000 of an ETF for the management fee and taxation savings to offset the transaction costs. With a longer-term time horizon of 10 years, the break-even point would be lowered to $13,000. However, both these limits are usually out of range for the average retail investor... given the comparison of costs, the average passive retail investor will decide to go with index funds. For these investors, keeping it simple can be the best policy."

which is kind of scary... luckily, I've found a broker which apparently has no transaction fees on buying ETFs.. www.degiro.eu/
I'll do some more research and will most likely go with that.

I live in Germany.

What do you guys think about diversifying the ETFs into
1. US total stock market index
2. international total stock market
3. US total bond market index

Also, my next step, after deciding which broker to go with and what ETFs to buy would be to look into taxes and dividends (not that they would be related, just mentioning them in one sentence).. if I understand correctly, most EU based ETFs hold the dividends and pay them out quarterly... as ETFs are traded like stocks, there's no way for me to re-invest these dividends immediately, unless I sell my current ETF and buy a new one - so basically I can't take advantage of compound interest.. or am I just thinking completely wrong about this ?


 




Heckler

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: investing into Vanguard's index funds from outside the US ?
« Reply #5 on: January 20, 2017, 08:17:10 AM »
Most etfs pay quarterly dividends.  Brokers may allow you to automatically reinvest the dividend, others will pay your account cash you need to reinvest yourself. 

The compound interest effect still applies once you buy more with your cash dividends.  Think long term.

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: investing into Vanguard's index funds from outside the US ?
« Reply #6 on: January 20, 2017, 01:04:46 PM »
So basically, there's no way to invest directly into index funds from within EU, right ?

Not in the index funds Vanguard offers to its US-based clients, but there are alternatives. It shouldn't be hard to find a German bank through which you can buy the institutional share class of an index fund, be it an index fund from Vanguard or another company. Of course, this may not be as economical as buying ETF shares through a discount broker, because the bank will probably charge you a fixed percentage of the value of your shareholding.

Another alternative, and one that is particularly popular among Dutch mustachians, is Meesman. It's a company that acts as an intermediary between private investors and index fund providers like Vanguard and Northern Trust. You can authorise them to debit your bank account for a fixed sum each month so you can just set it and forget it. They're even open to investors outside the Netherlands... It's just that their website is only available in Dutch. Less than ideal if you only speak German, but perhaps your Dutch is better than my German. :-)

which is kind of scary... luckily, I've found a broker which apparently has no transaction fees on buying ETFs.. www.degiro.eu/
I'll do some more research and will most likely go with that.

I have an account with DeGiro and there are a few important caveats:

- Transactions in only some ETFs are free - check the list to find out which ones.
- If you're buying ETF shares on a US stock exchange, euro->dollar currency conversion will still cost you some money.
- There is a fixed annual 'connection fee' for investors with securities that are listed on certain exchanges.
- DeGiro will either lend your securities to third parties (fully at your risk!) to generate money, or (if you choose to have a 'custody account') it will take a certain percentage of any dividends you receive.

I'm not saying DeGiro is necessarily a bad choice. Just read the fine print very very carefully and know what you're getting yourself into.

What do you guys think about diversifying the ETFs into
1. US total stock market index
2. international total stock market
3. US total bond market index

Fine for a US-based investor, but if I were you I'd want some or even all of my bond exposure to be either euro-denominated or currency hedged. How about something like Vanguard EUR Eurozone Government Bond UCITS ET or iShares Core Ä Govt Bond UCITS ETF or even Think iBoxx Government Bond UCITS ETF? Don't dismiss that last one out of hand, by the way. It's the only one of the three that doesn't engage in securities lending, which I personally consider a pretty big advantage.

Lastly, consider whether a regular old savings account might be a better alternative for a bond ETF, at least for now. The yield on investment-grade euro government bonds is pretty low at the moment, so a savings account could potentially be the better choice for now.

Also, my next step, after deciding which broker to go with and what ETFs to buy would be to look into taxes and dividends (not that they would be related, just mentioning them in one sentence).. if I understand correctly, most EU based ETFs hold the dividends and pay them out quarterly... as ETFs are traded like stocks, there's no way for me to re-invest these dividends immediately, unless I sell my current ETF and buy a new one - so basically I can't take advantage of compound interest.. or am I just thinking completely wrong about this ?

Further to Heckler's answer, it's my understanding that ETFs and index funds typically use derivatives to prevent dividends received by the fund sitting idle until the fund's next dividend date. The returns generated with these derivatives are equivalent to what would have been earned by reinvesting the dividends within the fund.

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #7 on: January 24, 2017, 08:32:52 AM »
thanks! and sorry for the late answer, was discussing this with a friend of mine as well..

So basically, the main take-away points would be:
- invest in EURO in a total (international) market ETF
- don't invest in mutual funds for the moment (I checked this and it makes sense.. )


When checking the free ETFs on Degiro I've found the same fund in EU and USD.. I am guessing the only difference would be, than with USD funds, I buy them in EURO through the broker and then they transfer that into USD based on the mid-market exchange rate ?

US9229083632 VANGUARD S&P 500 ETF USD NYSE Arca
IE00B3XXRP09 VANGUARD S&P500 EUR Euronext Amsterdam

Also, everywhere I keep seeing how another recession is coming soon.. I know this is speculation.. but would this somehow affect my returns ?
What I could do right now is set everything up and buy one ETF for a small price.. just to test everything.. and wait what happens with the market during 2017. And in case the market drops drastically, buy big then ?

daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: investing into Vanguard's index funds from outside the US ?
« Reply #8 on: January 24, 2017, 04:33:47 PM »
There are Vanguard ETFs in Euros and Pounds. As well as iShares, DB, HSBC, etc.

Don't convert to USD. No need. There are ETFs listed on various stock exchanges in the 'right' local currency. Some are wrappers, but that's not a huge issue.

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #9 on: February 06, 2017, 08:07:36 AM »
Hi guys,

finally getting ready to invest, opened an account at Degiro - I can buy most ETFs in euro, free of charge.

I was now doing some research on the specific ETFs I want to invest in and found something interesting..

I can buy the S&P 500 via
Vanguard:
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHG

or iShares:
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000SM06

In what way are they different ? I read all the time that Vanguard is the king..

Also, the one on morningstar is CSP1, but directly on the iShares website it's CSPX.
https://www.ishares.com/uk/individual/en/products/253743/CSPX

So I assume they are not completely identical.. but I didn't find the CSP1 on iShares.


Where do I check the TER in Morningstar ? I only see the ongoing charge... but if I understand correctly, this is more important to me, as it represents the total costs, right ?

How do I actually pay the fees ? Are they deducted from the dividends ?

Where do I see how the ETF pays dividends ? I need to make sure it's re-invested, instead of being cashed out..


I know it's quite a few questions, but all quite simple (for you) I guess..

Thanks for help!


daverobev

  • Magnum Stache
  • ******
  • Posts: 3443
  • Location: France
Re: investing into Vanguard's index funds from outside the US ?
« Reply #10 on: February 06, 2017, 08:30:25 AM »
The iShares links share the same ISIN so they are the same fund. http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000SM09

Vanguard is a 'nicer' company. If both ETFs track the same index (ie, the S&P500), they will do virtually the same, pick either.

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: investing into Vanguard's index funds from outside the US ?
« Reply #11 on: February 08, 2017, 10:59:40 AM »
Where do I check the TER in Morningstar ? I only see the ongoing charge... but if I understand correctly, this is more important to me, as it represents the total costs, right ?

Unless I'm very much mistaken, the Total Expense Ratio was renamed to Ongoing Charges Figure fairly recently. They show the same thing: the costs you pay to the fund as a percentage of the value of your investment.

How do I actually pay the fees ? Are they deducted from the dividends ?

That depends on the fee in question.
Ongoing Charges Figure: automatically deducted by the fund from the value of your investment
Exchange connection fee: automatically deducted by DeGiro from the cash part of your account
Dividend processing fee: automatically deducted by DeGiro from any dividends paid out to you

Where do I see how the ETF pays dividends ? I need to make sure it's re-invested, instead of being cashed out..

You can look it up the key investor information document for the fund in question on the fun manager's website. If I recall correctly, Vanguard's S&P500 ETF pays a quarterly dividend that you will have to reinvest manually.

Kalergie

  • Stubble
  • **
  • Posts: 218
  • Location: European expat living almost everywhere
Re: investing into Vanguard's index funds from outside the US ?
« Reply #12 on: February 08, 2017, 01:17:44 PM »
Make sure the funds/etf are listed in the Bundesanzeiger. This is where the fund provider shows how much dividends a fund has earned for your tax reporting. If a fund you own, such as any US domiciled one, is not mentioned in the Bundesanzeiger, the lovely Finanzamt will have trouble knowing how much income you earned.

https://www.bundesanzeiger.de/ebanzwww/wexsservlet?genericsearch_param.fulltext=DE0005561674&genericsearch_param.part_id=7&(page.navid%3Dquicksearchdetailtoquicksearchnew)=Neue+Suche+starten&genericsearch_param.hitsperpage=20

Also for German investing tips i like this website: http://www.finanzwesir.com/
« Last Edit: February 08, 2017, 01:21:56 PM by Kalergie »

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #13 on: February 09, 2017, 04:36:10 AM »
thank you! Again, I couldn't wish for better answers.

@Mr FrugalNL

unfortunately, I wasn't able to find anything divident related in the KIID
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000SM09&tab=14&DocumentId=84f0b514c5d1d6af36b2145c9c9278a0&Format=PDF

if that's what you mean.

@Kalergie - my mistake.. although I live in Germany,  I'd be investing as a Slovak citizen.. I'll try to edit my previous post.
Meaning, I am not concerned with German law in any way. In Slovakia, currently if the dividends are not payed out, but reinvested automatically, I don't pay any taxes - and dont even need to do a yearly tax declaration. Therefore it's important to me to pick a fund that doesn't pay out the dividends.

Kalergie

  • Stubble
  • **
  • Posts: 218
  • Location: European expat living almost everywhere
Re: investing into Vanguard's index funds from outside the US ?
« Reply #14 on: February 09, 2017, 07:06:52 AM »
Cool. Unlike some other European countries, Germany is really not incentivizing investing in the market. It's all about work your entire life, buy a house and make babies. :D
I like the Slovakia model. Pretty cool! What's the cap gain tax rate there?


McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #15 on: February 13, 2017, 02:49:09 AM »
hm, not completely sure. I am guessing 20%.

JourneyAnt

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: investing into Vanguard's index funds from outside the US ?
« Reply #16 on: February 13, 2017, 05:09:36 PM »

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: investing into Vanguard's index funds from outside the US ?
« Reply #17 on: February 15, 2017, 10:43:07 AM »
thank you! Again, I couldn't wish for better answers.

@Mr FrugalNL

unfortunately, I wasn't able to find anything divident related in the KIID
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000SM09&tab=14&DocumentId=84f0b514c5d1d6af36b2145c9c9278a0&Format=PDF

if that's what you mean.

You're welcome. My bad on the KIID. It's the factsheet you need for this information.

http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000SM09&tab=14&DocumentId=cf2b09cc62cd19a2053ec16cda52eeb1&Format=PDF

As you can see, it says 'Use of income: Accumulating', so this particular ETF reinvests the dividends for you. If it had read 'Income', that would've told you that the dividends are paid out to you.

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #18 on: February 17, 2017, 05:10:33 AM »
thank you.

Would the "Distribution Type" under Key facts be what I am looking for ?

But in that case, I am not sure what the "none" stands for..


Also, in the Annual report I've found this:

f) Distributions
The shares in the Funds are accumulating and, therefore, it is not
intended to distribute dividends to the shareholders. The income and
other profits will be accumulated and reinvested on behalf of
shareholders. Dividends, if paid on the shares of the Funds, may be
paid out of the total income of the relevant Fund net of its expenses.
Full details of any change to a Fundís dividend policy will be provided
in an updated prospectus or supplement and all shareholders will be
notified in advance.
As of 31 July 2015, all of the Funds have adopted UK Reporting Fund
Status.



but I don't think this information is specific to the one fund.

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: investing into Vanguard's index funds from outside the US ?
« Reply #19 on: February 18, 2017, 01:26:18 AM »
If the ETF's 'Use of income' was 'Income', then 'Distribution type' would probably be 'Dividend'. Since this is an accumulating ETF (which, by definition, does not distribute anything) it's distribution type is 'None'. It could equally well have said 'Not applicable'.

I'm not sure what the point of stating the distribution type is, but I suspect there may be other types of distribution than dividend which are identical in all but name and tax treatment (in some jurisdictions, that is). Don't quote me on that though.

I agree that the information in the annual report is not specific to this one fund.

I'd not get too hung up on a fund's use of income.* If you want a regular income stream from your accumulating fund then you can periodically sell a few shares. The net result is the same as if the fund had paid out a dividend.

EDIT: *Unless it matters for tax purposes in Germany.

McCloud

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: investing into Vanguard's index funds from outside the US ?
« Reply #20 on: February 23, 2017, 03:39:49 AM »
EDIT: *Unless it matters for tax purposes in Germany.

exactly this :)
if the fund doesn't pay out the dividends (but reinvests) I don't pay taxes. If it does, I do.