Author Topic: Investment options for US citizen living abroad  (Read 10790 times)

wolfgang

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Investment options for US citizen living abroad
« on: March 30, 2016, 02:11:36 AM »
This question on Investment is a bit complicated – but maybe not.  Basically, I’d like to follow MMM’s recommendation on Investing: Vanguard, Betterment, Lending Club.  Here’s the conundrum. I am a U.S. citizen living abroad (and intend to remain abroad). 
But, I do possess all but one of the Vanguard investment requirements:
US bank account,
Social Security number,
have a US driver’s license,
pay US Federal taxes every year,
vote in Federal elections and
travel to the US frequently.

What I don’t have is a “legal residence” in the US as I neither own nor rent a home in the US.  With all of the above US citizenship requirements met - there should be a work around on the matter of “legal residence”?  If YES, I would be extremely pleased to hear about it.  If definitely NO, then its one less thing I have to worry about.
Thanks, and looking forward to the advice !

josstache

  • 5 O'Clock Shadow
  • *
  • Posts: 99
Re: Investment options for US citizen living abroad
« Reply #1 on: March 30, 2016, 05:10:56 AM »
You will need to put a US address in on the application form, and the application process might require you to have a US IP address (I know Schwab does this). 

If you cannot overcome those hurdles, I would try Interactive Brokers.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1900
Re: Investment options for US citizen living abroad
« Reply #2 on: March 30, 2016, 06:36:48 AM »
Correction: might require your connection to come from a US IP address.  You can signup with a virtual private network (VPN) to make your connection come from a US I.P. address.  As a side benefit, VPNs provide additional security - you can connect over a public wifi, and your VPN connection is encrypted.  Most VPNs cost $5-$10 / month, and some are free.

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3294
  • Location: The Other Side
Re: Investment options for US citizen living abroad
« Reply #3 on: March 30, 2016, 07:00:50 AM »
Vanguard is least friendly to US expats.  They've been known to freeze people's accounts if they find out you live abroad.  Fidelity is more forgiving from what I understand (they do not let you buy mutual funds but you can own/sell what you've bought previously and can buy/sell ETFs).  Schwab apparently is most friendly to expats.

This thread is quite informative: https://www.bogleheads.org/forum/viewtopic.php?f=1&t=185560

dmoldenk

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Investment options for US citizen living abroad
« Reply #4 on: August 20, 2017, 06:43:41 AM »
I live in the UAE and I managed to start an account with Betterment.  Don't know if they'll boot me like others have experienced with Schwab, Fidelity, etc.....     Andrew Hallam (a very Mustachian expat personal finance guy) suggests using Interactive Brokers:
https://andrewhallam.com/2016/09/interactive-brokers-allows-u-s-expats-to-invest-with-index-funds/

farfromfire

  • Stubble
  • **
  • Posts: 230
Re: Investment options for US citizen living abroad
« Reply #5 on: August 20, 2017, 01:41:07 PM »
I'm in the same boat and have used both TD Ameritrade and Interactive Brokers. I prefer TDA.

Bryan_in_Ger

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Investment options for US citizen living abroad
« Reply #6 on: August 21, 2017, 04:40:58 AM »
I was in the same boat and went with Schwab; US citizens living abroad can open an account with them as an international customer.  This is my first brokerage account with any company and I just opened the account in January of this year (so take this with a grain of salt), but so far things have gone smoothly.  Opening the account was easy, they offer accounts for several currencies/regions for customers to transfer money into the brokerage account, everything can be taken care of online (after initially opening the account).

I'm anxious to see how things work out with filing taxes (US and Germany for me), but I should just get 1099 forms from them to plug into the appropriate places on my tax forms.

I would have opened an account with Vanguard, but they (like most US-based companies) do not take on investors from outside of the US.  And I didn't want to get into trouble by lying on the application forms (I could have used my parents' address, but you need to list your employer and I feared that would have eventually raised a red flag).

I wish you the best of luck opening your account, be it at IB, Schwab, or wherever!

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1160
Re: Investment options for US citizen living abroad
« Reply #7 on: August 21, 2017, 09:36:08 AM »
If opening a Vanguard account is not practical, using a US-based brokerage is not a requirement for investing in the MMM way.  The most important concept is investing in low-cost index funds, and those can be purchased in virtually any brokerage account.  Also, if you plan to remain overseas there's a very good argument to be made for investing a decent amount in funds denominated in your home currency, and there will be many more options for that if you open an account in the country where you live.  If I lived outside the US, I'd personally look at local brokerage options before jumping through too many international hoops.

neonlight

  • Stubble
  • **
  • Posts: 196
Re: Investment options for US citizen living abroad
« Reply #8 on: August 21, 2017, 09:51:29 AM »
This question on Investment is a bit complicated – but maybe not.  Basically, I’d like to follow MMM’s recommendation on Investing: Vanguard, Betterment, Lending Club.  Here’s the conundrum. I am a U.S. citizen living abroad (and intend to remain abroad). 
But, I do possess all but one of the Vanguard investment requirements:
US bank account,
Social Security number,
have a US driver’s license,
pay US Federal taxes every year,
vote in Federal elections and
travel to the US frequently.

What I don’t have is a “legal residence” in the US as I neither own nor rent a home in the US.  With all of the above US citizenship requirements met - there should be a work around on the matter of “legal residence”?  If YES, I would be extremely pleased to hear about it.  If definitely NO, then its one less thing I have to worry about.
Thanks, and looking forward to the advice !

Maybe you can share with us where you are residing. There are different funds managed by different countries that operates similarly to Vanguard: REITS, index funds, etc. Many buy into US market too.

Novik

  • Pencil Stache
  • ****
  • Posts: 872
  • Age: 25
  • Location: Ottawa, ON, Canada
Re: Investment options for US citizen living abroad
« Reply #9 on: August 21, 2017, 11:16:07 AM »
If I lived outside the US, I'd personally look at local brokerage options before jumping through too many international hoops.

That would be your first mistake. All financial activity abroad by US citizens is basically considered suspect, so investing in local funds can bring the IRS down on you to the tune of tens of thousands in fines. Not to mention you have to report all "foreign" bank accounts to the Office of Financial Crimes.

OP and anyone else reading this thread in a similar boat, please do some research about FATCA, PFICs, and your local country's tax treaty with the US, before investing locally.

The tax treaty may allow you to invest in whatever you want in your countries retirement account (ie. my Canadian RRSP) but outside of those purchasing any non-US ETF entails potentially complex taxation/reporting issues. Purchasing US-listed ETFs locally may be a solution but adds costs/taxes/withholding.

As someone who's gone fairly deep into the weeds, here's my quick recommendation:
  • If your local retirement account(s) are black boxes to the IRS, max those out and invest in whatever you want (probably local funds)
  • Open an Interactive Brockers account to invest in US listed ETFs (can be ETFs of international stocks, bonds etc)
You can go further (local taxable accounts with stocks or maybe ETFs if you handle the PFIC paperwork right), but the above is a nice safe way to start.

SunshineAZ

  • Stubble
  • **
  • Posts: 200
  • Location: SE Arizona
Re: Investment options for US citizen living abroad
« Reply #10 on: August 21, 2017, 11:36:54 AM »
How did I not know this???  OP, thank you for bringing up this issue, I had no idea this could be a problem.  Our plan is to retire to our house in Honduras for several years with the possibility of moving back to the states if/when we are older and/or need more substantial medical care.  Approximately 80% of our assets are in Vanguard and I had no idea that there were any possible issues with keeping our money there while we lived in Honduras.  This is a huge potential problem for us.  I may need to start my own thread, as I am completely clueless about this issue.

Novik

  • Pencil Stache
  • ****
  • Posts: 872
  • Age: 25
  • Location: Ottawa, ON, Canada
Re: Investment options for US citizen living abroad
« Reply #11 on: August 21, 2017, 11:42:00 AM »
How did I not know this???  OP, thank you for bringing up this issue, I had no idea this could be a problem.  Our plan is to retire to our house in Honduras for several years with the possibility of moving back to the states if/when we are older and/or need more substantial medical care.  Approximately 80% of our assets are in Vanguard and I had no idea that there were any possible issues with keeping our money there while we lived in Honduras.  This is a huge potential problem for us.  I may need to start my own thread, as I am completely clueless about this issue.


SunshineAZ, absolutely do start researching. But the good news is that "actual expats" (aka people who lived most of their lives in the US and opened accounts while living there), especially those no longer working/investing once moving outside the US, have far more options and far fewer issues than those who are children of "actual expats"  (never lived in the US, but have citizenship). And you do have time.

SunshineAZ

  • Stubble
  • **
  • Posts: 200
  • Location: SE Arizona
Re: Investment options for US citizen living abroad
« Reply #12 on: August 21, 2017, 12:00:46 PM »
How did I not know this???  OP, thank you for bringing up this issue, I had no idea this could be a problem.  Our plan is to retire to our house in Honduras for several years with the possibility of moving back to the states if/when we are older and/or need more substantial medical care.  Approximately 80% of our assets are in Vanguard and I had no idea that there were any possible issues with keeping our money there while we lived in Honduras.  This is a huge potential problem for us.  I may need to start my own thread, as I am completely clueless about this issue.


SunshineAZ, absolutely do start researching. But the good news is that "actual expats" (aka people who lived most of their lives in the US and opened accounts while living there), especially those no longer working/investing once moving outside the US, have far more options and far fewer issues than those who are children of "actual expats"  (never lived in the US, but have citizenship). And you do have time.

Thanks for the optimistic viewpoint.  LOL I guess I need to do some research.  I think I will start with the people I know who are currently living in Honduras and the ones here who have done what we are planning to do.  And we don't actually have that much time as our tentative date is October 2019, but that is assuming we don't have any financial or employment issues between now and then.

Novik

  • Pencil Stache
  • ****
  • Posts: 872
  • Age: 25
  • Location: Ottawa, ON, Canada
Re: Investment options for US citizen living abroad
« Reply #13 on: August 21, 2017, 12:01:14 PM »
How did I not know this???  OP, thank you for bringing up this issue, I had no idea this could be a problem.  Our plan is to retire to our house in Honduras for several years with the possibility of moving back to the states if/when we are older and/or need more substantial medical care.  Approximately 80% of our assets are in Vanguard and I had no idea that there were any possible issues with keeping our money there while we lived in Honduras.  This is a huge potential problem for us.  I may need to start my own thread, as I am completely clueless about this issue.


SunshineAZ, absolutely do start researching. But the good news is that "actual expats" (aka people who lived most of their lives in the US and opened accounts while living there), especially those no longer working/investing once moving outside the US, have far more options and far fewer issues than those who are children of "actual expats"  (never lived in the US, but have citizenship). And you do have time.

Thanks for the optimistic viewpoint.  LOL I guess I need to do some research.  I think I will start with the people I know who are currently living in Honduras and the ones here who have done what we are planning to do.  And we don't actually have that much time as our tentative date is October 2019, but that is assuming we don't have any financial or employment issues between now and then.

Congrats then on being so close :)

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1160
Re: Investment options for US citizen living abroad
« Reply #14 on: August 21, 2017, 04:02:25 PM »
If I lived outside the US, I'd personally look at local brokerage options before jumping through too many international hoops.

That would be your first mistake. All financial activity abroad by US citizens is basically considered suspect, so investing in local funds can bring the IRS down on you to the tune of tens of thousands in fines. Not to mention you have to report all "foreign" bank accounts to the Office of Financial Crimes.

OP and anyone else reading this thread in a similar boat, please do some research about FATCA, PFICs, and your local country's tax treaty with the US, before investing locally.

Fair enough.  Clearly you have some experience with this.  Thanks for the info!