Author Topic: Should I diversify from Vanguard?  (Read 6230 times)

fefito

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Should I diversify from Vanguard?
« on: May 21, 2016, 08:31:45 AM »
Hello,

I live in Europe (Spain) and recently started following mmm advise, hence investing in ETFs, specifically in VTI.  I know have 70% of my net worth invested VTI.  The question is, does it makes sense from a diversification point of view to start investing in a similar ETF like for example iShares Core S&P 500, which has similar expense ratios?   Another thing to consider is that investing in the iShares ETF would imply opening an account with another broker  and a recurring fee of 11 eur per month.

I understand the two ETFs are not exactly the same but the whole point here is not to have almost all my net worth in only one ETF.  Does this makes sense or am I being too paranoid?

Thanks for the advise!

Federico   

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Should I diversify from Vanguard?
« Reply #1 on: May 21, 2016, 08:54:28 AM »
There's no need to. You aren't diversifying anything if the ETFs own the same underlying stocks. What are you worried about? Vanguard doesn't even hold the ETFs you own--they are held by your broker. And the underlying stocks in the ETF are held for Vanguard by their brokers (huge banks like JP Morgan Chase) and registered by the various stock exchanges. If something big enough happened to make it a problem for Vanguard, the iShares would be affected too (as well as life for people not invested in the market at all).

zz_marcello

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: Should I diversify from Vanguard?
« Reply #2 on: May 21, 2016, 09:40:46 AM »
Hola!
Besides diversification, if you are taxable in Europe I would invest in the (Irish) European version of the US Vanguard VTI with name VUSA or VUSD.
The topics for you are general taxation and the US estate tax for non-US citizens.
https://global.vanguard.com/portal/site/loadPDF?country=lu&docId=2108

If you don't have additional costs a second ETF from another issuer is not hurting.
If you have a minimum of $100k to invest you can open a completely free Interactive Brokers account from nearly anywhere in the world without any monthly fees.

fefito

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Should I diversify from Vanguard?
« Reply #3 on: May 21, 2016, 09:58:05 AM »
@forumm, I understand that the underlying stocks are the same, my point was if it made sense to invest in another ETF from another issuer in case something happened that could affect only Vanguard (fraud(?)).  I know this is highly improbable but nevertheless wanted to get 2nd opinions.
 
@zz_marcello, thanks! I'll check if VUSA is available through my broker, ETFs options tend to be limited in Spain.  I heard about Interactive Broker as a good option in terms of cost, although I also heard their customer service is pretty bad.  Are you investing through them?

Thanks

zz_marcello

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Re: Should I diversify from Vanguard?
« Reply #4 on: May 21, 2016, 10:21:31 AM »
Most of Europe is an investing/trading desert.
When I was living in Germany Interactivebrokers was the only serious possibility to invest world wide in nearly everything with very low cost.
If you are someone that needs to call your brokers every week then its probably not for you.
If you just want to invest and use an online platform, then I don't now something better in Europe.

Since Im living in the US I use Vanguard USA for their ETF's and Interactivebrokers for everything else.

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Should I diversify from Vanguard?
« Reply #5 on: May 21, 2016, 12:10:11 PM »
@forumm, I understand that the underlying stocks are the same, my point was if it made sense to invest in another ETF from another issuer in case something happened that could affect only Vanguard (fraud(?)).  I know this is highly improbable but nevertheless wanted to get 2nd opinions.
 
@zz_marcello, thanks! I'll check if VUSA is available through my broker, ETFs options tend to be limited in Spain.  I heard about Interactive Broker as a good option in terms of cost, although I also heard their customer service is pretty bad.  Are you investing through them?

Thanks


http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1812
  • One Does Not Simply Work Into Mordor
Re: Should I diversify from Vanguard?
« Reply #6 on: May 21, 2016, 02:59:42 PM »
@forumm, I understand that the underlying stocks are the same, my point was if it made sense to invest in another ETF from another issuer in case something happened that could affect only Vanguard (fraud(?)).  I know this is highly improbable but nevertheless wanted to get 2nd opinions.
 
@zz_marcello, thanks! I'll check if VUSA is available through my broker, ETFs options tend to be limited in Spain.  I heard about Interactive Broker as a good option in terms of cost, although I also heard their customer service is pretty bad.  Are you investing through them?

Thanks
It makes sense to me, especially since you are European it makes sense to have more exposure to the non-US parts of the world. I'd leave the US part in Vanguard and find a different provider for stocks from the rest of the globe. Sure Vanguard is probably the most reliable fund company, but people on this site frequently talk about things like a 95% chance of investing success over a 60 year period, at which point we are getting into the realm of wildly improbable events.

Rosbif

  • 5 O'Clock Shadow
  • *
  • Posts: 77
Re: Should I diversify from Vanguard?
« Reply #7 on: May 21, 2016, 03:42:03 PM »
I looked into this from the French point of view. Looking specifically at Lyxor and iShares. The best tax-advantaged account in France is a called a PEA, and only EU stocks are eligible.

The S&P500 tracker ETFs that are eligible are therefore synthetic. I started digging into what that actually meant. They don't hold any S&P 500 stocks, and reproduce that index through swaps. They only have a single counterparty listed in the prospectus. I asked some friends in the business if anyone insured against counterparty risk. For Lyxor, the counterparty is SocGen. Lyxor is a subsidiary of SG. So if SG goes bad, and Lyxor is solid, but Lyxor has no insurance, is there a problem? Or is it left holding what amounts to shitty SG paper?

Inevitably, it's complicated. Lyxor holds a basket of European stocks (Daimler, BASF, Porsche, etc. google this file name and look at p.30 for an example: AR_2003908_FR_20150331_FRA.pdf) and does a swap with SG for the S&P 500 performance. But no, there's no insurance. So if SG goes completely bust, but Lyxor is somehow fine, it seems SG won't make good on the swap, and your S&P 500 growth fund will actually be a bunch of German industrial companies. Took a couple of hours of digging to find out even that basic info.

Maybe I'm just ignorant, but it seemed odd to me!

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: Should I diversify from Vanguard?
« Reply #8 on: May 21, 2016, 04:31:59 PM »
https://www.vanguard.ch/documents/literature/etf-product-range-ch.pdf

Why don't you just buy some of these in whatever currency you prefer? You can own the world for a low cost. US, Non-US, Total World, etc.

Seppia

  • Pencil Stache
  • ****
  • Posts: 616
  • Age: 41
  • Location: NYC
Re: Should I diversify from Vanguard?
« Reply #9 on: May 22, 2016, 01:37:49 AM »
No you don't need to diversify from vanguard, but if you are in Europe I think it's not wise at all to have 70% of your net worth in USA stocks.
Buy some VEUR as well

frugledoc

  • Pencil Stache
  • ****
  • Posts: 738
Re: Should I diversify from Vanguard?
« Reply #10 on: May 22, 2016, 02:05:07 AM »
Or just buy VWRL and then you're done.  That's my one find portfilio

bigend

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: Should I diversify from Vanguard?
« Reply #11 on: May 22, 2016, 08:23:08 AM »
Hola!
Besides diversification, if you are taxable in Europe I would invest in the (Irish) European version of the US Vanguard VTI with name VUSA or VUSD.
The topics for you are general taxation and the US estate tax for non-US citizens.
https://global.vanguard.com/portal/site/loadPDF?country=lu&docId=2108


This is the crucial point form my experience.

I'm also in southern Europe, started investing in US based Vanguard ETFs but ended up moving everything to European ETFs (non distributing ETFs, i.e. ETFs that reinvest the dividends rather than paying them out).

The issues with Vanguard US are:

1. US withholding tax on dividends - 30% of dividends are taken away before they come your away and then you'll pay the Spanish taxes on top (in my case I was getting only <50% of the dividend payouts). You can mitigate it with a W8BEN and trying to apply for double taxation treaty reductions, but its somewhat of a pain (at least in my experience).

2. If you die, your heirs may be taxed 40% on anything you leave above $60k by the US Gov - to me this one was the complete deal breaker. More info: https://www.bogleheads.org/wiki/Nonresident_alien_taxation

You can use Vanguard European versions or if you want the accumulation / dividend reinvesting version of the ETFs from iShares, SPDR, etc.

k9

  • Bristles
  • ***
  • Posts: 250
  • Age: 41
Re: Should I diversify from Vanguard?
« Reply #12 on: May 23, 2016, 03:56:21 AM »
I looked into this from the French point of view. Looking specifically at Lyxor and iShares. The best tax-advantaged account in France is a called a PEA, and only EU stocks are eligible.

The S&P500 tracker ETFs that are eligible are therefore synthetic. I started digging into what that actually meant. They don't hold any S&P 500 stocks, and reproduce that index through swaps. They only have a single counterparty listed in the prospectus. I asked some friends in the business if anyone insured against counterparty risk. For Lyxor, the counterparty is SocGen. Lyxor is a subsidiary of SG. So if SG goes bad, and Lyxor is solid, but Lyxor has no insurance, is there a problem? Or is it left holding what amounts to shitty SG paper?

Inevitably, it's complicated. Lyxor holds a basket of European stocks (Daimler, BASF, Porsche, etc. google this file name and look at p.30 for an example: AR_2003908_FR_20150331_FRA.pdf) and does a swap with SG for the S&P 500 performance. But no, there's no insurance. So if SG goes completely bust, but Lyxor is somehow fine, it seems SG won't make good on the swap, and your S&P 500 growth fund will actually be a bunch of German industrial companies. Took a couple of hours of digging to find out even that basic info.

Maybe I'm just ignorant, but it seemed odd to me!
That's right. Synthetic ETFs are a little less safe (and a little more complicated) than physical ETFs. However, if Société Générale goes bankrupt, no matter what you ETFs assets consist in, your investments will go deep south. Well, their complexity offers access to illiquid markets (EM), is supposed to reduce costs, and lets one invest in international markets through a PEA, so they have virtues too.

To answer the original question : yes, I think it's wise to invest with several ETF vendors, although the opportunity the OP mentioned seems very costly. I have seven different ETFs with seven different vendors (Lyxor, Amundi, HSBC, Vanguard, iShares, SPDR, PowerShares), and it does not cost me more than if I had only one. But if I had to pay 11 euros per month per vendor, I would certainly reduce that number.

Don't forget that, even if you really own the underlying assets your ETF vendor invests in, in case of failure, it will take very long to get access to these belongings. It can take months, or even years, before you can reach your assets again. That can be a real problem if they are your main source of income.

Rosbif

  • 5 O'Clock Shadow
  • *
  • Posts: 77
Re: Should I diversify from Vanguard?
« Reply #13 on: May 23, 2016, 05:15:56 AM »
Yeah, I figured that if SocGen went down, a synthetic ETF would be the least of my worries!

Reader

  • Bristles
  • ***
  • Posts: 455
Re: Should I diversify from Vanguard?
« Reply #14 on: May 24, 2016, 06:19:23 AM »
Hola!
Besides diversification, if you are taxable in Europe I would invest in the (Irish) European version of the US Vanguard VTI with name VUSA or VUSD.
The topics for you are general taxation and the US estate tax for non-US citizens.
https://global.vanguard.com/portal/site/loadPDF?country=lu&docId=2108


This is the crucial point form my experience.

I'm also in southern Europe, started investing in US based Vanguard ETFs but ended up moving everything to European ETFs (non distributing ETFs, i.e. ETFs that reinvest the dividends rather than paying them out).

The issues with Vanguard US are:

1. US withholding tax on dividends - 30% of dividends are taken away before they come your away and then you'll pay the Spanish taxes on top (in my case I was getting only <50% of the dividend payouts). You can mitigate it with a W8BEN and trying to apply for double taxation treaty reductions, but its somewhat of a pain (at least in my experience).

2. If you die, your heirs may be taxed 40% on anything you leave above $60k by the US Gov - to me this one was the complete deal breaker. More info: https://www.bogleheads.org/wiki/Nonresident_alien_taxation

You can use Vanguard European versions or if you want the accumulation / dividend reinvesting version of the ETFs from iShares, SPDR, etc.

You may want to look into iShares ETF based in London (eg IWDA) or Amsterdam to avoid the issues of US withholding tax and estate tax.

2lazy2retire

  • Bristles
  • ***
  • Posts: 292
Re: Should I diversify from Vanguard?
« Reply #15 on: May 24, 2016, 07:17:44 AM »
@forumm, I understand that the underlying stocks are the same, my point was if it made sense to invest in another ETF from another issuer in case something happened that could affect only Vanguard (fraud(?)).  I know this is highly improbable but nevertheless wanted to get 2nd opinions.
 
@zz_marcello, thanks! I'll check if VUSA is available through my broker, ETFs options tend to be limited in Spain.  I heard about Interactive Broker as a good option in terms of cost, although I also heard their customer service is pretty bad.  Are you investing through them?

Thanks

Its not an unreasonable precaution to make especially when you start drawing down funds, in the event of Vanguard for some unknown reason not been able to distribute monies to you it would be nice to have another low priced manager to depend on- obviously unlikely but if it helps you sleep. Here in the US I plan to keep some investments in low cost Fidelity Spartan funds alongside Vanguard.

jim555

  • Magnum Stache
  • ******
  • Posts: 2609
Re: Should I diversify from Vanguard?
« Reply #16 on: May 26, 2016, 04:50:25 AM »
I would not like almost all my net worth in any one fund company.  Then again maybe I am paranoid for no reason.

fefito

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Should I diversify from Vanguard?
« Reply #17 on: May 26, 2016, 10:16:28 AM »
Hola!
Besides diversification, if you are taxable in Europe I would invest in the (Irish) European version of the US Vanguard VTI with name VUSA or VUSD.
The topics for you are general taxation and the US estate tax for non-US citizens.
https://global.vanguard.com/portal/site/loadPDF?country=lu&docId=2108


This is the crucial point form my experience.

I'm also in southern Europe, started investing in US based Vanguard ETFs but ended up moving everything to European ETFs (non distributing ETFs, i.e. ETFs that reinvest the dividends rather than paying them out).

The issues with Vanguard US are:

1. US withholding tax on dividends - 30% of dividends are taken away before they come your away and then you'll pay the Spanish taxes on top (in my case I was getting only <50% of the dividend payouts). You can mitigate it with a W8BEN and trying to apply for double taxation treaty reductions, but its somewhat of a pain (at least in my experience).

2. If you die, your heirs may be taxed 40% on anything you leave above $60k by the US Gov - to me this one was the complete deal breaker. More info: https://www.bogleheads.org/wiki/Nonresident_alien_taxation

You can use Vanguard European versions or if you want the accumulation / dividend reinvesting version of the ETFs from iShares, SPDR, etc.

Hello, I´ve being researching about distribution vs accumulation ETFs.  Here you have 2 examples which I understand are exactly the same ETF, except one distributes dividends and the other does not (ie it reinvests dividends, unless I am missing something):

Accumulation ETF (based in Europe)
https://www.ishares.com/lu/individual/en/products/253743/ishares-sp-500-b-ucits-etf-acc-fund?siteEntryPassthrough=true

Distribution ETF
https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf

I understand that the accumulation one should have better performance since it reinvests dividends before they get taxed right? AlHowever, as you can see, the one which is performing better is the distribution one.   Can someone explain me why the difference please?  Some friends mention that this might be due to exchange rate fluctuations but I am not convinced that this would explain the whole story or I am missing something.

Thanks for the help








Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7898
Re: Should I diversify from Vanguard?
« Reply #18 on: May 26, 2016, 10:32:48 AM »
Then again maybe I am paranoid for no reason.

That would be the definition of paranoia. If you had a real reason you wouldn't be paranoid.

All my investments are in Vanguard ETFs. Causes me zero concern as I can generate no factually supported scenario with any reasonable likelihood of occurring that this presents a serious problem.