Author Topic: VOO vs CSSPX for non-US investor  (Read 552 times)

RiddleMB

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VOO vs CSSPX for non-US investor
« on: August 17, 2019, 03:54:15 AM »
I currently live in Israel and want to start investing in Index Funds.
My only options are ETFs, thus I'm planning to buy VTI (but for this comparison, lets assume it is VOO. These two are similar anyway).

Recently, Blackrock started to sell their ETFs on the Israeli stock market and it might offer some benefits. However I'm not sure which one is better, so I made a small list of comparison:

Currency:
CSSPX: I can buy with local currency (New Israeli Shekels; 1 USD = 3.55 NIS)
VOO: need to pay for conversion and potentially gain/loose some money on that.

Buying cost (through a local broker):
CSSPX: 2-4 NIS
VOO: 8-10$.

Avg trading volume:
CSSPX: 23k
VOO: 2.9M

Expense ratio:
CSSOX: 0.07%
VOO: 0.03%

In addition, CSSPX is a cumulating fund, and Israel has a dual-tax agreement with the US.
US Estate tax doesn't worry me, for I will not have wife/kids.

Buying costs are important while a big benefit of VOO I can see thus far is its trading volume.

I know that most of the people here are Americans, but I'd be glad to hear your opinions on the matter. The local people here aren't very competent when it comes to the stock market.
« Last Edit: August 17, 2019, 04:19:21 AM by RiddleMB »

flipboard

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Re: VOO vs CSSPX for non-US investor
« Reply #1 on: August 17, 2019, 04:08:18 AM »
That's not a diverse investment. You should buy neither VOO nor CSSPX. It's bad enough when a US-resident doesn't diversify, but as a non-US resident this is a huge amount of risk. Something like VT is a much better choice.

Currency conversion isn't expensive at the right broker. See e.g. Interactive Brokers: market rate conversion, 2 USD per conversion. That 2 USD per conversion is likely to be much cheaper than the difference in expense ratios, in the long-run, assuming you have sizeable investment. E.g. on 100k, 0.01% difference in expense ratios costs you 10 USD per year.

But without knowing how Israel taxes accumulating vs distributing funds, it's hard to give a good answer. If they tax retained dividends the same as distributed dividends, and the US-withholding is credited, then the US-domiciled funds are likely to win. If accumulating funds aren't taxed on retained dividends (but disributed dividends are), then the accumulating fund might still win. You need to do your own calculations to know for certain.

RiddleMB

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Re: VOO vs CSSPX for non-US investor
« Reply #2 on: August 17, 2019, 04:34:21 AM »
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That's not a diverse investment.
I'm basing my decision on John Bogle and Jim Collins. Both aren't strong advocates for non-us stocks. They say the US is the most dominant industry anyway, and that half of the companies in the S&P500, while being considered of the US, are actually international.
By the way, how not being in the US worsen my situation?

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Currency conversion isn't expensive at the right broker. See e.g. Interactive Brokers
Ye, IB are great, but not an option. (I'll need to do manual taxes which gets me into loads of issues, for people don't do their own taxes here)

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But without knowing how Israel taxes accumulating vs distributing funds, it's hard to give a good answer.
Distributed dividends are taxed 25%.
Accumulative Irish dividend is taxed only 15% before being reinvested.

ctuser1

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Re: VOO vs CSSPX for non-US investor
« Reply #3 on: August 17, 2019, 08:06:57 AM »
They say the US is the most dominant industry anyway, and that half of the companies in the S&P500, while being considered of the US, are actually international.
By the way, how not being in the US worsen my situation?

Your spending is in Shekels, in Israel, while your earning is in USD invested mostly in US. This is another additional layer of risk that US investors do not have.

Imagine the scenario that your funds did okay, but then shekel strengthened a lot, or that you had a massive inflation in Israel!!

It is not as completely far fetched as it sounds. Let's assume there is lasting peace in Middle East, and you will likely have capital flowing in there and the currencies strengthen a lot. In that *good* outcome, you will stand to lose a lot of your money due to currency headwind because your money/investments are working in USD and are denominated in USD!!! 

Typically, people suggest you have some exposure to your home market, and then diversify using global. I am not qualified/knowledgeable enough to give you any kind of advise as to the exact numbers. In your shoes, however, maybe I will start with this (**warning** non-professional, amateurish opinion):
1. Perhaps you can invest a third or so of your money in iShares MSCI Israel ETF (EIS). This will provide hedge against your home currency suddenly strengthening.
2. The other two third can probably go to VOO (if you are adventurous and risk taking and bet that US will do better than the rest of the world) or VT (if you are more risk-averse and don't want to make any such bet). I am not very highly hopeful on the long term growth prospects of EU, what with their demographic headwind, so would be very tempted to choose VOO/VTI myself.

Warning again - I am in no way qualified to give advise here, these are just amateurish opinions of an internet stranger and please take it as such.

flipboard

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Re: VOO vs CSSPX for non-US investor
« Reply #4 on: August 17, 2019, 09:03:14 AM »
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That's not a diverse investment.
I'm basing my decision on John Bogle and Jim Collins. Both aren't strong advocates for non-us stocks. They say the US is the most dominant industry anyway, and that half of the companies in the S&P500, while being considered of the US, are actually international.
By the way, how not being in the US worsen my situation?
They are both biased by being American, and are basing their decisions based on past performance. The US did a few things well, and had good luck. Are you willing to best your future finances on this? (Even then, sometimes US outperforms, sometimes the rest of the world outperforms.) Do you really think the US has some intrinsic properties that will ensure it has a stronger economy than China/Europe/Asia/Russia/etc. for the rest of your lifetime? Is a country that elected Trump really the best place on earth?

My view is its impossible to know how markets will develop. There are some aspects about the US that suggest it will be strong for many more years. But they have huge flaws too, and there are significant risks in any country. If you tilt away from an all-world portfolio, you're making a bet. And even many knowledgeable American finance people will advise even americans against betting 100% US.

It's your choice, but you can only blame yourself if your bet goes wrong.

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Ye, IB are great, but not an option. (I'll need to do manual taxes which gets me into loads of issues, for people don't do their own taxes here)
Fair point, but it's worth figuring out how hard it really is. Many people in my country think taxes are hard, but it turns out they actually aren't that hard.

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But without knowing how Israel taxes accumulating vs distributing funds, it's hard to give a good answer.
Distributed dividends are taxed 25%.
Accumulative Irish dividend is taxed only 15% before being reinvested.
25%/15% are the US withholding rates. Are you sure Israel doesn't also tax dividends? (I have no idea how Israel works, but in most countries I've lived in that country taxed dividends, and then subtracted whatever the US had withheld from my taxes. Accumulating funds are complicated and vary, but where I currently live the dividends would still be taxed fully locally, even if they were reinvested within the fund.)
« Last Edit: August 17, 2019, 09:05:43 AM by flipboard »

ctuser1

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Re: VOO vs CSSPX for non-US investor
« Reply #5 on: August 17, 2019, 09:25:43 AM »
Do you really think the US has some intrinsic properties that will ensure it has a stronger economy than China/Europe/Asia/Russia/etc. for the rest of your lifetime?

I am not the OP, and I live in the US - so my answers don't apply to OP.

I am feeling a little bored - so here goes a screed!!
 
I am betting with my money, however, that the answer is - Yes, the US does have some secret sauces that will allow it to outperform!

Reasons:
1. Openness to Immigration (i.e. demographics are not as unfavorable as other economically developed countries that don't allow as much immigration - e.g. Japan or much of EU).
 Note: Many other countries admit more immigrants capita, e.g. Canada (20% more) Australia (almost 2X more). They lack #2.
 
2. Culture of taking huge risks and betting it all on risky ventures. Other countries start more businesses, .
 Note: Many other countries start more businesses per capita. But they don't have access to venture capital to the same degree to really rev it up

This is not to say US has no issues. Rate of entrepreneurship is ailing, probably because of the stupid healthcare situation where you better not take risks else your kids won't get healthcare. We also have a budding aristocracy of the top 0.1% who are buying a lot of politicians these days to rewrite the tax code over and over again to keep the riff-raff out and make it a hereditary aristocracy!!

But I am hopeful these will be easier to solve that the other problems other countries face. Mostly the villain's have now converged to one side of the political spectrum that don't have the support of the majority, and the demographic trends are working against them. So I am hopeful it will be possible to quash them if/once more people actually start voting!!

RiddleMB

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Re: VOO vs CSSPX for non-US investor
« Reply #6 on: August 17, 2019, 11:22:25 PM »
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Imagine the scenario that your funds did okay, but then shekel strengthened a lot, or that you had a massive inflation in Israel!!
Indeed, that is a good point. That is why I wonder about buying CSSPX over VOO. It is still not hedged, but at least i buy then in NIS rather then USD.
As far as local broad index funds here (purely NIS), they are all "synthetic" which are based on future-contracts rather than owning real stocks.

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Typically, people suggest you have some exposure to your home market
In theory, yes, but in case of Israel that is a big no no.
Israel doesn't have enough amount of stocks to be considered "broad index", and there is not enough diversification in the companies (almost all of the industry here are either software or medicine).

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I am betting with my money, however, that the answer is - Yes, the US does have some secret sauces that will allow it to outperform!
I have to agree. Economy-wise, the US outperforms all the rest of the world altogether.

I also hate relaying on past performances alone, especially in the unknown world of stocks, where each bear market is different, but if that is the case, than one should not get into the stock market altogether (and I have nowhere else to invest my money).

flipboard

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Re: VOO vs CSSPX for non-US investor
« Reply #7 on: August 18, 2019, 12:09:07 AM »
I am betting with my money, however, that the answer is - Yes, the US does have some secret sauces that will allow it to outperform!
That's, just, your opinion, man (or woman).

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Reasons:
1. Openness to Immigration (i.e. demographics are not as unfavorable as other economically developed countries that don't allow as much immigration - e.g. Japan or much of EU).
 Note: Many other countries admit more immigrants capita, e.g. Canada (20% more) Australia (almost 2X more). They lack #2.
This is both irrelevant for the economy, and complete BS anyway. Most EU countries actually make immigration much easier than the US. China doesn't need immigration because they have so many people already. Japan: yes you're right, but that's not the only country outside the US. The US is actually actively immigrant-hostile to top it off.

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2. Culture of taking huge risks and betting it all on risky ventures. Other countries start more businesses, .
 Note: Many other countries start more businesses per capita. But they don't have access to venture capital to the same degree to really rev it up
That's not inherent to the US.  China has tons of entrepreneurs, and they're making access to capital easier. Other countries are also making access to capital easier. This is just a historical factoid, not a god given future truth.


Again, it's important to not confuse historical facts with inherent differences.

RiddleMB

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Re: VOO vs CSSPX for non-US investor
« Reply #8 on: August 20, 2019, 05:20:53 AM »
A follow up question:
Since the new ETF are being sold on the Tel-Aviv stock market, I can only buy and sell them in Israel.

It is a small country to begin with (only 9M citizens), out of which a very small minority actually trade on the stock market.
For that reason, Blackrock made a deal with the Dutch market-making company "Flow Traders" to provide liquedity.

How much should I relay solely on market makers to buy my stocks in a 20-30 years?
To me, this strategy sounds very shadey and uncertain, especially since this should be my main portfolio, containing all the money I have (and I got no other assets).

People here have no idea what S&P500 means, not what an index is. For them, stocks equell casino gambling. So while CSSPX may have a good value, few will actually be willing to buy it.
In addition, the people here say it doesn't matter if you sell stocks to real people/ money makers or other program algorithms, but I think they are just being ignorent.

ctuser1

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Re: VOO vs CSSPX for non-US investor
« Reply #9 on: August 20, 2019, 07:42:23 AM »
I, personally, am out of my depth how to answer this question in the context of Israel definitively.


Market maker is obligated to buy it back from you. Black rock is incentivized to provide liquidity, so would likely make sure at least one MM exists as long as they operate in israel. So you are likely good if all of them are in business.

I think your bigger question is what happens if your broker goes bankrupt, or blackrock, or the Dutch market makers. My guess is, as long as black rock is there (ie not bankrupt) youíd likely be made whole.


 Even if black rock were to go bankrupt, you would likely get much of your money back (assuming the entire system has not collapsed, which is possible if black rock goes down since they are too big to fail).


So far, the few broker dealer liquidity events that has happened (eg mf global), the retail investors have gotten their money back. It can change, especially if 2008 comes back!!


Iíd suggest you post the same question in bogleheads. They have people much more knowledgeable on these matters.

And I also donít think it matters if you are selling to a robot or a market maker or a real person :-d.. exchanges and market makers and specialists exist to make sure you donít need to worry about these things with a high degree of confidence. But your question behind the question still stands.
« Last Edit: August 20, 2019, 07:48:15 AM by ctuser1 »

BicycleB

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Re: VOO vs CSSPX for non-US investor
« Reply #10 on: August 20, 2019, 11:33:43 AM »
Consulting Bogleheads on this is a VERY good idea!!

I think the value if you buy something that is primarily a basket of international stocks will primarily be driven by the stocks' gains, not by details of the basket holding them. Obviously changes in Isreali law and Israeli market decisions can affect whether the instrument you invest in is maintained in its current form over a period of decades. My guess is that if the market maker quits the market, they would fulfill their obligations to return to you the value of the underlying securities. However, I understand that there is a risk in putting 100% of one's savings in any single instrument, especially one that is uncommon are poorly understood in your country.

My guess is that you should invest some but not all in the international stock instruments available. But more research is needed. Good luck (and let us know what happens).