|
Post by realisedurgency on Aug 17, 2019 11:39:40 GMT 7
I'm currently working in Thailand and got 70k euro sitting in my Irish bank account. Initially I wanted to buy an apartment in my home town as an investment. Unfortunately, prices have shot up the last two years and put most apartments out of reach unless I get a mortgage. And now the returns are closer to 4% accounting for all taxes and a managment fees. Not a great return for the hassle of owning a property. And that return would drop to 3% if I return and work in Ireland due to income being pushed into a higher tax bracket.
So now what to do with the 70k?
Find a broker and buy some euro ETFs is my initial thought. A low hassle option. So far I have been considering De Giro as a broker, as they seem to have the lowest fees. Has anyone used them? I have also seen internaxx recommended here before.
Would love to draw on the wisdom of this board.
|
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Aug 17, 2019 17:23:19 GMT 7
|
|
|
Post by realisedurgency on Aug 17, 2019 17:54:45 GMT 7
Thanks AyG. Yes, my home country is Ireland. If I was resident taxes would be a nightmare. You have to report and realise quite heavy capital gains every 8 years. This can get very messy if dollar/euro cost averaging. To be honest I would not consider ETFs if I was a resident. www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331As a non-resident, this doesn't apply to me as far as I know. Still, figuring out what taxes I will be subject to is a little confusing. Here is the DeGiro page on taxes which says they withhold taxes on my behalf which can vary depending on the investment and my country of residence: www.degiro.ie/tax.htmlI'm sure some of you might be in a similar position. What way would I be taxed, and how much taxing on my behalf will a broker do?
|
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Aug 18, 2019 0:47:13 GMT 7
The broker only gets involved in withholding tax (WHT) on coupon and dividend income. This is only likely to be an issue for you (AFAIK) if you invest in US securities. As a non-US resident the normal rate of WHT on dividend income is 30%, but residents of certain countries have the tax withheld at a lower rate. For Thai residents the rate is 15%. Note, however, that not all brokers implement the lower rate for Thai residents. (Saxo Singapore, for example, doesn't, and you pay the 30%.) It does appear that you'll need to look carefully into the tax situation. Irish taxes appear to be extremely onerous, at least according to www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331I don't know if the Irish tax regime is similar to the UK one, but in the UK one can be caught with capital gains tax on previous years' transactions if you return to live in the UK.
|
|
|
Post by realisedurgency on Aug 18, 2019 15:16:48 GMT 7
Good to hear I don't have to worry about anything other than WHT while I'm non-resident.
When moving back to Ireland you can remit money earned abroad tax-free. Then, once a resident in Ireland again you are taxed on worldwide income and must pay CGT on worldwide assets. I can't find anything suggesting I would have to catch up on previous years' transactions. That would be nasty. If I moved home I would be unlikely to add to the ETF given the taxation requirements and would even consider selling. Unfortunately, there are very few good places to put your money in Ireland.
|
|
|
Post by rgs2001uk on Aug 18, 2019 22:06:07 GMT 7
I'm currently working in Thailand and got 70k euro sitting in my Irish bank account. Initially I wanted to buy an apartment in my home town as an investment. Unfortunately, prices have shot up the last two years and put most apartments out of reach unless I get a mortgage. And now the returns are closer to 4% accounting for all taxes and a managment fees. Not a great return for the hassle of owning a property. And that return would drop to 3% if I return and work in Ireland due to income being pushed into a higher tax bracket.
So now what to do with the 70k?
Find a broker and buy some euro ETFs is my initial thought. A low hassle option. So far I have been considering De Giro as a broker, as they seem to have the lowest fees. Has anyone used them? I have also seen internaxx recommended here before.
Would love to draw on the wisdom of this board.
I concur with you on the ROI, not mentioned, the capital growth of the properties. The house I bought in England cost me 3 times the average wage, today, the same house will cost 7 times the average wage. I suppose, the bottom line is, do you see yourself returning back home? I understand your reluctance to get a mortgage, basically, you are gambling that your investments return a better rate than properties. The one thing I tell anyone is, ask yourself, what will happens if I lose this job tomorrow, can I afford the repayments, hence why I dont invest in property/mortgages, I havent committed myself to anything. Well done on accumulating 70k, its more than most will ever do, goes back to what I mentioned earlier, do you ever see yourself living in your home town again?
|
|
|
Post by Fletchsmile on Aug 19, 2019 13:00:52 GMT 7
Understanding your tax position is important. For Irish tax: Both as an expat and if you decide to go back. I'm not really that familiar with Ireland and taxes to be honest.
If I did go back to my home country, and as a result start becoming liable on overseas income and capital gains, one thing I would seriously consider is resetting the clock on any investments held. By that I mean, I would consider selling overseas investments and then buying back the investments or similar so that the acquisition date is reset for capital gains. This would incur transaction costs but could reduce tax liabilities. eg say you bought an investment in 2010 for 100, and it is now worth 190. If you went back to your home country there might be a potential capital gains liability of 90. But if you sold and re-invested and reset the clock to 2019 before you go back, the acquisition cost could be 190 less transaction costs instead of 100, so if you later sold at 200 then instead of a gain of 100, your gain would be only 10 (less some costs) That's the principle, although the practice may vary depending on capital gains tax rules. It also significantly simplifies any admin burdens around tax and tracking your investments for purchases dates and docs in years gone by. So resetting acquisition dates to just before you go back could be useful.
Of course if you are invested in things like LTFs which have tax benefits, then it is probably better to let them run their course.
On the subject of LTFs. One thing for you to consider is ensuring you are already maxing out any allowances on such products here in Thailand to reduce any Thai tax you are paying. If you are not fully utilising your allowances such as LTFs here because of lack of funds, then using some of your EUR 70k for that to take up to maxes would be useful.
Not sure how old you are. But the closer to 55 you are the more RMFs may make sense for allowances. I took out LTFs in Thailand ever since they became available. Even if I left the 5 year calendar year holding period (now 7) wasn't a big issue. Easy to do a holiday some time in the future and collect/ redeem later. I didn't used to do RMFs in my early years though because of lack of flexibility and not being sure I would be in Thailand. However, in my 40's I started doing them. eg If you have a 10 year or more investment horizon and are aged 45 then that fits and the tax saving is useful. There is a bit more admin on RMFs, such as needing to continue to contribute a min of 5k a year, thereafter, unlike LTFs which are just done one year and that's it.
So maxing out LTFs is a good idea. RMFs may be another. We need to see what will happen to LTFs in future, but that's no reason not to max out what's on offer now.
|
|
|
Post by Fletchsmile on Aug 19, 2019 13:23:07 GMT 7
On the subject of property, I'm not a big fan of physical property for investing. It can be a hassles, plus inflexible and illiquid. eg you can't sell half a house if you need to.
I generally believe in the "nesting not investing". So if you plan to go back a place to live in is no bad thing, even if accepting the low returns. Think of the replacement cost. What it would cost now, versus what it might cost in future. As rgs points out. Some people do well on capital gains on their houses and make good money. But then again some lose out and don't.
Putting some money in property funds or REITs may give you some exposure to property as a sector, which could offset some of the risks in property price increases. REITs pay out most of their earnings in income to you, so that might need re-investing if your intention is to build capital.
Where people make money on their house, this is often due to leverage, and having a mortgage. eg buy a house for 100, put down 10 deposit. House risese in value to 120. They sell and their gain is now 120 - 100 = 20. A gain of 20 on 10 is a nice investment (less of course all the investment costs). The key though is the leverage via the mortgage. If someone paid cash, a gain of 20 on 100 is less attractive.
So thinking of mortgages, leverages and loans as you are doing is important.
Two implications for an expat:
1) You may find it difficult to get a mortgage/ any form of finance because of things like credt history. Particularly in a host country such as Thailand. But even in your original home country of Ireland.
so
2) Consider choosing a broker that would let you borrow against your portfolio. There can be some very attractive rates for this. The broker has your investment portfolio as collateral, so as they have quality liquid security you can often borrow at low interest rates if you need to.
eg With Standard Chartered Singapore I can borrow EUR at 0.38% (variable) as an accredited investor. Without credited investor status that would be around 1%.
SCB Singapore's platform is crude, but functional. I don't trade that frequently with it these days, and it is fine for investment/ longer term holding. Because it links to my bank and because I can borrow against it, they are a very useful broker. I do borrow in EUR to leverage my investment returns, and I have also borrowed in other currencies to help us buy a house in Thailand.
I also know if I went back to the UK, and wanted to buy a house, I would have quick access to GBP loans at 1.1%. This would be very useful for a lot of things, if I needed to borrow quickly.
In your case that could include say borrowing 50% against your portfolio, to use EUR 35k as a deposit on a property. As your investments grows that could be a larger and larger chunk of finance available, to the point that it may become in the future the full finance needed.
I use my bank SCB Singapore, but I know people like FireinTH on here use Interactive Brokers and have similar borrowing facilities available. He also used his to buy property.
So choosing a broker that allows you to borrow against your portfolio could be useful for a variety of reasons.You may never use the option, but having it there is useful.
|
|
|
Post by Fletchsmile on Aug 19, 2019 13:46:25 GMT 7
For investments ETFs are one way to go. Looking at EUR denomnated funds can make sense as that's your original currency, and would save you converting the funds to another currency and saving transaction costs on exchange rates to buy and investment in another currency and then change back again. However, don't get too bogged down into worrying about FX costs and which currency the funds are denominated in. What you really want is the most suitable funds for you, and the currency they are denominated in is secondary. It may be worth 1%-2% to change into and back from another currency if the investment is more suitable, as that's a small price to pay in the long run. Personally I wouldn't want one single global fund ETF in your case. I would be reluctant to put all my money in just one global ETF, for the following main reasons: 1) Global ETFs are heavily weighted to the US. You are an Irish expat in Thailand. Hence an increased weighting on Asia/Thailand may be appropriate if staying here. Whereas if you go back to Ireland, then more European weighting is appropriate. One single Global ETF may work for US investors but non-US investors need to think more carefully The fund mentioned above has almost 60% in US equities and the next largest is Japan. The total of these two countries account for 70% of the portfolio. Not really suitable for an Irish expat in Thailand 2) The US has had a very good run in recent years. In the 2000's its performance was abysmal and went nowhere for a decade. These things go in cycles. Putting too many eggs in the US basket isn't necessarily a wise move looking forward. I've read a few articles also recently looking foward, and projecting returns from various assets/ sectors in the next 5 - 10 years. US equities tend to look less attractive going forward, and other geographies like EM, Asia, UK etc look better prospects. No-one knows for certain, but personally I wouldn't want 60% of my money in US equities at this point in time, being myself a UK expat in Thailand. 3) Specifically for iShares Edge MSCI Wld Min Vol (MVOL) ETF. We also have a thread on low vol funds. I'm not convinced by them. They look quite good when looking back in the last few (non-volatile) years. Most versions of MVOL were launched in 2012/13 etc. It is quoted on London Exchange BTW just not in EUR.
In quants analysis and modelling, overfitting models and attaching too much importance to historical data can be an issue. Volatilities change over time. They are different for different sectors in different times in the market. I wouldn't count on these being in the right sector at the right time during a market crash. They haven't yet gone thru crashes. Volatilities have been skewed and have been low in recent years because of things like QE. That's not to say I don't think a fund like MVOL doesn't have it's uses. It does.
However, I wouldn't want it as a single sole investment for the reasons above and others. As part of a portfolio, that's fine.
But I think your portfolio should be more diverse than just a single fund. Personally I wouldn't want more than 25% of that EUR 70k in MVOL
|
|
|
Post by Fletchsmile on Aug 19, 2019 15:33:20 GMT 7
As above, low cost ETFs are one option. Another option would be going for unit trusts/mutual funds (UTs) or investment trusts (ITs). The charges will be a bit higher, but may offers some interesting choices. UTs will depend on where you are buying from, and what platforms you use and where you buy from. If based in Ireland I'm not sure what your options are for platforms. In the UK this can offer some great options though mainly GBP based. So you would likely have a cost of converting EUR to GBP ITs are worthy of consideration. Most are denominated in GBP, although a few in EUR and other currencies. Mainly traded on the London Stock Exchange (LSE). These offer some interesting opportunities to spread and target your investments. If you have a broker anywhere in the world, you could access them. I buy thru my broker in Singapore, SCB. I have a portfolio of ITs held in Singapore, which is designed for income and capital growth. Included in that portfolio are 3 ITs from Baillie Gifford: Scottish Mortgage (SMT), Scottish American (SCAM), and Monks (MNKS). All 3 are global funds, and all are 1st quartile for performance over 5 years, but their focus, geographies etc differ. I like all 3 funds. Ongoing total charges and fees (OCF) are 0.37% (SMT), 0.76% (SCAM) and 0.5% (0.5%) on these 3. Out of interest I created a virtual portfolio which I called Baillie Gifford 3, and monitor from time to time to see what it would look like. As mentioned I hold many other investment trusts, but wanted to see what a portfolio would look like if I just held these 3. The objective was to see what a really simple portfolio would look like having just these 3 ITs in equal proportions. I think they could provide the core of a simple equity only portfolio, or even as a stand alone equity only portfolio. As an IT, they are close ended funds which has more risk because of discount/ premium issues to watch out for and are generally more complicated than ETFs. Although their average OCF at 0.5% p.a. is higher than an ETF, these 3 actively managed close ended funds have all outperformed the FTSE World Index (similar to MSCI World in performance) over 3,5,10 years So it would cost to convert EUR to GBP, would cost 0.5% pa which is a bit above the ETF, but offers the potential for superior index beating performance and a better diversified portfolio which may be more suitable. Of course no guarantees on future performance. For me, I would prefer to invest and hold these 3 actively managed ITs in combination than a single global passive ETF index fund which is heavily US skewed. Cumulative Performance of Baillie Gifford 3: 3 yr: 66% vs 39% for world index 5 yr: 132% vs 87% for world index 10 yr: 16.9% annualised vs 12.8% annualised for world index So looking at 10 years, although fees are a little higher (but still only 0.5% total), the performance of 4% p.a above the index significantly exceeds that and makes a big difference to net return. In terms of geographical split, the 3 are much more balanced than a world index: US: 41.9% Europe 18.2% China: 6.8% EM: 6.5% Eurozone 5.5% Asia: 4.8% UK: 3.8% Japan: 2.4% Other/not specified = balance
etc This allocation would suit me better as a European expat in Thailand, and addresses the concerns of the very high 60% range most world indices have in US. It also covers Europe (home country) better, as well as Asia and some EM Attached is a .pdf of what it might look like. It could be a useful starting point instead of a single ETF
Note: As a UK expat I would probably increase the exposure to the UK by adding a UK IT such as FGT, and bringing down other geographies. So it would likely become Baillie Gifford 3 + 1 (FGT). But as European-non-UK expat don't see a need to do so
|
|
|
Post by realisedurgency on Aug 20, 2019 16:36:21 GMT 7
I concur with you on the ROI, not mentioned, the capital growth of the properties. The house I bought in England cost me 3 times the average wage, today, the same house will cost 7 times the average wage. I suppose, the bottom line is, do you see yourself returning back home? I understand your reluctance to get a mortgage, basically, you are gambling that your investments return a better rate than properties. The one thing I tell anyone is, ask yourself, what will happens if I lose this job tomorrow, can I afford the repayments, hence why I dont invest in property/mortgages, I havent committed myself to anything. Well done on accumulating 70k, its more than most will ever do, goes back to what I mentioned earlier, do you ever see yourself living in your home town again?
I do intend on making Thailand my permenant home and retiring here eventually. That said things can change, maybe I don't get a visa some day, who knows. I'm still fond of my home town and don't mind returning if things go pear shaped.
If I was out of job I would not like to have to rush to find a new one and would not like the burden of a mortgage in that scenario. I suppose 6 months to a years living expenses including mortgage payments ready in cash would minimise the stress of being out of a job and looking for work.
Also not sure on how likely I would be to get a mortgage without having to fly back home which won't be till next summer.
|
|
|
Post by realisedurgency on Aug 20, 2019 16:46:49 GMT 7
If I did go back to my home country, and as a result start becoming liable on overseas income and capital gains, one thing I would seriously consider is resetting the clock on any investments held. By that I mean, I would consider selling overseas investments and then buying back the investments or similar so that the acquisition date is reset for capital gains. This would incur transaction costs but could reduce tax liabilities. eg say you bought an investment in 2010 for 100, and it is now worth 190. If you went back to your home country there might be a potential capital gains liability of 90. But if you sold and re-invested and reset the clock to 2019 before you go back, the acquisition cost could be 190 less transaction costs instead of 100, so if you later sold at 200 then instead of a gain of 100, your gain would be only 10 (less some costs) That's the principle, although the practice may vary depending on capital gains tax rules. It also significantly simplifies any admin burdens around tax and tracking your investments for purchases dates and docs in years gone by. So resetting acquisition dates to just before you go back could be useful. Of course if you are invested in things like LTFs which have tax benefits, then it is probably better to let them run their course. I agree with that plan if I had to return home.
Yes I intend to max LTFs and RMFs and can do that using Thai income. I did invest in B-LTF when working here a few years ago and it's done ok.
I'm in my early 30s which makes me go back and forth when looking at the RMFs but they still seem too good a deal to pass up.
|
|
|
Post by realisedurgency on Aug 20, 2019 17:00:33 GMT 7
On the subject of property, I'm not a big fan of physical property for investing. It can be a hassles, plus inflexible and illiquid. eg you can't sell half a house if you need to. I generally believe in the "nesting not investing". So if you plan to go back a place to live in is no bad thing, even if accepting the low returns. Think of the replacement cost. What it would cost now, versus what it might cost in future. As rgs points out. Some people do well on capital gains on their houses and make good money. But then again some lose out and don't. Putting some money in property funds or REITs may give you some exposure to property as a sector, which could offset some of the risks in property price increases. REITs pay out most of their earnings in income to you, so that might need re-investing if your intention is to build capital. I'm definately open to having REITs be part of a portfolio.
|
|
|
Post by realisedurgency on Aug 20, 2019 17:09:36 GMT 7
Where people make money on their house, this is often due to leverage, and having a mortgage. eg buy a house for 100, put down 10 deposit. House risese in value to 120. They sell and their gain is now 120 - 100 = 20. A gain of 20 on 10 is a nice investment (less of course all the investment costs). The key though is the leverage via the mortgage. If someone paid cash, a gain of 20 on 100 is less attractive. So thinking of mortgages, leverages and loans as you are doing is important. Two implications for an expat: 1) You may find it difficult to get a mortgage/ any form of finance because of things like credt history. Particularly in a host country such as Thailand. But even in your original home country of Ireland. so 2) Consider choosing a broker that would let you borrow against your portfolio. There can be some very attractive rates for this. The broker has your investment portfolio as collateral, so as they have quality liquid security you can often borrow at low interest rates if you need to. eg With Standard Chartered Singapore I can borrow EUR at 0.38% (variable) as an accredited investor. Without credited investor status that would be around 1%. ... I'm not keen to speculate on property price appreciation at the moment. Just a couple of years ago apartments were going for 55k euro, the very same apartments are now fetching 80k euro. A few years ago they were underpriced, now overpriced, not super bubbly, but not great imo. Getting a mortgage will also be hassle and probably require a flight home and visits in person.
Very nice to know about the option to borrow against a portfolio. Was unaware you could do this.
|
|
|
Post by realisedurgency on Aug 20, 2019 17:23:30 GMT 7
... Personally I wouldn't want one single global fund ETF in your case. I would be reluctant to put all my money in just one global ETF, for the following main reasons: 1) Global ETFs are heavily weighted to the US. You are an Irish expat in Thailand. Hence an increased weighting on Asia/Thailand may be appropriate if staying here. Whereas if you go back to Ireland, then more European weighting is appropriate. One single Global ETF may work for US investors but non-US investors need to think more carefully The fund mentioned above has almost 60% in US equities and the next largest is Japan. The total of these two countries account for 70% of the portfolio. Not really suitable for an Irish expat in Thailand 2) The US has had a very good run in recent years. In the 2000's its performance was abysmal and went nowhere for a decade. These things go in cycles. Putting too many eggs in the US basket isn't necessarily a wise move looking forward. I've read a few articles also recently looking foward, and projecting returns from various assets/ sectors in the next 5 - 10 years. US equities tend to look less attractive going forward, and other geographies like EM, Asia, UK etc look better prospects. No-one knows for certain, but personally I wouldn't want 60% of my money in US equities at this point in time, being myself a UK expat in Thailand. 3) Specifically for iShares Edge MSCI Wld Min Vol (MVOL) ETF. We also have a thread on low vol funds. I'm not convinced by them. They look quite good when looking back in the last few (non-volatile) years. Most versions of MVOL were launched in 2012/13 etc. It is quoted on London Exchange BTW just not in EUR.
In quants analysis and modelling, overfitting models and attaching too much importance to historical data can be an issue. Volatilities change over time. They are different for different sectors in different times in the market. I wouldn't count on these being in the right sector at the right time during a market crash. They haven't yet gone thru crashes. Volatilities have been skewed and have been low in recent years because of things like QE. That's not to say I don't think a fund like MVOL doesn't have it's uses. It does.
However, I wouldn't want it as a single sole investment for the reasons above and others. As part of a portfolio, that's fine.
But I think your portfolio should be more diverse than just a single fund. Personally I wouldn't want more than 25% of that EUR 70k in MVOL I agree with 1) and 2). My initial thinking was I should be more Europe weighted, and even more so to begin as over the next few years I will be getting exposure to Thailand via LTFs and RMFs. To be honest I know nothing about low vol funds but get what you are saying about them not having been tested in an actual crash.
|
|