Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

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Topic Author
maza
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Joined: Wed Apr 28, 2021 8:47 am
Location: Nahariya, Israel

Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

Hi all,

I'm 34 years old and been investing since 2006 and until 2013 I only had individual stocks in my portfolio the only stocks I had were AAPL, COST, LMT and WM. In 2014 I finally decided that Vanguard ETF's were the way to go forward, I sold my stocks and went into ETF's.

I have days where I think my asset allocation is fine and there are days where I think I should have more exposure to non-US or I should be all in the US or I should have more exposure to bonds or I should have less exposure to bonds.

My current portfolio is as following:

VOO 80%
VXUS 10%
BND 7%
Bitcoin 2%
Ethereum 1%

I went into the VOO back in 2014 and I choose the VOO over VTI. At the time I believed that he performance of both is somewhat similar and neither will greatly under or outperform the other. This is something that I still believe.

I have some VXUS, because I want exposure to non-US stocks, but not too much.

BND is the one that I have some issues with, because of the low yield.

I have exposure to cryptocurrency, because I think it's here to stay. Also if bitcoin or ethereum go to astronomical heights I will curse myself, but if it goes to zero I will be ok since I'm very strict about having no more than 3% exposure to crypto. I choose to have just 3% in crypto so whatever happens the consequences on my portfolio will be small.

Every month I buy from each asset and make sure that the asset allocation remains the same.

Anyway what do you guys think.
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LadyGeek
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Re: Feedback on my portfolio and asset allocation

Post by LadyGeek »

Welcome! What is your home country?

I want to be clear that cryptocurrency as an investment is off-topic. See: Greater Fool Investing Strategies
Eventually, one runs out of greater fools. - Burton Malkiel

Discussions of investment strategies based on securities or physical assets that have no underlying value or negative expected long term returns are prohibited. Examples include: cryptocurrencies; lottery tickets; tulip bulbs; Ponzi, pyramid, and multi-level marketing schemes; affinity frauds; and market manipulation schemes.
And this post by the site owner: New Forum Policy Prohibiting Discussions of Cryptocurrency, Market Manipulation Schemes, etc as Investing Strategies
Note - This policy is limited to discussions of investing strategies. Discussions of cryptocurrencies in other contexts is still acceptable, for example for money transfers or microtransactions or the current thread on crypto trades and tax loss harvesting.
Members may have crypto in their portfolio. The discussion may proceed as long as the strategy for managing crypto aligns with "Investing Advice Inspired by Jack Bogle". For example, selling crypto to purchase stocks or bonds.

An exposure of less than 3% cryptocurrency is a good approach.
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Topic Author
maza
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Joined: Wed Apr 28, 2021 8:47 am
Location: Nahariya, Israel

Re: Feedback on my portfolio and asset allocation

Post by maza »

Hi LadyGeek.

My home country is Portugal, but I moved to Israel a little of 2 weeks ago.

I actually knew about the crypto rules, but forgot all about it when I wrote this post my apologies. I will not discuss that further and keep it about the other assets.
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LadyGeek
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by LadyGeek »

Hello,

I have added your home country status in the thread's title. If this is not correct, you can change the thread's title by editing the Subject: line in Post #1.

You may discuss crypto if you wish to convert the currency into the other assets.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
TedSwippet
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Re: Feedback on my portfolio and asset allocation

Post by TedSwippet »

Welcome.
maza wrote: Tue Jun 15, 2021 5:52 pm My current portfolio is as following:

VOO 80%
VXUS 10%
BND 7%
Assuming you are not a US citizen, my first reaction is that you should immediately replace all of these US domiciled ETFs with non-US domiciled UCITS ETFs.

The US/Israel income tax treaty is a poor one, and that makes this a tax-inefficient portfolio; the treaty's 25% US tax rate for dividends means that you are overpaying US tax. In addition, Israel has no US estate tax treaty, so you risk US estate tax of 26-40% of your holdings above $60k. The situation for Portugal is slightly better; a 15% US tax rate on dividends, but again no US estate tax treaty.

Full details in the wiki:

Outline of non-US domiciles - Bogleheads
Topic Author
maza
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Location: Nahariya, Israel

Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

Hey TedSwippet,

Big thanks for your reply, I've read the Outline of non-US domicles and I've never thought about that.

I'm now looking for non-US domiciled UCITS ETFs like iShares Core S&P 500 UCITS ETF ticker IUSA.
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by TedSwippet »

maza wrote: Tue Jun 15, 2021 8:28 pm I'm now looking for non-US domiciled UCITS ETFs like iShares Core S&P 500 UCITS ETF ticker IUSA.
You could do that, but two observations. Firstly, your current portfolio shows a relatively heavy US bias. US stocks are around 60% of world market cap, but form more than 88% of your total stock holding. And secondly, there is no convenient non-US domiciled UCITS ex-US stocks fund, so you would need to combine several regional ETFs to recreate your ex-US holding.

Maybe take a look at the non-US simple portfolios suggestions in the wiki, for some ideas:

Simple non-US portfolios - Bogleheads

A single all-world/global stock ETF would cover you for everything except bonds and cash/crypto, and automatically set to track world market caps. Maybe VWRL or IWDA. For bonds, again your current portfolio is US biased at 100% US bonds, and something more global such as AGGG or IGLA would likely be a better fit.

One question to ask yourself is where you plan to be when spending this money? If in a country that uses or is closely tied to the Euro, then a bond fund hedged to EUR, such as AGGH, could be sensible. General wisdom hereabouts is that currency hedging bond funds is a good thing, but currency hedging stock funds is at best unnecessary, and at worst perhaps damaging.
Topic Author
maza
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Joined: Wed Apr 28, 2021 8:47 am
Location: Nahariya, Israel

Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

You could do that, but two observations. Firstly, your current portfolio shows a relatively heavy US bias. US stocks are around 60% of world market cap, but form more than 88% of your total stock holding. And secondly, there is no convenient non-US domiciled UCITS ex-US stocks fund, so you would need to combine several regional ETFs to recreate your ex-US holding.
Yes I'm heavily US biased, I'm not comfortable with more than 15-20% exposure to non-US stocks. I would get uncomfortable and it lasts long enough I could fall to the temptation to fiddle around with my portfolio and before I know it I'm starting to confuse speculation with investing. It may sound strange, but staying this course is a form of self protection against bad behavior. But at the same time that doesn't mean I'm not looking at the funds you suggested like the VWRL and IWDA, they do look great.
Maybe take a look at the non-US simple portfolios suggestions in the wiki, for some ideas:
I'm still looking at it and figure out what best serves me, big thanks for sharing.
One question to ask yourself is where you plan to be when spending this money? If in a country that uses or is closely tied to the Euro, then a bond fund hedged to EUR, such as AGGH, could be sensible. General wisdom hereabouts is that currency hedging bond funds is a good thing, but currency hedging stock funds is at best unnecessary, and at worst perhaps damaging.
Yes indeed currency hedging stocks funds is unnecessary. I'm planning to spend this money in Israel which is tied to the New Israeli Shekel.

One thing I didn't mention was in the beginning I used TD Ameritrade, but switched over to etoro when US domiciled ETF's became unavailable. I choose etoro solely, because I could get into the same ETF's. I've never properly researched the tax advantages of having exposure to Ireland domiciled UCITS ETF's, pretty bad for someone who has been investing since 2006.

I just spoke to my account manager at etoro and asked him how much tax etoro withholds on dividends coming from Ireland domiciled UCITS ETF's and he wasn't sure. According to the website they withhold 25% if the source country is Ireland, but that it could be different since this is a typical tax percentage like a guideline.

I'm starting to think that etoro is perhaps not the best broker for me, there aren't many options in terms of ETF's and especially non-US domiciled UCITS ETF's. Schwab International and International Brokers seem like viable alternatives.

Anyway TedSwippet you really got me thinking everything over, the non-US domiciled UCITS ETF's tax rate is what really caught my attention. Finding other non-US domiciled UCITS ETF's is not a problem, there are so many and with the proper research I will find what I want and need. However finding the right broker that offers these and is trustworthy is another. I won't do it through a Portuguese or Israeli bank since they both charge high fees and are not transparent.
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by TedSwippet »

maza wrote: Wed Jun 16, 2021 7:21 am Yes I'm heavily US biased, I'm not comfortable with more than 15-20% exposure to non-US stocks. I would get uncomfortable and it lasts long enough I could fall to the temptation to fiddle around with my portfolio and before I know it I'm starting to confuse speculation with investing. It may sound strange, but staying this course is a form of self protection against bad behavior. But at the same time that doesn't mean I'm not looking at the funds you suggested like the VWRL and IWDA, they do look great.
If you want to retain a US bias -- and personally I wouldn't, but your choice -- then you would find it simpler to hold a UCITS all-world/global stock ETF and an additional tranche of an S&P 500 index ETF alongside, to give you your bias. Two ETFs. Otherwise, because there is no convenient UCITS ex-US stock ETF, you would have to mix a US stock ETF with all of Europe, Japan, and Pacific ex-Japan to get all-world with a US tilt. Twice as many ETFs to work with and rebalance.
maza wrote: Wed Jun 16, 2021 7:21 am I just spoke to my account manager at etoro and asked him how much tax etoro withholds on dividends coming from Ireland domiciled UCITS ETF's and he wasn't sure. According to the website they withhold 25% if the source country is Ireland, but that it could be different since this is a typical tax percentage like a guideline.
etoro's dividend tax withholding 'help page' looks pretty unhelpful to me.

Firstly, the US dividend rate of 30% is the standard for non-treaty countries. Most brokers will handle a W-8BEN to allow investors to claim any lower treaty rate (so 25% for Israel, a whopping 5% discount), but I cannot find anywhere any information that etoro will. If they do not, investors would have to reclaim the overpayment from the IRS annually using a 1040-NR US tax return followed by a lengthy wait, perhaps up to 18 months or more, with the rebate payable only as a USD check or into a US based bank. Most investors would choose to avoid that hassle.

Secondly, Ireland domiciled ETFs are exempt from all Irish tax withholding, so the 25% listed under the 'Dividends paid on non-US stocks and ETFs' simply does not apply (it would apply to ordinary Irish stocks, but not to Ireland domiciled ETFs). So, the answer you are looking for your etoro account manager to provide, given what you asked them, is "zero percent".
maza wrote: Wed Jun 16, 2021 7:21 am I'm starting to think that etoro is perhaps not the best broker for me, there aren't many options in terms of ETF's and especially non-US domiciled UCITS ETF's. Schwab International and International Brokers seem like viable alternatives.
etoro might be okay, provided you avoid US domiciled ETFs and stick to UCITS (which you'd want to do anyway, due to US tax laws), and provided that etoro do not withhold any Irish tax on dividend from Ireland domiciled ETFs (which they should do), and provided that etoro offers the ETFs that you want to hold.

Otherwise, Interactive Brokers seems to be the most commonly used international broker for folks who have international lifestyles.
Topic Author
maza
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Location: Nahariya, Israel

Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

If you want to retain a US bias -- and personally I wouldn't, but your choice -- then you would find it simpler to hold a UCITS all-world/global stock ETF and an additional tranche of an S&P 500 index ETF alongside, to give you your bias. Two ETFs. Otherwise, because there is no convenient UCITS ex-US stock ETF, you would have to mix a US stock ETF with all of Europe, Japan, and Pacific ex-Japan to get all-world with a US tilt. Twice as many ETFs to work with and rebalance.
I looked ad my time horizon, the current value of my porfolio, calculated the different tax rates and end result and checked how I would come out at Interactive Brokers compared to etoro and I've decided that the SWDA would be the best option.

Etoro isn't clear about the tax withholding and my account manager called me again and said "I believe UCITS are exempt for the 25% rate" which isn't very convicting. However the SWDA accumulates the dividend which bypasses etoro. I'm based in Israel and I called a tax advisor who told me that dividends received within a accumulating ETF outside Israel are not taxed and you only pay taxes on capital gains after your sell your asset which is taxed at 23%.
TedSwippet
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by TedSwippet »

maza wrote: Wed Jun 16, 2021 10:28 am ... However the SWDA accumulates the dividend which bypasses etoro. I'm based in Israel and I called a tax advisor who told me that dividends received within a accumulating ETF outside Israel are not taxed and you only pay taxes on capital gains after your sell your asset which is taxed at 23%.
It sounds like you are closing in on a plan, then.

One other thought then, on your current holdings ...

Did etoro and/or TD Ameritrade provide you with US 1042-S forms at the end of each year, showing the US tax withheld on dividends for your VOO, VXUS and BND holdings? They should have, if they withheld any US tax. If they did provide these forms, then look at box 1 "Income code" and box 3b "Tax rate". If these are 06 ("Dividends paid by US corporations") and 30.00 respectively, then you could file US form 1040-NR returns for prior years, when you were resident in Portugal, and reclaim half of that 30% withholding, so 15% of your dividends, using the US/Portugal treaty. There is a limit to how many years you can go back, but it could be worth doing this up to that limit.

Similarly, for any dividends received from these ETFs while resident in Israel, if taxed at 30% you could reclaim 5% of the withholding using the same method, a US 1040-NR tax return. Obviously lesser benefit, because the 25% rate in the US/Israel tax treaty is a poor one.
Topic Author
maza
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

It sounds like you are closing in on a plan, then.
Yes it will be:

SWDA 60%
IDEM for emerging markets 30 %
AGGG 7%

The remaining 3% stays as it is.

TD Ameritrade did provide me with US 1042-S, but I was taxed 15% by them. At etoro you have to calculate the withheld tax by yourself using your statements, I already started the process and if I'm mistaken you can do this up until 6 years prior.

By the way big thanks!
helloyou
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by helloyou »

maza wrote: Wed Jun 16, 2021 5:50 pm
It sounds like you are closing in on a plan, then.
Yes it will be:

SWDA 60%
IDEM for emerging markets 30 %
AGGG 7%

The remaining 3% stays as it is.

TD Ameritrade did provide me with US 1042-S, but I was taxed 15% by them. At etoro you have to calculate the withheld tax by yourself using your statements, I already started the process and if I'm mistaken you can do this up until 6 years prior.

By the way big thanks!
So it seems you completely switched gears? you realize that you are now underweighting US compared to the rest of the world?

Your US exposure is lower than 40% now, while you were saying you wanted at least 80% US exposure in your first posts. Just want to make sure you are fully aware of this

Also avoid brokers like Etoro, I wouldn’t trust them.
TedSwippet
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by TedSwippet »

maza wrote: Wed Jun 16, 2021 5:50 pm At etoro you have to calculate the withheld tax by yourself using your statements, I already started the process and if I'm mistaken you can do this up until 6 years prior.
If etoro withheld tax on your US source dividends at more than the 15% US/Portugal rate (or the 25% US/Israel rate, depending on when the dividends were paid), but did not supply a 1042-S, you could have problems claiming this overwithholding back from the IRS. The IRS will (may) require(*) a 1042-S attachment to match their own copy received directly from the withholding agent.

From the 1040-NR instructions:
Documentation. You must attach acceptable proof of the withholding for which you are claiming a refund. If you are claiming a refund of backup withholding tax based on your status as a nonresident alien, you must attach a copy of the Form 1099 that shows the income and the amount of backup withholding. If you are claiming a refund of U.S. tax withheld at source under chapter 3 or tax withheld under chapter 4, you must attach a copy of the Form 1042-S that shows the income and the amount of U.S. tax withheld. Attach the forms to the left margin of page 1.
It is unclear whether a copy of your broker statements will suffice for the IRS, particularly if the broker has not sent any withholding details directly to the IRS.


(*) From direct experience. One year I forgot to attach a 1042-S to my annual 1040-NR. The IRS sent me a letter, and held up my refund until I faxed this in (yes, fax, in this day and age). The total amount of overwithholding at issue here was $2. You would think that for this amount, some commonsense might prevail, but no. The costs of manpower and postage to the IRS of questioning this will have far exceeded the refund claimed. No self-respecting fraudster would fill out a 1040-NR for $2.
Topic Author
maza
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Re: Feedback on my portfolio and asset allocation [Portugal ex-pat in Israel]

Post by maza »

If etoro withheld tax on your US source dividends at more than the 15% US/Portugal rate (or the 25% US/Israel rate, depending on when the dividends were paid), but did not supply a 1042-S, you could have problems claiming this overwithholding back from the IRS. The IRS will (may) require a 1042-S attachment to match their own copy received directly from the withholding agent.
I spoke to my account manager and he send me all the 1042-S dating back to when I opened my account. So you can get them, but only upon request. He also again told me that non-US Ireland domiciled ETFs don't have a 25% tax withholding rate he checked it again and send it to me in writing.
So it seems you completely switched gears? you realize that you are now underweighting US compared to the rest of the world?
Yes I know, but like I said I made some calculations, based on my time horizon and current size of my portfolio. I will still be able to achieve my goals by going this course. I wouldn't be able to replicate the exact same portfolio and allocations like I had before, so I convinced myself if I ever decided to change my allocations I might as well do it now.
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