Risks of a Russian when investing in a US portfolio?

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V.T
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Risks of a Russian when investing in a US portfolio?

Post by V.T »

Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Your risk is simply that the rouble appreciates.

For example in the current situation, where European gas prices are very high (highest ever recorded) and oil prices are somewhat high, that's generally favourable for the rouble -- but I have not checked to see.

Russia is an "emerging" market (in classification) and it tends to do well when natural resource prices are high, particularly oil and natural gas.

I do think you would be better off simply having US market weight (60%) and letting the market decide which economies and stock markets will be strong in the next 20 years. I accept, however, that the US has outperformed other markets, and that most of the world's leading companies (by market capitalisation) are American - in particular the big internet companies (sometimes called the FAANGs - Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft).

There would be an overlap between your FTSE developed markets and the US S&P 500 fund - amounting to on the order of 70% + 60%*15% = 79% USA. That seems like too much?

US bonds pay coupons in US dollars. Thus, they are a perfect currency hedge. US stocks it is more difficult, because whilst the shares are priced in USD, the activities of the companies are global. You cannot use a US equity fund to hedge USD movements against your own currency.
Given your timeframe of 10 years, it may be wise to have more US bond funds (or global bond funds currency hedged into USD).

The EM weighting is very small but mostly China and so the overlap with Russian stock market is not significant.

Are you planning to own US-listed ETFs? I suppose I have some mild concerns if there were financial actions by the US against Russian investors as a result of geopolitical actions which meant your holdings might be frozen (note we cannot discuss politics on these boards, but this is an investment consideration so I believe we can mention it as a possibility). But I cannot say whether that would be more or less likely than the EU doing the same (the EU is dependent upon Russian energy in a way the US is not).

There are UCITS compliant (EU financial legislation compliant) ETFs domiciled in Ireland or Luxembourg which do what the US-listed Vanguard ones do. They are typically traded on Frankfurt and other European exchanges. These may (or may not) have taxation advantages (depends entirely on country of investor).
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V.T
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Valuethinker wrote: Thu Sep 23, 2021 3:18 am
V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Your risk is simply that the rouble appreciates.

For example in the current situation, where European gas prices are very high (highest ever recorded) and oil prices are somewhat high, that's generally favourable for the rouble -- but I have not checked to see.

Russia is an "emerging" market (in classification) and it tends to do well when natural resource prices are high, particularly oil and natural gas.

I do think you would be better off simply having US market weight (60%) and letting the market decide which economies and stock markets will be strong in the next 20 years. I accept, however, that the US has outperformed other markets, and that most of the world's leading companies (by market capitalisation) are American - in particular the big internet companies (sometimes called the FAANGs - Facebook Apple Amazon Netflix Google (Alphabet) + Microsoft).

There would be an overlap between your FTSE developed markets and the US S&P 500 fund - amounting to on the order of 70% + 60%*15% = 79% USA. That seems like too much?

US bonds pay coupons in US dollars. Thus, they are a perfect currency hedge. US stocks it is more difficult, because whilst the shares are priced in USD, the activities of the companies are global. You cannot use a US equity fund to hedge USD movements against your own currency.
Given your timeframe of 10 years, it may be wise to have more US bond funds (or global bond funds currency hedged into USD).

The EM weighting is very small but mostly China and so the overlap with Russian stock market is not significant.

Are you planning to own US-listed ETFs? I suppose I have some mild concerns if there were financial actions by the US against Russian investors as a result of geopolitical actions which meant your holdings might be frozen (note we cannot discuss politics on these boards, but this is an investment consideration so I believe we can mention it as a possibility). But I cannot say whether that would be more or less likely than the EU doing the same (the EU is dependent upon Russian energy in a way the US is not).

There are UCITS compliant (EU financial legislation compliant) ETFs domiciled in Ireland or Luxembourg which do what the US-listed Vanguard ones do. They are typically traded on Frankfurt and other European exchanges. These may (or may not) have taxation advantages (depends entirely on country of investor).
Thanks for the detailed reply!

1) Currency risk: if the ruble grows on the one hand, it will help me buy more US dollars and buy more shares in dollars, but this will reduce my total capital in rubles. If I manage to move to the U.S., I'll win. Do I understand this correctly? But for 100 years, the ruble has been steadily falling against the dollar and inflation in Russia is much higher, so I doubt that the ruble will steadily strengthen, given that the Russian authorities are not developing the economy and are increasingly lagging behind the world.

2) I also leaned towards the market weight of the US economy until I studied the section on international stocks on this forum, which recommends sticking to the international about 20%. Perhaps this is a recommendation for U.S. citizens: outweigh their country. But I wouldn't want to outweigh Russia or developing countries. Now the international 42-45% of the world. Vanguard holds about 40% of its trust funds. Can I choose the average 30% option (VEA 20 / VWO 10)? I don't know what share I should choose for international ones, what do you think?

3) I invest through IB directly in etf vanguard, hopefully private Investors will not be denied access. If this happens, I will invest through Irish funds.
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

Thanks for the detailed reply!

1) Currency risk: if the ruble grows on the one hand, it will help me buy more US dollars and buy more shares in dollars, but this will reduce my total capital in rubles. If I manage to move to the U.S., I'll win. Do I understand this correctly? But for 100 years, the ruble has been steadily falling against the dollar and inflation in Russia is much higher, so I doubt that the ruble will steadily strengthen, given that the Russian authorities are not developing the economy and are increasingly lagging behind the world.
I could make a countercase. You have a northern climate in a world that is getting warmer. And you have lots of natural resources just as huge countries like India and China (and Vietnam, and Indonesia etc) are becoming middle class and their demand for raw materials soars.

(However I think it is wise to consider also politico-economic history. How we treat pre 1917, 1917 to 1990/92, 1992+ is an interesting question).

I don't think we can resolve this here. Your position has support from long term facts.

On the currency of investments, there *is* a good explanation here (a wiki). Ted Swippet may dig it out for us, I can't go and find it right now.

But basically:

- currency of denomination of stock funds doesn't matter. You can buy the same fund in USD EUR or GBP, generally, in Europe, and any movement in the currencies will be offset by a movement in the stock prices - your economic interest will not change. If I own US stock fund, and the USD depreciates, the value of the stocks (in GBP) will generally appreciate to offset that. My total wealth in a USD fund or a GBP fund, that both invest only in the S&P500, will be the same.

- with bonds, the currency that investors are paid in matters - the annual coupon and the final redemption of each bond. Russia for example pays investors in Roubles (some bonds) and USD (other bonds)

- a stock (equity) fund or a bond fund may choose to *hedge*. Most bond funds do. If I (UK based) buy a US Treasury bond fund, it will normally be "GBP hedged" ie the fund manager will use derivatives (futures, options or swaps) to stabilise the value of the fund in GBP. If the USD devalues, it won't affect me then.
2) I also leaned towards the market weight of the US economy until I studied the section on international stocks on this forum, which recommends sticking to the international about 20%. Perhaps this is a recommendation for U.S. citizens: outweigh their country.
Many US investors here feel they do not need foreign stocks. Or at most 20%. 80% USA 20% non-USA. For those of us who are not US-based, most of us feel we should not try to outguess the market. The US is c 60% of world stock markets, so we should be 60% USA and 40% non USA.

It's certainly fair to say "actually in the long run the US market has done the best, and there are good reasons for that". What I was querying was holding 2 funds: a world fund (which will be 60% USA) and a US only fund. You could wind up with a larger percentage exposure than you intend.
But I wouldn't want to outweigh Russia or developing countries. Now the international 42-45% of the world. Vanguard holds about 40% of its trust funds. Can I choose the average 30% option (VEA 20 / VWO 10)? I don't know what share I should choose for international ones, what do you think?

3) I invest through IB directly in etf vanguard, hopefully private Investors will not be denied access. If this happens, I will invest through Irish funds.
I don't know the fund tickers, to be honest.

I would want to own, developed markets, the whole market. And thus be about 60% US stocks.
Ed 2
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Re: Risks of a Russian when investing in a US portfolio?

Post by Ed 2 »

V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
The only risk would be if you used brokerage based in Russian federation. If you use brokerage outside like Interactive brokers you got no risks associated with Russian government may seize your investments . If you know short term Russian stocks outperformed US equity past month’s because of oil prices . Long term as far as I know in Russia virtually no laws to protect any business or individuals investor, no real laws to protect private property. For curiosity, what kind of brokerage do you use in Russia? As far as I know Russian brokerages don’t have direct excess to buy ETF’s that you mentioned for individual investors. Maybe I am wrong?
You can look at more simple approach like investing in VT etf. This ETF is whole world portfolio.
Good luck , Ed .
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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Watty
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Re: Risks of a Russian when investing in a US portfolio?

Post by Watty »

V.T wrote: Thu Sep 23, 2021 1:31 am .....but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?
Your English is great!

It is not so much a risk but one thing to keep in mind is that if you move to the US you will have considerable expenses with setting up a place to live, likely buying a car, and you may or may not want to eventually buy a house.

Right now your portfolio is 90% stocks and 10% bonds which is reasonable for someone who is 35 years old and might not retire for 30 years.

The reason this could be an issue is that if you move to the US in ten years then then you will need some of that money then and 90% stocks would be too agressive for money that is needed in 10 years.

You might want to think of your money as being in two separate portfolios, retirement money and a separate fund to pay for your move in 10 years. Something like 50 or 60 percent stocks might be more appropriate for money that is needed in 10 years and you would want to reduce the stock percentage some each year as you get closer to the move.
V.T wrote: Thu Sep 23, 2021 1:31 am VOO Vanguard S&P 500 ETF - 70
There isn't a lot of difference but a Total Stock Market(US) fund is a slightly better choice because it also includes more medium and small companies. Something like 80% of stocks are the same though because they both own large US companies.

The main reason that the Total Stock Market fund is better is that as companies get larger or shrink they do not need to be bought and sold as they are added or removed from S&P 500 index. When this happens it can generate capital gains that you would need to pay taxes on when you live in the US.

The amounts are really small so it is not a big deal but it is easily to avoid so in the future you might want to use that for any new investments.
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V.T
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Valuethinker wrote: Thu Sep 23, 2021 3:50 pm
Thanks for the detailed reply!

1) Currency risk: if the ruble grows on the one hand, it will help me buy more US dollars and buy more shares in dollars, but this will reduce my total capital in rubles. If I manage to move to the U.S., I'll win. Do I understand this correctly? But for 100 years, the ruble has been steadily falling against the dollar and inflation in Russia is much higher, so I doubt that the ruble will steadily strengthen, given that the Russian authorities are not developing the economy and are increasingly lagging behind the world.
I could make a countercase. You have a northern climate in a world that is getting warmer. And you have lots of natural resources just as huge countries like India and China (and Vietnam, and Indonesia etc) are becoming middle class and their demand for raw materials soars.

(However I think it is wise to consider also politico-economic history. How we treat pre 1917, 1917 to 1990/92, 1992+ is an interesting question).

I don't think we can resolve this here. Your position has support from long term facts.

On the currency of investments, there *is* a good explanation here (a wiki). Ted Swippet may dig it out for us, I can't go and find it right now.

But basically:

- currency of denomination of stock funds doesn't matter. You can buy the same fund in USD EUR or GBP, generally, in Europe, and any movement in the currencies will be offset by a movement in the stock prices - your economic interest will not change. If I own US stock fund, and the USD depreciates, the value of the stocks (in GBP) will generally appreciate to offset that. My total wealth in a USD fund or a GBP fund, that both invest only in the S&P500, will be the same.

- with bonds, the currency that investors are paid in matters - the annual coupon and the final redemption of each bond. Russia for example pays investors in Roubles (some bonds) and USD (other bonds)

- a stock (equity) fund or a bond fund may choose to *hedge*. Most bond funds do. If I (UK based) buy a US Treasury bond fund, it will normally be "GBP hedged" ie the fund manager will use derivatives (futures, options or swaps) to stabilise the value of the fund in GBP. If the USD devalues, it won't affect me then.
2) I also leaned towards the market weight of the US economy until I studied the section on international stocks on this forum, which recommends sticking to the international about 20%. Perhaps this is a recommendation for U.S. citizens: outweigh their country.
Many US investors here feel they do not need foreign stocks. Or at most 20%. 80% USA 20% non-USA. For those of us who are not US-based, most of us feel we should not try to outguess the market. The US is c 60% of world stock markets, so we should be 60% USA and 40% non USA.

It's certainly fair to say "actually in the long run the US market has done the best, and there are good reasons for that". What I was querying was holding 2 funds: a world fund (which will be 60% USA) and a US only fund. You could wind up with a larger percentage exposure than you intend.
But I wouldn't want to outweigh Russia or developing countries. Now the international 42-45% of the world. Vanguard holds about 40% of its trust funds. Can I choose the average 30% option (VEA 20 / VWO 10)? I don't know what share I should choose for international ones, what do you think?

3) I invest through IB directly in etf vanguard, hopefully private Investors will not be denied access. If this happens, I will invest through Irish funds.
I don't know the fund tickers, to be honest.

I would want to own, developed markets, the whole market. And thus be about 60% US stocks.
1) Thank you for describing currency risks! Given that I currently have expenses in US dollars and plan to move to the US in the future, I should not worry much about the fact that the dollar may fall. And if it falls during my stay in Russia, then for me it may be positive due to the fact that I will be able to buy more assets in the US every month. Am I reasoning correctly?

2) I can't definitively determine the share of foreign shares, I think from 20% to a framework share of 40. Do you invest in international stocks based on market capitalization? If you lived in the U.S., what share do you hold? What advice would you give me on the share, given that I have US dollars in my spending and that I plan to move to the US in 10 years?
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Ed 2 wrote: Thu Sep 23, 2021 4:05 pm
V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
The only risk would be if you used brokerage based in Russian federation. If you use brokerage outside like Interactive brokers you got no risks associated with Russian government may seize your investments . If you know short term Russian stocks outperformed US equity past month’s because of oil prices . Long term as far as I know in Russia virtually no laws to protect any business or individuals investor, no real laws to protect private property. For curiosity, what kind of brokerage do you use in Russia? As far as I know Russian brokerages don’t have direct excess to buy ETF’s that you mentioned for individual investors. Maybe I am wrong?
You can look at more simple approach like investing in VT etf. This ETF is whole world portfolio.
Good luck , Ed .
I currently have an account with interactive brokers and have access to almost all securities and exchanges. There is a possibility that the IB may stop serving Russian citizens. Then I will open an account with European brokers.
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V.T
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Watty wrote: Thu Sep 23, 2021 5:01 pm
V.T wrote: Thu Sep 23, 2021 1:31 am .....but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?
Your English is great!

It is not so much a risk but one thing to keep in mind is that if you move to the US you will have considerable expenses with setting up a place to live, likely buying a car, and you may or may not want to eventually buy a house.

Right now your portfolio is 90% stocks and 10% bonds which is reasonable for someone who is 35 years old and might not retire for 30 years.

The reason this could be an issue is that if you move to the US in ten years then then you will need some of that money then and 90% stocks would be too agressive for money that is needed in 10 years.

You might want to think of your money as being in two separate portfolios, retirement money and a separate fund to pay for your move in 10 years. Something like 50 or 60 percent stocks might be more appropriate for money that is needed in 10 years and you would want to reduce the stock percentage some each year as you get closer to the move.
V.T wrote: Thu Sep 23, 2021 1:31 am VOO Vanguard S&P 500 ETF - 70
There isn't a lot of difference but a Total Stock Market(US) fund is a slightly better choice because it also includes more medium and small companies. Something like 80% of stocks are the same though because they both own large US companies.

The main reason that the Total Stock Market fund is better is that as companies get larger or shrink they do not need to be bought and sold as they are added or removed from S&P 500 index. When this happens it can generate capital gains that you would need to pay taxes on when you live in the US.

The amounts are really small so it is not a big deal but it is easily to avoid so in the future you might want to use that for any new investments.
1) I have assets in Russia, when I move to the United States, sell them and I will have enough to buy a house, a car and for life. I consider my investments separately and will use them when I retire, so I will not need to sell them for another 20-30 years. I form a potfel for this period, so there are 90 stocks / 10 bonds.

2) Voo I bought at the very beginning, without studying it, did not know about the pros of vti, if now I change voo to vti I will have a considerable capital gains tax. Do you think it is necessary to change in such conditions?

3) What proportion do you think I need to allocate to international stocks based on my terms?
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Re: Risks of a Russian when investing in a US portfolio?

Post by TedSwippet »

V.T wrote: Fri Sep 24, 2021 7:30 am 2) Voo I bought at the very beginning, without studying it, did not know about the pros of vti, if now I change voo to vti I will have a considerable capital gains tax. Do you think it is necessary to change in such conditions?
At this stage, probably not. If you look at this comparison of VTI and VOO, you will see virtually no difference in performance:

https://www.google.com/finance/quote/VT ... window=MAX

Once your holdings exceed $60,000, do you understand the US estate tax risk you have as a Russian investor holding US domiciled ETFs? Details here:

Are nonresident aliens at risk from US estate taxes? - Bogleheads

Russia has a good income tax treaty with the US, but it has no US estate tax treaty.
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Re: Risks of a Russian when investing in a US portfolio?

Post by Watty »

V.T wrote: Fri Sep 24, 2021 7:30 am 2) Voo I bought at the very beginning, without studying it, did not know about the pros of vti, if now I change voo to vti I will have a considerable capital gains tax. Do you think it is necessary to change in such conditions?
I do not think that it would be worth the tax cost of selling what you already own but you might want to put any new savings into the total stock market fund.
V.T wrote: Fri Sep 24, 2021 7:30 am 3) What proportion do you think I need to allocate to international stocks based on my terms?
If you were living in the US now a lot of people would use 20 to 30 percent international stocks. Some people who do not use any because a large percentage of US based companies income is from international sales.

Since you are not living in the US and there is a chance that you might not ever move to the US then you might want to own a bit more international investments.

My personal opinion is that I would be cautious about investing too much in China just because they do not seem to have strong stock shareholder rights and to me it is not clear how effective their legal and accounting system are when it comes to protecting foreign investors.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

TedSwippet wrote: Fri Sep 24, 2021 8:02 am
V.T wrote: Fri Sep 24, 2021 7:30 am 2) Voo I bought at the very beginning, without studying it, did not know about the pros of vti, if now I change voo to vti I will have a considerable capital gains tax. Do you think it is necessary to change in such conditions?
At this stage, probably not. If you look at this comparison of VTI and VOO, you will see virtually no difference in performance:

https://www.google.com/finance/quote/VT ... window=MAX

Once your holdings exceed $60,000, do you understand the US estate tax risk you have as a Russian investor holding US domiciled ETFs? Details here:

Are nonresident aliens at risk from US estate taxes? - Bogleheads

Russia has a good income tax treaty with the US, but it has no US estate tax treaty.
1) The difference in performance of voo and Vti for a long period is not large, so I decided to leave VOO.

2) If I understand correctly, we are talking about inheritance tax when an investor dies and when assets of more than $ 60,000 are received by heirs. There are mirror Irish vanguard funds, there is no this tax on them. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Watty wrote: Fri Sep 24, 2021 8:08 am
V.T wrote: Fri Sep 24, 2021 7:30 am 2) Voo I bought at the very beginning, without studying it, did not know about the pros of vti, if now I change voo to vti I will have a considerable capital gains tax. Do you think it is necessary to change in such conditions?
I do not think that it would be worth the tax cost of selling what you already own but you might want to put any new savings into the total stock market fund.
V.T wrote: Fri Sep 24, 2021 7:30 am 3) What proportion do you think I need to allocate to international stocks based on my terms?
If you were living in the US now a lot of people would use 20 to 30 percent international stocks. Some people who do not use any because a large percentage of US based companies income is from international sales.

Since you are not living in the US and there is a chance that you might not ever move to the US then you might want to own a bit more international investments.

My personal opinion is that I would be cautious about investing too much in China just because they do not seem to have strong stock shareholder rights and to me it is not clear how effective their legal and accounting system are when it comes to protecting foreign investors.
1) I also decided not to change voo to Vti because of the tax. For me, as a citizen of Russia, there is an inheritance tax in case of death, if the assets are more than $ 60,000. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.

2) I'm currently leaning between 20 (Bogle recommends) and 40 (recommends vanguard) Choose the middle ground 30. Do you think that would be reasonable?

3) Previously, I wanted to increase the share of emerging to developed from 75/25 (market share) to 50/50. Now I'm leaning VEA 75 / VWO 25. Do you think you should not increase the share of emerging?
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Re: Risks of a Russian when investing in a US portfolio?

Post by TedSwippet »

V.T wrote: Fri Sep 24, 2021 10:00 am 2) If I understand correctly, we are talking about inheritance tax when an investor dies and when assets of more than $ 60,000 are received by heirs. There are mirror Irish vanguard funds, there is no this tax on them. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.
Exactly right, though worth noting that the US/Russia rate on dividends is 10%, compared to the 15% that an Ireland domiciled ETF would pay internally. Russia's treaty rate with the US happens to be a particularly good one.

Now, depending on how Russian taxes work -- and I have no idea on these -- that could mean that Ireland domiciled ETFs have a higher annual tax drag for you than US domiciled ones. You will need to somehow balance the US estate tax risk with the potentially lower dividend tax drag reward, then.

Also, note that Ireland domiciled ETFs, if you hold them, will be a huge US tax nightmare if you continue to hold them if/when you move to the US. For these, you will very much want to sell and purchase US domiciled ETFs again before becoming a US resident.

US tax is a horrible minefield. A potential move to the US is some years away for you it seems, but if/as it approaches you should take your time reorganising your investments so that these nasty US tax traps do not affect you when you do finally move.
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Re: Risks of a Russian when investing in a US portfolio?

Post by index2max »

The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.

Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.

At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.

Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.

If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.

Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.
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Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

V.T wrote: Fri Sep 24, 2021 6:40 am

1) Thank you for describing currency risks! Given that I currently have expenses in US dollars and plan to move to the US in the future, I should not worry much about the fact that the dollar may fall. And if it falls during my stay in Russia, then for me it may be positive due to the fact that I will be able to buy more assets in the US every month. Am I reasoning correctly?
Yes. That is reasonable.
2) I can't definitively determine the share of foreign shares, I think from 20% to a framework share of 40. Do you invest in international stocks based on market capitalization? If you lived in the U.S., what share do you hold? What advice would you give me on the share, given that I have US dollars in my spending and that I plan to move to the US in 10 years?
Holding US equity funds does not necessarily hedge you against USD moving up. Because as is explained in a wiki here, and as I tried to explain, the effect of a movement up in the USD on the US index is not entirely clear.

Only holding US dollar bond funds, or a bond (or equity) fund hedged into USD (most bond funds are hedged by currency, most equity funds are not), can you hedge against movements in the USD. As another poster points out, given your need to have USD within 10 years, you should consider holding more USD bonds. US government bonds (Treasuries) would have the lowest risk. However so-called "Agency" bonds (mortgage backed bonds, issued by entities connected to/ owned by the US government, in particular GNMA, "Fannie"/FNMA, "Freddie"/FMAC and some smaller entities, have essentially the same credit risk as the US Federal government).

Re equity funds:

https://www.vanguardinvestor.co.uk/inve ... folio-data This gives you the world percentages - including EM.

US is c 59% of world markets.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

US is c 65% of developed markets.

I index against the world. I have no good sense of which is going to be the outperforming market of the next decade - leadership seems to change decade by decade (at least).

I would also note that the question whether to hold US-listed (and domiciled, domicile is a tax term meaning where the fund is legally constituted) funds v European-listed (usually Ireland or Luxembourg domicile) funds is one about tax. European funds incur a "tax drag" arising from US withholding taxes on dividends paid - which generally cannot be recovered. Whereas in some cases, if you own US listed funds, your country may have a tax treaty which allows you to offset the payment of tax to the US against the payment of taxes on those dividends when you receive them in your home country. At least that is roughly how it works (I am no expert). The effect can be around 15 basis points (0.15%) pa I believe.

Over to you. If I were in your position, I might think of "hedging my bets" (gambling term) by holding some Irish-domiciled and some US-domiciled (it's essentially impossible for European investors, or UK ones, to buy US-listed ETFs and funds, now).
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Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.
Have you lived in other countries?

Taxes in *all* developed countries are "burdensome". The economic incidence is higher in most developed countries, particularly in Europe. For largely political reasons (as far as I can figure out - lobbying by the tax form preparation industry) the US also chooses to make the average tax payer fill out a tax return. Whereas in most other countries, the return is filled out automatically for you. If you are a UK taxpayer on "basic rate" tax (ie up to about USD 52k pa) then you never see a tax return, unless you have significant unearned income. Only about 8 million UK taxpayers (out of over 35m workers) actually file a return.

Another complication in US is you have state taxes. But that's also true of Canada, say. Some states like New York State the sum total is fairly painful, but not more so than living in Canada or, depending, in the UK (we also have 20% VAT on most things).

So unless you currently live in Hong Kong (maybe also Japan and Singapore) then one should not worry about high taxes in moving to the USA. Everybody pays taxes, everywhere. None of us like it much.
Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.
Have you been there? I mean if you don't mind living in a soul-less concrete superblock in the suburbs, and spending easily 2 hours+ a day in traffic, each way. The crime can be absolutely terrifying -- I mean I had a friend nearly drowned in the canal in St Petersburg, by hoodlums who were mugging him. America you have choices where you can get away from areas of criminality, you don't have to live in a bad part of a major city. I might also mention the corruption which is serious and infects all levels of government and police force. It's a country where what you can achieve is determined by who your friends are. And don't get on the radar screen of the tax police - they raid with battering rams.

My impression is Russian income tax rates are low because relatively few people make enough money to pay them. Indirect taxation and natural resource royalties are the main sources of government finance.
At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.
The main argument for a Russian is avoiding being in a situation where your bank accounts get frozen, foreign exchange transactions get restricted, etc. Russia has periodic economic crises, and this can happen.

But there's a problem - how do you hold the gold and silver that someone can't find it? Either in a criminal raid or simply in a police search, in which case you won't necessarily get it back. Russia you wouldn't necessarily want to hold it in a bank safety deposit box. And you can't move it across the border easily, I don't think? In the late 1930s, people who had to get their money out of Europe would often do it via the Antwerp diamond merchants - diamonds are easier to conceal/ move. The markdown to do it was over 50%, though.

The arguments around precious metals have an air of religious belief about them-- they don't call them "gold bugs" for nothing. What we can say is that PMs appear to have negative real returns - which you would expect, given storage costs (but traded off across growing costs of extraction) but that they have served as a hedge against some sorts of severe economic disruption, some times. See William Bernstein The Most Patient Asset (or some similar title) - article on The Efficient Frontier website. Also what he has written in his various investing books (it was The Intelligent Asset Allocator, in 2003, that put me on to here (or its Morningstar predecessor).

Campbell Harvey at Duke U has published some good papers on gold, and they are worth reading.
Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.
Only if governance doesn't overtly favour the insiders. The EM term is "asset tunneling" where the managers of the company extract the valuable assets, leaving the external minority shareholders with a shell. Read Bill Browder's book. Or read up on events for Shell, BP, Exxon during their times in Russia.
If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.
That is picking the extreme case-- China, and China very recently. There's lots of intermediate cases of countries that have similar corporate governance rules to the USA. Whether it's Unilever, Royal Dutch Shell, or Nestle, or BMW, the rule of law & minority protections of shareholders pertains in those countries too. The argument that somehow shareholders in American companies are better protected (debatable given executive compensation and other scandals) and that the market does not know this and does not price it in to the stocks is one contrary to efficient markets beliefs that we tend to hold here.
Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.
I wish you hadn't dredged up all this "proof by authority" again. It's an endless argument we have here and a pointlessly unresolvable one. I tried to summarise it in this thread with a short comment about differences between many (but not all) US posters here, and most (I think) international posters here.

It's wrong for us (internationally based investors) to throw away diversification benefits by overweighting our home country markets. The same argument applies to overweighting the USA, for an international investor. Except the US market is such a large percentage of international markets that the tracking error is likely to be lower.
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Re: Risks of a Russian when investing in a US portfolio?

Post by Ed 2 »

V.T wrote: Fri Sep 24, 2021 7:21 am
Ed 2 wrote: Thu Sep 23, 2021 4:05 pm
V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
The only risk would be if you used brokerage based in Russian federation. If you use brokerage outside like Interactive brokers you got no risks associated with Russian government may seize your investments . If you know short term Russian stocks outperformed US equity past month’s because of oil prices . Long term as far as I know in Russia virtually no laws to protect any business or individuals investor, no real laws to protect private property. For curiosity, what kind of brokerage do you use in Russia? As far as I know Russian brokerages don’t have direct excess to buy ETF’s that you mentioned for individual investors. Maybe I am wrong?
You can look at more simple approach like investing in VT etf. This ETF is whole world portfolio.
Good luck , Ed .
I currently have an account with interactive brokers and have access to almost all securities and exchanges. There is a possibility that the IB may stop serving Russian citizens. Then I will open an account with European brokers.
You doing everything right, so far.. You can travel to Europe and open brokerage in EU before IB will be shut in Russia ( it’s a matter of time in my opinion)... Be proactive. Don’t rely on other domestic brokerages in Russia. They all under the government nail with plenty of restrictions . It’s a matter of time when Kremlin will start pushing around investors the same way as China.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

TedSwippet wrote: Fri Sep 24, 2021 10:13 am
V.T wrote: Fri Sep 24, 2021 10:00 am 2) If I understand correctly, we are talking about inheritance tax when an investor dies and when assets of more than $ 60,000 are received by heirs. There are mirror Irish vanguard funds, there is no this tax on them. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.
Exactly right, though worth noting that the US/Russia rate on dividends is 10%, compared to the 15% that an Ireland domiciled ETF would pay internally. Russia's treaty rate with the US happens to be a particularly good one.

Now, depending on how Russian taxes work -- and I have no idea on these -- that could mean that Ireland domiciled ETFs have a higher annual tax drag for you than US domiciled ones. You will need to somehow balance the US estate tax risk with the potentially lower dividend tax drag reward, then.

Also, note that Ireland domiciled ETFs, if you hold them, will be a huge US tax nightmare if you continue to hold them if/when you move to the US. For these, you will very much want to sell and purchase US domiciled ETFs again before becoming a US resident.

US tax is a horrible minefield. A potential move to the US is some years away for you it seems, but if/as it approaches you should take your time reorganising your investments so that these nasty US tax traps do not affect you when you do finally move.
Russia has a tax agreement with Ireland. There are etfs that accumulate dividends, so you will not need to pay tax on them. I'm mortgaged to move to the U.S., so I invest in a U.S. etf and take into account the risk of inheritance tax from $60,000. Now I am more concerned about determining the share of foreign shares in my portfolio.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.

Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.

At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.

Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.

If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.

Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.

I also share Bogle's position on the stability and profitability of the U.S. economy and stock market. But I've seen the losses that Japanese investors suffered when Japan's stock market was at its peak, has not recovered since the fall. Therefore, I am inclined to believe that international stocks should be in the portfolio, not for performance, but to hedge the risks of a possible decline in the United States. The question of the size of the share worries me. I'm leaning towards an average between the advice of a bogla of up to 20% and 40% of the vanguard recommendation, the average between them 30% seems to me to be a successor. What do you think of that?
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Valuethinker wrote: Fri Sep 24, 2021 12:57 pm
V.T wrote: Fri Sep 24, 2021 6:40 am

1) Thank you for describing currency risks! Given that I currently have expenses in US dollars and plan to move to the US in the future, I should not worry much about the fact that the dollar may fall. And if it falls during my stay in Russia, then for me it may be positive due to the fact that I will be able to buy more assets in the US every month. Am I reasoning correctly?
Yes. That is reasonable.
2) I can't definitively determine the share of foreign shares, I think from 20% to a framework share of 40. Do you invest in international stocks based on market capitalization? If you lived in the U.S., what share do you hold? What advice would you give me on the share, given that I have US dollars in my spending and that I plan to move to the US in 10 years?
Holding US equity funds does not necessarily hedge you against USD moving up. Because as is explained in a wiki here, and as I tried to explain, the effect of a movement up in the USD on the US index is not entirely clear.

Only holding US dollar bond funds, or a bond (or equity) fund hedged into USD (most bond funds are hedged by currency, most equity funds are not), can you hedge against movements in the USD. As another poster points out, given your need to have USD within 10 years, you should consider holding more USD bonds. US government bonds (Treasuries) would have the lowest risk. However so-called "Agency" bonds (mortgage backed bonds, issued by entities connected to/ owned by the US government, in particular GNMA, "Fannie"/FNMA, "Freddie"/FMAC and some smaller entities, have essentially the same credit risk as the US Federal government).

Re equity funds:

https://www.vanguardinvestor.co.uk/inve ... folio-data This gives you the world percentages - including EM.

US is c 59% of world markets.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

US is c 65% of developed markets.

I index against the world. I have no good sense of which is going to be the outperforming market of the next decade - leadership seems to change decade by decade (at least).

I would also note that the question whether to hold US-listed (and domiciled, domicile is a tax term meaning where the fund is legally constituted) funds v European-listed (usually Ireland or Luxembourg domicile) funds is one about tax. European funds incur a "tax drag" arising from US withholding taxes on dividends paid - which generally cannot be recovered. Whereas in some cases, if you own US listed funds, your country may have a tax treaty which allows you to offset the payment of tax to the US against the payment of taxes on those dividends when you receive them in your home country. At least that is roughly how it works (I am no expert). The effect can be around 15 basis points (0.15%) pa I believe.

Over to you. If I were in your position, I might think of "hedging my bets" (gambling term) by holding some Irish-domiciled and some US-domiciled (it's essentially impossible for European investors, or UK ones, to buy US-listed ETFs and funds, now).
Thank you for your help!
The issue of hedging American etfs through Irish etfs is interesting to me, now I study it in detail. By your international ratio, I understand. Why don't you invest in emerging countries? I understand the high volatility, political risks, underdeveloped stock markets, poor protection of property rights, but on the other hand, higher performance of stocks at a long stage?
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Valuethinker wrote: Fri Sep 24, 2021 1:20 pm
index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.
Have you lived in other countries?

Taxes in *all* developed countries are "burdensome". The economic incidence is higher in most developed countries, particularly in Europe. For largely political reasons (as far as I can figure out - lobbying by the tax form preparation industry) the US also chooses to make the average tax payer fill out a tax return. Whereas in most other countries, the return is filled out automatically for you. If you are a UK taxpayer on "basic rate" tax (ie up to about USD 52k pa) then you never see a tax return, unless you have significant unearned income. Only about 8 million UK taxpayers (out of over 35m workers) actually file a return.

Another complication in US is you have state taxes. But that's also true of Canada, say. Some states like New York State the sum total is fairly painful, but not more so than living in Canada or, depending, in the UK (we also have 20% VAT on most things).

So unless you currently live in Hong Kong (maybe also Japan and Singapore) then one should not worry about high taxes in moving to the USA. Everybody pays taxes, everywhere. None of us like it much.
Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.
Have you been there? I mean if you don't mind living in a soul-less concrete superblock in the suburbs, and spending easily 2 hours+ a day in traffic, each way. The crime can be absolutely terrifying -- I mean I had a friend nearly drowned in the canal in St Petersburg, by hoodlums who were mugging him. America you have choices where you can get away from areas of criminality, you don't have to live in a bad part of a major city. I might also mention the corruption which is serious and infects all levels of government and police force. It's a country where what you can achieve is determined by who your friends are. And don't get on the radar screen of the tax police - they raid with battering rams.

My impression is Russian income tax rates are low because relatively few people make enough money to pay them. Indirect taxation and natural resource royalties are the main sources of government finance.
At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.
The main argument for a Russian is avoiding being in a situation where your bank accounts get frozen, foreign exchange transactions get restricted, etc. Russia has periodic economic crises, and this can happen.

But there's a problem - how do you hold the gold and silver that someone can't find it? Either in a criminal raid or simply in a police search, in which case you won't necessarily get it back. Russia you wouldn't necessarily want to hold it in a bank safety deposit box. And you can't move it across the border easily, I don't think? In the late 1930s, people who had to get their money out of Europe would often do it via the Antwerp diamond merchants - diamonds are easier to conceal/ move. The markdown to do it was over 50%, though.

The arguments around precious metals have an air of religious belief about them-- they don't call them "gold bugs" for nothing. What we can say is that PMs appear to have negative real returns - which you would expect, given storage costs (but traded off across growing costs of extraction) but that they have served as a hedge against some sorts of severe economic disruption, some times. See William Bernstein The Most Patient Asset (or some similar title) - article on The Efficient Frontier website. Also what he has written in his various investing books (it was The Intelligent Asset Allocator, in 2003, that put me on to here (or its Morningstar predecessor).

Campbell Harvey at Duke U has published some good papers on gold, and they are worth reading.
Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.
Only if governance doesn't overtly favour the insiders. The EM term is "asset tunneling" where the managers of the company extract the valuable assets, leaving the external minority shareholders with a shell. Read Bill Browder's book. Or read up on events for Shell, BP, Exxon during their times in Russia.
If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.
That is picking the extreme case-- China, and China very recently. There's lots of intermediate cases of countries that have similar corporate governance rules to the USA. Whether it's Unilever, Royal Dutch Shell, or Nestle, or BMW, the rule of law & minority protections of shareholders pertains in those countries too. The argument that somehow shareholders in American companies are better protected (debatable given executive compensation and other scandals) and that the market does not know this and does not price it in to the stocks is one contrary to efficient markets beliefs that we tend to hold here.
Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.
I wish you hadn't dredged up all this "proof by authority" again. It's an endless argument we have here and a pointlessly unresolvable one. I tried to summarise it in this thread with a short comment about differences between many (but not all) US posters here, and most (I think) international posters here.

It's wrong for us (internationally based investors) to throw away diversification benefits by overweighting our home country markets. The same argument applies to overweighting the USA, for an international investor. Except the US market is such a large percentage of international markets that the tracking error is likely to be lower.
You very well and accurately described the specifics of life and business in Russia (I think in most developing countries) everyone talks about 13% income tax, I assure you that with hidden taxes (employer contributions for an employee to the state pension fund, social fund, 20 VAT, etc.), the total amount of taxes increases to about 45-50%. And the most important thing is that the state spends these taxes very inefficiently, huge money is received by those close to the authorities and corrupt civil servants. For this reason, I want to leave Russia for the United States, although I earn much more than the average citizen in Russia.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Ed 2 wrote: Fri Sep 24, 2021 2:25 pm
V.T wrote: Fri Sep 24, 2021 7:21 am
Ed 2 wrote: Thu Sep 23, 2021 4:05 pm
V.T wrote: Thu Sep 23, 2021 1:31 am Hello!
Sorry for mistakes in advance, English is not my first language.
I am 34 years old and started investing for a long time until retirement 60-65 years, I plan to replenish it monthly.
At the moment, the following portfolio has been compiled:
VOO Vanguard S&P 500 ETF - 70
VEA Vanguard FTSE Developed Markets - 15
VWO Vanguard FTSE Emerging Markets - 5
BND Vanguard Total Bond Market - 10.
I increased the share of the US in the portfolio because I believe that the US will be the driver of economic growth around the world for numerous reasons: the development of technology, a strong currency, an efficient stock market. When I am bilinear to retirement, I will increase the share of bonds in the portfolio.
It should be noted that the ruble has been falling significantly against the US dollar for a long time and inflation in Russia is much greater than in the United States.

My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
The only risk would be if you used brokerage based in Russian federation. If you use brokerage outside like Interactive brokers you got no risks associated with Russian government may seize your investments . If you know short term Russian stocks outperformed US equity past month’s because of oil prices . Long term as far as I know in Russia virtually no laws to protect any business or individuals investor, no real laws to protect private property. For curiosity, what kind of brokerage do you use in Russia? As far as I know Russian brokerages don’t have direct excess to buy ETF’s that you mentioned for individual investors. Maybe I am wrong?
You can look at more simple approach like investing in VT etf. This ETF is whole world portfolio.
Good luck , Ed .
I currently have an account with interactive brokers and have access to almost all securities and exchanges. There is a possibility that the IB may stop serving Russian citizens. Then I will open an account with European brokers.
You doing everything right, so far.. You can travel to Europe and open brokerage in EU before IB will be shut in Russia ( it’s a matter of time in my opinion)... Be proactive. Don’t rely on other domestic brokerages in Russia. They all under the government nail with plenty of restrictions . It’s a matter of time when Kremlin will start pushing around investors the same way as China.
I absolutely agree with you. Therefore, the first step was to open an account in interactive brokers and an account in one of the European countries. Now I am studying the issue of opening a brokerage account in Europe. Although the Russian government is doing everything to complicate this (they invented different reports, reports on bank transfers, filing declarations on their own, although Russian brokers file declarations for citizens)
Keropok
Posts: 4
Joined: Sun Sep 26, 2021 2:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Keropok »

hi!
you might find some Russia focused help with the Russia Bogleheads!
https://www.bogleheads.org/blog/portfol ... ogleheads/
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

V.T wrote: Sat Sep 25, 2021 12:49 am

You very well and accurately described the specifics of life and business in Russia (I think in most developing countries) everyone talks about 13% income tax, I assure you that with hidden taxes (employer contributions for an employee to the state pension fund, social fund, 20 VAT, etc.), the total amount of taxes increases to about 45-50%. And the most important thing is that the state spends these taxes very inefficiently, huge money is received by those close to the authorities and corrupt civil servants. For this reason, I want to leave Russia for the United States, although I earn much more than the average citizen in Russia.
I don't wish to drag you down the sinkhole of geopolitics (which is forbidden here in any case). It's not what you came here to find out.

My (superficial) understanding of Russia accords with what you say. I did not enjoy my (working) time in Moscow, but it was a very short trip. Like many "non western" places I think it helps if you have local knowledge and guides (which I did not). I studied Russian history as part of my "A Level" (last 2 years of high school) and so it would be interesting to actually see some of the places where these great events took place.

It poses particular issues for you as an investor. Russia is subject to some sanctions w EU and USA, and this may affect what you can do.

There is also the possibility that Russian citizens may find their access to foreign financial markets and products frozen in some way - either by external action or by a government decision. Whether they could stop you holding US dollar funds, for example.

I don't think anyone here can, at least publicly as opposed to via Private Message, advise you re these matters. Or regarding Money Laundering rules in UK etc. I know a lot of Russians keep bank accounts in Cyprus (and probably Greece) - nations with historic cultural affiliations.

It is wise to diversify your investments as much as you possibly can. Holding perhaps US-domiciled funds/ ETFs, EU domiciled etc.

Your broad portfolio strategy is not wrong, subject to:

- you may need more USD bonds than you think, because your time horizon is only 10 years, not 30+ say of many retirement savings investors here. Only holding USD bonds or a bond fund hedged into USD will fully protect you against exchange rate moves. Although as you note, it doesn't worry you too much if the rouble goes *up* relative to the USD.

- it's not wrong to say only invest in US S&P500 stocks, but for example after the dot com bust, beginning in 2000, the tech-heavy US index underperformed. The fantastic performance of US stocks since 2009 is very much about 1). the success of the internet companies Facebook Apple Google (headed by the son of Russian immigrants ;-)) Netflix Amazon + Microsoft (the FAANGs + Microsoft) 2). the faster recovery of the financials stocks from the Global Financial Crisis.

So one could see those factors unwinding. Diversification is not a bad strategy. 20% non US stocks would give a degree of that, market weight is around 35% (developed markets only) or 40% (including Emerging Markets) so vs your 80% US stocks/ 20% non. It won't make a huge difference, most likely, to your final portfolio.

I agree that the USA is a place where a talented, hard working person can aspire to a lot. Many of the post graduate students in the computer science and engineering department at my undergraduate university were Russians (former citizens of Soviet Union, at that time) and they were generally first rate-- very impressive. Working in London I have gained a very high impression of the graduates of Moscow State University, for example. I think they find us westerners rather "soft" and lazy, by comparison.

Since this is your goal, I hope you get there sooner rather than later. I have seen people move to western Europe and *then* move to the USA but I have no idea whether this is easier (from a work permit point of view) than going direct. Certainly H1B Visas have been highly restricted, I believe.
index2max
Posts: 514
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Re: Risks of a Russian when investing in a US portfolio?

Post by index2max »

V.T wrote: Fri Sep 24, 2021 11:59 pm
index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.

Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.

At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.

Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.

If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.

Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.
I also share Bogle's position on the stability and profitability of the U.S. economy and stock market. But I've seen the losses that Japanese investors suffered when Japan's stock market was at its peak, has not recovered since the fall. Therefore, I am inclined to believe that international stocks should be in the portfolio, not for performance, but to hedge the risks of a possible decline in the United States. The question of the size of the share worries me. I'm leaning towards an average between the advice of a bogla of up to 20% and 40% of the vanguard recommendation, the average between them 30% seems to me to be a successor. What do you think of that?
I wish I had a good answer, but I don't know what will work best in the future. Market prices are affected by human psychology. I cannot control how others think. I can only invest in what makes sense to me.

There are two approaches to investing, do not put all your eggs in one basket (that is to say, diversify) or as Warren Buffet says "put all your eggs in one basket and watch it closely".

As an American who skimmed through Jack Bogle's book "Common Sense on Mutual Funds", I thought his "invest-in-America" approach made sense simply because our business laws are less socialist and confiscatory than Europe or Asia. Of course, America is not perfect or free of corruption either. There are always risks no matter which approach you choose.

I will explain the thinking behind my current index-investing approach.

One thing I like, which Jack Bogle, recommended too, is simplicity. I know that many large, multinational firms are US-based such as 3M conduct a lot of business overseas. Their financial performance is affected what happens overseas too.

Regarding your concerns about currency for immediate spending needs and whether your index fund holdings should be dollar-denominated, or ruble-denominated etc. I do not have any expert advice to offer on this. All paper currencies seem the same to me. The question to ask is which currencies are being printed at a faster rate than others. The US dollar has been better than say, Zimbabwean dollars.

Very few countries in the world currently have their paper currencies backed by precious metals such as gold. Therefore, politicians can print money to solve their budget issues. This behavior by governments also causes investors to buy stocks at any price for fear of inflation eating away at the purchasing power of their cash. This is certainly a concern in the long run, but I believe it's wise to have extra cash on hand inside a checking or savings account for emergencies.

This is why investors should purchase and own assets to save for retirement. Many Bogleheads here dislike precious metals. I, do not recommend buying precious metals as an alternative investment to owning assets such as stocks, bonds or real estate, because those give you passive income.

Precious metals do nothing and just sit there, like cash. The good thing about precious metals is that the total supply in circulation is probably increasing at a lower rate than the amount of dollars or euros being printed. So I feel comfortable owning a few bars or coins of precious metals as an alternative to cash. The US government unfavorably taxes the sale of precious metals into dollars, just rare, collectable paintings. Therefore I only buy and hold my precious metals with no plans to sell in the near-future.

The taxation rate of when selling shares of stock or the dividends they generate are lower in the United States than income you earn from working. So based on current US taxation law, there is a big advantage to owning stocks of publicly-traded companies whether you own them directly or indirectly via index funds.

I like seeing Russians on the forum! Many Russians I know depend on their cash savings and government pensions. I wish more Russians would take the time to think about how to fund their own retirement. Russia has only recently gone back to capitalism 30 years ago, so this will take time. Feel free to send me a private message if you'd like. Я говорю по-русски :)
Valuethinker wrote: Fri Sep 24, 2021 1:20 pm
index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.
Have you lived in other countries?
Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.
Have you been there? I mean if you don't mind living in a soul-less concrete superblock in the suburbs, and spending easily 2 hours+ a day in traffic, each way. The crime can be absolutely terrifying -- I mean I had a friend nearly drowned in the canal in St Petersburg, by hoodlums who were mugging him. America you have choices where you can get away from areas of criminality, you don't have to live in a bad part of a major city. I might also mention the corruption which is serious and infects all levels of government and police force. It's a country where what you can achieve is determined by who your friends are. And don't get on the radar screen of the tax police - they raid with battering rams.

My impression is Russian income tax rates are low because relatively few people make enough money to pay them. Indirect taxation and natural resource royalties are the main sources of government finance.
Your reply to my post was rather long and I don't want to take up the whole page responding to every point you made, but you brought up a lot of good things to discuss. I'll just start with your initial question.

Yes, I have lived in St. Petersburg, Russia as a student and know many people living there. My friends say the 1990s was dangerous in Russia, but now things are much better.

A regular person can go walking down the street during the middle of the day and not be robbed, attacked or bothered. Of course, you should be careful walking around a big city like St. Petersburg or Moscow at night. Common sense is required when living in a big Russian city, just like living in a big city in the United States. I'm sorry someone you knew was robbed in Russia back in the 1990s, but you and other Americans should visit places like St. Petersburg, Russia. Your impression of Russia will change for the better after that. Mine certainly did!
Your reply to my post was rather long and I don't want to take up the whole page responding to every point you made, but you brought up a lot of good things to discuss. I'll just start with your initial question.

Yes, I have lived in St. Petersburg, Russia as a student and know many people living there. My friends say the 1990s was dangerous in Russia, but now things are much better.

A regular person can go walking down the street during the middle of the day and not be robbed, attacked or bothered. Of course, you should be careful walking around a big city like St. Petersburg or Moscow at night. Common sense is required when living in a big Russian city, just like living in a big city in the United States. I'm sorry someone you knew was robbed in Russia back in the 1990s, but you and other Americans should visit places like St. Petersburg, Russia. Your impression of Russia will change for the better after that. Mine certainly did!
Phil_1976
Posts: 9
Joined: Sun Apr 09, 2017 5:13 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Phil_1976 »

TedSwippet wrote: Fri Sep 24, 2021 10:13 am
V.T wrote: Fri Sep 24, 2021 10:00 am 2) If I understand correctly, we are talking about inheritance tax when an investor dies and when assets of more than $ 60,000 are received by heirs. There are mirror Irish vanguard funds, there is no this tax on them. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.
...
Also, note that Ireland domiciled ETFs, if you hold them, will be a huge US tax nightmare if you continue to hold them if/when you move to the US. For these, you will very much want to sell and purchase US domiciled ETFs again before becoming a US resident.
Right from US side, meanwhile it may not be taxwise for Russian to hold Ireland domiciled ETFs less than 5 yrs.
https://www.usanr.ru/2021/01/2021.html
https://www.usanr.ru/2020/03/blog-post.html
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

index2max wrote: Sun Sep 26, 2021 9:57 pm
V.T wrote: Fri Sep 24, 2021 11:59 pm
index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.

Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.

At the end of the day, you should not care too deeply about currencies such as US dollars or Russian roubles. They are all paper currencies. The Russian and American governments will print more money today and in the future. What's more important is to ask yourself how many assets you own. If you are worried about the value of cash you own, you could always consider trading a small amount of it for precious metals such as gold and silver. Just remember that precious metals are not an asset like stocks or bonds. They don't grow in value. They just sit there and look more expensive because of money printing in the long run.

Stocks are an asset because you own a fraction of a publicly traded company, which can pay dividends. You only need cash for daily expenses such as groceries etc.

If investing in stocks, I think US companies are a safer bet. When it comes to business regulation, America is less socialist than other countries around the world. This makes it easier for companies to grow and there is less risk of government confiscation like you see in Mainland China.

Jack Bogle, the founder of index-fund company Vanguard and in whose honor this forum was founded, strongly believed that Americans did not need to worry about investing in international companies. He said that based on recent history, American investors could be expect to have enough money in retirement from their dividend income through stocks and by selling their shares, as needed, to pay for expenses in retirement.
I also share Bogle's position on the stability and profitability of the U.S. economy and stock market. But I've seen the losses that Japanese investors suffered when Japan's stock market was at its peak, has not recovered since the fall. Therefore, I am inclined to believe that international stocks should be in the portfolio, not for performance, but to hedge the risks of a possible decline in the United States. The question of the size of the share worries me. I'm leaning towards an average between the advice of a bogla of up to 20% and 40% of the vanguard recommendation, the average between them 30% seems to me to be a successor. What do you think of that?
I wish I had a good answer, but I don't know what will work best in the future. Market prices are affected by human psychology. I cannot control how others think. I can only invest in what makes sense to me.

There are two approaches to investing, do not put all your eggs in one basket (that is to say, diversify) or as Warren Buffet says "put all your eggs in one basket and watch it closely".

As an American who skimmed through Jack Bogle's book "Common Sense on Mutual Funds", I thought his "invest-in-America" approach made sense simply because our business laws are less socialist and confiscatory than Europe or Asia. Of course, America is not perfect or free of corruption either. There are always risks no matter which approach you choose.

I will explain the thinking behind my current index-investing approach.

One thing I like, which Jack Bogle, recommended too, is simplicity. I know that many large, multinational firms are US-based such as 3M conduct a lot of business overseas. Their financial performance is affected what happens overseas too.
Nice of you to "skim read". I did that CFA. Yes I have also read John Bogle.

You have not fitted that into an efficient market framework. If we believe in indexing, we believe it because we don't think an active investor, with publicly available information, can beat the market. Similarly, if markets are efficient (Semi Strong Form to use the academic term) then the valuation of foreign companies reflects what is publicly known about governance risks, etc.

So what do you know that the market doesn't know? Or do you not believe in Efficient Markets?
Regarding your concerns about currency for immediate spending needs and whether your index fund holdings should be dollar-denominated, or ruble-denominated etc. I do not have any expert advice to offer on this. All paper currencies seem the same to me. The question to ask is which currencies are being printed at a faster rate than others. The US dollar has been better than say, Zimbabwean dollars.
Unfortunately a narrowly quantity theory of money view doesn't give any helpful investing advice. By using Zimbabwe (actually their currency was quite stable, of late, because they dollarised) you are using an extreme data point to "prove" a case. Here's another one-- inflation has been on a falling trend, globally, since 1981. That may be ending now, but it's not clear it is. Taking a forecast of inflation from current point estimates is unlikely to be particularly more accurate.
Very few countries in the world currently have their paper currencies backed by precious metals such as gold. Therefore, politicians can print money to solve their budget issues. This behavior by governments also causes investors to buy stocks at any price for fear of inflation eating away at the purchasing power of their cash. This is certainly a concern in the long run, but I believe it's wise to have extra cash on hand inside a checking or savings account for emergencies.

This is why investors should purchase and own assets to save for retirement. Many Bogleheads here dislike precious metals. I, do not recommend buying precious metals as an alternative investment to owning assets such as stocks, bonds or real estate, because those give you passive income.
So we've established that, then.
Precious metals do nothing and just sit there, like cash. The good thing about precious metals is that the total supply in circulation is probably increasing at a lower rate than the amount of dollars or euros being printed. So I feel comfortable owning a few bars or coins of precious metals as an alternative to cash. The US government unfavorably taxes the sale of precious metals into dollars, just rare, collectable paintings. Therefore I only buy and hold my precious metals with no plans to sell in the near-future.
But you do not "invest" in them? The 2 paragraphs seem to conflict.

The problem with your advice to our colleague is that what you propose 1). is likely to have poor returns (although there's evidence that gold is this weird out there hedge, that works 1 year in 20, or less, at the cost of low (and probably negative) real returns ; 2). I question its practicality in a place like Russia (but perhaps one buries it in the garden of the allotment plot at the dacha, if one has a dacha?).

The taxation rate of when selling shares of stock or the dividends they generate are lower in the United States than income you earn from working. So based on current US taxation law, there is a big advantage to owning stocks of publicly-traded companies whether you own them directly or indirectly via index funds.
And the point for this discussion is ?
I like seeing Russians on the forum! Many Russians I know depend on their cash savings and government pensions. I wish more Russians would take the time to think about how to fund their own retirement. Russia has only recently gone back to capitalism 30 years ago, so this will take time. Feel free to send me a private message if you'd like. Я говорю по-русски :)
Russia is not "capitalist" in any meaningful form. It's a kleptocracy - and a murderous one. Further discussion of that goes into politics.
Valuethinker wrote: Fri Sep 24, 2021 1:20 pm
index2max wrote: Fri Sep 24, 2021 12:30 pm The federal personal income taxes in the United States are rather burdensome, especially on earned income (which is income you work receive from working on something personally such as self-employment or being an employee at a company). You will want to consider that if you choose to move to and work in the United States. Thankfully there are many types of accounts you can open in the United States that allow you to legally avoid some of those income taxes.
Have you lived in other countries?
Russia's personal taxation rate of 13% is much better, but life in the United States is obviously more comfortable, depending on which Russian city you live in. I believe St. Petersburg and Moscow are easily comparable to life in a big, prosperous American city.
...

Your reply to my post was rather long and I don't want to take up the whole page responding to every point you made, but you brought up a lot of good things to discuss. I'll just start with your initial question.

Yes, I have lived in St. Petersburg, Russia as a student and know many people living there. My friends say the 1990s was dangerous in Russia, but now things are much better.

A regular person can go walking down the street during the middle of the day and not be robbed, attacked or bothered. Of course, you should be careful walking around a big city like St. Petersburg or Moscow at night. Common sense is required when living in a big Russian city, just like living in a big city in the United States. I'm sorry someone you knew was robbed in Russia back in the 1990s, but you and other Americans should visit places like St. Petersburg, Russia. Your impression of Russia will change for the better after that. Mine certainly did!
Your reply to my post was rather long and I don't want to take up the whole page responding to every point you made, but you brought up a lot of good things to discuss. I'll just start with your initial question.

Yes, I have lived in St. Petersburg, Russia as a student and know many people living there. My friends say the 1990s was dangerous in Russia, but now things are much better.

A regular person can go walking down the street during the middle of the day and not be robbed, attacked or bothered. Of course, you should be careful walking around a big city like St. Petersburg or Moscow at night. Common sense is required when living in a big Russian city, just like living in a big city in the United States. I'm sorry someone you knew was robbed in Russia back in the 1990s, but you and other Americans should visit places like St. Petersburg, Russia. Your impression of Russia will change for the better after that. Mine certainly did!
Moscow struck me as hell. I was only there for work, so maybe didn't get the best of it. People live in big apartment blocks, have poor or no public services, face horrendous traffic and long commutes. But to liken living in Russia to living in the USA is ... just so out there. I mean, yes, if you are on $200k a year you can probably live well in Moscow or St Petersburg (not sure if that's enough) and conversely you'd live pretty badly in America on $10k a year - the conditions of parts of America are just shocking to a foreigner, even one coming from the rest of the Anglosphere. Whether one is better off on $10k a year in Russia or the USA is kind of moot... but $10k a year in a lot of places would be an OK standard of living.

Maybe your experience in St Petersburg was different-- a prettier city, at least. (BTW to be clear, it was in the early 2000s my friend's little experience. It wasn't the mugging, it's that they were quite prepared to kill him first). The problem of official corruption though is a serious one and not only at, say, the corporate level.

US taxes are "burdensome" but they are so, everywhere. That's my point. I don't think the Russian income tax rate of 13% is reflective of the actual tax burdens on Russians. And yes, Russian taxes are burdensome. I wouldn't tell someone not to move from Russia to America because of the tax system.

I think the main problem with US taxes is a political one - that other countries don't require the average wage earner to even fill in a tax return. Now my understanding is the last big US tax reform did do quite a bit in that regard (the "standard deduction"?). System is still riddled with tax expenditures (give backs to different interest groups) and anomalies -- but that's not only the US system.

You haven't proved your case for a Russian to invest only in US stocks, and that argument is fundamentally irresolvable, here. There are literally hundreds of threads in these boards on the subject.

The rest of your comments seemed to be driven by a particular politico-economic philosophy, and I don't think that leads to good investment advice.

At question was how to hedge a possible USD/ rouble mismatch risk. The answer is

1). stocks won't do it, perfectly (even US stocks - and that's a common misapprehension)

2). USD bonds will
index2max
Posts: 514
Joined: Mon Jan 21, 2019 10:01 pm

Re: Risks of a Russian when investing in a US portfolio?

Post by index2max »

Valuethinker, your post is way too long to respond to point by point, but I appreciate the effort you put in.

1. As Warren Buffett once said in a shareholder letter “ dumb money ceases to be dumb when it acknowledges its limitations”. What he meant is that a typical investor probably does not have the time nor the expertise to look at financial reports of all publicly traded companies.

That’s why index fund investing makes sense. Even jack Bogle acknowledged that somebody like Warren Buffett can consistently outperform the market, but that is rare.

Warren Buffett also said that the academic definition of investment risk, the possibility of your portfolio decreasing in value, is arbitrary. It doesn’t measure what we’re really worried about: the risk of you losing your entire investment. That is hard to quantify, which is why academics define “risk” in their way.

In fact a decrease in stock prices is a great thing! It means a buy-and-hold investor can buy shares of stocks at a discount. OP will have to weight for himself whether he wants to have his portfolio tilted more towards international stocks or US stocks.

2. Ok, you don’t like Russia, fine. I encourage anyone reading this thread to visit the country and come up with their own opinions. How much time did you spend in Russia, Valuethinker? When did you live there? Russia is not like the 1990s anymore.

Western media is harsh against Russia, which unfortunately biases us negatively.

My experience living and traveling within Russia have been safe and enjoyable. Regarding how you called Russia a “kleptocracy” isn’t the United States also a kleptocracy? What about when FDR canceled the convertibility of dollars into gold? Was that not theft? What about eminent domain?
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

index2max wrote: Sat Oct 02, 2021 1:38 pm Valuethinker, your post is way too long to respond to point by point, but I appreciate the effort you put in.
Your post is way too long and too out there to respond to point by point, but I appreciate the effort you put in. In any case it takes us way too far into political discussions which are prohibited on this forum.


From the point of view of the Original Poster:

- you can't hedge USD risk by owning US equities - the correlation is too inexact. The wikis here go into some detail into the differences between the currency of reporting of a fund, vs the currency of its actual economic exposure

- USD bonds do hedge US currency, because a bond is a fixed legal promise to pay an amount, in a currency, on certain dates

- TIPS bonds hedge USD inflation if that's a concern

The debate here re US v non US is endless, and not resolvable. From the perspective of those of us who are not US based, but generally live in developed countries, there's no reason to want to own the US index in preference to a global index. (no reason other than tax, which varies by country). The question is more one of how much it hurts to ignore c 40% of the investable market that is not US stocks. You get a different answer depending on which decade you choose - 2000-10 was not great for US-only investors, 2010-2020 has been fantastic. Over the long run, you get a very different answer depending on what your start date is. It's not generally been a good strategy to buy a market when it is at its all time peak of world stock market capitalisation (USA in 2000, Japan in 1990 etc)-- but that's only true in retrospect, of course.
Last edited by Valuethinker on Sun Oct 03, 2021 6:31 am, edited 2 times in total.
Ed 2
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Re: Risks of a Russian when investing in a US portfolio?

Post by Ed 2 »

Valuethinker wrote: Sun Oct 03, 2021 5:58 am

Thus we would expect US v international markets to be efficiently priced. If US companies have superior governance, the market knows this, and values them accordingly.

++1
I was in Russia in early 90s , was born in USSR. Periodically visit neighboring country part of which is currently occupied by Russia. Almost every neighbor in Russia filling insecure having Neghbor like Russia. You absolutely correct with description of modern Russia. I still have connections over there with my old time friends who actively investing overseas because as they say “ we don’t trust our government “. Whoever says opposite has no idea. One thing visit Russia as a tourist with pockets full of money, the other living over there.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

Phil_1976 wrote: Tue Sep 28, 2021 3:52 pm
TedSwippet wrote: Fri Sep 24, 2021 10:13 am
V.T wrote: Fri Sep 24, 2021 10:00 am 2) If I understand correctly, we are talking about inheritance tax when an investor dies and when assets of more than $ 60,000 are received by heirs. There are mirror Irish vanguard funds, there is no this tax on them. So when I accumulate a large amount in VOO, I want to buy the Irish etf fund vanguard VTI to avoid this tax and keep the entire US market through VTI.
...
Also, note that Ireland domiciled ETFs, if you hold them, will be a huge US tax nightmare if you continue to hold them if/when you move to the US. For these, you will very much want to sell and purchase US domiciled ETFs again before becoming a US resident.
Right from US side, meanwhile it may not be taxwise for Russian to hold Ireland domiciled ETFs less than 5 yrs.
https://www.usanr.ru/2021/01/2021.html
https://www.usanr.ru/2020/03/blog-post.html
Thank you.

Tax is likely to be a far more important consideration than anything else.

It might be the case that the best way to do this, for a Russian, is to "hedge your bets"? i.e. own equivalent investment funds/ ETFs, domiciled in both the USA and in EU ?

Most investment strategies will do, as long as:

- own low cost index funds
- index v widely (US index or world index) for equities
- for certain, needed, cash flows then bonds are more appropriate (because equity returns are so random - very high to very low, year on year)

Taxes however are a major cost, even a prohibitive one, to investment performance.

For OP the immigration strategy is also all important. Countries like Canada and Australia (also v nice places in which to live, but w less opportunities for the truly ambitious, arguably) definitely place a weighting on being younger. Our builder, despite being employed in a desired profession which was in short supply & having taken lots of professional qualification courses, was unable to stay in Australia - aged out. He had to return to the UK.

I don't know how visas and that work with the US now - just that they became much tighter post 2008, I believe.

The "correct" answer to investment strategy is only known after the fact, but by observing the basic principles above (+ tax) one can be as sure as anyone can be of an "OK" answer.
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Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

Ed 2 wrote: Sun Oct 03, 2021 6:17 am
Valuethinker wrote: Sun Oct 03, 2021 5:58 am

Thus we would expect US v international markets to be efficiently priced. If US companies have superior governance, the market knows this, and values them accordingly.

++1
I was in Russia in early 90s , was born in USSR. Periodically visit neighboring country part of which is currently occupied by Russia. Almost every neighbor in Russia filling insecure having Neghbor like Russia. You absolutely correct with description of modern Russia. I still have connections over there with my old time friends who actively investing overseas because as they say “ we don’t trust our government “. Whoever says opposite has no idea. One thing visit Russia as a tourist with pockets full of money, the other living over there.
Thank you for those insights.
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Re: Risks of a Russian when investing in a US portfolio?

Post by Anon9001 »

V.T wrote: Thu Sep 23, 2021 1:31 am My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Hello OP I am wondering what is going on with your portfolio currently? Are you not allowed to invest in foreigns stocks now?
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
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Re: Risks of a Russian when investing in a US portfolio?

Post by Valuethinker »

Anon9001 wrote: Mon Mar 28, 2022 4:29 am
V.T wrote: Thu Sep 23, 2021 1:31 am My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Hello OP I am wondering what is going on with your portfolio currently? Are you not allowed to invest in foreigns stocks now?
I think it's fairly dangerous for Russians, right now, to interact with westerners, online.

I would advise them against it. Family or close friends only. And assume that you are sitting in a policeman's office, with him reading the interchange. Before you say anything - that's for both sides of the conversation. An inadvertent use of the word "war" in Russia right now can cost you up to 15 years in prison - the Duma just passed that law.

We are back to the depths of the Cold War - or rather we are not, but we are heading that way - and the police search phones & social media.

Perhaps worth re-watching "Bridge of Spies" (I say that only for recency effect - there's doubtless better movies).

I had forgotten my interchanges above. It gives me no joy to see that I was far, far more correct than I could ever have thought to be. History's laugh is a dark one.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Anon9001 wrote: Mon Mar 28, 2022 4:29 am
V.T wrote: Thu Sep 23, 2021 1:31 am My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Hello OP I am wondering what is going on with your portfolio currently? Are you not allowed to invest in foreigns stocks now?
Hello! Recently, I have introduced a lot of restrictions due to these events. But for now there are channels through which you can invest in global stocks/ETFs. The Russian market fell by 50% in one day. But in my portfolio there was only 0.3% of Russia according to my investment plan (I adhere to the world equity cup - VT), broad diversification once again confirmed its need.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Valuethinker wrote: Mon Mar 28, 2022 8:07 am
Anon9001 wrote: Mon Mar 28, 2022 4:29 am
V.T wrote: Thu Sep 23, 2021 1:31 am My question is the following: I live in Russia, most of my expenses are in rubles, but there are also expenses in US dollars, but within 10 years I plan to move to the United States, what risks do I have due to the fact that I use such a portfolio, only currency?

Thank you all in advance for your help!
Hello OP I am wondering what is going on with your portfolio currently? Are you not allowed to invest in foreigns stocks now?
I think it's fairly dangerous for Russians, right now, to interact with westerners, online.

I would advise them against it. Family or close friends only. And assume that you are sitting in a policeman's office, with him reading the interchange. Before you say anything - that's for both sides of the conversation. An inadvertent use of the word "war" in Russia right now can cost you up to 15 years in prison - the Duma just passed that law.

We are back to the depths of the Cold War - or rather we are not, but we are heading that way - and the police search phones & social media.

Perhaps worth re-watching "Bridge of Spies" (I say that only for recency effect - there's doubtless better movies).

I had forgotten my interchanges above. It gives me no joy to see that I was far, far more correct than I could ever have thought to be. History's laugh is a dark one.
Hello! Indeed, criminal penalties for protests against the authorities have now been greatly tightened in Russia. Western countries have also imposed a huge number of sanctions against Russian citizens. Therefore, the citizens of Russia were caught in a vice on both sides, but I would not complain, the citizens of Russia are very persistent people and will pass it. But there are places where it is much worse and more dangerous now, where this military operation is currently taking place. And I, like the overwhelming majority of Russian citizens, have only one desire, so that all this ends as soon as possible, so that there are as few injured and dead as possible, and it is better that there are no such people at all, negotiations take place, peace comes and that this never happens again. This is a huge tragedy for all reasonable people ((((
Leesbro63
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Re: Risks of a Russian when investing in a US portfolio?

Post by Leesbro63 »

This reminds me of when the BRIC (Brazil, Russia, India, China) stocks were all the rage. You hear little about this now.
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Re: Risks of a Russian when investing in a US portfolio?

Post by V.T »

Leesbro63 wrote: Thu Apr 21, 2022 7:54 am This reminds me of when the BRIC (Brazil, Russia, India, China) stocks were all the rage. You hear little about this now.
I am very grateful to this forum for teaching me not to pay attention to fashion! Therefore, I have no problems now with the fact that the Russian market has fallen by 50%
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Re: Risks of a Russian when investing in a US portfolio?

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A political exchange was removed. As a reminder, see: Politics and Religion
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Re: Risks of a Russian when investing in a US portfolio?

Post by Anon9001 »

V.T wrote: Thu Apr 21, 2022 12:51 am Hello! Recently, I have introduced a lot of restrictions due to these events. But for now there are channels through which you can invest in global stocks/ETFs. The Russian market fell by 50% in one day. But in my portfolio there was only 0.3% of Russia according to my investment plan (I adhere to the world equity cup - VT), broad diversification once again confirmed its need.
Could you update us on the situation now? Did your foreign assets get confiscated or do you still own them? You are also still able to invest in foreign assets?

Thanks.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
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