[EU] What to do with spare USD?

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ashkyparrot
Posts: 1
Joined: Sun May 28, 2023 6:13 am

[EU] What to do with spare USD?

Post by ashkyparrot »

Through my employer's stock purchase plans/grants of stock that I have since sold I am currently in possession of about 35k in cash USD$, which represents roughly 30% of my net worth.
I'm looking for advice what to do with this Usd cash?

I'm an 25 y/o EU country citizen and currently live/work in Netherlands (NL) Most of my expenses are in EUR€, I have no expenses in Usd.
I currently rent and plan to stay in NL for at least 2+ years and don't have concrete plans to go to US although my career may give me opportunities to work there. I may consider within the next 2 years to buy house either to live/rent so I prefer my money to be liquidable.

My portfolio is entirely liquid, entirely equity mostly in EUR currency in EU stock exchanges but the equity is exposed majority to US companies.

My options I'm currently considering:
1) Sell USD to EUR in some market accurate currency rates i.e. Wise/Revolut and include it in my eur-currency equity portfolio
2) Invest in US domicled ETFs on IBKR/AlpacaMarkets brokers (Netherlands/US have favourable tax treaty no different than local tax last I checked). Preferring to invest in non-US focused funds (eg all world, ex-US) to diversify my current portfolio off of US stock focus.

So far I'm leaning towards 2 since I feel I like having diversified forex us/eur, but I can't help but think that might be a bit counterintuitive with my last sentance in 2).

What should I do with 35k USD as EU citizen?
Am I missing any considerations?
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: [EU] What to do with spare USD?

Post by Valuethinker »

ashkyparrot wrote: Sun May 28, 2023 6:33 am Through my employer's stock purchase plans/grants of stock that I have since sold I am currently in possession of about 35k in cash USD$, which represents roughly 30% of my net worth.
I'm looking for advice what to do with this Usd cash?

I'm an 25 y/o EU country citizen and currently live/work in Netherlands (NL) Most of my expenses are in EUR€, I have no expenses in Usd.
I currently rent and plan to stay in NL for at least 2+ years and don't have concrete plans to go to US although my career may give me opportunities to work there. I may consider within the next 2 years to buy house either to live/rent so I prefer my money to be liquidable.

My portfolio is entirely liquid, entirely equity mostly in EUR currency in EU stock exchanges but the equity is exposed majority to US companies.

My options I'm currently considering:
1) Sell USD to EUR in some market accurate currency rates i.e. Wise/Revolut and include it in my eur-currency equity portfolio
2) Invest in US domicled ETFs on IBKR/AlpacaMarkets brokers (Netherlands/US have favourable tax treaty no different than local tax last I checked). Preferring to invest in non-US focused funds (eg all world, ex-US) to diversify my current portfolio off of US stock focus.

So far I'm leaning towards 2 since I feel I like having diversified forex us/eur, but I can't help but think that might be a bit counterintuitive with my last sentance in 2).

What should I do with 35k USD as EU citizen?
Am I missing any considerations?
I would repatriate it into EUR and invest in EUR-denominated funds.

The net investment effect would be the same if you invested it in the same funds, but the versions that are USD-denominated (most UCITS-compliant ETFs etc seem to have USD and EUR versions). EDIT As Ted Swippet points out below, I am not thinking this through. Because of the compounding effect on the initial investment. So if transaction charges stay at the same percentage, it won't matter.

(Unless the fund hedges currency exposure into its currency of denomination/ reporting. Bond funds usually do hedge, Equity funds usually do not).

HOWEVER

If you do it as I suggest (for equity funds) you will pay the currency transaction fees now, once, on a smaller amount of USD. Whereas if you wait, and stock markets rise, and you need that money in EUR in the future, you will pay it on a larger sum of money.

Basically you don't want to take currency risk -- except where the fund does it for you (equity funds). You want your currencies of your assets and your future spending to match ie EUR in your case.
Last edited by Valuethinker on Sun May 28, 2023 11:21 am, edited 1 time in total.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: [EU] What to do with spare USD?

Post by TedSwippet »

Welcome.
ashkyparrot wrote: Sun May 28, 2023 6:33 am 2) Invest in US domicled ETFs ...
As an EU resident, you will find it difficult to impossible to buy US domiciled ETFs. The culprit is PRIIPs. See our wiki article on EU investing for details, and a selection of EU domiciled ETFs you might consider. Also, Investing from the Netherlands.
Valuethinker wrote: Sun May 28, 2023 8:05 am If you do it as I suggest (for equity funds) you will pay the currency transaction fees now, once, on a smaller amount of USD. Whereas if you wait, and stock markets rise, and you need that money in EUR in the future, you will pay it on a larger sum of money.
A note though that assuming current forex transaction fees remain the same percentage, the outcome of these two is mathematically equivalent. Admittedly, a large cash forex fee after a lot of growth will feel more painful than a smaller cash forex fee before growth, but because multiplication is commutative, the investor result is the same.

Explicitly, if forex drag is 1%, Growth * (99% of Cash) {forex now} is the same as 99% of (Growth * Cash) {forex later}.
Valuethinker wrote: Sun May 28, 2023 8:05 am Basically you don't want to take currency risk -- except where the fund does it for you (equity funds). You want your currencies of your assets and your future spending to match ie EUR in your case.
And for reference, an ETF's specific denomination and trading currencies alone do not add (or subtract) any currency risk for investors. Full explanations in Currency risk for non-US investors and Non-US investors and ETF currencies.
pennywiser
Posts: 177
Joined: Sat Jul 16, 2022 1:54 pm
Location: UK

Re: [EU] What to do with spare USD?

Post by pennywiser »

ashkyparrot wrote: Sun May 28, 2023 6:33 am My options I'm currently considering:
2) Invest in US domicled ETFs on IBKR/AlpacaMarkets brokers (Netherlands/US have favourable tax treaty no different than local tax last I checked). Preferring to invest in non-US focused funds (eg all world, ex-US) to diversify my current portfolio off of US stock focus.
You are thinking along the right lines, but US domiciled funds are not what you should be looking for.

You want to buy a Europe domiciled fund traded on european stock exchange, but traded in USD. World funds, or US focused funds are most likely candidates.

For example, VWRL is listed in USD on London Stock Exchange.

Advantage is that you don't have to convert from USD to EUR.
Last edited by pennywiser on Sun May 28, 2023 6:22 pm, edited 1 time in total.
jg12345
Posts: 421
Joined: Fri Dec 11, 2020 12:03 pm

Re: [EU] What to do with spare USD?

Post by jg12345 »

change to EUR, invest as per your portfolio.

I see no reason to keep USD if you have a less than 50% chance of needing USD.

Excellent replies from Valuethinker and TedSwippet
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Metsfan91
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Location: Rust Belt

Re: [EU] What to do with spare USD?

Post by Metsfan91 »

ashkyparrot wrote: Sun May 28, 2023 6:33 am Through my employer's stock purchase plans/grants of stock that I have since sold I am currently in possession of about 35k in cash USD$, which represents roughly 30% of my net worth.
I'm looking for advice what to do with this Usd cash?

My options I'm currently considering:
1) Sell USD to EUR in some market accurate currency rates i.e. Wise/Revolut and include it in my eur-currency equity portfolio
Dollar is still a bit strong. Convert it to Euro now. Avoid future currency risk. Invest in Euro equity portfolio.
"Know what you own, and know why you own it." — Peter Lynch
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: [EU] What to do with spare USD?

Post by Valuethinker »

Metsfan91 wrote: Mon May 29, 2023 1:08 pm
ashkyparrot wrote: Sun May 28, 2023 6:33 am Through my employer's stock purchase plans/grants of stock that I have since sold I am currently in possession of about 35k in cash USD$, which represents roughly 30% of my net worth.
I'm looking for advice what to do with this Usd cash?

My options I'm currently considering:
1) Sell USD to EUR in some market accurate currency rates i.e. Wise/Revolut and include it in my eur-currency equity portfolio
Dollar is still a bit strong. Convert it to Euro now. Avoid future currency risk. Invest in Euro equity portfolio.
I disagree.

I would invest in the global equity portfolio, but fund denominated in EUR.

This would give me exactly the same performance as if I invested in the same fund, but denominated in USD. (as long as the equity fund does not hedge its currency exposure, and most do not).

I see no reason to overweight Eurozone stocks. Whilst the worst things of the Ukraine war & Energy Crisis have not come to pass, and markets have performed well Year To Date, the structural problems in the Eurozone remain. And the index is tilted towards financials and towards industrials. The former the issues are well known. The latter? Less trade with China due to their economy slowing down and/or trade restrictions is a major threat.

I want to align myself with the market's view of the best weightings for European, Japanese and American companies.

I want to own the US, Japan, Eurozone, UK, Canada etc in proportion to their weightings in the global equity market, thus giving maximum diversification.
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