[uk] Boglehead investment advisor?

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aaaxl
Posts: 23
Joined: Wed Aug 29, 2007 7:17 am

[uk] Boglehead investment advisor?

Post by aaaxl »

Does anyone have a recommendation on how to get one-time investment advice?

I'm a US expat living in the UK. I'm happy with the portfolio I set up many years ago in the US, but I think it's time I had a check-up. I received some US/UK expat tax advice (from DM Moore), so I think I am well-covered on the how to invest tax-efficiently. But I would like some one-time advice on investments, from a Boglehead point of view. Especially for something like currency risk, which I didn't have to worry about when living in the US.
Valuethinker
Posts: 48944
Joined: Fri May 11, 2007 11:07 am

Re: [uk] Boglehead investment advisor?

Post by Valuethinker »

aaaxl wrote: Mon May 29, 2023 4:54 am Does anyone have a recommendation on how to get one-time investment advice?

I'm a US expat living in the UK. I'm happy with the portfolio I set up many years ago in the US, but I think it's time I had a check-up. I received some US/UK expat tax advice (from DM Moore), so I think I am well-covered on the how to invest tax-efficiently. But I would like some one-time advice on investments, from a Boglehead point of view. Especially for something like currency risk, which I didn't have to worry about when living in the US.
I do not. Generally UK advisers don't think that way.

You should definitely read Monevator blog, which is Boglehead principles.

Your real risk is tax? There's good discussion here, and wiki. Other than that you need an accountant familiar with tax issues of US citizens in UK.

You need to make sure all your funds (outside those in pensions) are "Reporting" from an HMRC perspective. Otherwise things get really really painful (don't ask me how I know). Pensions as I understand it are fairly protected by UK-US tax treaty. (I am not a US citizen).

Currency risk is actually relatively straightforward:

- if you want to retire to the USA or other USD country, then you probably want to buy ETFs (only in pensions/ SIPPs, because ISAs don't protect you from US tax - so they are marginally useful (protecting you from UK tax, but not US tax) which are hedged into USD. Not just reporting in USD, but actually hedged into USD.

That's mostly bond funds that do that. You can then hold your cash in USD or directly buy US Treasury securities (individual securities don't cause the hairy tax problems with HMRC).

Beware however PFIC rules (IRS). They make holding a non-US domiciled fund (so basically any fund that a European based broker will sell you) or ETF horrific from a tax point of view. To the point that, outside of pensions, you cannot really hold a European listed ETF or fund. You are left with direct holdings as an alternative - actual individual stocks or bonds.

- that leaves your equity funds (in pensions). Which tend not to be hedged. My own view is that one should hold global equity funds, and that will be about 60-something per cent US listed stocks. Many US companies will have large overseas operations and their own foreign exchange operations (over 30% of the revenues of S&P 500 companies). This is true of multinationals generally. BP (London listed) earns in USD because it's an oil company. Nestle is HQ'd in Switzerland, but CHF is only a tiny percentage of its revenues. You can't really tell what your actual foreign exchange exposure is, just by looking at the home listings of the companies in it.

So in other words, it's acceptable to take the volatility on exchange rates (which has been very much to your favour if you are a GBP-based investor in the last few years ie pound falling since 2016) in your equity funds. It should all even out in the long run. Volatility, yes. But unclear whether it will be to your advantage or detriment.

Note your labour income and your housing equity (if you have that) are both in GBP. I don't know what the equalisation arrangements are between US Social Security and British State Pension, but your State Pension will be in GBP. You've got a lot of exposure there built in.

When you get to about 10 years before retirement you should be increasing your fixed income weighting and that will naturally increase your exposure to GBP. Unless you plan to retire in currency of another country, in which case you want to be increasing your assets that are hedged to that currency, either a "natural hedge" such as a bond, property or bank account in that currency, or using hedged equity funds.

If you are retiring in the UK I see no reason to hold more than say 50% of the portfolio in GBP-hedged assets: bonds or equity funds. On the assumption your ready cash will probably be another 10% in GBP-- ie ensuring you have 2-3 years of expenses in your home currency.

Note that because of your US tax status you should maximize your contributions to UK pensions. Buy extra years if it is Defined Benefit. Push to the max contribution if Defined Contribution. Particularly now that the Lifetime Annual Allowance has been abolished (until the next government, at least).
tubaleiter
Posts: 245
Joined: Tue Mar 09, 2021 11:58 am

Re: [uk] Boglehead investment advisor?

Post by tubaleiter »

This board is a decent place to start - Bogleheads portfolios are typically pretty straightforward, and there are a number of members here with experience in US/UK investing. Use the portfolio advice template: viewtopic.php?t=289099

Even if that doesn't answer all your questions (and posters here are generally good about saying when things are beyond their expertise), it'll ensure you have a focused list of questions for a paid advisor.

As a US citizen living and planning to retire in the UK, my approach to currency risk doesn't differ significantly from other UK investors - I just happen to have a fair number of investments through US brokerages as well as UK ones. But my overall portfolio is essentially global equity (market cap weights with a small UK home bias - debatable whether that makes sense or you should just go with 100% market weight, I don't have a strong feeling either way), with my relatively small bond position all in a UK bond fund in my pension. Continuing to draw down US cash and EE bonds positions to just a small amount of working cash - there's no good reason for me to have "extra" USD. Most would push for a global bond fund hedged into GBP, which I continue to look for but I don't like the one offered by my pension (fees kinda high, plus a lot of USD - when I'm still drawing down USD cash/EE bonds, that's too big of a USD overweight).

So the simplest approach for a UK investor would be global equities at market cap and global bonds hedged into GBP. Plenty of room for discussion on tweaks, but that's a reasonable starting point, and manages currency risk to some extent (there's no avoiding it entirely!).
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