Portfolio allocation, or: what did I do wrong

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Topic Author
bloodymeli
Posts: 4
Joined: Fri Jun 02, 2023 3:43 pm

Portfolio allocation, or: what did I do wrong

Post by bloodymeli »

Hi,

I'm interested in investing about 2M$ USD. I a non-resident US investor, without a really good tax treaty.

My strategy is to keep ~150K USD at a very solid investment (e.g., deposits or US short-term treasuries) as "catastrophe money".
As for the rest, my investment score is long (5+ years) so I want to maximize my returns. Therefore, 90%+ of the investment will be in stocks and the rest in high yield bonds or REITS. I plan to use ETF solely.

So, why not just take VT? Because I want to slightly tilt towards riskier but more promising venues, such as small scale and emerging markets.

Here's my essential info and my plan for the portfolio. Please let me know what you think!

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Country of Residence: Israel

International Lifestyle: I'm stuck here, though I wish I could leave.

Emergency funds: ~150K USD, which should be enough for a year, maybe a year and a half.

Debt: None

Age: 42

Desired Asset allocation: 90% stocks or more, the rest in high yields bonds bonds or REITS

Desired allocation to stocks outside your of country of residence: 79% (what do you think - should it be more? I live in a fairly small country).

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Portfolio by region.

USA: 44%
17%: S&P (SPXS)
10%: NASDAQ (EQQM)
3%: small cap (SPSM)
3%: small+value (VBR)
2%: Real Estate VNQ / MORT
1% Healthcare ?
1% Energy XLE
1% Materials REM / PICK
6% High Yield Bonds (USHY?)


Europe: 14%
2% STOXS 600 (MEUS) 0.07
2% Market growth (IDJG) 0.4
6% MSCI Europe (IEMU) 0.12
2% MDAX / DAX ?
1% small cap ?
1% BONDS ?

Pacific and Asia 10%
4% Pacific VDPG
3% China large cap FRCH
2% India FRIN
1% China small cap ECNS


Emerging Markets 11%
8% Large Cap (?)
1% Latin America ALAU
2% Asia emerging LCAL
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Portfolio allocation, or: what did I do wrong

Post by TedSwippet »

bloodymeli wrote: Sun Jun 04, 2023 4:22 pm I'm interested in investing about 2M$ USD. I a non-resident US investor, without a really good tax treaty.
You previously stated that you would hold below $120k in US situated assets. The leap from that to $2M is beyond steep.

As a non-US citizen(*) living in a country with a poor US income tax treaty and absolutely no US estate tax treaty, if you invest in US domiciled ETFs as planned, you open yourself up to large and ongoing US tax drag, and life-altering US estate tax risks. Yet both are entirely unnecessary and avoidable.

You say you have read the wiki for non-US investors. What were your conclusions? And in particular, your thoughts on these two articles? - already suggested elsewhere by daviddem:

- Nonresident alien taxation - Bogleheads
- Nonresident alien investors and Ireland domiciled ETFs - Bogleheads


(*) Presumably not a US citizen, but please confirm. Please also confirm that you do not hold a US green card.
daviddem
Posts: 274
Joined: Wed Jul 06, 2016 12:53 pm

Re: Portfolio allocation, or: what did I do wrong

Post by daviddem »

Asset allocation: keep it simple with a few funds, not 22:

https://www.bogleheads.org/wiki/Buildin ... _portfolio

If you want to tilt towards emerging markets, use a broad developed market fund and a broad emerging market fund and overweight the emerging market fund.
pennywiser
Posts: 177
Joined: Sat Jul 16, 2022 1:54 pm
Location: UK

Re: Portfolio allocation, or: what did I do wrong

Post by pennywiser »

That portfolio is far too complex, which is is probably why you don't seem to have exposure to Japan in it. You included 1% china small caps (is there even a fund for that at a reasonable cost) but not Japan...
You don't need Stoxx 600, MSCI Europe and DAX at the same time, just choose one fund to cover the Europe equity.
Same for US, all you need is one fund.
Global bonds is also something that you should have instead of mutiple regional funds.
Topic Author
bloodymeli
Posts: 4
Joined: Fri Jun 02, 2023 3:43 pm

Re: Portfolio allocation, or: what did I do wrong

Post by bloodymeli »

TedSwippet wrote: Sun Jun 04, 2023 4:46 pm
bloodymeli wrote: Sun Jun 04, 2023 4:22 pm I'm interested in investing about 2M$ USD. I a non-resident US investor, without a really good tax treaty.
You previously stated that you would hold below $120k in US situated assets. The leap from that to $2M is beyond steep.

As a non-US citizen(*) living in a country with a poor US income tax treaty and absolutely no US estate tax treaty, if you invest in US domiciled ETFs as planned, you open yourself up to large and ongoing US tax drag, and life-altering US estate tax risks. Yet both are entirely unnecessary and avoidable.
Indeed. I'm not a US citizen or a green card holder. I'll try to defer as many investment instruments to Irish-domiciled ETFs. However, I can still hold up to 6% of my portfolio in US ETFs. Some of the ETFs I mentioned have a corresponding irish-domiciled ETFs.
TedSwippet wrote: Sun Jun 04, 2023 4:46 pm You say you have read the wiki for non-US investors. What were your conclusions? And in particular, your thoughts on these two articles? - already suggested elsewhere by daviddem:

- Nonresident alien taxation - Bogleheads
- Nonresident alien investors and Ireland domiciled ETFs - Bogleheads
This is slightly off-topic, but I'm also an Austrian citizen, and Austria has a great tax-treaty with USA. However, I don't reside in Austria. Can I somehow benefit from this treaty? Can I "volunteer" or become a tax resident of Austria?
The Austria-USA tax treaty states that:
For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under
the laws of that State, is liable to tax therein by reason of the person's domicile, residence, citizenship, place of
management, place of incorporation, or any other criterion of a similar nature
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Portfolio allocation, or: what did I do wrong

Post by TedSwippet »

bloodymeli wrote: Mon Jun 05, 2023 3:30 am This is slightly off-topic, but I'm also an Austrian citizen, and Austria has a great tax-treaty with USA. However, I don't reside in Austria. Can I somehow benefit from this treaty? Can I "volunteer" or become a tax resident of Austria?
The Austria-USA tax treaty states that:
For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under
the laws of that State, is liable to tax therein by reason of the person's domicile, residence, citizenship, place of
management, place of incorporation, or any other criterion of a similar nature
On the face of things, unfortunately not. You aren't resident in Austria, and Austria doesn't tax its nonresident citizens. Unless you are fully taxable by Austria on your worldwide income then, you won't be able to use the US/Austria income tax treaty.

Austria does however have an estate tax treaty with the US. However, it seems that you cannot use this either. For it to be usable, you need to be resident/domiciled in Austria, and from what you write it sounds like this isn't the case.

It is pretty normal for US estate tax treaties to only cover people who are resident/domiciled in the treaty country. One or two treaties may have special treatment for 'nationals' of the treaty country, even when not resident there. However, that doesn't look to be the case with Austria. (As an aside, even finding the text of US estate tax treaties is a challenge. I haven't been able to find the one with Austria anywhere online so far.)

Just stick to non-US domiciled funds and ETFs. Even disregarding any US estate tax nonsense, you'll will often come out ahead having simply avoided a lot of entirely unnecessary US withholding tax drag on your dividends. As a bonus, Ireland domiciled ETFs can offer 'accumulating' variants, where dividends are internally reinvested within the ETF, rather than being paid out. For some countries, this can produce a useful tax saving; don't know specifically about Israel, though.
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