how u know when is high?

MNet,

Let me give you the SIMPLE VERSION.

If a person do ASSET ALLOCATION, for example, 60/40 = 60% stock and 40% bond. If the stock went up and exceed the ratio aka 65/35, you sell 5% of your asset in stock and buy bond to bring down to 60/40. And, vice versa. This is THE MAGIC. You do not have to watch the market. The FIXED RATIO will tell you. Pension fund like EPF/KWSP and insurance companies invest this way.

A person either do ANNUAL re-balancing or re-balanced when the investment is off the ratio too much.

I had DETAILED EXPLANATION of either approaches on THIS THREAD.

Dreamer

Hi Dreamer101 & forumers,

would like to draw your attention to the plausible estate tax if you were to hold more than 60K of equities/ bonds with a US-based broker house like Interactive broker.

http://andrewhallam.com/2010/11/how-britis...comment-page-8/
http://www.bogleheads.org/forum/viewtopic.php?f=1&t=150851

Thanks for sharing this.

It seems like only US situ assets would fall under the Estate Tax as a non-resident (ie US domiciled ETFs, cash in broker account)

You could get around this by buying ETFs from different exchanges

Eg. Instead of SPY, buy VUSA (GBP) / VUSD (USD) on the LSE - this also gets around the 30% Withholding tax a bit - as the ETF is Ireland domiciled it internally pays 15% rather than 30% in its holding and dividends are paid out gross.

I'll worry about this when I get older, if I were to die tomorrow I don't think anyone would know where I have my savings / broker accounts anyway

This post has been edited by rjb123: Nov 16 2014, 06:16 AM

Hi rjb123, thanks for replying.


I have found another thread http://www.bogleheads.org/forum/viewtopic.php?f=1&t=150851 which could stir your interest.

Yes you are definitely correct about the the purchase of perhaps VWRD, a non-US domiciled ETF which results in a 15% taxation instead of a 30% taxation for US domiciled ETF.

However, the risks that Im highlighting is regards to the purchase of ETFs using a US-based broker such as Interactive broker. Even if it's non-US domiciled, there could be a chance that YOUR assets that IB holding is subjected to estate law.

Btw do you use interactive broker? Im so much leaning to use that platform

Well from what I read on the estate taxes - US domiciled ETFs are classed as US situ assets, as is cash kept in a broker account, so one should be able to stay underneath the $60K threshold by switching some holdings over to ETFs not traded on USA exchanges , such as Ireland domiciled, or Luxembourg domiciled.

As you get older it would also be possible to transfer holdings out to another broker - eg. TD International (Luxembourg) I have an account there too but it's not currently being used due to the high trading fees - however it may be an option to transfer there later (I'm only 27, not too concerned about estate tax yet!)

Yes - I have Interactive Brokers, TD Ameritrade, TD International (not used yet)

VUSA/VUSD actually has lower expense ratio by 0.02% than SPY for example, only downside is trading charges are a bit higher on LSE compared to US markets. Anyway with IB you have plenty of options, can build up portfolio of ETFs which aren't US domiciled then when getting older transfer over to Luxembourg based broker for example.

Other option seems to be to set up an IBC or trust offshore and hold your investments there .. might be worth looking at if holdings become large

This post has been edited by rjb123: Nov 16 2014, 10:51 AM

Hi rjb123,

My participation bogleheads forum (http://www.bogleheads.org/forum/viewtopic.php?f=1&t=150851&p=2260381#p2260381) has also helped shed light that IB is transiting its non-US investors to IB UK. While we have ascertained that non-US domiciled ETF should not be subjected to estate tax, it could certainly give us a higher (perhaps less significant) level of certainty and confidence for us to continue using IB.

The official IB announcement can be found here: https://ibkb.interactivebrokers.com/article/2016

Yeah, I've seen the IB announcement before also.

Anyway, in 30-40+ years time the tax laws will have probably changed again multiple times so I'm not overly concerned at this stage about estate tax.

FYI, here's the fees if you buy ETFs through TD Luxembourg (really not worth it if you're topping up frequently)

@rjb123, thanks much for sharing. May i know why would you use TD when the rates are so much higher than IB. Furthermore, though IB has fixed annual commission of $120USD, considering its tight spread for FX rates, it should still be competitive.

TDAM I use for commission free ETF and enrolled in DRIP which IB doesn't offer

FYI, IB charge is waived with balances over $100K

Hi rjb123, may I know what ETFs are you currently vested in?

Currently a bit unorganised, as I started off with commission free ETFs on TDAM which I'm now looking to switch mostly to the below from LSE resulting in no 30% withholding tax:

VUSA
VUKE
VMID
VERX
VFEM
VAPX

Hi rjb123, you r not vested in bond etf?

I have some BND

But still quite cash heavy at present - ready for any dips

Hi may I know why would u be vested in only US bonds? I thought for the bonds portion, we should be tilting the allocation to home country?

US closed

be cautious about ETFs.. your entry point is so important.

Timing when is a good price to buy into ETFs can ease your way into the market.

park

the99percent1,

If you are investing using Asset Allocation method, entry point does not matter. Now, if you DO NOT UNDERSTAND what I am saying, it means that you have not read this thread from the beginning.

Asset Allocation method ensure that a person always "Buy Low and Sell High". Timing the market is not needed.

Dreamer

I understand your 'theory' of using ratios to govern your decision. But here is a scenario I propose to you:

You enter the stock market at its HIGHEST. Lets say your bond level starts to drops and so u top up. But then quickly, your stock position also starts to drop..

Sooner or later, you are at a losing point..
You see what i'm getting at.. same situation can happen if both rise at unequal rates, placing your ratios out of balance as you attempt to correct it..

Using ratios to govern your investment strategy is missing a crucial point of stock markets.. The market is emotionally fueled and driven.

Asset location does not make sense. At what point do you adjust your ratios? One day? a week? a month? Everytime you decide to adjust, that cost money as you move your funds around. Probably will wipe your gains..

A better way of doing this is to time your ETF investment at a good entry point and leave it 100% as Stock.. When markets begin to shift, then switch some to Bonds or buy up cheaper ETFS.. Alternatively, diversify your portfolio to include investments in share dividends and property. Allocation based on ratios may look good in theory, but it doesn't work applied..

This post has been edited by the99percent1: Nov 28 2014, 12:06 PM