*Official* Shiny Things club - Part 2

[BBCWatcher]

How does one pass hand the ETF holdings in Interactive Brokers to the dependents when one is no longer around? I thought of the following solutions:

1. list ETF holdings down in the will. Executor will present the Grant of Probate to IB who will then create an Estate Acocunt to hold the ETFs. Executor will then sell the holdings.

Ding! Ding! Ding! That’s the correct answer! It’s safe, secure, and appropriate. A will can also be a “living will,” with directives and/or limited power(s) of attorney. But it’s not necessary to list the ETF holdings individually since those are variable. “All my assets in my Interactive Brokers account no. 12345” (or something like that) is sufficient. You can ask IB (and any other financial institutions) for suggested, simple language.

Very good question. I intend to bypass the estate tax via method 2, but I am not sure of the implications, if any.

You cannot “bypass the estate tax.” If the estate tax is owed, it’s owed. (There is no estate tax on Irish domiciled funds, for decedents resident in Singapore who are not U.S. persons.) Encouraging or requiring your executor or your heir to commit a felony is not a viable estate plan!

For crying out loud, people, the US market is off 2% from its all-time highs. That sort of dip should happen multiple times a month in normal markets.
Dips happen. This is the reason you dollar-cost-average: so that if the market dips 2%, or 5%, or 10%, you can keep buying and get more for your money.

Agreed. Also please turn off the Financial Markets Porn Channel, otherwise known as CNBC.

 

[celtosaxon]

For crying out loud, people, the US market is off 2% from its all-time highs. That sort of dip should happen multiple times a month in normal markets.

Dips happen. This is the reason you dollar-cost-average: so that if the market dips 2%, or 5%, or 10%, you can keep buying and get more for your money.

And, let me add... dips are an important part of a happy, healthy bull market!

 

[BBCWatcher]

I have a question for BBCWatcher. I know you have some knowledge of US estate tax impact on US situs assets held by nonresident aliens. For this reason, most non-US persons should avoid US situs assets like the plague. However, in the case where one spouse is a nonresident alien (NRA), and the other is a US citizen, I believe the unlimited spousal exemption applies from NRA to a USC spouse, and the $11m estate tax exemption applies from USC to an NRA spouse. The only “trap” is when US situs assets flow from the estate of the NRA spouse to the USC children, then only $60k exemption applies, with 40% estate tax on the rest... but an unlimited exemption applies to non-US situs assets. Is this your understanding as well?

It is my understanding as well, although such U.S. situated assets may still be tax inappropriate for the non-resident alien spouse, owing to the 30% dividend withholding tax.

Also bear in mind that there’s a $152,000/year (2018 figure) gift limit if you’re trying to transfer wealth to a non-resident alien over a lifetime. (Yes, Congress anticipated that potential leakage a long time ago.) Gifts in excess of that limit are allowed, but then they reduce the US$11.18 million (2018) lifetime exemption. Gifts above a certain threshold (that I don’t remember offhand) are reportable. “Gifts” here are as the IRS defines the term, which is a little more narrow than how most people define it.

And then there are complications for ex-citizens/ex-long-term residents who are “covered expatriates.”

 

[celtosaxon]

It is my understanding as well, although such U.S. situated assets may still be tax inappropriate for the non-resident alien spouse, owing to the 30% dividend withholding tax.

Also bear in mind that there’s a $152,000/year (2018 figure) gift limit if you’re trying to transfer wealth to a non-resident alien over a lifetime. (Yes, Congress anticipated that potential leakage a long time ago.) Gifts in excess of that limit are allowed, but then they reduce the US$11.18 million (2018) lifetime exemption. Gifts above a certain threshold (that I don’t remember offhand) are reportable. “Gifts” here are as the IRS defines the term, which is a little more narrow than how most people define it.

And then there are complications for ex-citizens/ex-long-term residents who are “covered expatriates.”

Thanks BBC. Yeah, I wish I had $152k each year to transfer to my NRA spouse and invest tax free except the dividends (minor drag in the big scheme of things) .

I’ve also read about the 8 year “covered expatriate” thing... if we have that kind of wealth sloshing around at the time, we may need to “flee” the US as tax refugees once the kids finish college!

One thing on my to-do list: the year before we move back to the US, sell all investments under my NRA spouse to reset the basis prior to the year she gets LPR status. I hope to time that in early January to avoid dual status alien tax filing complication.

 

[BBCWatcher]

One thing on my to-do list: the year before we move back to the US, sell all investments under my NRA spouse to reset the basis prior to the year she gets LPR status.

Except the ones that are underwater, unless they are tax inappropriate for other reasons (e.g. run afoul of PFIC rules).

 

[celtosaxon]

Except the ones that are underwater, unless they are tax inappropriate for other reasons (e.g. run afoul of PFIC rules).

Great point on tax loss harvesting! Hadn’t thought of that angle, but it’s a great one. I also expect to have at least some residual foreign tax credits from income not excluded from US tax... won’t be much, but 10 years can add up.

 

[Calpha K]

If OP explicitly wants exposure to Chinese tech stocks (hint, you probably don't), you can get near-enough to KWEB with an equal-weight portfolio of Tencent (700 HK), BABA, BIDU, and NTES. They probably don't actually want this, though; they just saw "China" and "internet" in the one product and got an inexplicable boner.

Why do we not want exposure to Chinese Tech Stocks?

Actually, yes the idea is to have exposure to BAT, they are all selling around 52 week low.
On a side note, EIMI has the same BAT exposure, just not the same weighting.

We remember you saying EIMI can be excluded if portfolio is not big enough. Would like to ask how big should our portfolio be, before including EIMI?

Also, when looking at a fund's total expense ratio, do we look solely at expense ratio? Or do we add Current Management Fee + Expense Ratio, to get Total expense ratio?

Take the ETF KWEB for example, it has
Current Management Fee of 0.68%
Expense Ratio of 0.7%

In this case, is expense ratio just 0.7% or 1.38%?
It is ambiguous because Bloomberg displays current management fee but Yahoo displays only exp ratio.

 

[swordsly]

We remember you saying EIMI can be excluded if portfolio is not big enough. Would like to ask how big should our portfolio be, before including EIMI?

ST's recommendation? When your portfolio is 6-digit.

 

[sweester]

4. Under current U.S. Social Security Windfall Elimination Provision (WEP) rules, there may be some financial merit in withdrawing all CPF funds (if allowed) strictly before the CPF minimum pension age, which is currently age 65. However, I expect Congress will change the WEP rules within the next few years. Also, the WEP doesn’t apply at all for most people who clock 30+ years of U.S. work history, and the WEP won’t apply much for somebody with relatively low CPF balances. The WEP reduces U.S. Social Security retirement benefits in a crude attempt to coordinate with foreign pensions.

....OK, I’ll stop there. Hope that helps.

That's more than helpful. Thanks once again. I was thinking it would be nice to collect CPF full retirement sum + SSN payout someday but now I know there's WEP.

 

[malthead]

ST's recommendation? When your portfolio is 6-digit.

What then? What should be the ideal ratio?

 

[swordsly]

What then? What should be the ideal ratio?

What ideal ratio?

If you buy VWRD, then there's no need to buy EIMI because it's already included.
ST's recommendation for IWDA + EIMI is to match up with VWRD's; 9:1.

 

[malthead]

What ideal ratio?

If you buy VWRD, then there's no need to buy EIMI because it's already included.
ST's recommendation for IWDA + EIMI is to match up with VWRD's; 9:1.

Seems like I need to stop buying es3 and eimi and just buy iwda henceforth.

My ratio for ES3:IWDA:EIMI and 80:17:3

 

[BBCWatcher]

Great point on tax loss harvesting! Hadn’t thought of that angle, but it’s a great one.

And actually there's no need to sell the U.S. tax appropriate gainers pre-immigration unless they've materially gained. There is typically some cost involved in selling and re-buying, after all.

I was thinking it would be nice to collect CPF full retirement sum + SSN payout someday but now I know there's WEP.

That's still possible to do, and you shouldn't consider the WEP to be a hindrance per se. I'm pretty confident Congress is going to change the WEP rules anyway since the WEP was originally designed as a crude, substitute formula adjustment back when the U.S. Social Security Administration lacked proper data on how to make the benefit adjustment. But now SSA and the IRS have all the data needed, so Congress could/should just tell SSA to go ahead and use a proper, individualized benefit calculation. I think Congress will, at some point fairly soon.

 

[celtosaxon]

And actually there's no need to sell the U.S. tax appropriate gainers pre-immigration unless they've materially gained.

True, and one more... I believe unrealized capital gains while in the US can go tax free if left unsold until after the residency ends, provided no deemed expat rules apply.

 

[BBCWatcher]

True, and one more... I believe unrealized capital gains while in the US can go tax free if left unsold until after the residency ends, provided no deemed expat rules apply.

I would not hold any PFICs in that scenario, unless they're within a foreign tax advantaged account that's recognized in a U.S. tax treaty. No Singapore CPF Investment Scheme assets, for example.

Even so, I don't think it's a great idea to "pre-program" a departure decision like that. While an immigrant might intend to leave on a particular schedule, circumstances can change. As long as it's not too onerous to reset the cost basis before stepping foot in the United States, I think I would in such circumstances.

 

[mattzakh]

1. That’s part of it - but also the spread is basically zero as well.
2. Yes, that’s right.
3. I’m strongly in favor of changing brokers if your current broker isn’t cheap enough. Keeping your costs low is the single best thing you can do to improve your returns.

Thanks Shiny. After comparing, I think I'm better off with IB. I'm planning to start with IWDA and add bond ETF as I age.

If I want to retire in Singapore, how should I incorporate singapore ETFs (ES3 and A35) to my portfolio?

In that case, am I right to open IB account for foreign stocks and SCB for sg stocks?

 

[celtosaxon]

I would not hold any PFICs in that scenario, unless they're within a foreign tax advantaged account that's recognized in a U.S. tax treaty. No Singapore CPF Investment Scheme assets, for example.

Even so, I don't think it's a great idea to "pre-program" a departure decision like that. While an immigrant might intend to leave on a particular schedule, circumstances can change. As long as it's not too onerous to reset the cost basis before stepping foot in the United States, I think I would in such circumstances.

Great points again! Yes, no PFICs for us, and yes, need a plan B if we end up staying in the US. I think all we can do is leverage things like my Roth and Social Security to try and stay below the tax bracket that triggers long-term capital gains taxes. One interesting thing is the $100k foreign gifts that my NRA spouse could potentially receive from her family without any tax or reporting implications. But that one seems a little treacherous.

 

[kingboonz]

Is it a good idea to backtest ETF strategies based on Sharpe ratio and Sortino Ratio? Then choose the strategy with the highest ratio mixed with investing fundamental reasoning?

 

[revhappy]

Agreed. Also please turn off the Financial Markets Porn Channel, otherwise known as CNBC.

I don't watch CNBC. I watch only Bloomberg.

IMF says this:
“Six months ago, I pointed to clouds of risk on the horizon...Today, some of those risks have begun to materialize.” -IMF's Christine

Especially multiple voices have said 2020 US slowdown or outright recession can happen. Yesterday's jobs report indicates the economy is overheating and FED could raise rates more than what is priced it.

With all this in front of our eyes, I don't suggest sell, but be aware and be prepared and keep some powder dry.

Sent from Dont Take Any Of My Statment As Investment Advice. Do Your Own Due Diligence. using GAGT

 

[BBCWatcher]

Yesterday's jobs report indicates the economy is overheating and FED could raise rates more than what is priced it.

The jobs report doesn’t indicate that. Wage growth decelerated, and the “headline” unemployment rate is comparatively low(*) primarily because prime age working adult labor force participation is comparatively low. There are a lot of potential workers sitting on the sidelines for some reason. There are also potential tariff-related headwinds that the Federal Reserve must consider.

U.S. labor force participation among adults age 25-54 hovered north of 84% in the late 1990s and 83% before the Global Financial Crisis. It’s now around 82%. When the U.S. economy entices workers back into the labor market, and when we start to see 4+% wage growth — and not just for one or a couple reports — then we can start discussing whether the U.S. economy is actually overheating.

(*) But it’s still 3.7%! If the headline unemployment rate in Singapore ever rose to 3.7%, that’d be a crisis.