General investing advice for an American

[runmanTX]

To prep in advance, you need the bank name(s), address(es) including postal code, account number(s), type of account (=bank), and the max value of the account in 2020 converted to US$. And there's no penalty for over-reporting, so I added $1000 to each figure.

Good info here. Also smart to slightly over report. Thank for sharing the procedure. My biggest issue is my ancient PC (Adobe issues so I can't seem to download the pdf to fill in the info for the FBAR. . Ugg.

And how the heck do I quote text when I reply? Haha. Someone please enlighten me.

[runmanTX]

UPDATE: Good news! My TD Ameritrade application was approved.

My experience: The online application was unsuccessful. Called their toll free number via Skype (a free call) and was told since I lived in Japan that I could not open an account. I thanked the man and hung up. Called back 10 minutes later to try and get another representative and perhaps a different "opinion". BINGO. A lady told me it may be possible to fax the application and get an account. Had her email the application forms. Filled out then faxed the 9 or so page application. Waited a week. Called TDA back to check on application. Was told they needed a copy of a government ID. After faxing a copy of my stateside driver's license I called back to verify receipt. An operator was very helpful and walked me thru the process of setting up my account on line. Yay! Now just have to fund the account and off we go!

Is anyone using a Wise account to fund their brokerage account? I've used GoRemit with Shinsei in the past but it cost 2000 yen.

[captainspoke]

Congratulations!

(and also good news for others who may need an account)

[runmanTX]

Congratulations!

(and also good news for others who may need an account)

Yes. I hope this helps others to get an account.

[runmanTX]

Ok. So I've opened an US brokerage account successfully (TD Ameritrade) and now want to begin.
I really want to fully understand what I'm doing before I start, though.

Questions:
1. Am I ok investing in mutual funds through my US broker? No PFIC issues or IRS tax worries?

2. Am I only eligible to buy ETF index funds from Japan with TDA? What am I not understanding?
Again, my desire is to buy total index stock funds (ex Vanguard, Schwab or the like) and invest for between 20 and 30 years. Then after retiring, drawing minimal out (like the 4% rule suggests) and keep the growth going.

3. Which method should I be focusing on (ETF or mutual funds) if I want to go the index fund route? I'm still a bit confused on the differences?

4. Besides the ER fee, what other fees should I be careful of? The TDA website indicates free trading for ETF's and no other fees (that I've seen so far). I'm just interested in purchasing 1X per month, not trading. Should I still go the ETF route?

Sorry if the post is confusing. There are many questions spinning in my head right now.

[captainspoke]

I'm really sure that as an expat (not residing in the US) you are not supposed to be buying mutual funds.

There are plenty of ETFs out there, as you've probably discovered. I personally have some SCHG and SCHX, or if you want to go 'total market' schwab's broad market ETF is SCHB. For vanguard, VT and VTI are commonly mentioned, along with others such as VOO, VIG, VGT, VB, and so on.

I'm not sure what research TDA provides, if they offer morningstar ratings then have a look at those. A couple sites for very general information are etfdb.com and etc.com but you could also look up bogleheads on reddit, and they have some model ETF portfolios, and also recommend some of the broadest, low fee index funds.

No trading fees/commissions is a fairly recent thing, one of the newer benefits of being US and having an acct there. It used to be a few dollars per trade (depending on broker). If you do sell, there is still a very small SEC exchange processing fee based on the dollar value of the trade. I don't recall the percentage, but it's something like 50 cents or less on a trade worth 20k. Trivial, but you might notice it someday.

[runmanTX]

I'm really sure that as an expat (not residing in the US) you are not supposed to be buying mutual funds.

There are plenty of ETFs out there, as you've probably discovered. I personally have some SCHG and SCHX, or if you want to go 'total market' schwab's broad market ETF is SCHB. For vanguard, VT and VTI are commonly mentioned, along with others such as VOO, VIG, VGT, VB, and so on.

I'm not sure what research TDA provides, if they offer morningstar ratings then have a look at those. A couple sites for very general information are etfdb.com and etc.com but you could also look up bogleheads on reddit, and they have some model ETF portfolios, and also recommend some of the broadest, low fee index funds.

No trading fees/commissions is a fairly recent thing, one of the newer benefits of being US and having an acct there. It used to be a few dollars per trade (depending on broker). If you do sell, there is still a very small SEC exchange processing fee based on the dollar value of the trade. I don't recall the percentage, but it's something like 50 cents or less on a trade worth 20k. Trivial, but you might notice it someday.

Thanks Captainspoke. So, ETF's are what I can get as an expat. I thought I had read something about mutual funds not available for me here.
Taking a quick look at the TDA website, I am able to compare similar ETFs and also check the Morningstar ratings. Cool beans.

But why are the fund prices so different? (Ex. VTI is $217 per share vs. SCHB which is $101). Both have a 0.03% ER. Is VTI just a popular fund or am I comparing apples and oranges?
Am I correct in assuming that the above price per share is the only expense I'll incur if I purchase these?

Do you normally purchase the same ETF periodically (monthly) or buy various ETFs? What do you recommend?
I'd like to set up ETF purchases that are automatic per month if possible. Is this an option?

I will have a look at etfdb.com and etc.com which you recommended.
Thanks again for your help.

[TokyoWart]

So, ETF's are what I can get as an expat. I thought I had read something about mutual funds not available for me here.

This is not exactly true. To the extent there is a rule it's a rule that the mutual fund company should be licensed to sell the mutual fund in the country you are located in. It is not a rule that prevents your owning the fund but prevents the mutual fund firm from selling it to you. When I first came to Japan several decades ago this rule either didn't exist or wasn't enforced and my fund companies (Fidelity, Vanguard, Schwab, etc.) had no hesitation to sell me mutual funds even knowing that I lived in Japan. Now they will not sell me new shares but do not require liquidation of the shares I already have. I report the dividends and capital gains distributions from those funds by name on my Japanese taxes each year and that has never raised an issue even though my accounts have gone through several audits.

But why are the fund prices so different? (Ex. VTI is $217 per share vs. SCHB which is $101).

There isn't any reason that two funds would be expected to have the same unit share price even if they are tracking similar indexes because they are tracking performance and are not set at an invidual index share price. However, VTI tracks the CRSP US Total Market Index while SCHB tracks the Dow Jones U.S. Broad Stock Market Index so the indexes they are tracking are not identical although they will perform very similarly. Also Vanguard is somewhat more efficient at managing its ETF's because they are larger than most competitors and Vanguard benefits from lending securities to short sellers which can actually make Vanguard funds slightly outperform the indexes they track (because the index is a theoretical construct and doesn't have any efficiencies of scale or ability to lend securities, etc.)

Am I correct in assuming that the above price per share is the only expense I'll incur if I purchase these?

You will experience a slight friction cost from the bid/ask spread when purchasing or selling an ETF even if you are using a commission-free brokerage.

I'd like to set up ETF purchases that are automatic per month if possible. Is this an option?

Unlike for mutual funds it is not usually possible to set up automatic monthly investments in an ETF but it will depend on your brokerage firm.

[runmanTX]

So, ETF's are what I can get as an expat. I thought I had read something about mutual funds not available for me here.

This is not exactly true. To the extent there is a rule it's a rule that the mutual fund company should be licensed to sell the mutual fund in the country you are located in. It is not a rule that prevents your owning the fund but prevents the mutual fund firm from selling it to you. When I first came to Japan several decades ago this rule either didn't exist or wasn't enforced and my fund companies (Fidelity, Vanguard, Schwab, etc.) had no hesitation to sell me mutual funds even knowing that I lived in Japan. Now they will not sell me new shares but do not require liquidation of the shares I already have. I report the dividends and capital gains distributions from those funds by name on my Japanese taxes each year and that has never raised an issue even though my accounts have gone through several audits.

But why are the fund prices so different? (Ex. VTI is $217 per share vs. SCHB which is $101).

There isn't any reason that two funds would be expected to have the same unit share price even if they are tracking similar indexes because they are tracking performance and are not set at an invidual index share price. However, VTI tracks the CRSP US Total Market Index while SCHB tracks the Dow Jones U.S. Broad Stock Market Index so the indexes they are tracking are not identical although they will perform very similarly. Also Vanguard is somewhat more efficient at managing its ETF's because they are larger than most competitors and Vanguard benefits from lending securities to short sellers which can actually make Vanguard funds slightly outperform the indexes they track (because the index is a theoretical construct and doesn't have any efficiencies of scale or ability to lend securities, etc.)

Am I correct in assuming that the above price per share is the only expense I'll incur if I purchase these?

You will experience a slight friction cost from the bid/ask spread when purchasing or selling an ETF even if you are using a commission-free brokerage.

I'd like to set up ETF purchases that are automatic per month if possible. Is this an option?

Unlike for mutual funds it is not usually possible to set up automatic monthly investments in an ETF but it will depend on your brokerage firm.

Hmmm. So would you favor the Vanguard ETF because of it's efficient management / better performance? I'm kind of leaning toward the VTI but still exploring. I suppose it is personal preference as to index (CRSP vs. Dow Jones, etc)?
As for the "friction costs" you mentioned, where would I find the price of this fee? I suppose in the fine print somewhere.
You've had several Japanese tax audits? Just curious but do you have a tax guy doing your Japanese taxes or do you usually do them yourself?
Thanks as always for your explanations.

[TokyoWart]

I own both VOO and VTI and am happy with them. The friction costs I refer to are the bid/ask spread you face for any stock or ETF transaction. It is relatively small for an ETF like VTI (maybe pennies per share). There’s also a bit of price discovery that happens at the beginning of the trading day for all ETFs as the underlying stocks in the ETF begin to be priced and I have heard Vanguard’s head of US ETF capital markets Janel Jackson recommend against ETF orders during the opening hour of trading because of that inefficiency but it’s probably hard to quantity. (You can hear her on a recent ETF Prime podcast.)

I used to do my Japanese taxes at the tax office with their staff but found out that the staff often made mistakes then I used a Zeirishi who also made mistakes so now my employer pays for an accounting firm to do them.