Vanguard ETF

[Kanto]

Hi there !

Sorry to bump this thread up but I had a question relative to Vanguard ETF and Vanguard in japan in general...

Even if the vanguard ETF VT and VOO have a small management fees, and with all the good we know about vanguard indexes, for a non US citizen is it still worth investing in those compare to the japanese non ETF equivalent (I'm thinking about the rakuten x vanguard total index or the eMaxis Slim ones for instance) ?

I still see a lot of europeans living here investing in those ETF funds but to me it feels a bit disadvantageous because of the double taxation (US + JP), the indivisible share (so the entry investment might be a bit steep and not customizable) and the absence of a DRiP (at least with rakuten).

What you think ?

Subsidiary question :
What would be a good non ETF equivalent of the vanguard BND ?

Thanks a lot if you can enlighten me on those points.

I strongly suggest you check out https://shintaro-money.com/

He goes in-depth on the differences and many popular index funds.

Cliffnotes

- Mutual funds are still a better deal than ETFs in Japan. (This is not the case in America, which is why MF have gotten a bad wrap recently).

- Emaxis Slim Funds are the best bet for most index funds.

- For 100% American funds the price difference is a wash, but Emaxis Slim funds are less trouble to purchase.

(None of this applies to Americans).

- If you prefer Vanguard products, Rakuten offers Wraps of a few of their funds, but with added cost basis.

[adamu]

for a non US citizen is it still worth investing in those compare to the japanese non ETF equivalent (I'm thinking about the rakuten x vanguard total index or the eMaxis Slim ones for instance) ?

There are quite a few discussions about this in the archives, and there's also a summary on the wiki:

https://retirewiki.jp/wiki/Japanese_global_index_funds

[rhe]

Even if the vanguard ETF VT and VOO have a small management fees, and with all the good we know about vanguard indexes, for a non US citizen is it still worth investing in those compare to the japanese non ETF equivalent (I'm thinking about the rakuten x vanguard total index or the eMaxis Slim ones for instance) ?

I still see a lot of europeans living here investing in those ETF funds but to me it feels a bit disadvantageous because of the double taxation (US + JP), the indivisible share (so the entry investment might be a bit steep and not customizable) and the absence of a DRiP (at least with rakuten).

I actually conducted a year-long experiment this year, buying a bunch of different Japanese ETFs (US stock, European stock, etc), and watching to see what the tax treatment was. My conclusion is that you have to be very careful with both your choice of brokerage and your choice of ETF. If you are investing in the US, you want to get back the 10% IRS tax withholding, but kabu.com didn't seem to provide the correct tax form by default, and changing the account preferences so that you could get it looked like it would break your NISA if you had that with them. Rakuten was better, and provided the correct form, but only some of my ETF investments seemed to show the withholding amount (others were 0, when I'm pretty sure foreign tax was being paid).

My experiment was with ETFs, but I presume the situation with mutual funds is no better. If you are considering buying something in Japan, my advice would be to start by buying a very small amount of many different things right now, and then once you find one that actually gets you a form showing the foreign withholding, put the real money into that one.

In my case, my conclusion was that I was better off sticking with having my foreign investments in a foreign brokerage account, where I am more confident nothing funny will happen.

What would be a good non ETF equivalent of the vanguard BND ?

Do you anticipate having major expenses in USD in the future? If not, the exchange rate risk probably isn't worth it given the low interest rates.

(If you plan on spending JPY in the future, but are willing to take risk, note that the Japanese stock market probably has a better risk-return tradeoff than USD denominated bonds, so the argument for foreign bonds is not obvious)

[Kanto]

Even if the vanguard ETF VT and VOO have a small management fees, and with all the good we know about vanguard indexes, for a non US citizen is it still worth investing in those compare to the japanese non ETF equivalent (I'm thinking about the rakuten x vanguard total index or the eMaxis Slim ones for instance) ?

I still see a lot of europeans living here investing in those ETF funds but to me it feels a bit disadvantageous because of the double taxation (US + JP), the indivisible share (so the entry investment might be a bit steep and not customizable) and the absence of a DRiP (at least with rakuten).

I actually conducted a year-long experiment this year, buying a bunch of different Japanese ETFs (US stock, European stock, etc), and watching to see what the tax treatment was. My conclusion is that you have to be very careful with both your choice of brokerage and your choice of ETF. If you are investing in the US, you want to get back the 10% IRS tax withholding, but kabu.com didn't seem to provide the correct tax form by default, and changing the account preferences so that you could get it looked like it would break your NISA if you had that with them. Rakuten was better, and provided the correct form, but only some of my ETF investments seemed to show the withholding amount (others were 0, when I'm pretty sure foreign tax was being paid).

My experiment was with ETFs, but I presume the situation with mutual funds is no better. If you are considering buying something in Japan, my advice would be to start by buying a very small amount of many different things right now, and then once you find one that actually gets you a form showing the foreign withholding, put the real money into that one.

In my case, my conclusion was that I was better off sticking with having my foreign investments in a foreign brokerage account, where I am more confident nothing funny will happen.

What would be a good non ETF equivalent of the vanguard BND ?

Do you anticipate having major expenses in USD in the future? If not, the exchange rate risk probably isn't worth it given the low interest rates.

(If you plan on spending JPY in the future, but are willing to take risk, note that the Japanese stock market probably has a better risk-return tradeoff than USD denominated bonds, so the argument for foreign bonds is not obvious)

I am not sure I understand your reasoning here.

The math can, and has been done, to compare Japanese Domiciled Mutual funds and American domiciled ETFs.

https://shintaro-money.com/

Dividend reinvestment gives Japanese mutual funds the edge.

Although it is a bit of a wash with 100% US indexes, if you are buying a fund with international equities there is a clear price advantage to buying domestic mutual funds.

When you factor in currency exchange rates, fees, and foreign ETF purchasing fees Japanese Mutual Funds seem to be the clear winner

[rhe]

Although it is a bit of a wash with 100% US indexes, if you are buying a fund with international equities there is a clear price advantage to buying domestic mutual funds.

When you factor in currency exchange rates, fees, and foreign ETF purchasing fees Japanese Mutual Funds seem to be the clear winner

For international, Vanguard offers Irish-domiciled accumulating ETFs. These are difficult to find by clicking through on the website, but show up if you search on google. For example,
<https://global.vanguard.com/portal/site ... ocId=31799>

My strategy is to claim the 10% tax withholding deduction on my (US domiciled) US investments, and use Irish-domiciled accumulating ETFs for most of the non-US international.

For people below the fee-waiver threshold for interactive brokers, I think I agree with you that they should probably stick with domestic options for non-US international. If you have more, though, I don't think any domestic option is going to be able to beat IB. In some cases (e.g. France), it looks like you can actually get a Luxembourg domiciled accumulating ETF that doesn't seem to have any tax withholding at all.

[Kanto]

Although it is a bit of a wash with 100% US indexes, if you are buying a fund with international equities there is a clear price advantage to buying domestic mutual funds.

When you factor in currency exchange rates, fees, and foreign ETF purchasing fees Japanese Mutual Funds seem to be the clear winner

For international, Vanguard offers Irish-domiciled accumulating ETFs. These are difficult to find by clicking through on the website, but show up if you search on google. For example,
<https://global.vanguard.com/portal/site ... ocId=31799>

My strategy is to claim the 10% tax withholding deduction on my (US domiciled) US investments, and use Irish-domiciled accumulating ETFs for most of the non-US international.

For people below the fee-waiver threshold for interactive brokers, I think I agree with you that they should probably stick with domestic options for non-US international. If you have more, though, I don't think any domestic option is going to be able to beat IB. In some cases (e.g. France), it looks like you can actually get a Luxembourg domiciled accumulating ETF that doesn't seem to have any tax withholding at all.

Domestic mutual funds reinvest the dividends though, thus avoiding all dividend tax. A far more tax-efficient strategy.

[rhe]

Although it is a bit of a wash with 100% US indexes, if you are buying a fund with international equities there is a clear price advantage to buying domestic mutual funds.

When you factor in currency exchange rates, fees, and foreign ETF purchasing fees Japanese Mutual Funds seem to be the clear winner

For international, Vanguard offers Irish-domiciled accumulating ETFs. These are difficult to find by clicking through on the website, but show up if you search on google. For example,
<https://global.vanguard.com/portal/site ... ocId=31799>

My strategy is to claim the 10% tax withholding deduction on my (US domiciled) US investments, and use Irish-domiciled accumulating ETFs for most of the non-US international.

For people below the fee-waiver threshold for interactive brokers, I think I agree with you that they should probably stick with domestic options for non-US international. If you have more, though, I don't think any domestic option is going to be able to beat IB. In some cases (e.g. France), it looks like you can actually get a Luxembourg domiciled accumulating ETF that doesn't seem to have any tax withholding at all.

Domestic mutual funds reinvest the dividends though, thus avoid all dividend tax. A far more tax-efficient strategy.

I'd be quite surprised if this is actually true for countries other than the UK/Brazil/Vietnam. A Japanese-domiciled fund holding German stocks is going to get hit with a 20% German tax withholding when Volkswagen pays a dividend. As far as I know, there is no way they could avoid the German government taking their cut.

I agree that if the fund then doesn't issue any dividends, there won't be any Japanese tax paid because there are zero dividends coming out of the fund. This is the same as the situation with an Irish-domiciled accumulating ETF, though: the accumulating ETF doesn't pay out any dividends, so there's no Japanese tax liability. Internally, though, they had to pay withholding tax to the German government when they received the Volkswagen dividend.

[Kanto]

I'd be quite surprised if this is actually true for countries other than the UK/Brazil/Vietnam. A Japanese-domiciled fund holding German stocks is going to get hit with a 20% German tax withholding when Volkswagen pays a dividend. As far as I know, there is no way they could avoid the German government taking their cut.

I agree that if the fund then doesn't issue any dividends, there won't be any Japanese tax paid because there are zero dividends coming out of the fund. This is the same as the situation with an Irish-domiciled accumulating ETF, though: the accumulating ETF doesn't pay out any dividends, so there's no Japanese tax liability. Internally, though, they had to pay withholding tax to the German government when they received the Volkswagen dividend.

I was speaking about the benefit of reinvesting dividends, and thus avoiding the domestic dividend tax. The benefits are pretty straightforward in terms of compounding interest.



https://www.chibabank.co.jp/blog/fund-dividend.html

[RetireJapan]

I get the feeling you two are kind of talking past each other, on related but different topics (both very valid). Might be good to have a quick reread of the thread before posting further

[fools_gold]

For international, Vanguard offers Irish-domiciled accumulating ETFs. These are difficult to find by clicking through on the website, but show up if you search on google. For example,
<https://global.vanguard.com/portal/site ... ocId=31799>

My strategy is to claim the 10% tax withholding deduction on my (US domiciled) US investments, and use Irish-domiciled accumulating ETFs for most of the non-US international.

For people below the fee-waiver threshold for interactive brokers, I think I agree with you that they should probably stick with domestic options for non-US international. If you have more, though, I don't think any domestic option is going to be able to beat IB. In some cases (e.g. France), it looks like you can actually get a Luxembourg domiciled accumulating ETF that doesn't seem to have any tax withholding at all.

What's the advantage with Irish ETFs over Japanese mutual funds? I know that Ireland doesn't levy its own withholding tax on ETF distributions, but the underlying stocks are still subject to each country's withholding tax.