Starting point for a US Citizen maintaining a US residence, living in Japan full time

[Phillter]

My hesitations would be, (1) the rate is not coming from a japanese bank (tho the difference might be fractional, consistency might outweigh that it is not japanese), and (2) seeing code like that might put them off.

Ah... That is a good point... As convenient as it might be, I guess it depends how often you trade to make this worth the potential risk.

[Phillter]

So, my Vanguard account has been open for about a week and hasn't been closed or anything, therefore it looks like my US address was enough to get me an account!

I'm a little anxious about pulling the trigger and actually funding the account and then buying some indexes and ETFs.

I think I'll be going 80% VTSAX, the US stock index, 10% International Bond ETF and 10% International stock ETF maybe, starting out with $10k total...sound like a good spread? I'm getting these numbers from the blog that Ben linked to earlier in the post by jlcollinsnh and the "Simple Path To Wealth", plus some international for hedging. Not sure how the US is gonna fair come this year's election season and COVID situation...

I then plan on putting away about 1k-1.5k worth of dollars in yen every month, and doing a transfer to my US bank account via Transferwise every 3 months or so, and then using that money to invest more in the Vanguard account. The reason I'm planning on transferring every 3 or so months rather than every month is to avoid transfer fees while still being able to invest new money at a reasonable rate.

Is there any last minute advice for actually buying your first investments and funding an account?

[TokyoWart]

I don't use bond funds but there's nothing wrong with that plan from my perspective. Here are a few considerations:

1. You mentioned the ETF versions for the Vanguard International Bond and International Stock mutual funds while VTSAX is the mutual fund class of shares for the US Total Stock Market Index fund (VTI will be the ETF class of shares for VTSAX).

2. Vanguard requires you to buy ETF shares in units no smaller than 1 share when you initiate the account while with mutual funds you can invest exact dollar amounts as long as you have the minimum (typically $3000) to start the mutual fund position.

3. You have two choices for broad international stock funds at Vanguard which don't include the US. VEU (or VFWAX for the mutual fund) has around 3000 companies in it and tracks the FTSE All-World ex US Index. VXUS (or VTIAX for the mutual fund) has around 7000 companies in it and tracks the FTSE Global All Cap ex US Index. Their performance is nearly identical.

4. Doesn't matter much but there are some advantages to buying the shares after they pay the dividend because then you don't have that dividend to report on taxes and you get the shares at a slightly lower price. These stock index funds pay dividends quarterly in March, June, September and December usually sometime after the 20th of the month so purchasing during the first wkk of January, April, July and October saves a sliver of taxes.

[Phillter]

2. Vanguard requires you to buy ETF shares in units no smaller than 1 share when you initiate the account while with mutual funds you can invest exact dollar amounts as long as you have the minimum (typically $3000) to start the mutual fund position.

That is really good to know. So just to clarify, for mutual funds, after I invest the minimum (in your example, $3000), then I could theoretically invest any amount I wanted as long a the total amount invested stays above that $3000? Sounds like a better deal for a "invest $X every so often" strategy as opposed to having to buy whole shares for whatever price they are at, leaving you with potentially some extra change with no where to put it for the time being.

[TokyoWart]

2. Vanguard requires you to buy ETF shares in units no smaller than 1 share when you initiate the account while with mutual funds you can invest exact dollar amounts as long as you have the minimum (typically $3000) to start the mutual fund position.

That is really good to know. So just to clarify, for mutual funds, after I invest the minimum (in your example, $3000), then I could theoretically invest any amount I wanted as long a the total amount invested stays above that $3000? Sounds like a better deal for a "invest $X every so often" strategy as opposed to having to buy whole shares for whatever price they are at, leaving you with potentially some extra change with no where to put it for the time being.

Yes, that is my experience at Vanguard.

[jeronimoski]

I don't use bond funds but there's nothing wrong with that plan from my perspective. Here are a few considerations:

3. You have two choices for broad international stock funds at Vanguard which don't include the US. VEU (or VFWAX for the mutual fund) has around 3000 companies in it and tracks the FTSE All-World ex US Index. VXUS (or VTIAX for the mutual fund) has around 7000 companies in it and tracks the FTSE Global All Cap ex US Index. Their performance is nearly identical.

I thought buying mutual funds while living abroad as an American is a no-no?

[jeronimoski]

...My main concern at this point is if I open an investment account and do stuff in the US, how does the tax reporting work for that, both as an expat reporting US taxes and as a resident of Japan reporting income earned overseas? Is there a good guide somewhere that talks about those problems? ...

For tax reporting in japan, you'll need to get a couple spreadsheets going--I use one for trades (gains/losses) and a second to record and keep track of distributions (interest, dividends, quarterly distributions, etc). Once you get the hang of these it's not difficult, but just something that you have to keep up on. A key point is that for anything that happens in US$, you have to convert that to yen on the date that it happened. For conversions I use: http://www.murc-kawasesouba.jp/fx/past_3month.php Note that below the initial calendars (which I never use), there's a place that you can select the exact date you want. Also, use the TTM rate (far right). Distributions are easier, since there's only one date/conversion. For trades you need to do two conversions--one for your date of purchase, and another for the sale date.

For US reporting: I'm not sure about vanguard (it very likely does the same), but my broker allows turbotax to connect to them directly to retrieve 1099 and other tax filing data. This is really slick--it takes something like 25-30 seconds for this, and then those forms are done (reliably and correctly). Note that you do need the version of turbotax that will handle investments, and form 2555 (FEIE). I use the "premier" version of TT, and get it (physical copy/CD) via amazon US, about $60-65 depending on your shipping choice.

Are these the steps you take for the stock trades that you do with Vanguard and in the US market? Do you also buy Japanese stocks?

[TokyoWart]

I don't use bond funds but there's nothing wrong with that plan from my perspective. Here are a few considerations:

3. You have two choices for broad international stock funds at Vanguard which don't include the US. VEU (or VFWAX for the mutual fund) has around 3000 companies in it and tracks the FTSE All-World ex US Index. VXUS (or VTIAX for the mutual fund) has around 7000 companies in it and tracks the FTSE Global All Cap ex US Index. Their performance is nearly identical.

I thought buying mutual funds while living abroad as an American is a no-no?

Buying foreign-domiciled mutual funds as an American is a no-no because of the PFIC reporting requirements (you can do it but US tax reporting is very complicated). Buying US mutual funds doesn’t create tax reporting problems for either Japan or the US but technically the fund company will usually refuse to sell you the US mutual fund if you live in a country where it isn’t registered (but they don’t seem to have a problem with your holding onto a fund which suggests to me the actual rule applies to their selling not your owning). The ETFs are really just an alternate share class of the Vanguard funds but somehow get around this rule. Several years ago when I started investing while living here this rule either didn’t exist or wasn’t recognized and there were no problems with buying the mutual fund shares.

[captainspoke]

...My main concern at this point is if I open an investment account and do stuff in the US, how does the tax reporting work for that, both as an expat reporting US taxes and as a resident of Japan reporting income earned overseas? Is there a good guide somewhere that talks about those problems? ...

For tax reporting in japan, you'll need to get a couple spreadsheets going--I use one for trades (gains/losses) and a second to record and keep track of distributions (interest, dividends, quarterly distributions, etc). Once you get the hang of these it's not difficult, but just something that you have to keep up on. A key point is that for anything that happens in US$, you have to convert that to yen on the date that it happened. For conversions I use: http://www.murc-kawasesouba.jp/fx/past_3month.php Note that below the initial calendars (which I never use), there's a place that you can select the exact date you want. Also, use the TTM rate (far right). Distributions are easier, since there's only one date/conversion. For trades you need to do two conversions--one for your date of purchase, and another for the sale date.

For US reporting: I'm not sure about vanguard (it very likely does the same), but my broker allows turbotax to connect to them directly to retrieve 1099 and other tax filing data. This is really slick--it takes something like 25-30 seconds for this, and then those forms are done (reliably and correctly). Note that you do need the version of turbotax that will handle investments, and form 2555 (FEIE). I use the "premier" version of TT, and get it (physical copy/CD) via amazon US, about $60-65 depending on your shipping choice.

Are these the steps you take for the stock trades that you do with Vanguard and in the US market? Do you also buy Japanese stocks?

Not vanguard, but any traded individual stock (or ADR) via schwab. I'd bet money (and give odds) that turbotax and vanguard do the tax handshake.

I don't know about vanguard's stock trading services (foreign, pinks sheets, etc), but it seems counterintuitive that you wouldn't pursue that first, as far as possible (to whatever actual limit there might be), before making assumptions/guesses about them and how they compare to a broker here (that you have zero experience with/knowledge about).

[jeronimoski]

For tax reporting in japan, you'll need to get a couple spreadsheets going--I use one for trades (gains/losses) and a second to record and keep track of distributions (interest, dividends, quarterly distributions, etc). Once you get the hang of these it's not difficult, but just something that you have to keep up on. A key point is that for anything that happens in US$, you have to convert that to yen on the date that it happened. For conversions I use: http://www.murc-kawasesouba.jp/fx/past_3month.php Note that below the initial calendars (which I never use), there's a place that you can select the exact date you want. Also, use the TTM rate (far right). Distributions are easier, since there's only one date/conversion. For trades you need to do two conversions--one for your date of purchase, and another for the sale date.

For US reporting: I'm not sure about vanguard (it very likely does the same), but my broker allows turbotax to connect to them directly to retrieve 1099 and other tax filing data. This is really slick--it takes something like 25-30 seconds for this, and then those forms are done (reliably and correctly). Note that you do need the version of turbotax that will handle investments, and form 2555 (FEIE). I use the "premier" version of TT, and get it (physical copy/CD) via amazon US, about $60-65 depending on your shipping choice.

Are these the steps you take for the stock trades that you do with Vanguard and in the US market? Do you also buy Japanese stocks?

Not vanguard, but any traded individual stock (or ADR) via schwab. I'd bet money (and give odds) that turbotax and vanguard do the tax handshake.

I don't know about vanguard's stock trading services (foreign, pinks sheets, etc), but it seems counterintuitive that you wouldn't pursue that first, as far as possible (to whatever actual limit there might be), before making assumptions/guesses about them and how they compare to a broker here (that you have zero experience with/knowledge about).

That's quite the reply. Yes, I am aware of Vanguard and what they do. So that's why I was asking about your 'system'. And my question was to whether or not you are using your system for US trading and Japanese stock trading and reporting it to the tax office here. I've had to do extra reporting, so I'm not completely clueless as you suggest. And I have spoke to my accountant about US reporting. So again, my question was to your system and how you handle Japanese and US stocks with the tax office here. Oh, and I don't make assumptions and guesses. I'm just asking questions. And how do you know I have zero knowledge? A bit rude, I must say. After all...this is the section for dummies. So pardon my 'rookie' question.