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Long term investment setup? ETF/Bonds advice needed

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  1. #1

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    May 2019
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    Long term investment setup? ETF/Bonds advice needed

    Hi I would really value your advice. I know some aspects have been discussed on this forum but I am still non the wiser and perhaps I could benefit from a more simplified explanation due to my inexperience.

    I am (36yrs, UK citizen) looking to do long term investment and have a low tolerance on risk and dont expect to invest more money soon. I bank with Citi HK currently and their fees are 0.2% for HK securities and 0.5% for US securities (no europe?).
    I am looking for a long term investment (retirement) and have about 1mil HKD to invest immediately. My idea was 50% Bond and 50% Stock (out of which is 50% intl markets and 50% US). I have done some monte carlo simulations however a big factor here is being left out and this is the fees.

    1. Brokerage fee: What is your current recommendation for the best broker for HK residents in terms of risk to fee balance? I was leaning with IB but just realized they are insured to 15K HKD which is ridiculous. On the other side HK banks seem to be very expensive? Is there a way to leverage my UK citizenship and get a broker somewhere else?
    2. Tax. My understanding is to stay away from US market due 30% dividend tax (and inheritance tax) is there a way around this. Any good US ETFs without dividends?
    3. As per point 2 I understand Irish ETFs are a better choice due to 15% tax only. What brokerage account do I use to invest in Ireland domiciled ETFs from HK?
    4. I am not sure investing in HK stock market is the best idea for the next 30 years due to lack of choices for ETFs, bonds and lack of liquidity?

    Also, as I mentioned Monte Carlo simulation is helpful to me but I cannot easily factor in the tax fess, brokerage fees etc. Is there any other simulation tool to help to model the various fees?

    Thank you for your sage advice

    wharrison6 likes this.

  2. #2

    Join Date
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    1) If you don't expect to trade much - and that is a good idea - then the brokerage fee is not very relevant. But I would avoid brokers that charge portfolio fees - very bad deal as your investments accumulate.
    2) Note that the 30% withholdig tax is specific to HK. Countries that have a tax treaty with US typically withhold only 15%.

    I think your bond/stock split is conservative (for a 36 year old) - but that is a personal choice.

    What does long term investment setup mean? Are you sure you will stay in HK? If you leave, the setup will likely have to change...certainly if you move to US.

    wharrison6 likes this.

  3. #3

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    May 2019
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    Thank you Elfant&Castle, my plan is to get HK permanet residency and move back to Europe.


  4. #4

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    For ETFs of US stocks, your choice are:
    - buy ETFs through the Hong Kong stock exchange. This means you will have effectively 30% withholding on dividends. Plus trading liquidity of the HK listed ETFs are really low, so bid/ask spreads are high and you may have trouble liquidating in a downturn.
    - buy ETFs listed in the US stock exchange. This has better liquidity but you still have 30% withholding. You will also have US estates tax issues if you die with more than $60k in assets.
    - buy ETFs listed in the London Stock Exchange through a broker. This means you have 15% withholding on dividends. Liquidity is good. But you need to use a separate broker and you run a counterparty risk because brokers are more likely to go bust than banks. The most common brokers allowing you to trade LSE stocks are Interactive Brokers or Saxo. Interactive Brokers have the lower fees.
    - buy ETFs listed in the London Stock Exchange through the telephone with your bank. This means you have 15% withholding on dividends. Liquidity is good. You have better counterparty risks than with brokers. But trading fees are very high (for example for HSBC it is minimum of 70 per trade, I think). DBS seems to have the lowest fees on this. Would be a good option for a high, one-off trade.

    The last option that seems to have just come up and is being explored at the moment by some on this forum is opening an HSBC Expat account that allows you to open an HSBC InvestDirect account in the UK. This has good counterparty risks, good liquidity, low fees but your assets will be subject to UK tax law (which for just HK$1m should not really matter).

    There are other threads on here with more detail (look up "withholding" on the search feature).
    Lots of detail in this thread:
    https://geoexpat.com/forum/135/threa...ml#post3603813
    @shri - isn't it time to have a sticky on US-listed stocks in the Investment Forum? It seems to come up a lot, there is a lot of info already on here but it is usually buried within some 30-page threads.

    Last edited by greenmark; 04-05-2019 at 07:27 AM.
    shri, TheBrit, lolone and 3 others like this.

  5. #5

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    May 2019
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    Hi Greenmark, many thaks for your feedback. There are few points to highlight:

    1. UK nationals have a special treaty with US
    "(5) Where property may be taxed in the United States on the death of a United Kingdom national who was neither domiciled in nor a national of the United States and a claim is made under this paragraph, the tax imposed in the United States shall be limited to the amount of tax which would have been imposed had the decedent become domiciled in the United States immediately before his death, on the property which would in that event have been taxable."
    My understanding is that this is related to worldwide income on up to US $11,180,000, with 0 tax.

    Second, my understanding is that the UK based HSBC brokerage account has a UK tax requirement not just on dividend but also on capital gains. Furthermore, I have not looked in detail re this, but as a UK national it may mean that my HK income would be taxable in UK as well (need to look more into this).

    Given all these issues, I am wondering whether I should just focus on good low dividend US ETFs, brokeraged through HSBC bank in HK? My plan is to hold to pension and re-balance from time to time.


  6. #6

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    Quote Originally Posted by greenmark
    - buy ETFs listed in the London Stock Exchange through a broker. This means you have 15% withholding on dividends.
    What gives the more favorable tax treatment is the fact that an ETF is domiciled in Ireland, greenmark, not that it is listed in the UK . For example Vanguard has a lot of Irish domiciled ETFs listed on XETRA enjoying the same tax benefit.
    The tax treaty is with Ireland.
    lolone, shri and Drunken Master like this.

  7. #7

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    jrkob, you are right, HK based broker buying Irish ETF should probably be the best option to get hold of US stocks


  8. #8

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    For your back-testing re brokerage fees. You're not very explicit about what it is exactly you're doing but a couple of avenues for you to consider. I'm sure there would be many others that may be better:
    - Metastock will let you do that (add brokerage fees, tax or whatever you like) but it's not free.
    - there is an old, but perfectly functional, version of Tradestation that fell in the public domain (due to a copyright issue with the way it was coded). I forgot which version it is. Could be version 8 or 2000. Or another. I forgot. You will find it on eMule for example.
    - Excel for maximum flexibility.

    I've used all 3 and currently use Excel.

    lolone likes this.

  9. #9

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    Set up an account with IB, Saxo or Internaxx.

    Invest in the following:

    - IWDA
    - EMEI
    - AGGU

    Move on with life.

    In reality you will continue to do lots of research and ask lots of questions, which is all good. I did the same. I ended up with the above. It works for me.

    wharrison6, Kowloon Goon and bdw like this.

  10. #10

    Join Date
    Feb 2019
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    Quote Originally Posted by pin
    Set up an account with IB, Saxo or Internaxx.

    Invest in the following:

    - IWDA
    - EMEI
    - AGGU

    Move on with life.

    In reality you will continue to do lots of research and ask lots of questions, which is all good. I did the same. I ended up with the above. It works for me.
    This is good advice given your situation. As you will return to Europe after you get PR, you are managing your broker risk as presumably youll dispose of assets before you leave HK (otherwise theyll be taxable in UK), therefore reducing the broker risk window to a few short years. Its a risk-based approach and is exactly the approach Im taking. Would recommend IB due to low fees over Internaxx which seems expensive (cant opine on Saxo). IB also has attractive interest paid on idle cash (USD). May also be worthwhile to invest via your local bank in 2800 if youre not comfortable putting everything through an online broker.

    Ultimately youre not planning on retiring in HK so best not to overthink it then when youre in the UK you have numerous options for tax efficient, deposit-protected, low fee, diverse investment.
    lolone likes this.

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