More dumb investment questions for Americans

[Decchan]

Hi another American here, trying to find the least complicated of the seemingly-only-complicated-options available to US citizens.

I am 38. I work at a Japanese company, have a Japanese wife and permanent residency, and am leaning pretty heavily towards settling down here over the long haul (I suppose there is always a chance I could move back to the US *someday*, but it is probably a less than 10% chance). My wife and I were a hair away from buying a plot of land in Yokohama, but the plan was derailed by the coronavirus. But if the outbreak does get under control here, we could soon be signing a 35 year lease. My investment would then be geared towards paying back the last few years of the loan as I enter retirement. Maybe that’s TMI, but anywho:

My basic investing plan is based on the suggestions from Expat Millionaire, so I would likely just be investing in ETFs, likely these:

Schwab US Broad Market ETF (30%)
Schwab International Equity ETF (20%)
Schwab Emerging Markets Equity ETF (10%)
Schwab Short-Term US Treasury ETF or Schwab’s US Aggregate Bond ETF (40%)

As far as actual investment amounts: I am thinking I would put down an initial 10k or so, with 1k-1.5k a month thereafter (spread out across the four ETFs).
I have enough money in a US-based Chase savings account to pay for this in USD for a while, but would eventually have to start sending money back via goremit or whatever.

So here are the questions:

1. It seems the only options for a US expat without a reestablished account is IB or Ameritrade. With my planned investment totals and the targeting of just ETFs, it seems like Ameritrade would be a better choice, is that right? (It seems like there is some extra fee at IB if I invest less than 2k a month.)
2. Is there any chance either IB or Ameritrade would allow me to make my investments using a Japan-based bank account in yen so I do not need to keep remitting funds to my Chase account for the next 30 years?
3. So my understanding, based on what I have read on this forum, is that “Japan-domiciled” ETFs are pretty much off-limits to US citizens (as they could be seen as PFICs by the IRS), but I do notice most Japanese brokers have a “海外ETF” list on their product pages (for example, this at SBI: https://search.sbisec.co.jp/v2/popwin/i ... 0_etf.html .) Most do not have the specific ETFs I mention above, but they do have some Vanguard ones and others that look comparable (バンガード トータル ワールド ストック ETF  in particular looks promising?). Would these still be off-limits though?

If anybody has any insight on these questions and/or my situation in general it would be greatly appreciated, thanks.

[captainspoke]

First, your allocation among funds looks good (and I like schwab's ETFs). But personally (and I think for you, at 38) 40% in bonds is too much. Yeah, I know the your-age-in-bonds thing, and so on, and I'm certainly not an investment advisor/pro, so...

1. The only light (hope) I can shed here is that schwab is buying ameritrade (last fall), and since ameritrade does allow expats to open accounts, if you have an account with them it may eventually become a schwab account--and this would be a good thing (IMO).

2. It's been a while (3yrs), but I wired funds from a shinsei sub account (US$) to my US broker any number of times. With an account here that allows you to switch into and hold $ until you are ready to do the wire, you should be able to skip Chase and transfer direct to your broker.

3. If you have direct access to the US market (IB, ameritrade), I don't think there's much reason to be investing in japan-based funds. The schwab funds you mention have among the lowest fees, and the trend in the US is toward commission-free trading. Also, as a US person, an account there (exclusively) will simplify your yearly tax filing (yes, you'll have to keep track of things there, for here in japan, but this is not difficult). Eg, you can log into your brokerage with something like turbotax, and all your 1099/schedule B details automatically flow into your return in about 15-20 seconds. If you have investments in Japan, you will have to do this by hand. And this also completely walls you off from any PFIC worries.

[Decchan]

Thank you! With all of that considered it does sound like ETFs through TD Ameritrade are the way to go then. My only final concern is I see some reports that many brokers are closing expat accounts. Could that possibly happen with TD Ameritrade? Would it be more likely/less likely after a schwab merger? What, uh, happens to my ETFs/money if they do close the account?

[TokyoWart]

Thank you! With all of that considered it does sound like ETFs through TD Ameritrade are the way to go then. My only final concern is I see some reports that many brokers are closing expat accounts. Could that possibly happen with TD Ameritrade? Would it be more likely/less likely after a schwab merger? What, uh, happens to my ETFs/money if they do close the account?

I don't know what will happen in the future but I have accounts with both TD Ameritrade (for 3-4 years, started in Japan) and Schwab (35+ years, started before I came to Japan), both companies know that I live in Japan and use my Japanese address and although there are some restrictions (Schwab won't sell me US mutual funds anymore) there haven't been any signs yet that they intend to close the account. I even have a contact for my Schwab account who specializes in their account holders who are based in Asia.

[mighty58]

Apologies as this is off topic to your question, but I'm curious as to why the coronavirus situation affected your real estate purchase plans... ie. whether it was something due to your own personal situation, or whether something bigger going on in the industry as a whole.

[Decchan]

Apologies as this is off topic to your question, but I'm curious as to why the coronavirus situation affected your real estate purchase plans... ie. whether it was something due to your own personal situation, or whether something bigger going on in the industry as a whole.

Mostly personal reasons - but it is also maybe worth noting that the building company we were going to use has told us that a lot of their construction has been delayed due to issues with importing wood and other materials from China.

[Decchan]

Captainspoke and Tokyowart, thank you for your insight.

Coincidentally, I have been researching this topic on the bogleheads forums, and curiously I have noticed that the common suggestion there for more permanent residents is to buy US-based ETFs via a Japanese broker (such as Nomura, which will properly provide 1099s). One prime quote from an old thread there:

Basically, from a Japanese tax perspective, it is better to invest through Japanese brokers.
On the other hand, from a US tax perspective, it is better to invest using US-domiciled ETFs if one is a US taxpayer.

Which suggests that the ideal situation would be to invest using US-domiciled ETFs, purchased through Japanese brokers.

Unfortunately, most Japanese brokers will not allow US persons to invest in US-based ETFs through them, due to US rules.
The few that do permit it charge fairly high commissions. Of these, only one does both the US and Japanese tax paperwork right that I know of for sure: Nomura Securities.

One thing I forgot to mention (as I had frankly forgot): I already have a Nomura Securities account! I had to open one to receive the stock options from my ESOP at my former company after quitting. (I currently have nothing in the account as I subsequently had to move the stocks to a different Japanese broker per the request of my new company.)

Does any US citizen on this forum have any experience buying ETFs through Nomura? If not I may register over at bogleheads and ask the folks over there.

[TokyoWart]

I have a Nomura account and a good relationship with my Nomura representative and I’m asking her to look into this for me. Because of the Covid-19 situation it will probably take some time to get an answer from their tax group but I’ll let you know what they say. Up until now I’ve never received a 1099 from Nomura but my positions have all been individual stocks; it would be great if they could help avoid having a PFIC classification for an etf or mutual fund.

[Decchan]

I have a Nomura account and a good relationship with my Nomura representative and I’m asking her to look into this for me. Because of the Covid-19 situation it will probably take some time to get an answer from their tax group but I’ll let you know what they say. Up until now I’ve never received a 1099 from Nomura but my positions have all been individual stocks; it would be great if they could help avoid having a PFIC classification for an etf or mutual fund.

Great! Thank you so much!

[Decchan]

Dug up my nomura login info and looked around at their foreign ETF options. They do have some basic Vanguard ETFs and others that look like plenty viable options to the 4 I listed in my initial post, but I am a little depressed by the commission rates if I am understanding them correctly (from https://www.nomura.co.jp/service/commission/netcall/):

1注文の約定代金 ～20万円 国内手数料 2,389円
(*This is from a list for foreign stocks, but elsewhere on their site they say commissions for foreign stocks and ETFs are the same.)

So if I have to pay a minimum ¥2,389 per order (for purchases of up to 200,000 yen) I might want to limit my ETF portfolio to just 2 (rather than 4) so I don't have to pay 4 commission fees every time I want to add funds (may also want to contribute bi-monthly rather than monthly).

I suppose then I could bear these 1%+ fees per ETF purchase, especially if I don't intend to sell them for a couple decades or so....Still, oof.


Am I understanding these commission rates correctly? If so would I be a fool to accept these rates?