IE vs US domiciled funds (VWRL vs VT)

[Bojack]

One thing that has been bugging me since quite some time, is whether I should invest the bulk of my portfolio in VT or VWRL. I think the forum is split on the matter. Some users want absolutely the lowest cost possible, others don’t want anything to do with USA.

I would like us to debate one more on this issue. It’s an important decision to make and recent events in USA make it valid to discuss again:

• Biden announced a $2 trillion stimulus plan. This could be just the beginning. The money has to come from somewhere.
• A proposal has been made in California, that if you spend there at least 60 days in a year, you will be forced to pay a wealth tax for the following decade. This seems quite absurd to me, but only shows that the imagination of politicians has no limits when it comes to taxation.

To recap, the list of pros of US as domicile:

• reclaim the withholding tax on dividend (15%), in theory cutting cost by 0.2-0.3% per year
• higher trading volume => lower spreads
• lower stock exchange transaction costs
• higher AUM => more robust funds?
• lower TER => is it really directly comparable, though?

Ireland:

• simplicity
• no worries about US estate tax
• holding UCITS ETFs, not domiciled in the US

And to top it off, a poll, just to know what is your current preference.

What is the main domicile of your securities?

• USA (e.g. VT, VTI, VOO, VXUS)
• Ireland (e.g. VWRL, VUSA, VEUR, VFEM)
• Other (write below why)

[xorfish]

The better factor funds from Dimensional or Avantis are also domiciled in the US.

[SwissTeslaBull]

VWRL, avoiding ARKK for the same reason.

[Bojack]

But you’re not avoiding TSLA, are you? What’s the share of TSLA in your portfolio? I don’t think there is a difference between a US-domiciled single share and an ETF, or?

[SwissTeslaBull]

I actually have a few TSLA shares as the only US asset in my “long” portfolio, which doesn’t pay dividends for now anyway and which I won’t hold “forever” as with ETFs.

[SwissTeslaBull]

Btw, I buy VWRL in CHF

[Bojack]

I see many people have already voted. Now I would like to hear your opinion:

• if you invest in US: are you not afraid that you might become potentially liable in the future? (perhaps even retroactively)
• if you invest in IE: are you not missing these 0.2% annually, due to cumulation of various costs?

[MrCheese]

@Bojack

if you invest in US: are you not afraid that you might become potentially liable in the future? (perhaps even retroactively)

Retroactive liability I consider as very unlikely. And there are already active liabilities under the tax treaties (iirc everything beyond 5M USD in assets in US is taxed under US law, no?)

I generally will start bothering if I’m reaching those territories or if Biden lowers the amounts.

[Cortana]

All I care about are costs and returns. I don’t have any issue with IBKR or US in general and the tax treaties exist (up to 11M).

But I’ll probably transfer chunks of my ETFs from IBKR to a Swiss broker once I reached a certain amount (200k+). So I’ll probably keep ~200k in assets in IBKR and the rest in Switzerland in the future.

[Bojack]

@MrCheese

iirc everything beyond 5M USD in assets in US is taxed under US law, no?

Estate tax exemption has been raised to around $11 million during Trump reign. But it’s a good point. Biden could lower or abolish this exemption. I added it to the list of IE pros.

@Cortana

But I’ll probably transfer chunks of my ETFs from IBKR to a Swiss broker

It’s important to distinguish the domicile of your assets (the ISO code at the beginning of the ISIN) from the location of the custodian. This thread is about the former. It’s possible to hold VT via Swissquote, as it is to hold VWRL via IB. Broker risk is a good point, but I guess it’s best to be discussed separately.

[TeaCup]

US based funds are more tax efficient on US shares, but less tax efficient on others. When you compare actual returns, the Delta is something around 0.2% p.a - in some years IE based funds have even beaten US. In recent years, this was actually the case fairly often. Over a 5 years period, IE was the better choice. Hence, I don‘t directly invest in US securities but through IS funds only. More Details here:

Influence of TER on performance

Actually, the same applies when you compare the US based Vanguard Total World Stock ETF with a combination of 85.2% Vanguard FTSE All World, 13% SPDR World Small Cap and 1.8% iShares MSCI EM IMI. Whereas the us based Vanguard Total World Stock ETF from 31.12.2009 to 31.12.2019 would have yielded about 7.34% p.a.; the IE based comby of ETFs would have yielded 7.72% p.a. This always in CHF, assuming a full return on the US Funds Witholding Tax, annual re-balancing and assuming a marginal tax rate…

The bigger question in my view is if you should invest in VT / 60% of us securities or actually further cut that one down too. Just posted on this point here:

Credit Suisse (CH) 130/30 Swiss -what do you think?!

Clearly, investing in VT is an (but not THE) efficient way of investing into stocks, but its not the only one. We need to consider that if you wanted to invest e.g. in the US economy, you could either directly buy a share of a company that is active there - or you could buy a share of a company that has a subsidary there. There is no benefit as such from gaining the exposure through buying US shares. The contrary is actually the case since double taxation agreements generally provide WHT relief …

[Bojack]

@TeaCup

Over a 5 years period, IE was the better choice

Do you have a bulletproof calculation with data from a reliable source to back up that claim? You know…

in the quoted post you provided has some numbers, but how should I know if it’s correct? Does the US-return include reclaimed withholding tax? If it would be the case, that the performance difference between US and IE is not a given, that would strongly speak in favor of IE, and 75% of forum members would be making a mistake.

@TeaCup

The bigger question in my view is if you should invest in VT / 60% of us securities or actually further cut that one down too

I’d like to invest 100% in VT, save for fun bets on BTC & TSLA. And I think it’s best to keep allocation to a separate thread. I’d only like to tackle to IE vs US battle here.

[ma0]

That thing about California seems from another world. Sources? The Onion? I won’t probably spend 60days in California anyway… but who knows.

[TeaCup]

@Bojack

Do you have a bulletproof calculation with data from a reliable source to back up that claim? You know…

This comes from my master list of historic ETF Returns, Dividends, Re-Investments and the respective taxable income. Data collected from the ESTV Database. So yes, the data is there any anyone that runs an analysis on the ESTV database will get the same results. But no, I cant post it as this is probably about 100+ individual data points and I don‘t want to just release my Excel to the public. My advuse: Run the numbers and see what you get?

[nabalzbhf]

@ma0

That thing about California seems from another world. Sources? The Onion? I won’t probably spend 60days in California anyway… but who knows.

Yeah it’s a WSJ opinion anyway, it’s not even a currently proposed bill: Wall Street Journal on AB 2088: Wealth Tax

and I assume if the US is like most countries, many of the proposed bills are like posturing to get media attention, not a thing that has a chance of passing (but it did succeed on the former!)

[xorfish]

There will always be some small differences between two funds that do not track the same index. If one did better in the past few years, then it doesn’t follow that it will happen in the next few years.

Also your data might be wrong, are you sure that you used gross income and not the net income?

VT is up 80.38% in the last 5 years while VWRL is up 77.62%(Total return data from vanguard). The difference is 35 basis points per year or quite close to the ~30 basis points difference in cost + tax that you would expect.

They list the net income under gross income of the fund.

[Neville]

@Cortana

But I’ll probably transfer chunks of my ETFs from IBKR to a Swiss broker once I reached a certain amount (200k+). So I’ll probably keep ~200k in assets in IBKR and the rest in Switzerland in the future.

Will you buy the same ETF as now on IBKR?

[Bojack]

@TeaCup

I cant post it as this is probably about 100+ individual data points and I don‘t want to just release my Excel to the public

You can’t publish it because… it has data in it? So you tell me that I have to manually search for each year here, because you just don’t want to share?

Anyway, ICTax gives you dividends and the EOY closing price, but the closing price is not comparable between VT & VWRL or between VOO & VUSA. It’s because the two markets close at different times. In a few hour, the price can change by a few percent, heavily skewing the return. How did you tackle this problem?

[nabalzbhf]

@Bojack

Do you have a bulletproof calculation with data from a reliable source to back up that claim?

FYI another way is to look at the annual report they list the amount lost to tax.

[San_Francisco]

@Bojack

In a few hour, the price can change by a few percent, heavily skewing the return. How did you tackle this problem?

Usually they don’t (change by multiple per cent within hours). And you can sample a few days to compare.