Investing as a non-resident American citizen

March 28, 2017 11:56 PM

Tl;dr: all I want is a place to put savings that will, at a minimum, not steadily lose value to inflation (although actually growing would also be nice). What are my options?

All my life the standard financial advice I received was to put money in a Roth IRA, 401ks, and mutual funds.

And then I moved abroad, where I discovered:

1. American mutual funds are not allowed to sell to non-residents
2. American citizens who buy non American mutual funds are taxed under PFICS, which apparently costs so much in accounting fees alone it's not worth trying.

I am, shall we say, not very rich. When I looked into financial advisors, I discovered they came in two varieties - those that specialize in helping people who are in debt, and those that require a minimum of X amount of money (that I don't have) before they'll make an appointment with you. This is also true of my bank, which informed me that financial advisory services are offered only to customers making over X a month or with over Y in the bank account already.

So I'm alone, fending for myself. Folks back home are not familiar with the tax complications for American non-residents so can't offer advice. Folks over here also aren't familiar, so also can't offer advice.

All I really want is to be doing what I was always told was the financially prudent thing to do, and put aside some money every month into savings, ideally in as straightforward, automatic, and low-maintenance fashion as possible-- and then not eat myself up over how the money I'm putting away is steadily becoming more worthless because of inflation, which is what I'm currently doing at my Bank Of The 0.001% Checking Account Interest Rates

I just opened up a trading account and I have no idea what I'm doing so I haven't touched anything. I opened it because I thought I could just buy bonds and that seemed straightforward enough but apparently those are also traded and go up and down in value? I don't actually understand anything.

Anyone here in or familiar with similar situations and able to offer advice? Or is there at least some crash course I could take, that would apply specifically to my situation (because every time I read the advice "just invest in a mutual fund" I burst into tears and I really can't handle that anymore)?

posted by Cozybee to Work & Money (12 answers total)

Where are you, geographically?
Do you intend to stay there long term?
What about local investments in the country you are in (stocks, bonds)?
posted by plep at 12:13 AM on March 29, 2017

If you're going to de-expatriate yourself any time soon, maybe another important thing to do is to investigate what you would have to do to move money back to the U.S.; since the costs associated with that might eat up any penny-pinching you would do to beat inflation, depending upon the other variables.
posted by XMLicious at 12:40 AM on March 29, 2017

Response by poster: I'm planning on staying where I am long term.

I'm fine with investing locally but my understanding of PFICS is I'd have to personally buy and sell every single stock.
posted by Cozybee at 12:43 AM on March 29, 2017

Get a cross border tax accountant specializing in tax laws between your two countries and put together a plan for you. It's so worth the money.
posted by St. Peepsburg at 12:45 AM on March 29, 2017

Best answer: The UK-Yankee Money Matters board is a good resource for these sorts of questions (UK-centric for obvious reasons, but many of the issues discussed apply to American citizens living anywhere).

I've seen Charles Schwab recommended often as a US broker that is comfortable and knowledgable in dealing with citizens living abroad.
posted by penguinicity at 1:44 AM on March 29, 2017 [1 favorite]

Do you get the moneysavingexpert weekly email? If not, I recommend you sign up for it. This week it has a section on the best bank accounts based on interest rates. You can get a decent return on some but they're time limited and also only up to a certain amount. At least they might buy you some time until you figure things out.
posted by hazyjane at 4:15 AM on March 29, 2017

Best answer: Charles Schwab wouldn't work with this non-resident, for what it's worth. Unfortunately my experience is that we don't have a lot of good options. I'm pasting below my comment from a previous thread in case that's helpful.

Yeah, US citizens abroad basically have zero tax advantaged savings/investment options. You can invest in regular mutual funds, etc through Vanguard or the like, but you have to lie a bit and use someone else's US address. Also, in my experience banks abroad will not open investment accounts for US citizens, but you may be able to find some if you look really hard.

What I do is the following:

Local pension plan maxed out. Not tax advantaged in the US but I still get an employer match so it's worth it.

Real estate- bought a house and a rental property. This has both US and local tax consequences, you'll probably need an accountant.

Cash in plain old savings accounts for liquidity.

On a side note, HR Block has a surprisingly good US expat tax department. They are specialized in only that and actually know what they are talking about. The rates are super reasonable.
posted by ohio at 5:38 AM on March 29, 2017 [6 favorites]

You should be able to invest in ETFs (exchange traded funds) that track the same indexes as index-tracking mutual funds.

I think you ultimately have two different questions:
1) how much risk are you willing to take and how should your assets be allocated (stocks vs. bonds vs. ETC., US-based vs. International) - this is largely dependent on your financial goals and risk tolerance and is the same whether you're in the US or somewhere else.
2) how can you get close to that allocation in a tax-efficient manner, given your citizenship and residency - this is where a consultation with an accountant could really help.
posted by mskyle at 10:47 AM on March 29, 2017 [1 favorite]

financial advisors, I discovered they came in two varieties - those that specialize in helping people who are in debt, and those that require a minimum of X amount of money

Unless you're talking only about your local market (wherever you are), this isn't true at all.

For example -- and this is only an example -- my fee-based advisor in the US is happy to work with anyone who pays her fee.
posted by JimN2TAW at 11:10 AM on March 29, 2017

I could just buy bonds and that seemed straightforward enough but apparently those are also traded and go up and down in value?

When you buy bonds the rate of return is fixed. The rates change day to day based on what investors are willing to pay, but once you buy them the rates are guaranteed.
posted by number9dream at 2:13 PM on March 29, 2017

You should be able to invest in ETFs (like Vanguard ETFs), which are like mutual funds but generally have cheaper fees and are bought and sold like stocks. If you can't open an account directly with Vanguard, you still should be able to purchase them via a foreign brokerage. US ETFs won't be PFICs.

Of course, you'll have to disclose that account (but not a US ETF) on the FBAR.
posted by jpe at 3:48 PM on March 29, 2017

Best answer: It's true that many US-based brokers like Vanguard will not take you if you are not an American resident, and I would not advise lying about that (if you do falsely claim US residency, you could wind up being subject to that state's capital gains tax, for example.) The reason for this reticence is because the IRS imposes onerous reporting requirements on brokerage firms which take expat clients. Interactive Brokers has built its reputation on being one of the only firms that's truly expat-friendly. Google around and you'll find a lot of reviews (and probably a few expat finance blogs, which are also helpful.)

Good luck!
posted by mellifluous at 10:24 PM on March 31, 2017