A Europe-residing US citizen returns to the Permanent Portfolio.

[mhenders]

Hi all,

I'm a US citizen living in Europe, recently returned to the Permanent Portfolio, and thought I'd post some information and observations about investing in the PP (and a few general topics) from the perspective of a US citizen living abroad.

First, some background — I'm forty'ish, live in Europe and am married to a Spanish citizen. I own and operate companies in Germany, and in the United States, and therefore earn in both Euros and USD.

INVESTING

I've flip-flopped four times now between Bogle/Bernstein style portfolios, and the Permanent Portfolio. I hope this will be last time. Ultimately, what attracts me to the PP is the fact that it's forward-looking by design, and I like to be able to _articulate_ why I own the asset classes that I own. I also like I don't need to make a self-assessment of risk, and monitor that over time.

Even still, I can not claim that I feel 100% confident in my own ability to make the best decisions on these matters, since I still find myself often wondering why more mainstream investors ("mainstream," in the sense of those investors that I respect, like Bogle, Bernstein, Malkiel, etc.) don't use the PP. I also find it concerning that upon reading any new Bernstein/Malkiel book release, I find my urged to switch back.

But, like I say, hopefully this will be the last time. I think I'm finally coming around to Harry Brown's advice of "make your own decisions."

IMPLEMENTATION — US or Euro?

15 years ago, I would have never guessed that 15 years later I'd be living in Europe, and running two companies. So, I've given up on trying to even guess what the future might bring in terms of where I'll be living. In that regard, I have no idea whether to focus my PP on the USD or the Euro, and have decided to simply split the cash and bond portions between those currencies. (My stock investment is diversified globally, between VTI, VEU and a bit of VWO.)

I also decided to diversify custodianship of investments between the US and Europe. It's easy to find European (or Swiss) equivalent ETFs for US counterparts like VTI, VEU and VWO for the stock portion of the PP. For the long-term government bonds portion, the ETF I found that seemed to most closely correspond to TLT was IBGL, issued by iShares, and invests in 15-30 year Euro-zone government bonds.

I would love to hear opinions on benefits, drawbacks, consequences, etc. of such an EU/US splitting of a PP.

BEING AMERICAN AND RESIDING ABROAD.

As a side note, it seems we Americans are certainly becoming toxic citizens. Here's a few examples:

SwissQuote, a Switzerland-based discount broker, will not sell ETFs or funds to US citizens, given the risk that those ETFs may include underlying securities issued by US entities, which would expose SwissQuote to burdensome reporting requirements to the US government. They prefer, and I can understand, to simply not do business with Americans.

Today, when opening a simple savings account at Barclays, I had to sign an IRS W-9 form, plus a Barclays form which, paraphrased, said that Barclays may receive enquiries from the US government, and have no interest in determining the legitimacy of those enquiries. Therefore, if I want an account with Barclays, I waive their liability, and acknowledge that they will simply respond to any requests from the US government. Furthermore, they told me that Barclays will sell no investment products at all to US citizens.

In the face of such situations, I often think, "What have I done to deserve this?"

GETTING PROFESSIONAL ADVICE — GOOD LUCK.

Another major challenge that I've found, as a US citizen living abroad (especially married to a non-US citizen), is that it's very very difficult to find professionals who can adequately advise on issues of taxation, estate planning, etc. for people in our situation.

How does being a non-resident citizen affect the use of tax-advantaged vehicles like IRAs or 529 plans (with non-American children?) How does inheritance and estate taxation work with assets here and there? What are the consequences of owning a business abroad? Good luck finding affordable answers to these questions. :-(

On the last point (owning a foreign business), for example, I found the hard way that simply owning a non-US business exposes US citizens to huge burdens. For example, if a US citizen has more than 50% interest in a foreign company, the IRS will consider that profits of that company will flow as income to the US owner for taxation, regardless of whether they were distributed or not. (Yikes!) Who would ever have guessed that such dramatic differences in ownership of a business (not to mention hugely burdensome reporting requirements — financial statements, etc, translated to English) would exist, simply because the business one owns is not American.

Anyway, that's all for now. It's nice to have found this community here!

[craigr]

Thanks for the post and insights. Your point about Americans being toxic is spot on. International banks want nothing to do with America's increasing surveillance state.

[craigr]

Another thing Browne vs. Others

Browne really is a Bogle type portfolio. The biggest differences is that it does not adjust allocation based on age and holds hard assets. The bond allocation is effectively an intermediate term treasury allocation.  The stocks are an index. Trading and timing are discouraged. Costs are kept extremely low. So there are many similarities.

But I'd say that some index authors have come around to some of Browne's view on issues like not taking credit risks with bonds for instance. They may even acknowledge some day that holding hard assets like gold is not a bad idea either. Who knows? The knowledge in investing has a frustrating way of needing to be re-learned from time to time. I think Browne was right on a great many things about investing.