Applying for Another US Brokerage Account

Today I applied for another US brokerage account. In so doing, I hit one of those pain points for US citizens living abroad.

Right now, I have two brokerage accounts: I have my main Interactive Brokers account, and I have a Robinhood account, which was actually the very first brokerage I opened. When I first opened that Robinhood account, it was years ago when Robinhood was the hot new thing. I was vacationing in the US, and it was no problem to open the account. I began my stock purchases, and when I hit the $10,000 threshold for Interactive Brokers, I moved everything over there. Interactive Brokers has thus far been pretty great.

The problem with Interactive Brokers is they are bound by the laws of the EU as well as the US. Since they have my German address, which means I'm shuffled into their Irish - previously UK - subsidiary, I'm unable to buy any funds that are US-sourced. Under the MiFID II rules, brokers in the EU can't allow EU residents access to funds that don't follow these rules. This rules out all US funds, including ETFs.

Interactive Brokers does allow the purchase of European funds, but this is where my citizenship bites me. If I buy EU ETFs, I'll have to report them as Passive Foreign Investment Companies (PFIC) in my yearly US tax return. It's unfair and ridiculous, but it's the current legal reality, so I can't go that route.

Why now? I've been happily buying individual stocks for years now, but increasingly, I feel like I'm out of my depth. I've saved enough money in these stocks that the risk is starting to feel real. I've also learned a lot about investing, and what I'm learning is that the experts are experts, and even they have a hard time doing this.

Therefore, I would like to begin indexing in some form, but all my outlets in Europe are ruled out.

I could use the Robinhood account for this purpose, but I'm concerned about Robinhood's viability as a company. They also just raised their fee for an ACATS transfer. Robinhood also doesn't offer things like automatic rebalancing. Really, the whole app is very casino-ish.

I'd also like to cut down on the chain of transfers I have to do. If I want to buy ETFs in Robinhood, I'd have to: get paid, transfer the money to Interactive Brokers, convert from euros to dollars, withdraw that money to my bank, transfer that money to Robinhood. Each step can add days of waiting, and since my US bank offers a brokerage, I hope that I could open an account with them just to simplify.

Naturally, though, my application was not instantly approved. For some reason it triggered their extra diligence check. I'm worried that their research into me will not only result in being denied the brokerage but also result in my bank account being closed, which would be bad. Not quite disastrous but definitely bad.

Citizenship Worry

And so I'm once again staring into that bottomless well of worry about my continued relationship to the United States. These rules are unjust and unfair, and citizens living abroad should not have to put up with this. We are punished for living abroad. Congress could fix this at any time: enact Residence Based Taxation (RBT), create a PFIC exception for people living outside of the United States, create a FATCA exception for citizens living outside the United States. But they choose not to out of either inertia or ill will.

What's all the more frustrating about this is that I'm forced to lie. In filling out applications for banks, credit cards, and now this brokerage, I have to use an address where I don't truly live. I also can't name my actual employer, since this employer doesn't exist in the US. So I lie. But what's the alternative?

The United States compels its citizens to use its financial system no matter where those citizens reside, but they don't provide guarantees that the companies there will allow us. We must have a financial relationship with the United States, but when we do exactly that, we're breaking the terms of service or lying on our applications, and from then on, we're worried that we'll be found out and shut down.

In any case, I'll add an update here with the result. Hopefully, my worries are unfounded, and I'll have the new account in a week.

Finally Got Denied a Bank Account

We applied to a different bank, and we were denied. The only plausible reason I can think of is that it's because we're Americans. We'd been lucky since moving here, since until this denial, we'd never been denied much of anything.

I guess we should count ourselves lucky that our current bank accepted us at all (even if they are now jacking up their fees). The FATCA continues to complicate the lives of those of us living abroad.

Net Worth: October 2018

Our net worth spreadsheet gets updated on the 26th of every month. I chose this date because it's deep enough into the month that we've likely made most of our payments for the month, so that whatever remains is the accumulated surplus. I could inflate the numbers by doing the calculations right after my pay period, but that seems self-defeating to me.

For October 2018, our combined total net worth was $36,070.18 or €31,612.78.

Composition

Since this is the first of these posts, I should describe what makes up our net worth spreadsheet.

There's a U.S. dollar section and a euro part. Each one contains the following:

• Bank accounts, including checking and savings accounts.
• Credit card accounts.
• Investment accounts (currently USD only).
• Loans and other lump-sum liabilities.
• An "Other" sections, which includes rounded petty cash as well as the estimated value of loyalty programs.

These are added together, and along with the prevailing EURUSD exchange rate, I calculate the value in dollars and euros. Since this spreadsheet has data from 2013, some accounts are closed, but the rows remain in the spreadsheet in order to maintain their data. Some things that aren't there that may eventually make an appearance are:

• Physical Assets. We currently don't have any physical assets that are worth adding to the spreadsheet (cars, houses).
• Pensions et al. I haven't added my pension from my German job. I haven't figured out a good way to do it yet. Likewise Social Security or the German Rentenversicherung.

This is a complete net worth spreadsheet and not a true FIRE net worth spreadsheet, but it's easy enough to calculate those numbers with a few clicks in the spreadsheet. Just Control/Command click the necessary accounts, and I'm good to go.

Up top, I have a couple of interpretations of the data in discrete cells. Namely, what is 4% of our worth? If it's lower than $40k, then it's shaded red, and if it's higher, then it's shaded green. It's definitely shaded red. I also have a sheet that calculates the Millionaire Next Door categories "Average Accumulator of Wealth" and "Prodigious Accumulator of Wealth" values for us and how much we're below/above those amounts. If our wealth is below the "Average Accumulator", it's also shaded red, which it definitely is right now.

Those two items are purely reminders of long-term goals and reminders just how much needs to be saved rather than being explicit thresholds.

Factors Affecting Current Net Worth

The biggest factors that affected this month's net worth change is the stock market. I'm a long only investor, and October has been pretty rough on us. Additionally, most of my portfolio is value stocks, and those prices have been getting crushed. The "growth" stocks also suffered but not nearly as much. I also have some positions in German companies, and Germany's stock market has been lagging for about a year.

Because of this volatility, my tax deferred retirement accounts and my taxable brokerage account fell several percent. We saved a good amount of money this month, but the market mostly netted the change to zero.

Funnily enough though, because the euro fell against the dollar, the value of these accounts rose in value in euros, even as they fell in dollars. Silver lining?

This month, I began to calculate the estimated value of loyalty programs. I'm calculating the various points as being worth ¢1 a piece. It doesn't add a lot of value to net worth, but those points have some kind of value, so I'd might as well add them. I'm not sure if it's worth adding them in for past months, since it's such a small value (around $1k).

Regarding credit cards and loans, none of that costs us interest. We currently never carry a balance, and the one "loan" is an installment plan from a dentist that doesn't charge any interest. In the beginning of the spreadsheet, we did have interest-accumulating accounts due to student loans and the cost of moving abroad, but those are long gone.

So there's the first of hopefully many updates.

CC Award Update

We got the award.

In an earlier post, I expressed some reservations about these big awards and the minimum spend required to achieve them. I still feel that, and my wife still feels that. We did drastically reduce our planned expenses. We don't like feeling incentivized to make big purchases.

But I still wanted the award for reasons I'll explain later, so I found a method of manufactured spending to make it work. There aren't many available to us Americans abroad, but there are some, and I took advantage.

The manufactured spend did cost something as a percentage of the spend, so it wasn't free. Basically, it's a cost for the accumulation of these points. I think it's better than buying a bunch of expensive stuff totaling $4000.

Why do it at all though? The basic calculation in my head was something like this: we are going to travel to the United States again at some point in the next two years, so therefore it's worth spending a little, to save much more later. The return is pretty good in this case (around $70 spent to save between $600-$1000 later). Even if I later eat the annual fee, the return is decent.

The reality is that we're going to visit family in the US at some point. It's important to both of us, and despite any savings goals we have, it's not worth sacrificing relationships or missing seeing child relatives grow up. Next summer we'll suffice with FaceTime, but the next year we'll almost certainly be heading back.

Or we'll help relatives who aren't as financially well off come visit us. It is much cheaper for us to pay to fly someone here, than for both of us to fly to the US and find accommodation and transportation.

Will we do this again? Maybe. I'm looking at other card award possibilities, but the trouble with manufactured spending is that it's kind of skirting the rules. I prefer to draw as little attention to myself as possible regarding my American financial accounts, and manufactured spending can open me up to closer inspection. I might do this with another similar card and then focus on things like hotel cards that provide free nights automatically. Since hotel costs were a high proportion of our last visit, cutting down on that would be worthwhile.

Or maybe I won't. I could just continue to add points to this card that I have and otherwise use normal German payment methods to get by. Germany doesn't have the same glut of strategies that the US has, but it has a few, and those might be enough to both satisfy the points accumulating itch and to keep things simple.

Some US Expat Challenges

Before I moved out of the US, I didn't give much thought to the challenges of saving money and trying to build wealth. I was just happy to have a job, and I was happy that my wife accepted this new adventure.

But once here, it became increasingly clear that we Americans have challenges while living abroad that are unique to us. Here are some.

Filing Two Tax Returns

This is the big one. We Amis have to file both in our resident country as well as the US, and under certain circumstances we can owe taxes to both countries. There's no exit interview when you move abroad, so you just have to learn this on your own by reading the IRS website or by asking other expats. If you miss one or several returns, you're going to have a bunch of work to sort through to catch up, not to mention potential penalties.

As for the actual filing, you can use programs like TurboTax to file in the States, but TurboTax doesn't know everything. As soon as you move away from simply being an employee for a single employer earning under whatever the cutoff for the Foreign Earned Income Exclusion is, you enter a much more complicated tax situation. For example, being self-employed while resident abroad requires some familiarity with the treaties negotiated between the US and your resident country, if such a treaty exists.

U.S. Banks Probably Don't Want to Deal with You

You face an uncertain result if you tell your American bank back home that you've moved abroad. Many simply maintain an American address with a family member rather than take the risk of their bank closing their accounts. It's the same story with credit cards and investing accounts.

Foreign Banks May not Want to Deal with You

Because of the long arm of the U.S. government, foreign banks are required to disclose information about American account holders to the U.S. government. When opening an account abroad, you may be sent IRS Form W-9 from the foreign bank.

Many banks don't want the hassle, and they may simply refuse to give you an account because of it. When FATCA was passed, there were lots of stories of Americans losing access to banks and banking products. It's gotten better since then, but we always have to assume that it could happen again.

Floating Currencies and Conversion

Living abroad subjects you to currency risk. If you have any kind of financial life in the US, you will need dollars at some point, and you will then be hit with the reality of ever-shifting global currencies.

When my wife and I first moved here, the euro was worth around 1.38 dollars. In the first year, we tried just getting our lives together and didn't aggressively pay down the debts accrued to move here. Within around a year, the euro plunged in value, and suddenly we faced debts accrued in dollars becoming larger relative to our European incomes simply due to currency fluctuation.

On top of that, converting currencies costs money. If you use a service like XE Trade or Transferwise, they will charge you some kind of fee or make money by converting at a slightly disadvantageous rate. But they're much better than using a bank or one of those conversion kiosks.

Complex Rules for Investing

Once you've actually saved your money, it's unclear where to put it. Save it abroad or in the US? What kind of vehicle? Savings accounts pay basically nothing (especially in the eurozone), but when you look at equities you are entering a new world of complexity. Individual stocks or funds?  Real estate and rental income? You have to consider the taxation rules for both countries when making your decision, and you have to consider potential future changes to the law. What strategy is the lowest risk within this complex matrix of possibilities? I've made my own choices here (buying individual stocks rather than funds), but each person will have to make their own choices.

For example, buying funds as an American in Germany is really risky. If you buy funds in Germany, the US will tax them punitively. If you buy funds in the US, Germany taxes them less punitively than they used to, but I find the rules excessively complex and somewhat punitive.

Do You Speak the Language?

We are at risk, though this applies to everyone, when we don't speak the home country's language as well as everyone else. The fine print matters, and if you find English legalese tricky, it's only going to be trickier in a language you didn't spend speaking during your school years.

That list should give you an idea of what we're dealing with. In many ways, of course, we're very privileged. We chose to be abroad. We chose this country. At least in Germany, most Germans seem happy to have us living here.

But there are a lot of traps you can step in while living abroad. I'm still learning.