What should I watch out for/how to go about opening investment accounts in the US? [German national/US passport]

[SilverElephant]

My DG holds a US passwort (in addition to her German one) and we have been thinking about using that to diversify somewhat by opening account(s) in the US.

There's three components here:
(1) diversify by having investments/cash outside Germany, indeed outside of the EU
(2) have access to some funds that are not available here (Wellington/Wellesley funds)
(3) have a "catastrophe" nest egg somewhere totally different, but still within borders that one of us holds a passwort for in a country that places some kind of value on private property

Whether the US is a good match for any of these criteria (as seen from Germany) is, of course, debatable.

Having never had any dealings with banks, bank accounts, investments and investment accounts in the US, I'm spectacularly lacking in basic knowledge here. I've done a bit of reading and what I (think I) know so far is this:

• Vanguard mutual funds/ETFs are probably a good idea (not available here at all, I'm looking at Wellington/Wellesley)
• Local banks (i.e. for checking accounts), and apparently major ones, charge a surprisingly large monthly fee to handle your account, something like $25/month
• It is my understanding that she doesn't qualify for any kind of IRA because she is not earning any taxable income in the US
• Same for 401(k)
• Pretty much any kind of tax-exempt or even tax-deferred account is inaccessible to her/us
• The US has a bilateral tax agreement with Germany, so we'll have to pay the tax difference here in any case, but at least the legal frame is settled

Can we just open a Vanguard individual/joint investment account? Or Schwab? Are any of these a good idea? Where could I buy e.g. municipal bonds, which are apparently a bit tax-efficient? From what I understand, a Schwab account would enable us to do that and be managable through the net from Germany.

I'm guessing a checking account as a base will be required, if only to have a channel for the funds coming in from Germany. I'm still unclear on the legal ramifications of that "channel", by the way. When it comes to opening accounts, here, it's pretty much walk into the bank, sign a few papers and voila. There's very little in hidden fees, which my gut feeling tells me is not at all the case in the US.

So: what are the major pitfalls to avoid here if what we want to do is have a few investments in the US? Any pointers or helpers would be greatly appreciated.

[sky]

Schwab gives you a checking account along with a brokerage account. It includes a debit card with no cost ATM withdrawals anywhere in the world.

I would try to open a Schwab account, but you may need a US address to do so.

[heyhey]

Does this involve putting your money in accounts in her name? I hate to throw cold water but don't forget to guard against the relationship breaking up.

[SilverElephant]

Schwab gives you a checking account along with a brokerage account. It includes a debit card with no cost ATM withdrawals anywhere in the world.

I would try to open a Schwab account, but you may need a US address to do so.

She has a US address. Basically her grandmother's address, who still lives there, so we would need a plan in case that "ceases to be", obviously, but it looks as though her mother might "take over" the address.

Oh and for anyone wondering why with an American grandmother and mother of hers, I'm still having to ask these questions: none of them have ever done any investing or have ever opened an account with anything else than their local bank. As it is, I already know much more than they do.

So Schwab is a good idea? Thank you for the tip/confirmation.

Does this involve putting your money in accounts in her name? I hate to throw cold water but don't forget to guard against the relationship breaking up.

Yes, it does. And you're absolutely right.

We've talked about this. The relationship is set to "move ahead" (whatever that means) and we've been together more than five years (which is no guarantee of anything, I know), so there is some context here. Still, we've agreed to set up "mini-contracts", basically written evidence, signed, that indicate how much of the money is mine and that I can "take it out in Euros" anytime I want (i.e. she'd give me an equivalent amount of Euros).

I do think she has high chances of being level-headed even in the case of an ugly breakup, but we're both absolutely aware that signed pieces of paper are necessary here, even in the context of a long-term relationship, simply to make things absolutely clear.

[slowtraveler]

Schwab is great, much better than Vanguard in terms of customer service, fraud protection, etc.

However, it only offers the investor, not admiral shares of Wellesley to personal investors and has a $75/transaction fee. Could always open one at Vanguard and do a brokerage transfer to avoid the fee or get admiral shares.

[jacob]

Well, rule #1 of good relationships is to never engage in financial transactions with friends and family. There are many good reasons to avoid these pitfalls. See below ... Now,

She can likely open those accounts online. She has to prove she's a US citizen or US person (anyone who resides in the US) to the bank, broker, and/or fund. (Fax and mail photocopies of ID And SSN. They'll ask for what they need, but those are typical). If she doesn't want to open a bank account, she can always wire the funds directly to the broker. US banks have to report any transfer over $10,000 to the authoritays (or any smaller amount deemed "suspicious").

I would not consider the US to be the best country for flag-diversification. The US basically does what it wants on the international scene. FATCA comes to mind. It the trade wars go downhill, one might imagine capital controls. Typically in flag theory, the passport and the money are not assigned to the same country. There are good reasons for that.

I'd suggest https://www.expat.hsbc.com/ (I've looked into them and it has been discussed elsewhere). It will allow you access to stock investing in the UK and US. They also have funds albeit not the widely worshipped Vanguard funds. There is this: https://global.vanguard.com/portal/site/home ... so it might be that a German broker will be able to get Wellington/Wellesley if you absolutely must have those two.

Taxes will be complicated. Technically, you're lending her your money interest free and then you're paying part of her taxes which I suppose would count as a gift? And so on ... This is a mess and I'm not even sure where to begin. It would be easier if you were married. Investing in someone else's name just seems like a terrible idea overall, if it's even legal/doesn't send up red flags?

Also consider the possibility she gets hit by a bus. Now you might be dealing with the court system in Delaware (because you have no legal relation aside from your pieces of papers(*) from Germany which may or may not override the default US estate laws---usually you'd fill in who the account survivor is when opening the account, but I don't know if you can put in your "foreign friend"?). How are you going to get the money back?

(*) Which in order to be binding (wrt third parties) would have to be witness/represented by your lawyer and her lawyer.

Disclaimer: This is not professional advice, yadda yadda... Maybe it's really simple when it comes down to it but it has the potential to become a giant clusterfuck if not handled exactly right.

[SilverElephant]

We're currently not thinking about any major sums (think < 10k), only enough to get started by having the actual account(s) and shifting stuff inside them.

In that scenario, it's her money and we have an informal agreement that I invested "x" in that. I give her x*current_exchange_rate € in some way or another. That amount of money is not large enough to either get any government interested or make anything complicated vis-à-vis breakups/cashouts/deaths, also because both her, myself and our families are financially stable enough that 5k€ (which it is an important sum) would not cause anyone to become grabby or engage in any tricks, i.e. this is calculated risk. I'm aware that behaviors change radically once emotions get involved, but we've shifted this kind of money around in the relationship before with semi-formal agreements and it's worked out.

My expectation is that by the time the sums get bigger, we'll either be married or broken up (in which case I'll have to figure it out myself), currently trending heavily towards the former. I absolutely agree that if they do get bigger, we'll need to background of some kind of legally recognized relationship. I'm not planing on confronting any US court with our homemade documents in case of her death, I'd figure it out with her parents (eventually). That's what the documents would be for - so there's not discussion about how much was "invested".

So, definitely planing on keeping the taxes dead simple so long as the foundation is not official.

Anyway...

I'm aware that flag theory calls for more diversification. Currently everything is in Germany, so that would at least be "somewhat" more diversification? Perhaps I'm being naive about this? Also note that in the long run, this is also supposed to be a last line of defense in a "EU goes 1939 again" scenario in which we get the hell out. Though perhaps a New Zealand passport/bank account would be a better bet there.

I looked into FATCA and the other postings on HSBC Expat on here (following your link), and it seems the intention is "come home or stay away"? I.e. my whole idea is simply doomed because the US government is making it purposefully hard? Though the way I'm reading FATCA, her opening any account outside of the US would trigger reportings to the US? Also in that same line of thinking, living in the US but keeping bank accounts back in Germany would be a major pain? Interestingly enough, she could be in murky legal waters because she has accounts in Germany (obviously) that she never reported back home (her having dual citizenship and all, just never figured it would be a problem).

Sadly, I've never been able to get any of the Vanguard funds here despite trying out different options. Their services in Germany are for apparently for institutional investors only.

TL;DR: Sums currently not important enough to interest governments/cause familial trouble // FATCA means this is doomed from the start, look into HSBC Expat / other countries?

[Michael_00005]

I would not consider the US to be the best country for flag-diversification.

2nd that - especially because of timing, where the US is at the end of a long bull market run. Is it the longest bull market in US history, if not it's close?

" Still, we've agreed to set up "mini-contracts", basically written evidence, signed, that indicate how much of the money is mine and that I can "take it out in Euros" anytime I want (i.e. she'd give me an equivalent amount of Euros)."

I signed "mini-contracts" with someone before, and they still dropped their debt in my lap - over the great recession. The thing is, is that you would be years in court trying to get your money back. It's expensive, a waste of time and energy, and you get to re-live the whole mess over, and over again. Basically I decided, taking them to court was not worth the cost.

It's sad, but I've even witnessed family members blowing off debt to siblings or parents, people change. If you can give something as a loan (gift) and not care if it is repaid, then by all means do. But if you want the money back, it's simply not worth it. People with experience say this for good reason - the younger crowd ignore it, and then later end up giving the same advice to those younger, who in turn ignore it.

If you look, you can find options to diversify and keep it in your name, for example something like this might work: NORW

[SilverElephant]

Thanks for the replies everyone. I've held off on opening an account for the moment until I get a better idea of how to properly diversify, in my own name. HSBC Expat looks interesting, but I get the impression they're catering to the 1M+$ crowd.