A century, American taxes and Allocating $100,000+

This is a jam packed post covering a few items. Firstly I would like to proudly announce that I have passed the 100 subscriber mark (hence the century reference in the title) as you can see from the subscriber counter in top right corner of the site. This was one of my mid year goals I was fortunate to achieve a few months early - so thanks to everyone who subscribed and if you haven't joined the 100+ other subscribers you can do so by clicking here. Now back to work. Here are 2 pertinent reader questions I received in the last few weeks. Sorry for the delay in getting back to the readers who submitted this, but my day job has been keeping me busy.

Question 1: I wanted to ask if you could do something on choosing shares in a super funds. We have over $100,000 invested in super with 70% in shares. 75% in is the Aussie market and 25% in emerging global market funds. I have long term view with this super, it will be there for another 15 years or so. What factors should we consider when choosing the funds and any ideas for a portfolio mix for superannuation share funds? They do tend to drown us information!

To your first point – If your time horizon is 15 years you should take a moderately aggressive approach to your investment. I would change your mix to have 50% International and 50% in the Australian market. Of the International allocation I would put 25% into emerging markets like you have and the rest into American and European focused funds. For the Australian allocation, look to invest in ASX 200 focused resource and finance based funds that contain companies with international operations/revenue (like BHP, RIO, QBE, and Westfield). Having living in the states for the last year now, I can truly appreciate the size of the financial markets outside Australia so make sure you are internationally diversified as that is where the growth is going to come from in the longer term.

Regarding your second point, the main criteria for choosing a fund manager (and funds they manage) should be one that has the lowest management fees and the best performance to date. Low fees mean that your returns are not eaten away and those savings can benefit from compounding over time. Performance to date suggests a strong management team with a good investment philosophy. With this in mind I searched for some good fund managers at 2 of the leading free managed fund review sites : Morningstar and Invest Smart. I also looked specifically for superannuation share fund managers. My criteria was low fees across their funds, good performance over the last 3 years, high agency ratings and reputation

The best 3 fund managers I found that meet this criteria were:

- AMP Superannuation Limited
- Macquarie Investment Management Limited
- Colonial First State

I suggest going to the website for the above fund managers (click on the name in the list) who have a number of superannuation based funds and to pick the one that best meets your retirement goals and desired asset allocation. The sites provide a lot of really useful tools and information about picking the right super funds based on your investment strategy. I am also doing a post soon on "Where to invest when you don't know where to invest" in a few weeks, which will have some related information.

Good luck and my final suggestion would be to find a financial planner to discuss your retirement goals and strategy. Here is a post I did on how to select a financial planner. The key thing to look for is someone who has good referrals, interested in you and you your goals and doesn’t try to push particular products at you.

Question 2: I'm an Aussie citizen living in the San Francisco Bay Area for the last 20 years. I just inherited a little bit of money from my grandfather in Australia and now
I'm dealing with the tax consequences. I filed an extension while I try to find someone who knows about Australian and American taxes. Do you have any recommendations on how to find someone like that? Anyone you know?

Well to the first point, all foreign income is taxable in the US. The IRS has a detailed guide about that, but suffice to say that you will need to declare this Australian income in your next American tax return. The good news is that you shouldn't be liable for this in Australia as long as you are classified as a non-resident in Australia (which you should be if you have lived in SF for 20 years), but you should check out the local Australia taxes laws on inheritances which can be found at the ATO site. I read that "There is also no wealth tax levied in Australia, and inheritance and gift tax are non-existent, except where a capital gain may arise from a lifetime gift". You can see the related Wikepedia entry for more details on this. According to this the inheritance gain should be treated like a capital gain in your US Tax return.

The other part to your question, one with which I have grappled with myself, is finding a good accountant in America that knows about Australian taxes. The Australian consulate in the US was quite hopeless when it came to this information as they just link back to the Australian Taxation Office site. I think this would be a good niche for some accountant to get into given that there are over 150,000 Australian's living in America (based on the last ABS figures). I did searches on line and couldn't find any specific accountants (I am sure you did this too). At the end of the day, I did my taxes at a local H&R Block and the preparer there basically said that all foreign income should be stated in your tUS ax return and you can claim a credit for taxes already paid in the foreign country. I only had dividend and interest income so this was fine for me, but anything more complex like your situation would have been beyond the folks at H&R Block.

My advice for you is to let your fingers do the walking and call a few qualified tax agents in your local area and ask them if they can assist you with your specific problem. Look for enrolled tax agents (these are federally authorized tax practitioners) or depending how much you can afford look to hire a CPA (Chartered Professional Accountant). Here is a list for your state you may find useful.

California Society of Accounting and Tax Professionals
California Society of Enrolled Agents
California Taxpayers' Association
California CPA Resources and Locator

If you are in another state, this link shows the local state tax associations. If any reading this post knows of good accountants in America that can handle Aussie taxes, please leave a comment and relevant contact information.