If you don’t know where you are going, you can be in any way in the end.
Set a target and stick to it.- Dr. Goh H
Some readers are still not sure how to buy ETFs even though I have been talking for 3 months. The price of VUSD has gone up almost 15% since I first mentioned it 3 months ago.
Investing in ETFs is quite easy and I hope my step by step guide in this post would convince you to make your first move to invest in ETFs.
Step 1: Open An Account
There are two options for you to open a brokerage account to buy your ETFs. You can open a local brokerage account or a foreign brokerage account.
For Malaysians, examples of brokerage accounts that allow you to trade foreign shares include CIMB itrade, Public bank Share link, Affin Hwang.
For Singaporeans, you can get a DBS Vickers, Standard Charted account, etc.
I decided to use Interactive Brokers (IBKR) because of its competitive fees structure. But bear in mind that if your portfolio is less than USD100k, there is a monthly fee of minimum USD10. If in a certain month, your fee from trading is USD5, you will be charged an extra USD5.
Step 2: Fund your brokerage account
For Singaporeans, funding your interactive account is easy, you just log in to your local bank account and transfer via FAST to the IBKR Singapore Citibank account. Send your SGD to the IBKR account and only convert to USD inside the IBKR platform because I find the exchange rate is always better than retail banks.
For Malaysians, it is more complicated, you can do any one option here,
- Use a local bank to convert to USD and send it to the IBKR account in the US. This takes a longer time, and the exchange rate is lousy.
- Use Transferwise or InstaReM to convert MYR to SGD and send the money to the IBKR Singapore account and convert it to USD inside the IBKR platform.
- Another way is converting MYR in TransferWise to USD and send USD to the IBKR USD account in the States. I have done it two times and will let you know how to do this in my next post.
You can learn the above two methods in my previous post HERE.
Step 3: Choose the ETFs that you want to buy
As I mentioned before, buying ETFs in the US market subjects you to 30% withholding tax. I prefer to buy Ireland domiciled ETFs listed in the London stock market. Due to the tax agreement between Ireland and the USA, you are only taxed for 15%. Besides that, you can choose either an accumulating ( dividend reinvested) or a distributing ( dividend distributed) ETF.
The reason for me to choose distributing ETFs VUSD and VWRD is because I hope I can live on just the dividends when I retire and not to worry about selling my ETFs.
Once you have decided your asset allocation and ETFs you want to buy from which market, you are ready to buy your first ETF!!
Step 4: Survey what is the NAV of your chosen ETF
I always try to buy my ETF at its NAV ( Net Asset Value). I would check the NAV of VUSD before the London market opens around 3 pm in Malaysia.
For VUSD NAV, you can find it HERE.
You would notice that the market value of VUSD is USD 61.58 but the NAV of VUSD is USD 62.09. Therefore there is a discount of USD 0.51. Why does this happen? This happens because the London stock market closes before the US market and the subsequent price fluctuation of S&P500 is not reflected in VUSD price.
Therefore when the London stock market opens on 3 August at 3 pm Malaysians time, I will put my buy limit price of VUSD at USD 62.09 or slightly lower than 62.09.
Step 5: Log in your IBKR account
Log in to your IBKR and put in a limit price- let say you want to buy less USD 1 of NAV- USD 61.09 ( Arrow) and how many shares ( arrow) you want to buy. I always buy 50 shares per trance.
Do you think it makes a difference for you to buy at USD 62.09 or USD 61.09? At 50 shares, it is only USD 50 difference. I learned a lesson, just buy at NAV and forget about it. No point in looking at your phone every 30 mins to check the price and keep yourself occupied the whole day. Just buy the ETFs you want at NAV!
Step 6: Keep on Buying
I buy every 2 weeks and stick to my asset allocation. One day I might be buying VUSD and after 2 weeks, I might be buying VWRD and VDTY according to my asset allocation. Don’t always look at the price, if you spend hours in front of the screen just look at the price fluctuation, you are wasting your life/time away!
Just log in to your IBKR the next day after you have entered your purchase the day before. By buying at NAV, you are likely to close the deal at the NAV the first half-hour when the London stock market opens!
Conclusion
Start a journey with your destination in mind. The only impossible journey is the one you never begin.
Success is for those who keep on trying. Stick to your plan and eventually you will reach your destination.
** If you eventually click on the links above and transfer money using TransferWise and InstaReM, I might get some commissions but let be assured it only enough for me to buy Starbuck. Don’t worry, I seldom buy expensive Latte and Cappuccino.
** Addendum ( March 2021) Interactive Brokers is giving rewards up to USD1000 for a new account sign-up. Kindly use the link above to sign up for an account.
Hi, I am trying to buy the USD-denominated QQQ on London Stock exchange(LSE). Based on yahoo finance and Invesco website, the symbol is EQQU.
In IBKR, I can only find the EQQQ which is listed in LSE but denominated in GBP. There is also a EQQQ1 which is denominated in USD but listed in EBS (Swiss Exchange if i understand correctly).
Is EQQQ1 in IBKR the same product as EQQU ? I have been googling for more info but couldn’t find any useful info. I am trying to DCA into QQQ over the long rum but don’t wish to start off with buying the wrong etf.
Any advice ? Thanks
Dear Kh,
Sorry, it took me a few days to reply to you because your comment was labeled as spam by Akismet. Yes, QQQ is the most traded ETF in the world. But I don’t invest in QQQ because I am always worried about the technology bubble. It might be a good idea to add to your portfolio but it shouldn’t be the largest holding. I did some checks and found that EQQQ ( QQQ equivalent of the US) is listed on the London Stock Exchange, you can check it here and I think it is also denominated in USD. But the ongoing charges is 0.30% compared to VUSD which is only 0.07%.
Hi, do you recommend opening a company to register with interactive broker to hedge against us estate tax risk in case you have a sudden death?
You are quite right, I am always worried about something unexpected in life. I open two separate joint accounts with my wife ( since I learn that the maximum amount of money you can get back is USD500k in each account in case IBKR goes bankrupt). Once our portfolios reach a sizeable amount, it might be a good idea to set up a trust. I find managing the company is quite a headache.
Investors must understand the implication of US estate tax on their ETFs holding if they pass away. By buying Irish-domiciled ETFs, you are in a better position. You can read the tax implications of buying US ETFs Here.
Looking forward to learn how to direct transferwise myr to usd. I thought ibkr don’t allow usd deposit from third party due to some legislation.
Dear Old friend,
Yes, will write about this when I am free
Hi there, how much do you recommend buying each time to minimise commission costs?
Dear Dr,
I buy each time around USD 3000 but I would suggest you buy at least USD1000 per transaction.
Thanks for your reply! Eagerly awaiting your post on withdrawals. I’ve just signed up for ibkr + tradestation and am looking forward to starting this.
A fellow physician
Hello, there are many S&P 500s listed on LSE. I’m confused whats the difference between them all. For instance: VUSA, VUSD, CSP1, CSSPX, SXR8. Can you point me in the right direction?
Dear Dukduk,
Yes, they are just the same products offered by different companies. VUSA/VUSD are products of Vanguard, VUSA is denominated in GBP and VUSD is denominated in USD.CSP1 is offered by iShares. But as a hardcore Boglehead investor, of course, I prefer Vanguard but all these are good as long as they are ETFs tracking S+P500.
Hi Dr Goh,
How to differentiate VOO (listed in LSE) with the one in US? What’s your opinion on SPY? Thanks
The equivalent of VOO listed in LSE is VUSD (in USD), VUSA (in GBP) depending on which currency they are denominated. Yes, SPY is the most actively traded ETFs tracking S&P500, but the expense ratio is 0.095% as compared to VOO of 0.03%. For VUSD, it is 0.07% but mind you that VOO and SPY are both listed in the US and therefore you are subjected to 30% withholding tax as compared to VUSD/VUSA which are Irish-domiciled and the tax is only 15%.
Hi Dr Goh,
TQ for your clear explanation on the difference. Is the tax coming from US gov? Is it on dividends or capital gain?
Dear Cheah,
It is coming from dividend and taxed at source. No capital gain tax.
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Dr. Goh, thank you so much for the website. I have signed up from IBKR account ysing your referral. Thanks for sharing. Enjoy the bonus, I will enjoy the bonus of IBKR shares too. Good luck!
Dear Dr Anurag Argawal,
Thanks, hope you can achieve your financial independence as soon as possible. First principle to remember- have a plan and stay the course!
Hi Dr., tried looking for information as in what scenario will trigger you to sell the ETF, can’t seem to find hence would like to ask for your view? Please advise if there is a post on this topic, thanks!
DEAR CHENG,
THANK YOU FOR YOUR COMMENT. I BASICALLY WILL NOT SELL MY ETFS SINCE THEY ARE DISTRIBUTING ETFS ( I AM GETTING DIVIDENDS QUARTERLY). IF YOU CHOOSE AN ACCUMULATING ETFS, YOU ONLY NEED TO SELL THEM DURING RETIREMENT PERIOD AND NOT NOW. NEVER SELL THEM DURING WEALTH ACCUMULATING PERIOD, NO MATTER WHAT DIRECTION THE MARKET IS!