Author’s Note:  Many of the comments below will no longer apply to this updated post.  Because of U.S. estate tax rules, I created the model portfolio on this post utilizing ETFs (indexes) that trade on the UK market.  An expatriate living outside of the UK would not have to pay capital gains on such products, and would not have to pay U.S. Estate Taxes either.

 

“The investment business is a giant scam.  Most people think they can find fund managers who can outperform, but most people are wrong.  You should simply hold index funds.  No doubt about it.”
Harvard University’s Endowment Fund leader, Jack Meyer

British expatriates in Singapore are finding a way to bi-pass expensive financial services. They’re figuring out how to invest cheaply and simply with low cost index funds:

  • It’s the method endorsed by Warren Buffett
  • It’s the method endorsed by a slew of Economic Noble Laureates
  • It’s the method endorsed by Charles Schwab, (the owner of the world’s biggest brokerage)
  • It’s the method endorsed by a myriad of Ivy League Financial professors, ranging from Yale University’s David Swensen to Princeton’s Burton Malkiel.

Every financial study done comparing the long term results of actively managed mutual funds (which most people are sold) to low cost index funds (which financial service companies dislike) reveals that over a lengthy period of time, the odds of success are far better with low cost indexes.

Most financial service companies break the golden rule of investing—failing to keep fees low.

They sell actively managed investment products that are better for the firm they represent, but less effective for investors. Buying actively managed funds with high expense ratios and sales charges, like those offered at FundSupermart.com , Friends Provident or Zurich International ensures a far lower likelihood of success.  It might make your salesperson/advisor happy, but you could be crying in your oatmeal, years from now.

Sadly, despite overwhelming evidence, most financial advisors recommend actively managed mutual funds and unit trusts—because it helps them make their own Mercedes payments.
…read my post

After sales fees and advisory costs, their long term odds of beating a diversified indexed account are slimmer than a goldfish’s odds in a tank of Piranhas.

So how can a British expatriate buy indexes in Singapore?

First, a warning:  There are companies here selling index funds, but they charge unreasonable fees ensuring the mathematical likelihood of only making half of what you deserve. The industry loves high fees.  Investors should embrace low fees. … read my post

Here are the steps you can take to beat the professionals at their own expensive game

  • Open a discount brokerage account at Saxo Capital Markets, and tell them that you’d like the option to trade stocks on the UK exchange.  Don’t worry.  You won’t have to become a stock trader.  This is just the supermarket you’ll be buying your indexes from.
  • When you make indexed purchases from this account (the products you’ll buy are actually called ETFs) you’ll need to transfer money to the account first.
  • These are the ticker symbols and allocation samples for a 40 year old investor 

Allocation

ETF

Symbol

Expense Ratio

40%

iShares UK Gilts 0-5 yr UCITS

IGLS

0.2%

30%

Vanguard UK FTSE 100 Stock Index

VUKE

0.10%

30%

 iShares Global Stock Index ACWI UCTTS (SSAC)

 

or

 

Vanguard FTSE All World ETF

SSAC

 

 

 

 

 

VWRD

0.60%

 

 

 

 

 

0.25%

 

Making the purchases

You’ll need to figure out what price each of these indexes (ETFs) is trading at so you’ll know how much to buy when you place your order.

Going with ETFs, you’ll want to make sure that you’re investing at least $3000 at a time.  After all, minimum costs are 20 GBP (or equivalent) to make a single purchase, so it might as well be worthwhile.

Prices can be accessed on the links above.  So if the price of the British stock index is $17, and if you’re investing $3000, then you divide $3000 by $17 to see that you can buy 176 shares of the index.  Just to be safe, when placing your order, make it out for 170 shares, in case the price goes up the next day.  You need to have enough money for your purchase, and the price you pay could be higher or lower than what you see.  It will be based on the market price at the time your order goes through.

If you’re investing every quarter or every month, make sure that it’s at least $3000 at a time, so you don’t pay Saxo Capital Markets too much in commissions, relative to your purchases.  Trading with larger sums is relatively more economical.  For example, trading costs are 0.15%.  So those investing 100,000 GBP would pay just 150 GBP in commissions.  

When making purchases, select “Market” order, not “Limit” order.  Many traders would cringe at this.  But few traders make much money, long term.  Most eventually blow their brains out, metaphorically of course.  Going with a “Market” order means you will accept the market price for the shares.  Going with a “Limit” order means you can enter the maximum price you wish to pay.  Doing so can be foolish.  If the markets rise, you may have to pay a much higher price later.  I prefer placing the order, and having a guarantee that my order is filled….rather than worrying later about whether it was filled or not.  

And while you’re making your purchases each month, allow your purchases to rebalance your portfolio back to the originally desired allocation.  For example, if your world index has underperformed the others, for that month, then buy the world index.  If your British index has underperformed for that month, then buy that one.  By bolstering up the laggards, you’ll ensure that you invest, using Warren Buffett’s motto:

Be greedy when others are fearful.

For a description of how to make purchases with Saxo Capital Markets, please visit Sean McHugh’s screencast on youtube.

Author’s Note:  Many of the comments below will no longer apply to this updated post.  Because of U.S. estate tax rules, I created the model portfolio on this post utilizing ETFs (indexes) that trade on the UK market.  An expatriate living outside of the UK would not have to pay capital gains on such products, and would not have to pay U.S. Estate Taxes either.