The essential guide to low-cost funds and ETFs

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ETF fund essential guide low cost uae personal finance invest

The National has a Money Clinic every three weeks or so for readers’ questions.

This week, I explain how to invest with index funds and ETFs. There’s only space for 300-400 words, so this is probably the most concise guide I will ever produce. I had to leave a lot out, but what you’re getting here is exactly “the essentials”.

If you are able to invest over 10-30 years, then investing should be very cheap and straightforward. Note that you can get your money back whenever you want, at minimal cost.

Note that prices change all the time, so any fees quoted below should be checked on the company’s website.

My friends tell me that low-cost index funds or exchange-traded funds are the investment of choice these days. But how do I access these options? What is the minimum I can invest and what are the risks? JH, Dubai

Your friend is exactly right and don’t let anyone tell you otherwise – they are probably chasing a big commission.

Funds that passively track stock market indexes are attractive for two reasons: a) they give you access to a broadly-diversified range of stocks and b) they have extremely low costs. Minimising cost is one of the best ways to boost the growth of your portfolio and you should be relentless about it.

As an expat, it is easier to access ETFs than funds. Vanguard and iShares offer very cheap and reliable index funds. Being a British expat in my 30s, I might consider a portfolio like this:

  • 30% [i.e. roughly your age] UK government bonds – iShares UK Gilts 0-5yr UCITS ETF (IGLS, 0.2%)
  • 40% Global stocks – Vanguard FTSE All-World ETF (VWRL, 0.25%)
  • 30% UK stocks – Vanguard FTSE 100 UCITS ETF (VUKE, 0.09%)
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[2018 update: these days I would probably recommend an even simpler portfolio of 80% FTSE All-World and 20% bonds.]

You need to tailor your own portfolio to your age, retirement timeline and home country.

Here are several platforms that are easy to use and cost-effective. Prices are simplified and based on buying UK-regulated investments denominated in US dollars (USD).

Interactive Brokers (US): $10,000 minimum investment, $5 per transaction, $120 annual platform fee.

TD Direct Investing, now Internaxx (Luxembourg): no minimum investment, €15 per transaction, €25-45 quarterly platform fee.

Saxo Trader GO (Dubai): $10,000 minimum investment, £8/$12/€15 per transaction.

AES International (Dubai) – £50,000 minimum investment, £50 per transaction, 0.35% + £500 annual fee. If required, AES will construct and manage a portfolio for 1-1.25%.

The biggest risk with a passive fund is the same for any stock – its value goes up or down with the market. Investing regularly and holding your investment for many years can help reduce this risk. Buying and selling an ETF can attract brokerage charges each time, so you should avoid frequent trading anyway.

If you invest without professional advice, you need an iron will to make sure you stick to your asset allocation and invest regularly to avoid buying high and selling low. Getting your allocation wrong and trying to time the market could lose you more than you save from low costs.

Some people say active funds protect your investment value better in a downturn but there doesn’t seem to be much hard evidence for this in developed markets like the US or Europe.

Other risks are easily avoided if you choose sensibly from the thousands of ETFs now available. Buy a ‘physical’ ETF that actually owns stocks over a ‘synthetic’ ETF. Ignore exotic ETFs for specific industry sectors or commodities.

Whatever you do, don’t invest in one of the long-term savings plans constantly being touted in the UAE. They have high fees, hidden charges and little flexibility. Few financial advisors will tell you that because they get huge commissions from them. The platforms listed above will make such advisors no commission but will save you a lot of money.

Have a look at the original article here to see another response to the question.

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23 thoughts on “The essential guide to low-cost funds and ETFs”

  1. Hi Steve, this is a great article, thank you. It chimes with Andrew Hallam’s expat millionaire book too. I am a UK citizen, Abu Dhabi resident with probably only a couple of years until return to UK for semi-retirement. I am thinking of investing a lump sum in and ETF/bond portfolio that I won’t touch for 5+ years and is liable to no US estate tax. A few questions please: have I left it too late with only a couple of years of putting more money into it? Can I couch potato invest where I rebalance annually but don’t add more to the original investment? I assume that being so close to retirement, I would be better increasing my bond percentage? Lastly; I was under the impression that I couldn’t get a Vanguard account as an expat, so would I buy (for example) Vanguard All World but via one of the UAE companies you list? Apologies if this is a dumb question. Many thanks.

    1. Hi Jim, it is absolutely not too late but you also cannot afford to make any mistakes or take too much risk. I have a lot to say on this topic! The best thing would be to sign up for my new course on Expat Investing or book a private coaching session. I have helped many UK expats close to retirement. Ideally you should put in as much as possible from your savings and salary once all your cash safety nets are in place. Thanks Steve

      1. Hi Steve, thanks for your reply and advice; it’s a bit clearer now. I’ll give some thought to my next steps. Regards, Jim

  2. Hello, great article! Can you please elaborate on the estate tax on US ETFs for a non-US expat living in UAE? Thanks

  3. I am an ex pat now living outside US. About to sell a condo outside the US.Expect a good deal of profitAm retired and do not need the income from the investment. Best place to invest. Thx, Judith

    1. Hi Judith! Thanks for stopping by. How about investing in broadly diversified, low cost index funds?

  4. Hi. I am based in dubai and look in to retire in 20 years. Plan to save circa 10k add per month and place a lump sum of circa 150k USD. Reading your advice would place 80% FTSE All-World and 20% bonds. Would you agree and what platform would you use? Also appreciate any additional advice? Thank you

    1. Hi, it’s hard to know whether that’s enough per month without knowing your monthly savings rate and whether cash safety nets are in place. Asset allocation is very personal and I can’t tell you what to go for, but if you are under 45 it doesn’t sound outlandish. Decide based on time to retirement, other sources of income and how strong your stomach is in downturns. I use IB myself with few complaints. Come along for a workshop or private coaching session if you want to get all this nailed down properly. Thanks Steve

  5. If I was to start investing while an expat but then moved back to the UK, would you still suggest the same 80/20?

    1. Shouldn’t make a difference – your time to retirement is key. Though at a time of major change like a move it’s not bad to reassess your risk appetite, income sources etc.

      1. Thanks Steve. Lastly, I opened an account with UAE Exchange but they said they could send money to a company, only individuals. Do I need to open a specific account?

  6. Hi Mr Skeleton

    Just wondered if you could please provide some clarity on the following comment:

    [2018 update: these days I would probably recommend an even simpler portfolio of 80% FTSE All-World and 20% bonds.]

    What caused this change?

    Many Thanks


    1. Hi Richard

      The stock/bond split will depend on your own risk tolerance, time to retirement etc. I decided I only needed one stock ETF, covering nearly the whole world, as a lower number of ETFs reduces trading fees and complexity. I’m also not really a big fan of home bias, where you invest extra in your own country/region’s markets – you will be exposed enough to those markets anyway most likely, through real estate, future jobs, family etc.

    1. Interesting article and it’s true to say ETF liquidity hasn’t been truly tested (although some existed before the Great Crash). You should hope to never have to sell stock ETFs during a downturn anyway – that’s what bonds, dividends and cash buffers are for. As a long-term investor, I agree you shouldn’t worry about shortish-term liquidity issues. I suspect more exotic ETFs would suffer much more than global or US index ETFs anyway.

  7. Hi,

    Nice article! If you were a uk resident would you just bang it all in the Vanguard 80-20 lifestyle fund? Or stick with ETFs?

    Hypothetically if someone thought they could handle the volatility and had over 10 years to retirement wouldn’t a 100% equity lifestyle fund get you to FIRE faster?



    1. Hi Calum, yes I’d put it all in Vanguard LifeStrategy 100 or 80/20. Nice and easy. Yes you can put it in 100% equity if you have a strong stomach and a long-term view. About 5 years from retirement you should consider increasing the bond percentage, unless your retirement date is very flexible and you enjoy your job anyway.

  8. Great, having bought into once into VTI if i were to sell the holdings n henceforth pursue only ireland domiciled etfs, will estate tax from (ireland/usa/uk) still be an issue for ?
    And yup VWRD sounds better but again does accumulating physical etfs as IWDA make a more compelling buy for a long term buy n hold than dividend redistributing physical etf as vwrd?
    And lastly does full replication physical etf differ greatly from optimised sampling physical etf on results and associated risk? Your thoughts please:)

    1. There should be no estate tax to pay on Ireland-domiciled ETFs. Accumulating ETFs are better in theory – if you are accumulating – but the equivalent of VWRD would be IWDA + EMIM. Having an extra ETF to rebalance might not be worth the hassle. If you are investing every month or quarter then you can just reinvest the dividends with your new money. Do check tax implications for your country of residence though. Physical replication is always going to be superior to sampling, but the differences won’t always be that big.

  9. Hai
    For a dubai based non resident us investor,as myself, which is the equivalent of VTI,from ireland -domiciled etfs investing into us markets, that you would suggest?.I have a time frame of 14-15 yrs

    1. iShares MSCI USA UCITS ETF (CSUS) covers 851 US stocks, being the large and mid caps, about 85% of the US market. That should do you. I would question why you only want exposure to the US market though. I prefer VWRD, which covers the whole world.

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