Investing Windfall (no country bias) [Non-US]

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rsasub
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Investing Windfall (no country bias) [Non-US]

Post by rsasub » Mon Jan 15, 2018 8:02 pm

41yrs old - ex business owner here. Forced to sell for various reasons, but on the up-side am now sitting on a $10m+ windfall with plenty of free time. This has been in the works for some time and I've floated around bogleheads and similar places for a while, but now that it's happened I'm feeling overwhelmed. Here's why:

I'm not really resident anywhere... well I am, but we've tended to move pretty regularly to different countries (benefit and negative of the business I was in), and can't decide where to live next (nor how long we'll be there, but pretty sure it won't be forever). I've sought and paid for advisors, expensive ones (spent quite a bit of time last year selecting - ended up disappointed), but everything I'm told has a strong home bias (not to mention other conflicts of interest). Most of the advice here is also strongly home-biased so while a big part of it is helpful, I'm not sure what to do next.

Anyway, I tried to look on this as a sort of freedom to choose the countries I would be biased about, and without finding anything better, have been pretty swayed by using CAPE and PB as the measures to shortlist a group of countries to consider my "home bias" (due to articles like this:
https://www.starcapital.de/fileadmin/us ... imling.pdf).

The list I now have is (in order of weight): Singapore, Russia, Poland, Turkey, China, Spain, Italy, Israel, Czech, Greece, Portugal, Hungary. Was thinking this would make up 30% of the portfolio, 5% my "home" country, with maybe 15% REITs (not sure where), 50% bonds/cash. I know this probably looks hugely risky to many people, but I've come from owning a single company in a single city, to part of one company in 10 cities... so to me this is hugely diverse and much lower risk.

I was very close to pulling the trigger, but then I've been unable to find efficient etfs to manage them (normally 0.5%-0.7% pa, which seems wasteful to me). Now I find myself reconsidering everything. It doesn't help that my ex-partners have already invested everything.

I'm enormously grateful for the situation I'm in, and I can't be the first person like me, but really getting stuck on what to do.
Last edited by rsasub on Tue Jan 16, 2018 10:21 pm, edited 2 times in total.

longleaf
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Re: Investing Windfall (no country bias)

Post by longleaf » Mon Jan 15, 2018 8:06 pm

Vanguard Total World has an expense ratio of .21%

Own the whole market for more diversity

MotoTrojan
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Re: Investing Windfall (no country bias)

Post by MotoTrojan » Mon Jan 15, 2018 8:49 pm

Grossly over complicating things. Hold Total World as suggested if you don’t want to tilt. Then either Total Bond or Munis (depending where you live, not sure those will help). Holding US and Ex-US separately does make tax-loss harvesting a lot easier though, even if you maintain at/near market weight.

50/50 seems reasonable, depending on your expenses.

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BolderBoy
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Re: Investing Windfall (no country bias)

Post by BolderBoy » Mon Jan 15, 2018 9:07 pm

rsasub wrote:
Mon Jan 15, 2018 8:02 pm
I'm not really resident anywhere... well I am, but we've tended to move pretty regularly to different countries (benefit and negative of the business I was in), and can't decide where to live next (nor how long we'll be there, but pretty sure it won't be forever).
You are being pretty cagey for someone who is seeking "good" advice.

Do you have a passport? It would help to know where your "tax home" is located?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

rsasub
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Re: Investing Windfall (no country bias)

Post by rsasub » Mon Jan 15, 2018 9:26 pm

You are being pretty cagey for someone who is seeking "good" advice.

Do you have a passport? It would help to know where your "tax home" is located?
Sorry... I live in Malaysia and have an Australian Passport. From a tax perspective Malaysia is very good if you are investing overseas as it doesn't tax worldwide income. If however I return to Australia or many other countries, it's another story.

I guess my reason for the slant towards these emerging and value markets is also to diversify away from the US and this 10 year bull... I guess that's my bias.

longleaf
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Re: Investing Windfall (no country bias)

Post by longleaf » Mon Jan 15, 2018 10:59 pm

Your age enables you to hold stocks for the long term; don’t overthink this. You did not state your annual expenses, but for most people the level of assets you describe should allow you to retire with a balanced portfolio. Set your asset allocation and enjoy travel.

Ponder this:
60% vanguard total world stock index fund
40% vanguard total bond index fund

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whodidntante
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Re: Investing Windfall (no country bias)

Post by whodidntante » Mon Jan 15, 2018 11:25 pm

Single country funds are expensive with few exceptions, as you've found. I would be cheaper to overweight EM broad based, perhaps supplementing with regional funds that are cheaper than single country funds. Some of the markets you listed are really small, and you might want to just buy the top 5-10 stocks in each to get a representative sample.

You might also want this fund as a boutique fund. While not cheap, it seems to overlap with your preferences, at least somewhat.
http://www.etf.com/GVAL

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BeBH65
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Re: Investing Windfall (no country bias) [non-US]

Post by BeBH65 » Tue Jan 16, 2018 3:52 am

Be sure to read our wiki page Managing_a_windfall - key: Take your time; avoid immediate impulse decisions i

As a non-Us investor there are specific caveats: please have a look at: Non Resident Alien Taxation Issues in our wiki. --> You most likely will want to avoid US-domiciled funds.

I suggest that you put a "Non-Us" or "Asia/Australia" tag in your title to attract the specialists.


Don't try to gues which countries will do best in the future. Chances are you will be wrong. Just buy the whole world. "Don't look for the needs, buy the haystack"
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

asif408
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Re: Investing Windfall (no country bias)

Post by asif408 » Tue Jan 16, 2018 11:28 am

From a cost and management perspective, it would probably be easiest just to own a big chunk of an emerging markets index fund along with some of a developed ex-US (like EAFE) index fund, then buy an EM value fund and an EAFE value fund which would essentially tilt you towards those countries. That would tilt you the same way but at a lower cost and complexity, and would minimize risk if one (or even several) of those country's stock markets fail and go to 0. Plus you could do it commission free at several places. Most of the country funds you listed aren't trade able commission free anywhere, so your ERs would not only be higher but you'd also have to factor in commissions in and out.

Money Market
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Re: Investing Windfall (no country bias)

Post by Money Market » Tue Jan 16, 2018 2:17 pm

Whats your goal?

In my IPS, if I bump into a windfall, it's 70/30 TSM/TBM until age 45 and then 60/40 for life. My main goal is to live on dividends and to make a bequest to future generations via a dynasty trust.

Rom1b
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Re: Investing Windfall (no country bias)

Post by Rom1b » Tue Jan 16, 2018 4:52 pm

Congrats on the windfall.
Yes as somebody said you can overweigh a bit Emerging Markets; or even consider Frontier Markets (small part).
A World ETF has for sure more US; but you can counter balance that with a EM ETF, maybe frontier Markets; + some REITs.
The 'bull' market has been not only in the US, a lot of the developed world; but the rest of the world also increased fast only with higher variation (=risk?).
And Im not American ;)

rsasub
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Re: Investing Windfall (no country bias)

Post by rsasub » Tue Jan 16, 2018 10:19 pm

asif408 wrote:
Tue Jan 16, 2018 11:28 am
From a cost and management perspective, it would probably be easiest just to own a big chunk of an emerging markets index fund along with some of a developed ex-US (like EAFE) index fund, then buy an EM value fund and an EAFE value fund which would essentially tilt you towards those countries. That would tilt you the same way but at a lower cost and complexity, and would minimize risk if one (or even several) of those country's stock markets fail and go to 0. Plus you could do it commission free at several places. Most of the country funds you listed aren't trade able commission free anywhere, so your ERs would not only be higher but you'd also have to factor in commissions in and out.
Thanks. This seems like a great way to sort out my problem if I do end up going that way. By "commission free" are you talking about an ETF buy-in/sell-out commission, or some sort of platform rebate?

I found ishares has an Offshore list of funds which seem very cheap ongoing and have "initial charges" of zero (though minimum buy-in amounts). Is this the sort of thing you are talking about? I haven't seen anything similar with other ETF providers. Would you be able to point me in the right direction?

rsasub
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Re: Investing Windfall (no country bias) [non-US]

Post by rsasub » Tue Jan 16, 2018 10:22 pm

BeBH65 wrote:
Tue Jan 16, 2018 3:52 am
Be sure to read our wiki page Managing_a_windfall - key: Take your time; avoid immediate impulse decisions i

As a non-Us investor there are specific caveats: please have a look at: Non Resident Alien Taxation Issues in our wiki. --> You most likely will want to avoid US-domiciled funds.

I suggest that you put a "Non-Us" or "Asia/Australia" tag in your title to attract the specialists.
Thanks. Makes a lot of sense. I've added that tag to the title.

rsasub
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Re: Investing Windfall (no country bias)

Post by rsasub » Tue Jan 16, 2018 10:35 pm

Rom1b wrote:
Tue Jan 16, 2018 4:52 pm
Congrats on the windfall.
Yes as somebody said you can overweigh a bit Emerging Markets; or even consider Frontier Markets (small part).
A World ETF has for sure more US; but you can counter balance that with a EM ETF, maybe frontier Markets; + some REITs.
The 'bull' market has been not only in the US, a lot of the developed world; but the rest of the world also increased fast only with higher variation (=risk?).
And Im not American ;)
Thanks. This forum is such a godsend and helps me temper everything quite a bit. Between the advisors, bankers and ex colleagues in a similar position, there is a lot of competing information.

I realised I also have to look at tax implications going forward. Now I can just focus on lower tax domiciled funds but I worry if I return to Australia (or another country with a worldwide tax net) that I'll be forced to rebalance quite a bit to avoid double tax. For example, a whole world ETF will be domiciled in one country and apply a layer of witholding tax there, but the underlying assets would be domiciled in many different markets and as the ETF is buying and selling these, there should be another layer of tax on those rebalances applicable to each specific equity.

Most ETFs are tax efficient for the country they are domiciled in (as I understand), but for someone like me who moves around every few years, I wonder if I'm going to be double-paying instead of being able to take advantage of double-tax agreements.

I'm trying to get advice on this, but as you aren't tied to US, I'm wondering if you might know of any good reading about underlying tax treatment of ETFs or the dangers of moving residence from an ETF standpoint?

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BeBH65
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Re: Investing Windfall (no country bias) [Non-US]

Post by BeBH65 » Wed Jan 17, 2018 2:34 am

Indeed the funds itself are subject to tax-legistlation of the country they are domiciled in; and you as investor are also subject to taxation in the country you "live in".

Deciding on the actual funds is one of the last steps in the process:
0- Do you have an emergency fund? Have you set money aside for your medium term goals?
1- What is the goal of your long term investment? How close are you to this goal?
2- "Asset Allocation" is the most important decision you need to take. It will determine 80-90% of your return.
- How much do you want in equity? in which regions? large caps or also the more risky small-caps?
- How will you allocate your stable assets
This should be based on your "risk tolerance": how much risk do you need to take (see goal), how much are you able to take? how much are you willing to take?


Once you have determines that then you need to look at your tax situation:
A- You will need to investigate the tax situation in the countries that are on your short list and determine any special circumstances. There have been a few threads on Australia in this forum --> do a search for them. I also remember some discussions on south-east asia countries; even Malaysia, but these might be more difficult to find back.
B- In many cases you will see that Irish domiciled funds are good for international investors. (except for ireland itself and US) .
Ireland has good tax treaties with other countries and has a favaourable taxation for investors from outside of Ireland.

Look at the wiki page on Irish funds and non-resident alien taxation.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

msk
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Re: Investing Windfall (no country bias) [Non-US]

Post by msk » Wed Jan 17, 2018 3:19 am

With $10 million I feel it's somewhat wasteful to go for bonds, emergency fund, etc. as per traditional advice for a smaller portfolio. But from my homework and conclusions, I'd say: Sort out your tax residence and tax exposure first, to determine which country your ETFs should be based in, situs. Avoid US situs ETFs because of the horrendous exposure to Estate Tax. I am not exposed to personal income tax nor capital gains tax and I am allowed and able to use Ireland based ETFs. I expect that they may well be your best choice too. That may change if and when you move to Australia, but that complication can await as and when it happens. My choice was Black Rock/iShares, 90% IWDA and 10% EIMI. IWDA covers all Developed countries (all large and medium sized companies). EIMI covers the free float available in Emerging Markets. My 90:10 split is a simple reflection of the then existing free-float market weights. I opened a brokerage account with Interactive Brokers and activated margin to serve as my Emergency Fund. I also activated Options trading to serve as my tool for benefiting from upcoming major market falls. I do NOT advise you to play Options in serious amounts, but no real harm to learn how things work with a few thousand $ here and there so that you are ready to pounce when the markets collapse. That is normally a major use of AA rebalancing from bonds to stocks. But if you are 100% in stocks you can always use Call options to benefit from a market recovery. Recent irrational exuberance is bound to be corrected by an upcoming irrational panic. That's why it's worth learning options while the sun shines. Both IWDA and EIMI have low costs and accumulate all dividends. You do absolutely nothing. When you need to spend, you just sell a few ETFs. I checked a recent 50 year SP500 history (1966 to 2016). You can happily spend 5% of the 100% stocks portfolio value each year (note fluctuations with market prices) and your remaining portfolio will very likely keep up with inflation for many decades/forever. I also did Monte Carlo simulations and they confirmed that prognostication as the Median forecast. There is a huge probability that your remaining portfolio may well significantly grow faster than inflation, or similarly, fall behind inflation. The Median is that it will keep up with inflation forever, with 5% annual withdrawals. For $10 million your annual withdrawal will average $500k in real terms. Note: REAL terms. Even a 50% market drop will still allow you $250k p.a. in real terms. The recent run up would have allowed you a withdrawal of $600+k in 2018. I profited >20% on IWDA and >35% on EIMI in 2017. My portfolio is in 8 figures though I have yet to migrate all my holdings to these two ETFs. Slowly getting there as my individual stock holdings recover in their own niche markets. After more than a year in 90% IWDA and 10% in EIMI I remain a happy camper.

PS. You can also buy VWRD as your sole holding. Works as well, but I did not wish to be bothered with re-investing dividends. I wanted a portfolio that my totally disinterested wife (and kids) can handle efficiently forever. Or as long as iShares exist...

Rom1b
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Re: Investing Windfall (no country bias)

Post by Rom1b » Wed Jan 17, 2018 5:04 am

rsasub wrote:
Tue Jan 16, 2018 10:35 pm
I'm trying to get advice on this, but as you aren't tied to US, I'm wondering if you might know of any good reading about underlying tax treatment of ETFs or the dangers of moving residence from an ETF standpoint?
Yes. I'm also not an expert (but sometimes experts have conflicts of interest..).

I can only give my example. Im based in Germany but was born somewhere else. I'll buy some ETFs via a german broker but also ETFs (or other products) based in the US via an international broker (Interactive Brokers, there are others I guess). When I register, I sign a form attesting I live and pay taxes in Germany; then the gains will be taxed only once, according to german finance regulations.
Such international brokers are popular nowadays, and will still probably increase a lot; they offer good prices, and access to products of stock exchanges worldwide. They also have millions of customers/users already from all over the world, so they provide all needed informations and forms, and are used to dealing with these kind of issues; non-residents, and people moving around too I imagine. They offer support.
Also banks or brokers are general quite generous when it comes to giving prospective customers advice on 'how to transfer your money to them', and at least here they offer you money or advantages to switch :mrgreen:

But of course, do your research, time is a precious thing

HongKonger
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Re: Investing Windfall (no country bias) [Non-US]

Post by HongKonger » Wed Jan 17, 2018 6:02 am

Where do you hold perm res/ right of abode? Invest through the country with no cap gains or dividend tax.
I'm in a 3rd country and maintain an address in a no tax country where I invest from. A return flight every 3 years to maintain perm res status is worth it. Plus the currency is pegged to the dollar so that helps.

rsasub
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Re: Investing Windfall (no country bias) [Non-US]

Post by rsasub » Wed Jan 17, 2018 7:32 pm

BeBH65 wrote:
Wed Jan 17, 2018 2:34 am
Indeed the funds itself are subject to tax-legistlation of the country they are domiciled in; and you as investor are also subject to taxation in the country you "live in".

Deciding on the actual funds is one of the last steps in the process:
0- Do you have an emergency fund? Have you set money aside for your medium term goals?
1- What is the goal of your long term investment? How close are you to this goal?
2- "Asset Allocation" is the most important decision you need to take. It will determine 80-90% of your return.
- How much do you want in equity? in which regions? large caps or also the more risky small-caps?
- How will you allocate your stable assets
This should be based on your "risk tolerance": how much risk do you need to take (see goal), how much are you able to take? how much are you willing to take?


Once you have determines that then you need to look at your tax situation:
A- You will need to investigate the tax situation in the countries that are on your short list and determine any special circumstances. There have been a few threads on Australia in this forum --> do a search for them. I also remember some discussions on south-east asia countries; even Malaysia, but these might be more difficult to find back.
B- In many cases you will see that Irish domiciled funds are good for international investors. (except for ireland itself and US) .
Ireland has good tax treaties with other countries and has a favaourable taxation for investors from outside of Ireland.

Look at the wiki page on Irish funds and non-resident alien taxation.
Thanks. This is great advice. Have now read through those wikis and has helped a lot. It seems for me Ireland is indeed the way to go as well.

rsasub
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Joined: Sat Feb 18, 2017 8:55 pm

Re: Investing Windfall (no country bias) [Non-US]

Post by rsasub » Wed Jan 17, 2018 7:42 pm

msk wrote:
Wed Jan 17, 2018 3:19 am
With $10 million I feel it's somewhat wasteful to go for bonds, emergency fund, etc. as per traditional advice for a smaller portfolio. But from my homework and conclusions, I'd say: Sort out your tax residence and tax exposure first, to determine which country your ETFs should be based in, situs. Avoid US situs ETFs because of the horrendous exposure to Estate Tax. I am not exposed to personal income tax nor capital gains tax and I am allowed and able to use Ireland based ETFs. I expect that they may well be your best choice too. That may change if and when you move to Australia, but that complication can await as and when it happens. My choice was Black Rock/iShares, 90% IWDA and 10% EIMI. IWDA covers all Developed countries (all large and medium sized companies). EIMI covers the free float available in Emerging Markets. My 90:10 split is a simple reflection of the then existing free-float market weights. I opened a brokerage account with Interactive Brokers and activated margin to serve as my Emergency Fund. I also activated Options trading to serve as my tool for benefiting from upcoming major market falls. I do NOT advise you to play Options in serious amounts, but no real harm to learn how things work with a few thousand $ here and there so that you are ready to pounce when the markets collapse. That is normally a major use of AA rebalancing from bonds to stocks. But if you are 100% in stocks you can always use Call options to benefit from a market recovery. Recent irrational exuberance is bound to be corrected by an upcoming irrational panic. That's why it's worth learning options while the sun shines. Both IWDA and EIMI have low costs and accumulate all dividends. You do absolutely nothing. When you need to spend, you just sell a few ETFs. I checked a recent 50 year SP500 history (1966 to 2016). You can happily spend 5% of the 100% stocks portfolio value each year (note fluctuations with market prices) and your remaining portfolio will very likely keep up with inflation for many decades/forever. I also did Monte Carlo simulations and they confirmed that prognostication as the Median forecast. There is a huge probability that your remaining portfolio may well significantly grow faster than inflation, or similarly, fall behind inflation. The Median is that it will keep up with inflation forever, with 5% annual withdrawals. For $10 million your annual withdrawal will average $500k in real terms. Note: REAL terms. Even a 50% market drop will still allow you $250k p.a. in real terms. The recent run up would have allowed you a withdrawal of $600+k in 2018. I profited >20% on IWDA and >35% on EIMI in 2017. My portfolio is in 8 figures though I have yet to migrate all my holdings to these two ETFs. Slowly getting there as my individual stock holdings recover in their own niche markets. After more than a year in 90% IWDA and 10% in EIMI I remain a happy camper.

PS. You can also buy VWRD as your sole holding. Works as well, but I did not wish to be bothered with re-investing dividends. I wanted a portfolio that my totally disinterested wife (and kids) can handle efficiently forever. Or as long as iShares exist...
Thanks for the tips. We share the same idea on the irrational exuberance and at this stage I'm thinking of going lighter on equities until that happens when I start transfering from bonds. I was looking at iShares Dev Wld Idx (IE) Flex Acc USD, but I can't really tell what is the difference between that and IWDA. I can see mine isn't really listed as an ETF, but not sure if that is a problem in terms of volatility and return.

rsasub
Posts: 20
Joined: Sat Feb 18, 2017 8:55 pm

Re: Investing Windfall (no country bias) [Non-US]

Post by rsasub » Wed Jan 17, 2018 7:45 pm

HongKonger wrote:
Wed Jan 17, 2018 6:02 am
Where do you hold perm res/ right of abode? Invest through the country with no cap gains or dividend tax.
I'm in a 3rd country and maintain an address in a no tax country where I invest from. A return flight every 3 years to maintain perm res status is worth it. Plus the currency is pegged to the dollar so that helps.
Yes, I'm in Malaysia which is the same for offshore earnings and capital gains. My worry is about moving on later, but I guess I can just rectify the situation at that time.

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BeBH65
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Re: Investing Windfall (no country bias) [Non-US]

Post by BeBH65 » Thu Jan 18, 2018 12:08 pm

rsasub wrote:
Wed Jan 17, 2018 7:42 pm
I was looking at iShares Dev Wld Idx (IE) Flex Acc USD, but I can't really tell what is the difference between that and IWDA. I can see mine isn't really listed as an ETF, but not sure if that is a problem in terms of volatility and return.
IE00BD0NCN62 Seems to be a fund for institutionals : "The minimum initial investment for this unit class is US$100,000,000"
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

rsasub
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Re: Investing Windfall (no country bias) [Non-US]

Post by rsasub » Thu Jan 18, 2018 7:08 pm

BeBH65 wrote:
Thu Jan 18, 2018 12:08 pm
rsasub wrote:
Wed Jan 17, 2018 7:42 pm
I was looking at iShares Dev Wld Idx (IE) Flex Acc USD, but I can't really tell what is the difference between that and IWDA. I can see mine isn't really listed as an ETF, but not sure if that is a problem in terms of volatility and return.
IE00BD0NCN62 Seems to be a fund for institutionals : "The minimum initial investment for this unit class is US$100,000,000"
Woops :)

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