As a UK investor, which market should I invest in?

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Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

As a UK investor, which market should I invest in?

Post by Deats1980 » Fri May 18, 2018 2:57 am

I have recently read various books, blogs and forums about investing. It's all very interesting stuff. However, I am still not sure which markets I should be investing most of my money in. Right now I have plenty of money invested in low paying bonds (160,00GBP) and about 45,000GBP cash to invest right now.(I have another 75,000GBP in other banks, but earning decent rates of interest (7%), so I don't want to touch this) I will be moving to 75% etfs and 25% bonds in the coming to year, when my bonds start maturing.

I am originally from the UK and living in China where I don't have to pay tax on foreign income.

I want to buy etfs and I want to be diversified. I understand that diversification is very important. But, coming from the UK, I have read some people saying buying UK stock market index funds is better than the US stock market index funds. Why? If the US makes up a larger portion of world business, shouldn't you invest according to this, rather than where you are from?

I was thinking something like a fund that offers: 50% US, 25% developed Europe and 25% emerging markets. Should I change this as I am from the UK?

Also, I was thinking of using Internaxx as my broker. Is it better to use one fund to manage all three locations, of will three separate funds work out cheaper?

Thanks in advance for any advice you can offer.

Valuethinker
Posts: 35968
Joined: Fri May 11, 2007 11:07 am

Re: As a UK investor, which market should I invest in?

Post by Valuethinker » Fri May 18, 2018 7:38 am

Deats1980 wrote:
Fri May 18, 2018 2:57 am
I have recently read various books, blogs and forums about investing. It's all very interesting stuff. However, I am still not sure which markets I should be investing most of my money in. Right now I have plenty of money invested in low paying bonds (160,00GBP) and about 45,000GBP cash to invest right now.(I have another 75,000GBP in other banks, but earning decent rates of interest (7%), so I don't want to touch this) I will be moving to 75% etfs and 25% bonds in the coming to year, when my bonds start maturing.

I am originally from the UK and living in China where I don't have to pay tax on foreign income.

I want to buy etfs and I want to be diversified. I understand that diversification is very important. But, coming from the UK, I have read some people saying buying UK stock market index funds is better than the US stock market index funds. Why? If the US makes up a larger portion of world business, shouldn't you invest according to this, rather than where you are from?

I was thinking something like a fund that offers: 50% US, 25% developed Europe and 25% emerging markets. Should I change this as I am from the UK?

Also, I was thinking of using Internaxx as my broker. Is it better to use one fund to manage all three locations, of will three separate funds work out cheaper?

Thanks in advance for any advice you can offer.
I would go with an ETF that tracks the world index. It depends which market you use, but I usually use either Vanguard or ishares, both domiciled in Dublin.

If you can only find an ETF that tracks Developed World index, I would add an Emerging Markets index fund. In the ratio of about 85%: 15%.

What you don't want to do is overweight Emerging Markets, given that you live in the largest EM. Your career and financial risk is already concentrated in that country, you don't want to tie yourself (more than market weight) to its stockmarket as well.

If you want to aim away from Asia Pacific on that basis, that's OK, but you will wind up with a lot of US.

Valuethinker
Posts: 35968
Joined: Fri May 11, 2007 11:07 am

Re: As a UK investor, which market should I invest in?

Post by Valuethinker » Fri May 18, 2018 10:25 am

https://www.ishares.com/uk/individual/e ... f-inc-fund

IWRD would be an example. However:

- it has to fit your tax situation
- it is distributing, not accumulating
- it is priced in USD

On the last point, it does not hedge into USD, it simply reports in them. So

- fluctuations of currency affect the NAV (that's true of most international equity funds, as they generally do not hedge exchange rates; international bond funds do)

- you have to buy the units in USD and receive dividends in USD. This may incur additional Foreign Exchange transactions costs, depending on the home currency of your broker and bank accounts

Deats1980
Posts: 15
Joined: Thu May 03, 2018 8:57 am

Re: As a UK investor, which market should I invest in?

Post by Deats1980 » Thu May 24, 2018 2:07 am

Hi Valuethinker, thanks for your suggestions! I definitely like the idea of tracking the world index. To me, this seems to cover all bases.

When I click on the link provided it asks me if I am a UK investor. I assume this means that I must be UK resident? If this is the case, then I am unable to buy IWRD as I am a UK citizen but not resident.

I am unsure whether Internaxx will charge for currency conversion - I know they said they don't charge for bank transfers. To try and keep it simple, I would rather deal in GBP, but I am not sure if this will be a viable option. I need to do a little more digging to find a suitable fund that deals in pounds.

Also, I am a little confused about the taxation of such accounts. As Vanguard is a US firm, would I have to pay any US taxes for using their service if they are domiciled in Ireland? Is there a hidden tax anywhere in there? Same question for ishares. Obviously, if one is more advantageous tax wise, this could be the kicker over which company to use.

Thanks again, and sorry for the slow reply.

Valuethinker
Posts: 35968
Joined: Fri May 11, 2007 11:07 am

Re: As a UK investor, which market should I invest in?

Post by Valuethinker » Thu May 24, 2018 4:00 am

Deats1980 wrote:
Thu May 24, 2018 2:07 am
Hi Valuethinker, thanks for your suggestions! I definitely like the idea of tracking the world index. To me, this seems to cover all bases.

When I click on the link provided it asks me if I am a UK investor. I assume this means that I must be UK resident? If this is the case, then I am unable to buy IWRD as I am a UK citizen but not resident.
Hi. That's an FCA (regulatory) thing. I usually click "institutional investor" but certainly UK investor - what they can't do is provide a service to someone outside of the UK - but you can still get the information. But they have to be clear that they are not advising you nor selling to you because you are outside UK. I usually ignore it.
I am unsure whether Internaxx will charge for currency conversion - I know they said they don't charge for bank transfers. To try and keep it simple, I would rather deal in GBP, but I am not sure if this will be a viable option. I need to do a little more digging to find a suitable fund that deals in pounds.

Also, I am a little confused about the taxation of such accounts. As Vanguard is a US firm, would I have to pay any US taxes for using their service if they are domiciled in Ireland? Is there a hidden tax anywhere in there? Same question for ishares. Obviously, if one is more advantageous tax wise, this could be the kicker over which company to use.

Thanks again, and sorry for the slow reply.
Agree re GBP. You want a fund denominated in GBP.

US dividends to foreigners have taxes withheld at source (30% from memory). Lowers your returns *unless* you happen to be in a country with a tax treaty w USA that allows that to be offset. This is an area I am vague on, but you certainly do not need to report to the US tax authorities - withholding taxes are a common way of dealing with that problem with international investors.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: As a UK investor, which market should I invest in?

Post by Valuethinker » Thu May 24, 2018 4:30 am

https://www.vanguard.co.uk/adviser/adv/ ... docId=1011

Looks like VWRL has a UK listing i.e. in GBP. Thus, presumably you could set your account to buy/ sell in GBP.

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BeBH65
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Re: As a UK investor, which market should I invest in?

Post by BeBH65 » Sat May 26, 2018 11:47 am

Different variants of the iShares MSCI World ETFs can also be bought in GBP on the LSE.

Here are the different variants:
1. iShares MSCI World UCITS ETF USD (Dist) (GBP) | IWRD
2. iShares Core MSCI World UCITS ETF USD (Acc) (GBP) | SWDA
3. iShares MSCI ACWI UCITS ETF USD (Acc) (GBP) | SSAC

They are all worlwide large caps that hold also a small amount of mid caps.
1. Distributing; ER 0.50; 1600 Stock from the developed markets
2. Accumulating: ER 0.20; 1600 Stock from the developed markets
3. Accumulating; ER 0.60; 1100 stock from developed and emerging markets.

If Accumulating funds are ok for you the 2nd seems the best.

References:
- Accumulating/capitalizing_vs._distributing_ETF_share_classes
- Base_currency_vs._trading_currency_vs._currency_of_the_underlying_asset
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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