This post might be edited further as
required.
Why To invest Globally?
We invest globally because we don’t
trust one currency, country or any single economy, therefore we buy a single
globally diversified ETF (fund) or sector based ETFs, if you have Shariah or
ethical concerns. More on this later.
Minimizing costs - Fees matter!
We can’t grow wealth which we never
get, hence lowering costs is critical, we try to minimize fees end-to-end:
1.
FX Spread cost
2.
SWIFT Wire
3.
Brokerage Fees
4.
ETF Fees
When to Invest? - Time "IN"
the market Vs "Timing" the market!
When our exit horizon is retirement
(20, 30+ years) we don’t try to time the market, we invest monthly, quarterly
or yearly to stay the course and not try to trade or time the time by buying
and selling.
Exit at retirement?
Since the average retirement can last 10-20
years without income, when we are 5 years away from retirement, we will start
protecting our portfolio gains by allocating more towards a Gold or Bond ETF.
This is a personal decision and based on your portfolio size and risk appetite.
At the time of retirement, we can
start selling our portfolio at the rate of 2-3% per year to cover our cost of
living.
What about Tax?
All non-US Tax residents will pay 30%
tax on US derived income via dividends, if they hold US domiciled
securities/ETFs. The solution to this is holding Irish domiciled ETF. Since US
and Ireland have a double taxation treaty, hence taxes on dividends is reduced
to 15%. There is no capital gains tax on non-US investors.
I'm not a tax advisor, please check
with your personal tax accountant. With regards to Pakistan, I do know the USA and Pakistan have a tax treaty
between them.
How to Start?
I'm suggesting the same brokerage my
friends and I use, Toledo Trade. They don’t enforce any minimum amounts to
start, my friends even started with 500 USD, however 5k USD is suggested for
efficiency.
Make sure to open a joint account from
the start, if you're married. Or even if you're single with your brother,
father or mother for survivorship purposes. Account ownership reverts to either
owner, in case of death. The U.S. Government follows your will or account
ownership status, not Islamic Shariah law.
Toledo Trade - US Domiciled and Low
Cost
ToledoTrade is a division of Gar Wood
Securities, LLC, through which securities and futures are offered. Member FINRA
| SIPC | NFA. Check the background of ToledoTrade, a division of Gar Wood
Securities, LLC. on FINRA's BrokerCheck.
How to Legally Wire EUR or USD Outside
Pakistan?
To fund your US brokerage account, you
can’t use a credit card for now. Traditionally a money exchange gives the best
FX rates compared to any bank. Unless you have a premium banking relationship.
If there are KYC issues with money
exchanges in Pakistan. A workaround is to open a USD or EUR account and have
PKR converted and sent to your own EUR or USD account, then directly wire the
US broker's custodial account.
Shariah, Ethical concerns?
Since most people have Shariah or
ethical concerns, they have some options to avoid companies that cause harm.
Solutions here include:
1.
Investing in
officially certified World and Emerging Markets Shariah designated ETFs
or
2.
Going with
Technology and Healthcare ETFs.
3.
Going with ESG
(Environmental Social Governance) ETFs
Nothing is perfect, some compromises
are required. Details below.
These are the options I found with different levels of Shariah Investing.
Percentage fee is listed per year on Net Assets. Can be bought in EUR or USD.
Choose Either World Islamic or EM or Both. Can be bought in EUR or USD.
Percentage fee is listed per year on Net Assets. Can be bought in EUR or USD.
Choose Either World Islamic or EM or Both. Can be bought in EUR or USD.
iShares MSCI World Islamic UCITS ETF -
0.60%
The Fund seeks to track the
performance of an index composed of companies from developed countries and
iShares MSCI Emerging Markets Islamic
UCITS ETF - 0.85%
The Fund seeks to track the
performance of an index composed of companies from emerging markets countries
and which comply with Shariah investment principles.
https://www.ishares.com/uk/individual/en/products/251392/
OR Choose either World Health Care or
Technology or both below
WHEA - SPDR MSCI World Health Care
UCITS ETF | 0.30%
The investment objective of the Fund
is to track the performance of companies in the Health Care sector, across
developed markets globally.
WTEC - SPDR MSCI World Technology
UCITS ETF USD Acc | 0.30%
The investment objective of the Fund
is to track the performance of companies in the Technology sector, across
developed markets globally.
Or
iShares MSCI World ESG Screened UCITS
ETF
The fund seeks to track the
performance of an index composed of developed market companies screened for
exposure to thermal coal, controversial weapons, tobacco, and other
controversial industries.
iShares MSCI EM IMI ESG Screened UCITS
ETF
The fund seeks to track the
performance of an index composed of emerging markets companies screened for
exposure to thermal coal, controversial weapons, tobacco, and other
controversial industries.
Muzammil Shaikh
Personal Finance Literacy Advocate
Board Member at SimplyFI (Non-Profit
Group)
x
Salam Muzammil. Thank you for writing this informative article. Some questions:
ReplyDelete1) by investing in ETF, you are assuming that they will always grow in the long term?
2) How does Toledo Trade differ from iForex and the like? I have a feeling that iForex works on margin whereas Toledo Trade lets you keep long term or similar by actually investing real cash instead of leveraging?
3) What do you mean by protecting portfolio gains by allocating more towards a gold or bond etf?
4) What is your view over real estate investing for retirement?
Thank you.
W'Salam Talal, I missed notifications for this comment.
DeleteRegarding Growth of ETFs, if we are globally diversified, in the long run (10, 20, 30 years), yes the world i.e.: underlying economies always grow.
I had a look at iForex, it's a betting platform, domiciled in the British Virgin Islands, nothing to do with real investing or owning registered equity.
All brokers, including ToledoTrade provide margin accounts. Best to avoid margin. I don't use it personally.
By protecting gains I meant, if you can't stomach the down-swings of a 100% equities portfolio, then you can allocate some in gold or a bond ETF to buffer the downside, since gold and bonds do well in fear based crashing markets. I personally prefer 100% equities ETFs to gain time advantage from investing.
I find investing in the real estate (RE) market has negatives on many levels, morally, ethically it causes price inflation of a basic needs asset and causes rent inflation. There is no price transparency, fees and taxes are obscure and hidden, middle-men and paper-work add to the cost. From a common man perspective the only parties that make a reasonable profit are middle men and developers.
Unless you can afford to buy RE in many countries, it has no currency or geographic diversity as well. Also adds little or no productive value to local or wider economies.
No different than buying 100% of a single stock, that's foolish.
Thanks.
Muzammil