Recently, my colleague asked me about how to get started in investing. And I just told her what everyone else recommends, just buy the S&P500 ETF or a world index ETF.
A couple weeks later, I asked her, so have you started your investment? And her reply was, there are so many S&P500 ETFs! I didn’t know which one to buy!
So here goes.
US Domiciled ETFs
Any ETFs that are listed in NYSE Arca are considered US domiciled.
Below is the list of 3 of the most popular S&P 500 ETF (all distributing) listed on NYSE ARCA
| NYSE ARCA | Expense Ratio | Asset Under Management |
|---|---|---|
| IVV (Blackrock) | 0.03% | $478.2 B |
| VOO (Vanguard) | 0.03% | $488.8 B |
| SPY (State Street) | 0.09% | $535.8 B |
Non-U.S. residents are subject to U.S. estate tax upon death, which can be as high as 40% on the value of investment assets if those assets exceed USD$60,000.
Dividend Withholding Tax is another consideration for us. We get taxed 30% of any dividend distributed.
In simple terms, for us Singaporeans, if you plan to buy and hold until you die, it is recommended NOT to buy US Domiciled ETFs.
However, if you plan on doing short term trading or even options trading, then of course you should go for the ones listed in NYSE ARCA. Because trading happens during US hours and of how liquid the market is.
Imagine you buy a ETF listed in LSE (London exchange), and Jerome Powell casually mentioned that they decided to raise rates. You can’t sell your ETF because the market is closed.
If you’re holding any of these ETFs for the long term, there’s an added benefit: you can sell covered call options on your holdings to earn extra income. This isn’t something you can do with ETFs listed on the LSE.
Why buy SPY over IVV or VOO since it has higher expense ratio?
IVV and VOO are great for buy and hold strategy (for US resident).
SPY is great for trading because of its liquidity.
Here’s a look at the trading volume for these 3 funds.
SPY’s last 24H vol is at 5.205B compared to IVV’s 437.688M and VOO’s 483.58M.
Because of how liquid SPY is, it is great for options trading too. SPY has daily expiration options compared to VOO or IVV.
Ireland Domiciled ETFs
Ireland Domiciled ETFs can be found listed in London Stock Exchange (LSE). You can look at under the Fund Fact of the ETF to determine if it’s a Ireland Domiciled ETF. You should see something similar.
Below is the list of some of the more popular S&P 500 ETF listed in LSE.
| Provider | USD (Accumulating) | USD (Distributing) | Expense Ratio | Asset Under Management |
|---|---|---|---|---|
| Blackrock | CSPX | – | 0.07% | $88.4B |
| Vanguard | VUAA | VUSD | 0.07% | $55.18B |
| Invesco | SPXS | SPXD | 0.05% | $28.06B |
Distributing or Accumulating
“Distributing” means you’ll receive dividends directly from the ETF.
“Accumulating” means the fund reinvests those dividends to buy more units, increasing your holdings instead of paying out cash.
Why opt for Ireland-domiciled ETFs?
They offer two key benefits:
- no US Estate Tax
- a reduced 15% Dividend Withholding Tax
Which Ireland Domicile ETF to choose?
Personally, I prefer a ETF that is liquid.
Here’s a look at the trading volume.
CSPX has the most liquidity on average. So if it is up to me, I would choose CSPX.
But if you want the one with the lowest expense ratio, then go with SPXS or SPXD.
Summary
Decide if you are trading or investing for long term.
The general rule of thumb is, if it is for trading, then go for US Domiciled ETFs.
For long term investing, in my opinion:
- if you are US resident, either VOO or IVV is fine.
- if you are non US resident, CSPX is the way.
- But if you want dividend, then choose VUSD.
As always, non of what is mentioned here is financial advice. Always do your own research.
I personally use IBKR for LSE trading. If you don’t already have a brokerage that supports LSE, and you would like to sign up with IBKR, feel free to use my referral link.