(Written by Sebastien Aguilar and Demos Kyprianou)
On 21 of January, Alex gave us an amazing and humbling presentation summarizing his experience with online stock brokers since he started investing as an expat in the UAE in 2009.
Alex is a cautious investor. He is very well aware of the past issues and challenges that online brokers have faced and he takes this into account in his approach to investing.
In his presentation, Alex presented a number of risks that come with investing in the stock market, as well as his strategies to mitigate them (mainly well thought diversification across geographic markets, sectors and brokers).
Alex also warned the audience against the temptation to sign up for expensive saving and investment plans sold by the majority of financial advisers and banks in the UAE. He emphasized that the recommended approach to investing is to use online discount brokers to buy and hold diversified low cost index ETFs following the Bogleheads® Philosophy.
Alex then provided an overview of all the online brokers he has worked with, highlighting the main pros and cons for each of them. All the details are provided in his presentation.
Here are some additional notes summarizing the presentation as well as some of the discussions we had during the meetup.
Alex - German
Here since 2002
Started investing since 2009
1st broker - Flatex / E trade - focussed on US and Germany
Had some doubts and shifted to US Schwab and others
Had challenges with brokers, both opening and maintaining accounts in US / Germany - they want residents due to taxation and other issues such as acquisitions
Recommendation- use multiple brokers, rather than stock with 1
Crises that affected the brokers - big losses
E.g. Cyprus crisis, Grexit, Swiss franc eg Swiss franc affected Alpari, interactive brokers etc
Eur - 100k cash, if bank fails, 100k will be kept, but considering Cyprus crisis - don't even trust that.
US is similar - e.g. USD 250k
Consider banking jurisdiction and bank - spread investments out
Is this bank insured?
Currencies, brokers and countries may fail
Account can get hacked - may not have latest tech
If broker is acting under another company - are they safe?
Brokers may amend agreements e.g. Schwab - closed UAE accounts
Invest in multiple currencies Eur, usd, home currency
Invest in different geo markets e.g. US, EU, ME etc
Invest in different sectors unless investing in broad markets
Using multiple brokers and clearing houses in various countries - don't put all eggs in 1 basket
What not looking for
Savings and investment plans, offshore pension scheme, local brokers (for day trading charging high commissions), wealth management solution, structured products, CFDs, forex, binary options, futures - not what you are looking for as risky/ expensive
We are looking for
Low cost, online brokerage for buy and hold / LT in ETFs across various exchanges and currencies
What happens if you leave the UAE? Can you still access your account?
Check tax agreements between countries
Claims in case of death eg may freeze account, wills, inheritance taxes etc
Don't need advanced trading platforms or real time data for bogleheads approach (useful for a limit buy - some brokers offer it for free)
Stamp duty e.g. 0.15% such as Swiss quote for Swiss brokers
Commission free etfs - marketing gimmick as interesting ones are not commission free e.g. Not very liquid, spread is higher, expense ratios may be higher. Check etf do.com - shows liquidity, expense ratios etc and show you more interesting ETFs
Where to invest
US market/ domiciled ETFs/ stocks
Very low cost trading with flat free trading available
Very small bid/ ask spreads as being traded frequently bs what you get in Europe
Go for etfs with large value in assets under management
Convenient trading hours - evening UAE time
Dividends have to be distributed and so 30% tax
Check double taxation agreements and inheritance taxes e.g. US
So you could reinvest dividends manually
EU market/ domiciled ETFs/ stocks
If Ireland/ Luxembourg domiciled - 15% withholding on dividends
Also, find distributing and accumulating funds - i.e. Manually reinvest or auto reinvestment
Better to go with the latter to reduce taxes
Could go for growth funds as dividends not high and so reducing costs
Avoid buying Etf in a different currency as you will pay forex when you buy and sell
You can find funds that are denominated in the currency you will retire on
Gave breakdown of brokers
Interactive brokers e.g. Min 10kUSD needed
Td direct investing - commissions are a little steep, need to trade a lot
Others Alex has had no personal experience with- DBS vickers, mubasher trade
Don't get paralysed by otptions - do HWK, and start investing. All more or less the same in total operating costs (with exception of those with custody fees)
Funding brokerage account
Compare exchange rates to see the spreads/ charges
Call UAE exchange - have cheaper rates, hav accounts with all major accounts.
They can meet you in person for the first time.
And then negotiate by phone/ email. Don't make cash payments as bank will need proof of source.
Keep scans of transactions as proof
Contact Mohamed Rizwan - RM - 0503241208
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