What etf to buy

Investing / Portfolios
1

I was wanting to buy an etf with a lump sum which is in pounds. I have £120k in cash in IBKR

I was looking at vanguard VT …would i be better with a ftse etf in GBP so doesnt mess with fx

2

Similar questions were discussed many times already. The answer is always the same: ignore what currency you have at the moment. What you experience now is a pure psychological anchoring bias.

Especially if you have it at IB: the currency exchange will cost you a peanut (2 USD).

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3

I would recommend that you first decide what kind of ETF you want to buy based on following variables

  • which ETF domicile is best for you depending on your tax residence
  • which ETF domicile is best for you in reference to US Estate tax jurisdiction
  • Do you want to have currency hedged ETF or not
  • What kind of underlying exposure you want
  • You want accumulating or distributing ETF

Once you have decided your ETF profile, then it’s easy to recommend. As you noticed the ETF currency is not a very important variable because IBKR offers very cheap exchange rates.

For example. VT works best for

  • investor with tax domiciled in CH
  • person looking for a global market weighted all cap exposure
  • person who doesn’t care about currency hedging
  • person who is comfortable with the fact that US ETFs come under jurisdiction of US Estate taxes but with proper documentation, it can be completely avoided
  • wants a distributing ETF

The main point is you should be clear about what you are investing in. Buying currency is not very important. For example if you want to buy an iPhone, you can buy it in CHF in Zurich, in GBP in London or Euro in Amsterdam. You always in the end get an iPhone. And if you have a good exchange rate card like Revolut or Wise, typically the most important number is the price of iPhone in these locations and not necessarily what currency you have in your account

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4

Thanks for the replies, so i guess it is VT then.

I don’t have a wise or revolut

One further question …when buying the etf should i just let it automatically convert the currency ?

Many thanks

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5

On IBKR, Yes

6

Backing up this comment. Below(*) is a screenshot of the GBP-USD buy-sell spread at IB. It was +/- 0.00001 USD and IB charge on top 0.002% commission with a minimum of 2 USD.

So if you were to simultaneously change £120k to USD and the equivalent USD amount back to GBP you would end up with ~£119,992. At £8 the cost of your time reading my boring post is probably higher :grinning:

p.s. If I am exchanging a large amount I usually look at the daily and weekly chart and set a “limit order” to try and catch a more favourable exchange rate (but if you are too greedy the rate can move against you and your order doesn’t go through at all)

(*)

image

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7

should i stagger money into it incase there is another dip

8

Lots of discussions on the forum on this, e.g. here.

In short: “Scientific evidence” says lump sum is on average better than stagger (i.e. dollar-cost-averaging/DCA). But many still prefer some kind of DCA to not feel too bad if there is another dip. Personal decision in the end…

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9

If you are seasoned investor, then science says lump sum is better

However if you are new or anxious, I suggest staggering investments would be better for psychology

Last point -: if this is your first time investing, then you also need to think about your asset allocation. 100% stocks can be very jittery for some. If you are seasoned investor, you can ignore my comment

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10

But you have a higher spread with automatic conversion. Better to do it manually for high sums.

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11

Yeah I forgot someone did some math and it was cheaper to go for manual conversions for amount >6500 CHF

However I am not completely sure about it. I never checked about what spread( on average ) is achieved for manual conversion.

The only info I have is following

  • auto fx spread 0.03%
  • Auto fx commission Zero
  • Manual commission min 2 USD or 0.2 Basis points
  • spread for market conversion , I guess depends on market
12

To be honest, I never saw those 0.03% and have done tjus AutoFX four times now. But I guess they would charge it for higher sums. Not sure.

13

Thanks for all the replies guys even more confused lol.
Abs or anyone if wanted to buy VT at 3.30 cet when the market opens would i run the risk of the price being higher than it is now? If i bought pre market would that be a better bet?

14

image
image600×600 35.5 KB

You shouldn’t be looking at investing as betting.

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15

Currency markets are open during standard times. You can exchange whenever you want

VT you can buy when NYSE opens. During pre-market the liquidity is low and random things can also happen

I have never bought anything pre-market ever

16

So when buying a lump sum during trading hours .
Do i do market order or limit order?

Also i have a margin account…it says buying power what does that mean because its got an extra 300k in it?

17

It’s how much exposure you can get if you max out all your margin. Don’t even think about it, just buy according to how much cash you have :grimacing:.

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18

Yes i will only put in my cash. Would be best to do a limit order type over market…
Also with doing 100k should i test a little less to see if it gets fufilled at the price

best
peter robinson

19

If you are placing order for 100,000 CHF, my recommendation would be to do a couple of small ones first like 5K or 10k.

Just to make sure you bought the right ticker. Sometimes interface of IBKR might be confusing for some.

For large volume ETFs like VT, market orders work fine because the spread is very low. Of course if placed during regular NYSE trading hours. You can use limit orders to be sure.

For smaller volume ETFs, limit orders might be wise.

20

Margin should never be used in my view. It’s like addiction. Don’t get used to it :slight_smile:

Just use the money you have. Always

This is why I don’t even have a margin account.

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