Switching ETFs: VOO to CSPX for Lower Taxes & Better Returns!

Switching ETFs: From VU to CPX

This article details the author's decision to liquidate their holdings in the Vanguard S&P 500 ETF (VU) and transition to the iShares Core S&P 500 UCITS ETF (CPX). It outlines the reasons behind this shift, the process of liquidating VU, and setting up recurring investments in CPX via Interactive Brokers (IBKR).

Background and Reasons for Switching

The author began investing in VU in November 2022, attracted by its lower expense ratio. However, VU subjected the investor to a 30% dividend withholding tax and potential estate taxes. Many viewers suggested CPX, domiciled in Ireland, which offers a reduced 15% dividend withholding tax.

The initial reason for choosing VU over CPX was that Interactive Brokers didn't offer fractional shares for CPX at the time. The author's initial investment was $150 per month, increasing over time. With plans to increase the monthly investment to $800 USD, the author sought a more cost-effective platform with better currency exchange rates (SGD to USD).

Platform Comparison: CMC Invest vs. Interactive Brokers

The author compared CMC Invest and Interactive Brokers, both offering access to the London Stock Exchange. While initially hesitant about IBKR's platform due to its perceived complexity, the author ultimately chose it for several reasons.

• CMC Invest Drawbacks:

  • No recurring buy options, requiring manual purchases each month.

  • Lack of fractional shares, requiring purchase of whole shares of CPX (over $1000 USD monthly).

• Interactive Brokers Advantages:

  • Reliability for long-term investing (20-30 years).

  • Better currency exchange rates.

Liquidating VU Holdings

On May 28, 2024, the author liquidated their entire VU holdings after 18 months of investing. The total capital invested was slightly under $3,700 USD. The value at the time of sale was a little under $4,600 USD, resulting in a profit of $992.56 USD. After converting back to SGD, the profit amounted to a 20.3% return on investment. The author recognizes investment profits and losses only when they are realized through the sale of assets.

Setting Up Interactive Brokers

The following steps were taken to set up recurring buys of CPX on IBKR:

1. Deposit Funds:

   • Select "Deposit" on the IBKR homepage.

   • Choose SGD as the currency.

   • Opt for bank transfer due to better rates compared to Wise.

   • Follow instructions and include the payment reference code in the bank transfer comments.

   • Initial test deposit of $50 arrived in 30 minutes.

2. Switch to Tiered Pricing:

   • Search for "pricing" on the IBKR homepage.

   • Click "IBKR Pricing Plan."

   • Change from "Fixed Pricing" (cost $4 per trade) to "Tiered Pricing" (lower fee).

3. Set Up Recurring Buy:

   • Search for CPX on IBKR.

   • Click "Recurring" below the "Buy" button.

   • Enter start date, amount ($800 USD), and interval (monthly).

   • Select "no end date" for continuous monthly purchases.

   • Currency conversion from SGD to USD is handled automatically by IBKR during the recurring buy.

4. Setup Recurring Transfer:

   • Set up a recurring transfer from your bank to Interactive Brokers maybe one or two days before the recurring buy happens on IBKR.

Strategy with Realized Profits

The realized profits from the VU liquidation, along with the initial capital, have been funded into the IBKR account. The author is waiting for a suitable time to invest the lump sum, but in the meantime, it is being used to fund the monthly dollar-cost averaging into CPX. The author believes the market is currently overvalued and prefers a gradual approach.