Alternative total stock market strategies for small investment amounts

In a previous post, I wrote about why VWRA is my favorite buy-and-hold ETF for long-term Singaporean investors – it’s simple, low-cost, and globally diversified and gives you exposure to the total stock market.

There are some drawbacks to buying VWRA when you’re just starting out and have not much capital to invest – VWRA is relatively difficult to access and expensive to trade.

Difficulty in access

VWRA is traded on the London Stock Exchange (LSE) which might not be supported by many low-cost brokerages like Tiger Brokers or FSM One.

Instead, they offer the US-domiciled alternative, VT, which is cheaper to trade but comes with some other issues like higher dividend withholding tax rates and estate tax implications.

FSM One also levies a dividend handling fee for VT which adds another layer of costs into owning a total stock market index fund.

Dividend handling fee on FSM One for US-based ETFs

Expensive to trade

It might also be expensive to trade VWRA. On Stanchart, each transaction costs a minimum US$10 and if you’re trading in small sums, this can contribute to a significant transaction cost.

On IBKR, while trades on the LSE might be relatively cheaper depending on your pricing tier, you’re also looking at a minimum activity fee of US$10 monthly, which quickly adds up over a period of time.

There are two strategies that you can consider if you’re looking to invest a small sum on a monthly basis on a total stock market fund.

VT rotation strategy on FSM One

Noting the above considerations, one way to own VWRA in the long-term is to implement a simple rotation strategy that rotates your VT holdings into VWRA every 12 months.

FSM One offers a cheap monthly regular savings plan (RSP) which includes VT as one of its supported ETFs.

VT as one of FSM’s focus list of ETFs available for RSP

You can select VT as your monthly dollar cost averaging strategy at a low cost (roughly $1.50 per trade).

Then every 12/24 months, sell your VT holdings and buy into VWRA at your favorite long-term broker.

You can also choose to rotate VT to VWRA at intervals of $5,000 or $10,000 – whichever you prefer – instead of every x number of months.

This way, you can save on both transaction fees and maintain relatively safe from all the dividend withholding tax and estate tax complications.

Dimensional World Equity Fund rotation strategy on Endowus

Endowus recently launched their Fund Smart product suite to allow investors to customize fund holdings of their choice in their portfolio.

With this launch, investors can now access Dimensional’s World Equity Fund – an accumulating, UCITS, institutional class fund denominated in SGD with more than 11,000 holdings.

The fund’s total expense ratio is 0.40%, and it’s a multi-factor fund with tilts towards smaller sized companies, value companies, and profitable companies – so it’s not strictly a normal market-cap-weighted total stock market fund.

These factors are academically proven to have long-term beneficial effects on returns, hence the performance of the fund should compare well to its benchmark (MSCI All Country World Index) over the long-term.

This strategy involves creating a fund smart portfolio and buying 100% of this fund in your portfolio every month on your DCA schedule.

Create a fund smart portfolio and buy 100% of the Dimensional World Equity Fund

Then rotating out of this fund to VWRA on your own preferred schedule or criteria by redeeming the fund without any transaction costs.

If you’d prefer to leave it in Endowus, you may also do so, although do note that Endowus charges an advisory fee from 0.6% per annum on a quarterly basis.

To learn how to set up a custom Endowus fund smart portfolio, read here.

My preferred strategy

My preferred strategy is the Endowus rotation strategy because there are no transaction fees when buying and selling funds through Endowus. 

If you have a small monthly accumulation amount (e.g. $200), then Endowus makes a lot of sense since their advisory fee would be very low as well.

There’s one requirement for Endowus – you’d need S$10,000 to get started with them, and one way is to utilise some of their other products like Cash Smart, which pays a relatively high rate of interest on your cash management funds.

Regardless of which strategy you choose, expect to save some fees for small investors over a traditional VWRA DCA strategy at your traditional brokerage.

FSM One review and referral code: P0376099

Use this exclusive link to get S$10,000 managed free for 6 months ($20 equivalent) with them.

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