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date 27.Dec.2020

■ How to DIY invest in world index ETFs, a summary course for petty bourgeoisie

Money: love it or hate it, you need it. If you got lucky with a lump sum, or you generally manage to save some money regularly, you can put it to work for you exponentially (think of compound interest), and with minimum hassle. Out of all investment possibilities, top of the class combining simplicity with "guaranteed" long-term return is the stock market. No, I am not having a laugh, stocks have a historic average 10% return (compare that to your bank account) and you can tap into it using a plain world index tracker (no hassle picking and monitoring individual stocks, or markets). You go with the flow. You can ignore the short-term market dips from coronavirus or what have you, and rest assured that good things come to those who wait (5+ years).

I have been researching ETFs for a long time, and there's a lot to take in, so I summarize the main decision points below. Some parts are conditional to your individual tax requirements — I live in Cyprus which is a stock tax haven, but most of it applies to all noob investors like the writer. The main ideas are minimum risk, costs and effort.
stock market ups and downs
I am not a stock broker. I don't offer financial advice, so don't blame me if you lose all your savings. The list below makes sense to me and my circumstances: optimizes returns and minimizes costs (fees, taxes etc) and hassles. Even 0.5% reduction in costs can go a long way over 10 years.

STEP 1. Get a broker account
To buy index trackers, you need an online broker. No need to pay for an actual person mind, there are DIY investor platforms that are easy to use and save you on fund management fees. Sadly for Cyprus my only option is saxo bank, but Americans and Europeans are spoilt for choice for low cost platforms like DeGiro or Interactive Brokers. Decision factors are:

STEP 2. Pick a world ETF (or 2)
Stock markets are chaotic and unpredictable. Has Buffett really beaten the markets? — I heard he got burned by coronavirus. What are the chances your X lesser broker will do it? The wise thing to do is close your ears to rubbish advice and just buy the whole market. It is a bumpy ride, but if you just ignore seasonal downturns and focus for the long term, you won't regret it. You really only need one world tracker, but I will spread it in these two VWRP and SWDA that follow slightly different world trackers (FTSE and MSCI style). Parameters I have considered:

STEP 3. How to buy your index ETF
Chances are that your chosen investment will trade in many stock exchanges and currencies, but these are lesser concerns. For example if you are American, your obvious choice is NYSE/NASDAQ and USD — but europeans may be hit by a 30% dividend tax there. Make sure the stock exchange has an adequate volume of trades for your ETF, you don't want to wait forever to buy and sell it. A narrow bid-offer spread is a good indicator of liquidity. The choice of exchange mainly involves currency convenience and liquidity (Euros for Cypriots, so go for Frankfurt XETRA or Milan) — apparently you can even sell to a different exchange if you so please later. Saxo charge identical fees almost for all Europe.

When it comes to actually buying the ETF, use a limit order to avoid momentary market hiccups. If you are cheap, you can try offering less than the current market price, and see if you can get a free beer on the spot savings <g> More seriously I hear that buying near the middle of the trading day (not first or last thing near closing) is more stable. At any rate, even if you buy at the worst possible moment, it won't matter in the long run. Trust the mathematics of compound growth!

STEP 4. Profit! (keep it long term)
Once you make your purchases, just ignore them and do something else. That's the idea, no need to fret daily how's your investment doing. It's in auto-pilot, following the world finances, and if we extrapolate from past long term history, the only way is up, eventually. What's the worst that can happen? Even if your ETF vendor bankrupts, there are real company shares behind it and they are in your name. ETFs are indefinite term and don't "expire". So you can keep them as long as you like — or until you need the money.

If you bought from a liquid exchange, it's easy to sell some of your ETF stock whenever you need a money boost. If you plan ahead, you can choose the perfect spot to sell, when markets are high. But even if they are down, you still have the previous years' gains to back you up. Sell a little to cover your immediate expenses then wait for a brighter day to sell the rest. Selling in small batches will get you a better price too — compared to a quick 1-off sale.

Can you think of any other form of investment that offers such liquidity? Compare it to real estate, how easy is it to sell a house when you need the money?

Investment parameters you needn't worry about

What to do with one's money is a maddeningly complex long-term planning problem with tons of degrees of freedom and uncertainty that makes it impossible to find an optimal policy. You will be glad to hear that there are some parameters that (as I understand them) are secondary or beyond your control, so you can ignore them. In fact, now that the dollar's relatively weak, it's a perfect opportunity to buy world (mainly US) ETFs with euros. It's a lucky break for us Europeans, which I intend to take advantage of, as soon as the holiday season is over.

Happy holidays and may the stars in heaven align in your favor for lucky investments :)

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