Tag Archives: portfolio pondering

Sell VWO to cut future dividend withholding tax?

Right now, I still hold Vanguard Emerging Markets Stock ETF (VWO) and pay the dividend withholding tax every year. I wonder if it would be better to sell VWO to cut the future dividend withholding tax. Before I continue, here’s some background:

  1. In a portfolio asset allocation update in 2007, I decided to use Lyxor ETF Asia Pacific Ex Japan listed at SGX (symbol: AEJ) to replace VWO for future purchase. But I still keep my VWO holding.
  2. As a result, I am still paying every year 30% dividend withholding tax on the dividend I receive from VWO.
  3. The dividend withholding tax is about USD10-15 every year.
  4. In my previous post on claiming back US dividend withholding tax on non-US equity ETF, I decided not to pursue that avenue to claim back dividend withholding tax for VWO, because my broker’s Form 1042-S does not list the necessary information and the dividend tax amount is small to worth the effort.

To get an idea of how much dividend withholding tax I would be paying if I were to hold it for the next 30 years, I calculated the cumulative present values of the tax in this spreadsheet Present value of VWO dividend tax (Google Docs) with a discount rate of 2.5%. The rate 2.5% is the interest rate of CPF Ordinary Account.

As you can see, the cumulative present values of the tax paid for the next 30 years are between USD200-300. Compare this with the broker commission of USD15 if I sell VWO, it seems logical to me to sell VWO to save on the tax. The sales proceed would be used to buy VWO’s replacement – Lyxor ETF Asia Pacific Ex Japan.

Does this make sense to you? Is the maths correct? Let me know and leave your comment, please.


Passivity and simplicity

I have not written in this blog for nearly two months. I have also not read any investment book for the last two months and have become a silent reader in sgfunds.com forum. Busy is one reason, laziness is another. Sometimes I wonder, am I doing enough to track my portfolio? Is there anything I have missed? Have I become complacent after setting up the asset allocation plan, the spreadsheet for tracking the portfolio and the necessary tool for price update?

On the other hand, during the planning phase of my portfolio, there was always the urge to tweak the portfolio. Slice and dice, value tilt, small-cap tilt, collateralized commodity futures… The Internet has too many ideas and too much information that it can do more harm than good. Do you share the same experience?

Well, my experience here is also shared by others. In the thread Simplicity! posted by Taylor Larimore, he quoted experience of investors who were paralyzed and overwhelmed by constant flow of information, and those who were addicted to constant tweaking of portfolio. Following this, Mr Larimore quoted from many famous investors on the simplicity in investing. One of my favourite is:

Richard Young, writer of The Intelligence Report: “If you can’t run your portfolio taking 60 minutes a month, it’s too complicated.”

Oh, also check out the links in the second post of the above thread.

Towards passivity and simplicity. Cheers! 🙂