If you're capable of controlling your emotions, the cheapest and most profitable way to build an index portfolio is to do it yourself. Consider how much time you spend cutting your toenails each year. I'm not talking about sculpting them, just clipping them down once a month. Anyone spending more time maintaining an index fund portfolio is doing something wrong.

All you need is a discount brokerage account. Ensure that you can open and manage the account regardless of where you happen to be living. Second, brokerage costs should be low. Ensure that your account is located where the government is stable and where banking regulations are solid. Finally, if you live where offshore investments won't be taxed (confirm with a tax accountant), choose an offshore brokerage located where the authorities won't charge capital gains taxes.

Here are four such examples for non‐American expatriates: DBS Vickers Securities, based in Singapore; TD Direct Investing International (now Internaxx), based in Luxembourg; Swissquote, based in Switzerland; and Saxo Capital Markets, located in more than 20 worldwide locations, including Hong Kong, Singapore, Uruguay, and the United Arab Emirates.

No bank or brokerage is a Mother Teresa brand. They're all out for their pound of flesh. If brokerages had their way, you would trade 100 times a day. They provide “discounts” for rapid traders, as if doing so were smart. But smart investors don't trade more than once a month. In fact, I don't even like the word trade. Most of the time, you're going to be buying exchange‐traded funds (ETFs), not trading one for another.

Let's assume you use Internaxx. You invest £3,000 per month to build a globally diversified portfolio off the UK stock exchange. Each purchase would cost €14.95 + 0.10 percent (yes, they list their charges in euros). If you invested the equivalent of £3,000, you would pay €14.95 plus the equivalent of £3 (£3 is 0.1% of £3,000). If you invested a lump sum of £30,000, the purchase would cost a commission of €14.95 plus the equivalent of £30.

Then there's a maintenance fee. If you trade at least once per quarter, Internaxx charges a maintenance fee of €25 four times a year. If you don't trade at least once per quarter, they charge €45 per quarter. On their website they say, “The more you trade the less you pay!” They offer lower commissions for those who trade more than 10 times a month. That's just to entice those with shoe‐sized IQs.

Always remember, however, that ongoing fees (as a percentage of a portfolio's assets) are the real killer. Commissions are annoying. But unless you're foolish enough to trade more than once a month, they won't scuttle your boat. Here's an example.

Assume that you're paying fund expense ratio fees of 0.20 percent per year for your portfolio of index funds. You invest £3,000 per month, paying commissions each time you buy.

Assume your friend invests with actively managed funds. Let's also assume she doesn't pay a commission to buy, so she thinks she's getting a deal. If she invested with the MFS Meridian series of mutual funds (which are popularly sold in Europe), a globally diversified portfolio would cost an annual expense ratio of about 2 percent per year.

If the two portfolios earned an 8 percent annual return, before fees, here's how they would stack up, including Internaxx's trading costs and account maintenance fees. Table 9.1 compares them with a fantasy brokerage that doesn't charge purchase commissions or maintenance fees. Such brokerage fees are irritating. But as you can see, they don't affect the bottom line as much as you might think.

On the other hand, the higher expense ratio costs of the MFS Meridian mutual funds might cost our hypothetical investor more than $1.2 million over 30 years compared to a lower‐cost alternative.

It's tempting to try to find the lowest‐cost brokerage firm. But international brokerages play a lot of games. In this book's first edition, I listed the fees for some of the most common offshore brokerages. I included a table that showed how much investors would gain over 25‐year periods, assuming identical portfolio returns. I calculated it based on one trade per month. I calculated commission charges and account maintenance fees.

Trying to catch a fly with my teeth would have been a lot less futile. I've been investing with offshore brokerages for 15 years. They love the joker's bait and switch. For example, I started out with Singapore's DBS Vickers. It's an excellent brokerage. But it surprised me, one day, by raising its trading fees. That's why I paid $200 to transfer my money to Saxo Capital Markets. Saxo charged lower trading fees, so it wouldn't take me long to recoup that money. At least, that's what I thought.

The representative at Saxo Capital Markets told me they would soon introduce an account maintenance fee. “I don't want to pay that,” I said. “Well,” replied the representative, “we won't be charging the fee for accounts that exceed $500,000, so you won't have to worry.” He agreed that I could quote him for this book's first edition.

Can you see where this is going? Six months later, a mysterious fee appeared on my account. Despite my protests (and yes, I was peeved), the brokerage slapped me with a maintenance fee based on the percentage of my assets.

Frustrated, I then transferred my money to TD Direct International (now Internaxx). You've probably figured out that I'm a pretty slow learner. They advertised a flat‐rate commission charge for Canadian market trades of €14.95. It was lower than the others. TD Direct International had also dropped its 0.2 percent annual account maintenance fee. I was good to go.

I should have heard them say it: “Sucker!” They raised their fees shortly after that.

In North America and the United Kingdom, brokerages keep reducing fees. Every year, the market gets more competitive. That's why fees keep dropping. Offshore brokerages, however, play silly yoyo games.

Please learn from my mistakes. Choose an offshore brokerage and then stick to it. At times, its fees will rise. Other times, they'll tout lower fees—to lure in guys like me.

But don't jump around. Build and maintain a low‐cost portfolio of ETFs. None of the brokerage fees are particularly high. As you can see in Table 9.1, crying about brokerage fees is like a marathoner moaning about the weight of his socks.

DBS Vickers Securities Opens the Door to Everyone

Some brokerages discriminate against expatriates living in certain countries, not allowing them to open accounts. But Singapore's DBS Vickers isn't one of them.

“Any non‐American expat can open an account as long as they meet the management subject of approval,” says Madeline Chen, of DBS Vickers Client Services. So what does that mean? I pressed her to elaborate: “They must open a local POSB [POSB Bank Singapore] or DBS bank account [in Singapore] first. They must be above the age of 21; they can't be currently bankrupt; they can't be a delinquent. Nor can they be an ex‐delinquent.”¹ So if you flattened the tires of your teacher's Volvo as a 12‐year‐old (little deviant), don't tell the folks at DBS Vickers. Instead of qualifying for a brokerage account, you could earn a retroactive caning.

Those opening the account must pass a 20‐question online multiple‐choice securities quiz. DBS Vickers will send you the link.

Taking the quiz is free. You can also retake it as many times as necessary. Brenda Perkins, a Canadian teacher at the International School of Bangkok, opened her DBS Vickers account in 2012. “I didn't know anything about finance but studied the online quiz materials for a couple of hours. I scored 70 percent the first time (failing the test) but passed with 90 percent the second time.”²

Accredited investors (defined as those with massive incomes or millions of dollars) are sometimes exempt from the quiz, as are individuals with formal educations in finance.

DBS Vickers Securities allows investors to trade online using the Hong Kong, Singapore, US, and Canadian markets.

Singapore's markets are limited. Canada and Hong Kong, on the other hand, provide a wide variety of ETFs suitable for those of different nationalities.

Why not buy shares off the US market? It's tempting—but avoid doing so. At some point you're going to die. And when the Grim Reaper knocks, the Internal Revenue Service (IRS) follows. The US government doesn't care whether you or your heirs are US citizens. When you die, they posthumously make you a patriot if you own more than $60,000 in American‐traded shares. Your heirs get a condolence letter that looks, smells, and tastes (eating it won't help) like a US estate tax bill. As stated by the IRS, “Deceased nonresidents who were not American citizens … are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.”³

I purchase off the Canadian market, where I face no such risk.

The Canadian market holds a wide range of ETFs. They include total global indexes, as well as country‐specific indexes representing the United States, Canada, India, and China, to name just a few.

There's no need to file a Canadian income tax form. DBS Vickers simply sends 15 percent of each dividend to the Canadian government (as other brokers do, when you buy off the Canadian exchange).

Why You Should Avoid TD Ameritrade Singapore

TD Ameritrade Singapore offers a flat trading fee of just US$10.65 per trade, regardless of purchase size. You want to invest $100,000 all at once? It costs just $10.65. What if you wanted to invest $1 million? Again, you could do so for the price of a Big Mac, fries, and a Coke. With no annual account fees and no dividend processing costs, it's certainly tempting. But if you're a non‐American expat, avoid this brokerage.

Investors pay 30 percent dividend withholding taxes because the brokerage trades solely on the US market. Much worse, when investors float to their ultimate reward, their heirs might have to pay US estate taxes. Unless TD Ameritrade Singapore begins to offer trading on non‐American exchanges, global expats should avoid it.

TD Direct Investing International (Internaxx)

Canada's Toronto Dominion Bank sold TD Direct Investing International to Interactive Investor in 2017. It's now called Internaxx, and it's still based in Luxembourg. According to Luxembourg‐based PWC Tax Consulting, if shares are held for a period longer than six months, no capital gains taxes are levied when sold.⁴

The brokerage allows investors to access 18 different stock markets, including the London, Dublin, Toronto, and Sydney exchanges. Accounts can be opened online.

Some investors, however, aren't eligible to open accounts with Internaxx. Expats living in Japan and Bangladesh are two such examples. Those living in Indonesia are also scratched from the party list.

One British investor currently residing in Indonesia contacted me recently in disappointment. “I was a client at TD International for five years, but they sent me an apologetic letter stating that Indonesian residents can no longer use their brokerage.” Such restrictions sometimes relate to whether the brokerage feels it can trust the identity of the account holder.

Some brokerages ask for notarized certificates verifying investor identities before they can open accounts abroad. If the brokerage doesn't trust a country's notaries, they may restrict expatriates living in that country from opening accounts.

Saxo Capital Markets—A Jewel with Distractions

Saxo Capital Markets provides new account holders with a gift card for a casino. Okay, I'm lying. But there's some truth to the hyperbole. They want to addict you to rapidly trading stocks, futures, puts, and options. The online platform is like a 747 cockpit, when all you really need is a steering wheel, brake, throttle, and gearbox.

Brokerages make more money when investors trade feverishly. Investors taking advantage of up‐to‐the‐second stock quotes and a myriad of exotic gambling options are dream clients. But you shouldn't aspire to be a dream client; aspire to be a rich one. The less you trade, the more money you'll make. According to researchers Brad M. Barber and Terrance Odean, “Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market [index] returned 17.9 percent.”⁵

And what about Warren Buffett, the man deemed by many to be history's greatest investor? In his 1988 chairman's letter to Berkshire Hathaway shareholders, he wrote that his favorite holding period is forever.⁶

He also says, “If you aren't wiling to own a stock for ten years, don't even think of owing it for ten minutes.”⁷ The same should be said of an index fund.

Many brokerages want you to think that trading rapidly and staying on top of the latest stock market news is a sophisticated moneymaking strategy. And it is—for the brokerage.

So is Saxo Capital Markets a bad brokerage for tempting us to trade and for offering a giddy array of bells and whistles? No. Investing with Saxo is a bit like walking into a narcotics den. But as long as you avoid the little white powder and stick to buying and holding ETFs, you shouldn't fall into a crack.

To open a Saxo Capital Markets account, you won't have to visit branches in Hong Kong, Singapore, Uruguay, or the United Arab Emirates. All that's required is verification of identity with a notary. The account can be opened online once such documents are sent to the brokerage.

As with Internaxx, however, expats from some locations don't qualify. Those living in Japan, Bangladesh, and some African countries get shunned. Don't ask me why Japan is on the leper list. Perhaps a Sumo wrestler seduced a slew of global bankers' daughters. Fortunately, Japanese‐based expats can still open accounts with Singapore's DBS Vickers and Interactive Brokers.

Similar to Internaxx, Saxo Capital Markets allows trading access to a variety of global exchanges. Commissions vary depending on the exchange used. Despite the fact that I used to play brokerage musical chairs, most of the brokerages charge similar costs.

Swissquote Offers Options

Swissquote offers access to several stock exchanges, including the Swiss, Canadian, Australian, Singaporean, London, and New Zealand exchanges. As of late 2017, some of the trading costs were higher than with other international brokerages. For example, trades on the Australian exchange cost 0.55 percent or a minimum of A$120. Trades on the New Zealand Market cost 0.90 percent or a minimum of 250 NZD. In such cases, it wouldn't make sense to invest small monthly sums. Commissions would eat too much.

Trading costs, however, are lower for those who buy off the Canadian or UK exchanges. At the time of this writing, they charge a flat C$35 for purchases between C$2,000 and C$10,000. They charge £35 for purchases between £2,000 and £10,000. They don't charge an annual account fee for most accounts. Of course, I'm guessing these fees will change. They'll do that yoyo thing.

But Swissquote offers one opportunity that, so far, no other offshore brokerage does. British investors (or any non‐American) can purchase Vanguard's Life Strategy funds if they have at least £100,000 to start. These are all‐in‐one portfolios of index funds that Vanguard rebalances once a year. They're better for British investors because they have a bias toward the UK market. If you are planning to retire in the United Kingdom, consider investing in a Life Strategy fund—and nothing else. Swissquote charges 0.50 percent for each purchase. See Chapter 8 for further details.

Is Interactive Brokers the Dark Horse Winner?

DBS Vickers, Internaxx, Saxo Capital Markets, and Swissquote aren't the only discount brokerages in the global game. Others exist. One such example is Interactive Brokers, a firm Barron's rated the best online brokerage in 2014.⁸ The company website lists more than 200 countries from which people can invest. While many brokerages don't allow expatriates from such countries as Japan, Bangladesh, and Indonesia, for example, Interactive Brokers shows no such prejudice. They allow Americans and non‐Americans to open accounts from almost every country in the world.

Investors can open accounts online, requiring a minimum of US $10,000 (or equivalent) to start. Interactive Brokers aims for $10 to be generated in monthly trading commissions. The firm charges investors extra if they don't generate at least this sum.

For example, investors paying $5 in commissions for a given month would be charged an extra $5, providing the brokerage with a minimum $10 for the month. But such extra fees are waived for investors with more than $100,000 in their account. Trading costs depend on the exchanges used (Canadian, Australian, British, etc.), and they're typically much cheaper than those charged by offshore brokerages.

Here's the best news of all. They don't jiggle their brokerage costs around. That said, the firm might not be perfect. It's an American firm and holds all securities in North American accounts, regardless of the exchange from which they're purchased. As such, there's always a slim possibility that your heirs could be liable for US estate taxes upon your death.

This risk, however, is far lower if you invest off a non‐American exchange, buying non‐American domiciled ETFs, such as those I recommend in the following chapters.

For those who live in a country like Russia, Indonesia, or Tanzania, Interactive Brokers offers an option. Such investors could invest with Interactive Brokers while they live in one of these countries. If they're concerned about the slim risk of US estate taxes, they could transfer the assets into a different brokerage if they move somewhere else. Such transfers usually cost about $200.

After reading this, you'll probably still have questions. I address 30 commonly asked queries in the following chapter. And the chapters that follow provide portfolio samples for people of different nationalities.