Why U.S. ETFs may be costing you more than you think—and how to fix it

Investing doesn’t have to be complicated. Instead of constantly buying and selling stocks, hoping to beat the market, passive investing takes a simpler, more relaxed approach—just buy and hold a diversified portfolio for the long run.

One of the easiest ways to do this is through exchange-traded funds (ETFs), which let you invest in entire markets with a single purchase. Think of ETFs like a ready-made basket of stocks or bonds that you can trade like a stock, but with lower fees and less hassle. It’s a stress-free way to grow your wealth over time, making it a favourite strategy for investors who want solid returns without the constant effort.

S&P 500

Tracking the S&P 500 is one of the best ways to passively invest in the stock market. It’s a widely followed index that tracks the performance of 500 of the largest companies in the U.S., including giants like Apple, Microsoft, and Amazon. Because these companies represent a broad cross-section of the American economy, investing in the S&P 500 is like owning a small piece of the biggest and most successful businesses in the world.

Historically, the S&P 500 has delivered strong long-term returns. Over the past several decades, it has averaged an annual return of around 10%, despite short-term market fluctuations. This means that, even with economic downturns and market crashes, investors who stayed invested and reinvested their dividends have seen their wealth grow significantly over time.

For passive investors, an S&P 500 ETF like the SPY or VOO is an easy and cost-effective way to gain exposure to this index. It offers instant diversification, low fees, and a simple way to ride the long-term growth of the market without the need to pick individual stocks.

Drawbacks of U.S. ETFs

While U.S.-domiciled ETFs like SPY and VOO are popular for tracking the S&P 500, they come with some significant drawbacks for foreign investors. One of the biggest issues is the 30% withholding tax on dividends, which can eat into returns. Even if your country has a tax treaty with the U.S., the withholding tax is often reduced to 15%, but that’s still a substantial cost compared to tax-efficient alternatives.

Another major concern is the U.S. estate tax, which applies to non-U.S. investors holding more than $60,000 in U.S. assets. If an investor passes away, their heirs could face up to a 40% estate tax on the portion exceeding this threshold. This makes holding large amounts of U.S.-domiciled ETFs potentially risky from an estate planning perspective.

Lastly, U.S. ETFs primarily issue distributing shares, meaning they pay out dividends rather than automatically reinvesting them. This can be inconvenient for investors who prefer accumulating ETFs, which automatically reinvest dividends to maximize compounding without extra effort or tax events in certain jurisdictions.

UCITS ETFs

For non-U.S. investors looking to invest in the S&P 500 without the tax burdens of U.S.-domiciled ETFs, UCITS ETFs (Undertakings for Collective Investment in Transferable Securities) offer a far more efficient solution. These ETFs are typically domiciled in Ireland or Luxembourg and are designed to be tax-efficient, widely available, and compliant with European regulations.

One of the biggest advantages of UCITS ETFs, such as CSPX, is that they benefit from the U.S.-Ireland tax treaty, reducing the dividend withholding tax to just 15%—significantly lower than the 30% rate applied to U.S. ETFs. Additionally, UCITS ETFs are exempt from U.S. estate tax, meaning investors don’t have to worry about the potential 40% tax on assets over $60,000 if something happens to them.

Another key benefit is the availability of accumulating ETFs, which automatically reinvest dividends instead of paying them out. This allows for better compounding without triggering dividend taxes in some jurisdictions, making it a more tax-efficient choice for long-term investors.

Invest in UCITS ETFs via Syfe

​Investing in UCITS ETFs through Syfe offers a tax-efficient and cost-effective way to diversify your portfolio. Here’s how you can get started:​

1. Open a Syfe Account: Visit Syfe’s website and sign up for an account. The process is straightforward and user-friendly.​
2. Explore Available UCITS ETFs: Syfe provides access to a selection of popular UCITS ETFs, including:​
   • Vanguard FTSE All-World UCITS ETF (VWRA): Offers exposure to large and mid-cap companies across developed and emerging markets.
   • iShares Core S&P 500 UCITS ETF (CSPX): Tracks the performance of 500 large-cap U.S. companies.​
   • iShares Core MSCI EM IMI UCITS ETF (EIMI): Provides access to large, mid, and small-cap companies from emerging markets.
   • Xtrackers S&P 500 Equal Weight UCITS ETF (XDEW): Equally weighted exposure to the top 500 U.S. stocks.​
   • Xtrackers MSCI World UCITS ETF (XDWL): Covers large and mid-cap companies from global developed markets.​
   • iShares USD High Yield Corp Bond UCITS ETF (IHYU): Focuses on U.S. dollar-denominated high yield corporate bonds.​

These options above allow you to tailor your investments according to your financial goals and risk tolerance.

3. Start Investing: With Syfe, you can begin investing in UCITS ETFs with as little as USD 50, thanks to fractional trading. This feature enables you to purchase portions of ETF units, making it easier to diversify your investments without requiring substantial capital. ​
4. Utilize Auto-Invest: Syfe’s auto-invest feature allows you to automate your investments on a regular schedule, promoting disciplined investing and dollar-cost averaging. This means you can set up recurring investments without manual intervention, helping you build your portfolio consistently over time.
5. Enjoy Promotional Benefits: Syfe is currently offering a promotion where you can trade UCITS ETFs like VWRA and CSPX with zero commission fees until April 30, 2025. After the promotional period, trades are priced at a competitive rate of just $0.99, regardless of your Syfe membership tier. ​

For Singapore investors who want exposure to the major indices without unnecessary tax complications, UCITS ETFs provide a smarter, more cost-effective alternative to U.S.-domiciled ETFs. By investing in UCITS ETFs through Syfe, you can benefit from reduced dividend withholding taxes, lower costs, and a convenient platform designed to support your investment journey.

Unlock your investing potential with Syfe and enjoy up to S$200 in cash credits when you invest using our unique code FIFTH25. Whether you’re growing your wealth through Syfe’s expert-managed portfolios or trading with Syfe Trade, this limited-time promotion makes it even more rewarding to get started. Simply fund your account with a minimum of S$2,000 to receive S$20 in cash credits and a 6-month fee waiver — or go bigger by depositing S$50,000 or more to receive S$200 in cash credits and a 12-month fee waiver. Don’t miss out on this exclusive offer to kickstart your financial journey with a bonus boost from Syfe!

You can find more details on the promo terms here.

Not financial advice. Any opinion relating to the Syfe platform is my own. All information obtained from third-party sources is believed to be reliable at the time of writing. Rates of return are accurate at the time of writing. This is a sponsored post by Syfe Pte. Ltd. This advertisement has not been reviewed by the Monetary Authority of Singapore.