I was thinking to stick to UK stocks for simplicity but US stocks are good for diversifying my portfolio. What are the tax implications though: they are ISA eligible so I don’t pay UK taxes but I still need to pay US taxes on it. Is it worth it if you are investing ony a small amount or are you better off sticking to uk stocks?
Tax should not keep you from diversifying. Uk stocks have a track record of miserable performance compared to US stocks and US companies care much more about its shareholders. So yes, a good portfolio needs diversification. But why don’t you invest in ETF if you only have little money to spare?
The majority of my holdings are US. You will pay a 15% tax on your dividends to the US. So I mostly look for growth, not dividends.
Totally agree with the last message. Tax shouldn’t keep you from diversyfying.
There are massive, Global US companies out there - AT&T, Procter & Gamble, Coca-Cola, Apple - If you’re not looking to this market, you’re missing a trick.
Exposure to international shares. (particularly US shares) is the best way to search for income and growth and to diversify your portfolio.
The returns will likely outweight the 15% witholding tax hit, and hey, i assume you’re buying them comission-free on FreeTrade so i say, go for it.
Register a W8-BEN and stick put them in your ISA. When these big dividend champion yields come flowing in, you’ll thank yourself later.
Isn’t the tax deducted “at source” when you have W8-BEN and there is nothing to declare in UK (assuming you are talking about ISA)
Yes, it is. But it’s still paid by you
Indeed, even in a pure UK stock scenario, I am looking to invest in companies that have an international exposure.
ETFs: I don’t see the point in buying them if only to track the performance of the market. As far as I understand, they don’t pay out dividends so the only way to make money out of it is hoping the market and the ETF are perpetually going up. As I am most interested in getting dividends, rather than betting on a doubling of a stock price, an ETF is not attractive. But please correct me on this ETF/dividednd thing. i read a few articles and watched some videos but none really touches upon where you can make your gains by investing in an ETF. If you can point me to a good article that would be great!
FTSE 100 ETF pays roughly a 4.5% dividend.
Global ETF’s around 2% dividend
Emerging markets ETF’s around 2.5/3% dividend
Europe ETF’s around 3% dividend.
You’re wrong. Maybe should read up on the topic before starting to invest larger amounts. Active investing generally does not outperform ETFs, so especially small investors should go for the alternative that inherently diversifies and lowers risk.
Ok, I didn’t know that. I went to check out dividendmax but I did not see any funds listed there. Where can I check those dividends history?
S&P 500 1.5/2% dividend.
I think you would greatly benefit from reading Smarter Investing by Tim Hale. In short, you’re never going to beat the market in the long run.
The Hargreaves Lansdown app shows dividends.
I thought of updating on what i’ve done
- I bought UK and US shares. I was mainly looking for shares with international exposure such as Tesco, Vodafone, UPS, Coca-Cola, et cetera. Only a few stocks are quite local such as Naked Wines (17% up since I bought the shares ) and National Grid.
- I looked for dividend paying stock rather than highflyers such as Amazon. I believe in the long run dividend investing is a better choice for me
- I bought 3 ETFs, one world, one energing markets, one robotics
I have now 3K invested and got £50 overall gain (that is virtually of course until I would sell). It+s pretty interesting and I am enjoying studying the companies before I buy their shares.
Yes, this is great advice!
Is the 15% witholding tax from US stock income you’ve mentioned automatically deducted by Freetrade or do I need to do any sort of tax declaration?
(Apologies for the dumb question but I’m a new investor )
15% is withheld from dividends on US stocks before Freetrade receives the money. You don’t need to make any tax declaration to the US.
However, you may also need to pay UK dividend tax if the total amount you receive in the year is more than £2,000 GBP. Being taxed in the US does not make the dividend exempt from UK tax.
Thank you very much @rivorson. Really appreciate you taking the time to reply. Super helpful!