S&P 500 Lowest Fee

Both VUSA and IUSA are good. Their fees are 0.07%. However, there is one way in which it may be better to own stocks.

VUSA currently yields 1.45%. The equivalent ETF that is available in the US is VOO, which has fee of 0.03% and yields 1.85%. The reason we only get 1.45%, rather than 1.85%, is two fold: firstly, the fee is greater; more importantly, Vanguard has to pay a 15% US withholding tax on the dividends. For a UK taxpayer that cannot be reclaimed or set against UK tax liability. So in a taxable account you may incur an additional 32.5% dividend tax, so you keep only 0.85 x 0.675 = 0.57375 of the dividend yield.

If, however, you own a shares of a US company, such as AT&T, with dividend yield of 5.5%, you also have to pay the withholding tax of 15%, but you can claim this against the UK tax liability, so only pay 32.5%, keeping 0.675.

This means that there are pros and cons to buying VUSA vs owning individual stocks. Because T212 lets you buy fractional shares, it would be possible to create your own index fund of the S&P 500, perhaps not buying fractional shares of all 500 companies, but maybe most of the 100 largest, with representatives in all market sectors.

Personally, I own 70 stocks of the S&P 500, although not in the index weights. Because I am overweight in some of the high dividend payers, my portfolio has a dividend yield of 2.47%, which is 1% better than I could get with VUSA.

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