How to invest for the long term at minimal cost?

Interactive Brokers is the best online broker, offering the cheapest transaction fees and access to a large spectrum of assets, accessible from most countries.

In a previous post, we reviewed that investing in ETFs was a good investment vehicle, and investing early and holding for the long term was a simple and effective strategy. Now you may wonder how to tactically implement this strategy.

First you need a broker, or a bank that can offer you the service to buy and hold your assets. Banks usually extract higher fees from their customers because of the convenience that they provide to their customers. As a cost-conscious investor, you shall look more for a broker, whose business is to buy and hold assets on your behalf. There are many brokers available to choose from, and it depends where you live. If you are like us, planning to travel and potentially relocate to other places, it is important to select a broker with the largest list of countries with the most competitive fees. Interactive Brokers checks all the boxes for us, and has delivered excellent service to us for the past 6 years. Thus, we have recommended Interactive Brokers to any friend or family member as the right broker to use.

Why should you consider Interactive Brokers ?

Their list of benefits leaves most of their competitors in the dust. I will list out only the ones which are the most useful to us, although they offer a plethora of other services that we don’t use. Here are the key reasons why we love IB:

• No monthly fee
• No Minimum amount invested required
• Highly secured
• Accessible via App or Website
• Lowest (and transparent) commission fees
• Access to near all financial products
• Cheapest margin loan (never used but can be very useful)
• Customizable reporting tools
• One free withdrawal per month
• Bank deposits insured ($250k in the USA, 100k Eur in Europe)
• Mastercard Debit Card (limited to US-based customers).

Why should you not use Interactive Brokers?

To be fully transparent, there are two drawbacks. First, as IB offers so many services, you can easily be overwhelmed, especially if you use their TWS Trading tool. Thus, if you are a novice to investing, I would recommend sticking to the App (Apple or Android). It is much simpler, and you still get a wonderful user experience. Second, it relates to the lack of an automatic report for Tax (for non-US tax resident). It can be cumbersome when tax rules are complicating and ever changing like in France. But the customizable reporting tool and CSV export function makes it manageable.

Joint account or individual account?

There is no wrong answer here. It depends where you live and how you can best protect your partner and your children in case of an inheritance. Let me share with you a few examples and their consequences. It might help you to find out which solution suits you best.

France

In France, there are wealth tax, gift tax and inheritance tax. When someone passes away, the ‘Banque of France’ is one of the first parties notified and all bank accounts are frozen. A notary will check if there is a will in place and calculate the relevant taxes to be collected before money to be distributed to the heirs. There is a caveat on how the joint account is labelled. If it is “Mr et Mme” (French ‘et’ translates into English ‘and’), it means that both parties need to agree on any transaction, which makes life very challenging once one passes away. If your account is labelled “Mr ou Mme” (French ‘ou’ translates into English ‘or’), then either party can access the account and the assets even if one of the two account holders passed away. Thus, in this situation, I would look into a joint account.

Furthermore, there are also other tax efficient wrappers (PEA or Assurance Vie) which would be very useful to transfer wealth. These will be detailed in a future post (subscribe to our blog for future posts).

Hong Kong

On the other side of the spectrum, in Hong Kong, there is no wealth tax, no gift tax, and no inheritance tax. The government does not need to freeze any assets to collect taxes when someone passes away. In this situation, I would suggest setting up a joint account, so that the survivor can continue accessing the assets.

The above two examples are mere examples to describe one aspect of the consequences of individual/joint account. There are many more components to consider (citizenship, location of people, location of assets…). Each country has its own tax rules. Moreover, in case of inheritance, rules between two countries might contradict. A treaty (if exists) between the two countries might resolve that matter. As a reminder, you should do your own research. And I mean real own research by going to the source of the tax code and documents, not asking guidance to stranger on Reddit or Internet. Finally, you should seek professional legal advice in case of any doubt.

How long does it take?

We did apply to Interactive Brokers in Hong Kong. There were some online forms to fill, a few documents to upload, and an appointment at their office to confirm our identity. All is normal practice for a financial institution as part of KYC/AML protocols. The overall process was smooth and fast (less than a week). We recommended Interactive Brokers to friends in other countries who were able to also open their own Interactive Brokers account quickly.

In a next post, we will guide you through the setup of an Interactive Brokers account with screenshots. In the meantime, you can consult our Resources page to find out more about the critical tools and services that we use and recommend.

And you, who is your favourite broker? And why? How are their fees and service level? Please share your experience to benefit our larger audience