Warren Buffett has repeatedly stated that investing in the S&P 500 index fund is one of the best long-term investment strategies for ordinary investors. He believes that by investing in the S&P 500 index, investors can benefit from the long-term growth of the U.S. economy. S&P 500 index funds and ETFs are not only low-cost but also highly diversified, making them ideal tools for investors seeking stable returns.
Recently, a Singaporean friend asked if there are any S&P 500 or NASDAQ 100 ETFs that do not pay dividends. This is because Singaporean investors face a 30% withholding tax on dividends but no capital gains tax. For Singaporean investors, choosing ETFs that do not pay dividends or pay minimal dividends is particularly important.
To be honest,it might be relatively difficult to find ETFs that do not pay any dividends in the U.S. market, as most U.S. ETFs distribute dividends. These ETFs are usually traded in European markets because accumulating ETFs are more common in Europe than in the U.S. This article recommends several S&P 500 and NASDAQ 100 ETFs with relatively low annual dividend yields and good historical performance for investors to consider.
Advantages of Low-Dividend Paying ETFs
Generally, most ETFs distribute dividends to investors regularly. Compared to well-known S&P 500 ETFs like SPY, IVV, and VOO, some ETFs choose to pay minimal dividends and reinvest more of their earnings back into the fund. These ETFs are particularly attractive to Singaporean investors who wish to minimize the tax burden from dividend withholding. Here are some recommended S&P 500 and NASDAQ 100 ETFs that pay relatively low dividends.
1. iShares S&P 500 Growth ETF (IVW)
The iShares S&P 500 Growth ETF (IVW) tracks the S&P 500 Growth Index, which includes companies within the S&P 500 with high growth potential. These companies typically reinvest their profits into business development, resulting in lower dividend payments for IVW.
Why It Suits Singaporean Investors
Since most of IVW’s component companies are growth-oriented and prefer to reinvest their earnings rather than distribute them to shareholders, IVW has lower dividend payments. This helps Singaporean investors reduce the tax burden from dividend withholding.
2. Vanguard S&P 500 Growth ETF (VOOG)
The Vanguard S&P 500 Growth ETF (VOOG) also tracks the S&P 500 Growth Index, focusing on companies with high earnings growth potential. Similar to IVW, VOOG’s dividend payments are low, making it suitable for investors looking to minimize dividend withholding taxes.
Why It Suits Singaporean Investors
The low dividend payments of VOOG mean that Singaporean investors can enjoy capital growth without having to pay 30% withholding tax on dividends. This makes VOOG an attractive tax-efficient investment choice.
3. Invesco QQQ Trust (QQQ)
The Invesco QQQ Trust (QQQ) tracks the NASDAQ 100 Index, which includes the 100 largest non-financial companies listed on the NASDAQ stock exchange. These companies, primarily in the tech and innovation sectors, have high growth potential, resulting in relatively low dividend payments.
Why It Suits Singaporean Investors
Most of QQQ’s component companies are high-growth tech firms that reinvest their profits for future growth rather than distribute dividends. As a result, QQQ has lower dividend payments, allowing Singaporean investors to avoid significant dividend withholding taxes while benefiting from potential capital appreciation.
Consideration of Recent Market Trends
In the current market environment, the long-term growth prospects of the U.S. economy remain positive, with technology and growth-oriented companies performing particularly well. The companies within the S&P 500 and NASDAQ 100 indices possess strong innovation capabilities and robust growth potential. Choosing ETFs that do not pay dividends or pay minimal dividends aligns not only with Buffett’s investment philosophy but also helps Singaporean investors effectively reduce their tax burden and achieve long-term financial growth.
Conclusion
For Singaporean investors, selecting low-dividend paying ETFs can effectively reduce the 30% dividend withholding tax burden while enjoying the potential for capital appreciation. The iShares S&P 500 Growth ETF (IVW), Vanguard S&P 500 Growth ETF (VOOG), Invesco QQQ Trust (QQQ), and First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) are all worthy options. Before making a final decision, investors should carefully research each ETF’s specifics and choose based on their individual investment goals and risk tolerance. Guided by Warren Buffett’s wisdom, these ETFs have the potential to become powerful tools for Singaporean investors to achieve their long-term financial objectives.
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