Concerns starting to invest in index fund in Indonesia

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Topic Author
Farry
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Joined: Sat May 21, 2022 6:15 am

Concerns starting to invest in index fund in Indonesia

Post by Farry »

I started stock and crypto trading last year and it didnt go out well, i only used about $10 but still the percentage of losses made me cynical about the stock market and investing altogether.

Until I found about long term investing that is, but after i looked it up, the index fund in Indonesia only tracks 30 (IDX30) and 45 (LQ45). And my biggest concern is the expense ratio is just too high (the cheapest is 1.5% annually). Is it really okay to invest on these funds?

The good news is only 3% of the population invest in the stock market and Indonesia has more rooms to grow compared to US. But still...

On the other note, my friend recommended me to trade US stocks using an app called "Gotrade" it seems it is robinhood or e-toro for non us investor only, when i look it up there's also vanguard ETFs such as VTI, VOO and VT. But it is only in global version, the indonesian version which is regulated doesnt have these. So yeah, anyone used gotrade to invest?
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Anon9001
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Re: Concerns starting to invest in index fund in Indonesia

Post by Anon9001 »

Farry wrote: Sat May 21, 2022 6:39 am Until I found about long term investing that is, but after i looked it up, the index fund in Indonesia only tracks 30 (IDX30) and 45 (LQ45). And my biggest concern is the expense ratio is just too high (the cheapest is 1.5% annually). Is it really okay to invest on these funds?

The good news is only 3% of the population invest in the stock market and Indonesia has more rooms to grow compared to US. But still...

On the other note, my friend recommended me to trade US stocks using an app called "Gotrade" it seems it is robinhood or e-toro for non us investor only, when i look it up there's also vanguard ETFs such as VTI, VOO and VT. But it is only in global version, the indonesian version which is regulated doesnt have these. So yeah, anyone used gotrade to invest?
If you are worried about TER just buy the stocks in the index directly. You probably dont even need to have same number stocks as Index if the Index is market cap weighting. I dont know about Gotrade but I highly recommend you to have max 20-30% exposure to your local market as Indonesia is not major economy and will face climate change issues in near future which will impact the local market.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
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Khan
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Re: Concerns starting to invest in index fund in Indonesia

Post by Khan »

Indonesia is an emerging market country and its Idx30 stock index still not able to reach January 2018 peak level of 600 points. During the same time period you would see a 50% gain in developed markets index such as S&P500.

Generally speaking. Emerging Markets are considered very highly volatile due to their performance unpredictability over long periods.

As a non US Investors our best approach is to invest in an Ireland Domiciled ETFs such as Globally diversified Stock Index- VWRA / VWRD
Topic Author
Farry
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Re: Concerns starting to invest in index fund in Indonesia

Post by Farry »

Khan wrote: Sat May 21, 2022 12:44 pm Indonesia is an emerging market country and its Idx30 stock index still not able to reach January 2018 peak level of 600 points. During the same time period you would see a 50% gain in developed markets index such as S&P500.

Generally speaking. Emerging Markets are considered very highly volatile due to their performance unpredictability over long periods.

As a non US Investors our best approach is to invest in an Ireland Domiciled ETFs such as Globally diversified Stock Index- VWRA / VWRD
About ireland domiciled ETFs i haven't found any Indonesian citizen living in Indonesia that invest on them. So i wonder if there's other overlooked caveats about it for Indonesians. The US have a treaty with Indonesia so the tax is the same from what I've read.

About the gains, starting from the year 2000 the Indonesian composite index has beaten all US indexes since then. It's a shame there's no total market fund like in the us. But the scandals of some Indonesian companies made me wary and I want to diversify outside the country. But I'm still more comfortable to weight on my home more, I probably want to invest maximum 30% of equities outside Indonesia.
Anon9001 wrote: Sat May 21, 2022 8:01 am
Farry wrote: Sat May 21, 2022 6:39 am Until I found about long term investing that is, but after i looked it up, the index fund in Indonesia only tracks 30 (IDX30) and 45 (LQ45). And my biggest concern is the expense ratio is just too high (the cheapest is 1.5% annually). Is it really okay to invest on these funds?

The good news is only 3% of the population invest in the stock market and Indonesia has more rooms to grow compared to US. But still...

On the other note, my friend recommended me to trade US stocks using an app called "Gotrade" it seems it is robinhood or e-toro for non us investor only, when i look it up there's also vanguard ETFs such as VTI, VOO and VT. But it is only in global version, the indonesian version which is regulated doesnt have these. So yeah, anyone used gotrade to invest?
If you are worried about TER just buy the stocks in the index directly. You probably dont even need to have same number stocks as Index if the Index is market cap weighting. I dont know about Gotrade but I highly recommend you to have max 20-30% exposure to your local market as Indonesia is not major economy and will face climate change issues in near future which will impact the local market.
Well i worry more about stockpicking compared to just buying funds, but I wonder if 1.5% is still acceptable according to bogleheads for this situation.




By the way if it matters, about my financial situation and age, I'm still 23, received an inheritance last year and it's possible to invest $10000 of it in equities. Im currently single and probably can increase the investment $80 each month from my salary after expenses.
TedSwippet
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Re: Concerns starting to invest in index fund in Indonesia

Post by TedSwippet »

Farry wrote: Sat May 21, 2022 4:25 pm About ireland domiciled ETFs i haven't found any Indonesian citizen living in Indonesia that invest on them. So i wonder if there's other overlooked caveats about it for Indonesians. The US have a treaty with Indonesia so the tax is the same from what I've read.
Indonesia has a US income tax treaty, with a 15% rate for dividends. That matches the US/Ireland treaty rate for dividends. The next questions to ask are, is your Indonesian tax rate 15% or higher on these dividends, and can you claim a full credit against it for tax paid to the US? If the answer to both is yes, then US domiciled ETFs would be either better or the same as Ireland domiciled ones.

Otherwise, you may find yourself paying more tax than is necessary. The worst case is an ETF holding all non-US stocks. Here, you would still pay the US 15% of the dividends if you use a US domiciled ETF (for example, VXUS). By contrast, you would pay the US nothing on Ireland domiciled ETFs that hold non-US stocks. Also, nothing to Ireland; unlike the US, Ireland does not tax dividends paid to non-residents by ETFs domiciled there.

My guess is that Indonesia would tax both US domiciled and Ireland domiciled ETFs the same, but you would need to check that. Of course, I know nothing about Indonesian tax.

Finally, Indonesia has no US estate tax treaty. This means that the value of anything you hold in the US above $60k is at risk of 26-40% loss to US estate tax if you have the misfortune to die while holding it. You would therefore want to limit your total holdings in US stocks, US domiciled ETFs, and so on to below that $60k.
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Anon9001
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Re: Concerns starting to invest in index fund in Indonesia

Post by Anon9001 »

Farry wrote: Sat May 21, 2022 4:25 pm .But I'm still more comfortable to weight on my home more, I probably want to invest maximum 30% of equities outside Indonesia.
This is pretty dumb if you think logically about it. Indonesia is not a major economy so if it collapses Rest of World will be fine and also due to it being island country the climate change impact will be much higher than USA/Europe. I would have maximum 40% exposure to Indonesian Equities due to this reason. Personally as a foreigner I dont see anything remarkable with Indonesia to justify overweighting it beyond its market cap weightage (which I believe is below 1%) but I can understand for domestic investor it makes sense to overweight domestic equities to reduce currency risk but still I believe 70% Indonesian Equities is not good idea.
Land/Real Estate:89.4% (Land/RE is Inheritance which will be recieved in 10-20 years) Equities:7.6% Fixed Income:1.7% Gold:0.8% Cryptocurrency:0.5%
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Khan
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Re: Concerns starting to invest in index fund in Indonesia

Post by Khan »

About ireland domiciled ETFs i haven't found any Indonesian citizen living in Indonesia that invest on them. So i wonder if there's other overlooked caveats about it for Indonesians. The US have a treaty with Indonesia so the tax is the same from what I've read.
You haven't heard anything about Ireland Domiciled ETFs because Taxation is a complicated subject and no one knows about hidden risk of US estate tax above $60K portfolio. This bogleheads community management is based on US citizens those who have dedicated their life to low cost index investing by following the legend, Jack Bogle. Have a look at bogleheads WIKI and you will learn good stuff about equity investments.
About the gains, starting from the year 2000 the Indonesian composite index has beaten all US indexes since then. It's a shame there's no total market fund like in the us. But the scandals of some Indonesian companies made me wary and I want to diversify outside the country. But I'm still more comfortable to weight on my home more, I probably want to invest maximum 30% of equities outside Indonesia.
What about USD to Indonesian Rupee currency exchange rate? Isn't the indonesian currency depreciates over time. Investing in international equities etf provides additional advantage of portfolio currency appreciation with growth.
Valuethinker
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Re: Concerns starting to invest in index fund in Indonesia

Post by Valuethinker »

Farry wrote: Sat May 21, 2022 6:39 am I started stock and crypto trading last year and it didnt go out well, i only used about $10 but still the percentage of losses made me cynical about the stock market and investing altogether.

Until I found about long term investing that is, but after i looked it up, the index fund in Indonesia only tracks 30 (IDX30) and 45 (LQ45). And my biggest concern is the expense ratio is just too high (the cheapest is 1.5% annually). Is it really okay to invest on these funds?

The good news is only 3% of the population invest in the stock market and Indonesia has more rooms to grow compared to US. But still...

On the other note, my friend recommended me to trade US stocks using an app called "Gotrade" it seems it is robinhood or e-toro for non us investor only, when i look it up there's also vanguard ETFs such as VTI, VOO and VT. But it is only in global version, the indonesian version which is regulated doesnt have these. So yeah, anyone used gotrade to invest?
I would control my exposure to my home market.

By virtue of currency, job and equity in home (if you own it) you have a lot of exposure to your home economy. Indonesia has had periodic economic &
political crises which could be devastating.

I would say max 20-30% of your portfolio. There's a good case for world market weighting (ie 1-2%).

Familiarity does not mean better performance, or lower risk.
Topic Author
Farry
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Joined: Sat May 21, 2022 6:15 am

Re: Concerns starting to invest in index fund in Indonesia

Post by Farry »

I've been looking about this, and from an Indonesian perspective investing globally has its demerits, like capital gain taxes, which as far as I know, there are no capital gain tax if I invest locally, whereas investing outside the country will be taxed. Now Im not really sure about this because when I ask the experience of people who invest in foreign equities all of them dont know about taxes because they avoid it. So I kinda look it up myself (which Im not sure if I have a clear understanding of the laws).
Other than that there's foreign exchange fees, and for me at least, the fact that it's not regulated locally make me worry if the broker go bust or if there's something happen between Indonesia and the country my money is invested in.

But Id still like to hear about the opinion of the other side about this.
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