You will be able to choose a conversion approach based on how often you invest and how each provider prices conversions.
Rachel invests S$500 into a US-listed world equity ETF on the first of every month. Her broker converts the Singapore dollars automatically each time she buys, and converts each quarterly dividend back to Singapore dollars when it arrives. She never sees a conversion fee line, so she assumed currency cost her nothing. After lesson 2.1, Where the FX cost hides in a US trade, she knows better and wants to know which way of converting suits someone who invests a small amount every month.
There are four common routes. Each one fits a different pattern of investing, and the right choice depends on how your own provider prices conversions.
This is the default on many apps. You hold only Singapore dollars, and each time you buy a US share, sell one or receive a dividend, the broker converts for you.
It is easy and you never hold a foreign balance. But every purchase, every sale and every dividend pays the spread. For someone investing monthly with quarterly dividends, that is sixteen conversions a year, each one at whatever rate the broker applies. If the spread is wide, auto-conversion is the most expensive habit you can have. If the spread is narrow, it may not matter much.
Some providers charge a fee per conversion with a minimum amount. A minimum fee hits small conversions hardest.
Here is a made-up example. A provider charges 0.2% per conversion, with a minimum of US$2, which is about S$2.70. Rachel converting S$500 each month would pay the minimum every time, because 0.2% of S$500 is only S$1. That is S$2.70 a month, or S$32.40 a year, which is 0.54% of the S$6,000 she invests. If she converted S$6,000 once a year instead, 0.2% would be S$12. Converting S$1,500 every quarter also costs S$12 a year, because 0.2% of S$1,500 is S$3, above the minimum each time.
So with a minimum fee, converting in larger and less frequent amounts can save real money. With a pure percentage spread and no minimum, the total cost of converting S$6,000 is about the same whether you do it in one go or twelve, and timing adds nothing you can count on. Find out which kind of pricing your provider uses before you change your routine.
Converting a year's money at once has a side effect. The US dollars sit in your account until you invest them, so you carry currency risk on the uninvested part. Lesson 2.3 covers what that means.
Many brokers let you keep a US dollar cash balance. Once you have one, US purchases draw on it with no conversion, and US dividends land in it as US dollars.
That matters for dividends. Under auto-conversion, a dividend is converted to Singapore dollars, and if you then reinvest it in another US holding, it is converted back again, paying the spread twice for nothing. With a US dollar balance, the dividend stays in US dollars and can go straight into the next purchase.
Check two things before relying on this. Some brokers pay little or no interest on foreign cash, and cash held with a broker sits under the protection rules from lesson 1.3, not deposit insurance.
Some investors convert at a bank or through a multi-currency account, then send US dollars to the broker. This can beat the broker's own rate, but it adds steps that each carry a cost: the conversion itself, any fee for the outgoing transfer, any fee the receiving bank or broker charges, and sometimes a charge from an intermediary bank in between.
Compare the whole route, from Singapore dollars leaving your bank to US dollars arriving in your brokerage account. Do a small test transfer first, and check the amount that arrives against the amount that left. A route that looks cheaper on the conversion rate can lose its advantage to two flat transfer fees on a small sum.
For Rachel, investing S$500 a month, the choice came down to two facts. Her broker's conversions carried a spread and no minimum fee, so bulk conversion saved little. But her dividends were being converted to Singapore dollars and then back to US dollars at her next purchase. Switching on a US dollar balance stopped that round trip.
Your answer may differ, because it depends on your provider's pricing and how often you invest. Start with the facts you have. Look up how each of your accounts converts today and what it charges, then add up roughly what last year's purchases, sales and dividends cost you in conversions. A rough figure is enough to tell you whether this is worth fixing.
Write down how each of your accounts converts currency today, and estimate what you paid in FX costs over the last year.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).