Buying shares as a regular savings plan

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RichInSpirit

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I have an interest in the stock market and I've recently adapted a buy and hold strategy for my chosen shares which I believe strongly in but are in general fairly battered at the moment. But rather than buying a once off large quantity of shares with a lump sum, I'm putting aside a small sum every week and attempting to buy a constant value of shares per week. Using buy orders rather than having to manually buy. And at the price levels for that week. And holding most of the shares for an indefinite period into the future.
I've back tested this method back to various dates in the past and it appears to reduce the loses during a downward market. Not eliminate losses but significantly reduce losses. Conversely it also reduces profits in a rising market but I'm willing to live with that.
I'm treating this as my own special savings scheme and keeping good records to see how it will go.
 
RichInSpirit said:
But rather than buying a once off large quantity of shares with a lump sum, I'm putting aside a small sum every week and attempting to buy a constant value of shares per week. Using buy orders rather than having to manually buy. And at the price levels for that week. And holding most of the shares for an indefinite period into the future.
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Sounds like a buy and hold strategy with euro cost averaging?
 
ClubMan said:
Sounds like a buy and hold strategy with euro cost averaging ?
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Yes it sounds like the Euro or Dollar Cost Averaging all right. Thanks for the links !
And it sounds very similar to the way that I've paid into savings policies and pensions that I've paid into in the past. Which were a constant amount per week or month. But they were saving policies & pensions sold by financial institutions and this time I'm trying my own hand at it in my own way.

I am thinking of selling a certain proportion per year to take a profit which I intend to reinvest. But I still have to look at that side in more detail. Going to do a forward looking plan and try some "what if ?" scenarios.
 
I have been making regular contributions to various pension and unit linked investment plans over the past decade or so. It pains me to look at the statements these days. Just saying... :(
 
ClubMan said:
I have been making regular contributions to various pension and unit linked investment plans over the past decade or so. It pains me to look at the statements these days. Just saying... :(
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If you looked at your amount paid in to the policies to date and did an exercise on paper where you had put your gross amount into your policies in a lump sum back at when you started your regular payments, I wonder how would your position now look different?

Different worse or better I wonder?
 
You have half the strategy right if you don't mind my saying so. Regular Investing is a time-honoured approach to dealing with volatility but as the saying goes 'you can't make a silk purse out of a pigs ear' and Regular Investing can't cope with a long drawn out bear market which we have had since the late 1990s. The developed equity markets were grossly overvalued then, but better now, and very cheap in Europe now. Nonetheless, even over the difficult 12-year period, Regular Investing would have protected your capital even if you got little return on it.

But I would question the second side of your strategy. If I understand you correctly you are buying your own stocks? Nothing wrong with that as long as you understand how to assess risk in them and diversify. Remember that risk in stocks changes over time so they need to be monitored and it is a more difficult task than many private investors realise. Recall the banks wee safe as houses for decades only to morph into leveraged property plays that few could understand at the time. An alternative is to buy listed funds (i.e. funds quoted on the stock exchanges). This way you avoid the risk of specific stocks while getting the benefits of regular inveting. In addition, listed funds are cheap to deal in and the two main types are exchange-traded funds (passive index tracking) and invetment companies (actively managed). Something to ponder.

Rory Gillen
 
Thanks Rory for the thumbs up !

I hadn't even heard of dollar cost averaging before starting this thread, you learn something new every day.
Yes I've heard about having diversity in your portfolio and heard of exchange traded funds.
The indices could be regarded as the ultimate balanced portfolios.
But some of the ETF's indices etc. are very expensive to buy into on a regular basis only putting a small amount in.
They would suit larger pockets for sure !
 
One thing to keep in mind is that transaction costs can quickly eat into your profits. Dependent on the amount you are going to invest each mo th this can have a huge effect.
 
Chris said:
One thing to keep in mind is that transaction costs can quickly eat into your profits. Dependent on the amount you are going to invest each mo th this can have a huge effect.
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That’s what I was thinking, if its a regular 'small' amount the transaction costs would make this a bit prohibitive or do we have different definitions of small :)
 
Chris said:
One thing to keep in mind is that transaction costs can quickly eat into your profits. Dependent on the amount you are going to invest each mo th this can have a huge effect.
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That's very true about the transaction fees for small size trades. You would have to find the most economical broker (or method) to suit your needs. ;)
 
Re:Brokers, I'm doing my ' Dollar Cost Averaging ' using financial spread betting and my own spreadsheet to keep track of the process. Transactions are free . The overnight funding charges are minuscule. I'm staying under 1:1 leverage.

Re.Charges from Stock Brokers , I recently got charged €26 account maintenance fee for my regular share account on which I conducted no share trades in well over a year.
 
Update.
Never got off the ground with my original plan, but now I'm 2 weeks in on my new special savings plan, with some alterations to my original plan. I'm starting from a very low level and using the spreadbetting as my broker.
I've done projections on it and that's why the plan is back in action. :) I mightn't hit my projections and I might exceed them.
From reading here and elsewhere I think that the tax man may figure in the plan too, but it's nicer knowing that at the beginning rather than getting a shock at some point down the line.
Another update promised in 5 years time!
 
ISEQ Overall Index

25 November 2011: 2,521

Today: 6,153

Increase: 144%

I wonder if you have missed the boat?

Stop messing with complicated spreadbetting and projections which are fairly meaningless.

Just start buying shares.

Brendan
 
I agree with you Brendan I think it's best to get stuck in as early as you can.

I want/wanted regular investment in shares I went with a part euro cost averaging strategy , I've done lots and lots of research and the info on this site has been invaluable , in my opinion it's best to buy an all world ETF over individual shares , it means you can buy a small bit into thousands of companies at once with only one transaction fee , you get diversification , you pay 33% tax after 8 years but you don't have to pay USC and prsi like on shares so it's much of a muchness .

I put a large amount in and add to it regularly as my overall wealth goes up I want to have a certain percentage of it in stock market . Don't listen to anyone who says the markets at over valued or under valued imo nobody knows they are very efficient , I'm sure there is some kind of arbitrage available to stop the ETF's becoming inefficient.

I buy every few months as I need to make a transaction every quarter to avoid fees I also don't know exactly how much I will earn so the amount I buy varies .

The killer for me is no loss relief on ETF's that's why I picked one only it's not ideal but it's worth remembering the ETF I picked holds 1500 or so companies so if I was to try replicate that in buying shares it be very very expensive and time consuming .
 
A few points:-

  • The exit tax on EU-domiciled investment funds (including ETFs) is currently 41% (not 33%). This exit tax is payable on each "chargeable event", which in practical terms means every time you receive a dividend (obviously not relevant to accumulating funds) or sell/redeem your shares, with a deemed disposal every eight years. In contrast, directly held shares (including investment trusts) and non-EU ETFs (which come with other tax problems) are subject to the normal income tax regime on dividends and CGT on capital gains (with available loss relief).
  • Historically lump sum investing has beaten "euro-cost" averaging roughly 66% of the time for a balanced portfolio over 10-year rolling periods. Put another way, drip feeding your investments beats lump sum investing about a third of the time, with a reduced risk of a dramatic drawdown.
  • There are certainly very good reasons to invest in an "all-world" index fund, where you simply rely on the market to decide what shares/sectors/countries will be the winners but it is possible to net off losses on one fund against losses on another, provided they are within the same umbrella. To take one example, the index funds on Rabo's platform are all within the same (Luxembourg) iShares platform. As such, it is possible to tilt in favour of a particular market within the index fund space without adversely impacting your tax position if that's your preference.
  • At current valuations, regulators (e.g. the FCA) have generally required product providers to reduce the returns shown in their client projections. In other words, while nobody can predict the future, the expected returns on global equities is considerably lower than has historically been the case given current valuations.
Hope that's helpful.
 
Thanks sarenco great post as always , I do know that it's 41% but I typed 33% apologies thanks for clarifying .

I typed a question in other thread basically I'll ask again as it's relevant if I buy the same ETF multiple times sometimes I make a profit but not always is loss relief available because it is just one etf?
 
Fella said:
Thanks sarenco great post as always , I do know that it's 41% but I typed 33% apologies thanks for clarifying .

I typed a question in other thread basically I'll ask again as it's relevant if I buy the same ETF multiple times sometimes I make a profit but not always is loss relief available because it is just one etf?
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I'm afraid loss relief is never available - you simply pay tax on the (net) amount received (or that you are deemed to have received every eight years).

Here's a link to the Revenue Guidance Note on calculating the tax payable on chargeable events:

[broken link removed]
 
Thanks Sarenco, Marc answered me in another thread going to sell everything and leave cash in bank earning nothing can't see any viable way of investing now
 
I'm not saying whether or not you should invest in equities (whether or not that is a good idea depends on a variety of factors) but you should never let the tax tail wag your investment dog!

Personally, I think that investment trusts are probably the most tax efficient way for for most Irish tax residents to create a diversified portfolio of equities outside a pension wrapper as things stand. If you want to look further into this option, take a look at the AIC website (it's the industry body for investment trusts). ITs are the original collective investment vehicle - some have existed since the 19th century - so they are not fly-by-night companies. You will have to do your own research (as always) but a basket of half a dozen venerable ITs (like Bankers, Foreign & Colonial, City of London, etc.) might fit the bill.
 
Thanks very much Sarenco ,

The risk is too great when there is no loss relief , I just can't see any way around ETF's now , I don't worry about the price of equities or whether they are going to go up or not but if I am dollar cost averaging or buying regularly then there is a large risk that I could break even or worse and make a few thousand on early purchases and lose a few thousand in later purchases therefore I won't be equal as I assumed but down after paying the 41% exit tax , its just criminal.

I'm going to sell up tomorrow and take some time to think about my options, going to end up with a rather large sum on deposit earning 0 interest until i find my way again , put so much time into this ETF research maybe I was too naive and should of consulted professional advice instead of trying to do it myself.

Can I ask you what you have invested in yourself if anything ?
 
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