# Best investment vehicle to (passively) harness long term stock market returns



## SPC100 (29 Jul 2018)

Hi,

I'm looking for the lowest cost and most tax efficient way to benefit from passive long term stock market index returns. I'm only interested in passive investment. Let's assume I'm already paying higher income tax rate, and possibly will be in higher tax bracket at retirement*.

I'm looking for lump sum and regular payment solutions.

What is the best vehicle to do this in Ireland today? i.e. one most likely to give the largest total return over a 10 year period (assuming the same wide stock market index was tracked in each vehicle).

Options I have seen/heard about

-Some Investment trust or maybe several Investment trusts (although I think while they might be passive they don't track indexes?)
-Some life company wrapper (and they do 8 yr deemed disposal paperwork for you).
-Special case that may not apply to others  - The Old Quinn life freeway product (I've had some money in the old Quinn life freeway product for nearly 15 years - and they were meant to reduce costs by .5% after 15 years)
-Buy some accumulating ETFs (and do the 8 yr deemed disposal)
-DIY fund - Diversify yourself by buying a set of shares
-Pre paying pension (arguably only defers this same question)
-<your suggestion here>

Obviously this question really boils down to which vehicle has lowest costs, is available on the market, and has the most preferential long term tax treatment.

Sean.
(For sake of question, Let's also assume putting money outside of pension wrapper is the correct thing to do, e.g. already maxing pension contributions (and not reaching max funding limits), no short term debt, mortgage under control, have a rainy day fund, money set aside for covering childcare/education/large life events).


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## SPC100 (29 Jul 2018)

Another option - although this has a cost - and possibly a future tax risk also?

Use CFDs to hold an accumulating ETF?

https://www.gillenmarkets.com/featured_articles/tax-issues-for-irish-residents.cfm

"
A Built in Advantage in CFD Accounts for Holding ETFS & Investment Companies
The tax treatment within CFD accounts (a contracts-for-difference account) for all ETFs and investment trusts is at the CGT rate and loss relief is available. The revenue has not stated this explicitly but the following is the best interpretation of where the Revenue stands on this issue:

_An ebrief (no. 36) from the Revenue in 2007 stated that CFDs are capital assets to which the capital gains tax rules apply, unless they are held in the course of a financial trade which is chargeable under Case 1, in which instance the charge will be the accounting profit. The Revenue indicated in that same ebrief the contract (CFD) requires two parties to take opposing positions on the future value of a particular asset or index. _

The bottom line is that it appears all instruments dealt in _via_ a CFD account are chargeable under the CGT rules and loss relief is available. The Revenue has not been specific on this, but that is the interpretation put on it by the main accountancy firms in Dublin. Against this, you will be charged interest by the CFD provider on monies invested _via_ CFD accounts. If you happy paying the funding cost (_circa_ 1.5% above base rates) then this is an alternative and more tax effective way to hold UCITS regulated ETFs in particular.
"

Article is dated March 2017


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## Sarenco (29 Jul 2018)

Personally, I take the view that our tax code is such that it makes no sense to invest in equities outside a pension vehicle while carrying a mortgage.

Once your mortgage is paid off, another approach is to maintain a high allocation to equities in your pension fund and to use any surplus cash flow to buy (tax-free) State savings products.

Keep it simple.


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## SPC100 (31 Jul 2018)

Hi Sarenco, thanks for reply! Let's do the next iteration -  assume pension is ~100% equity and is being contributed to up to max limits (or even beyond them) and mortgage is paid off, and there is/will be surplus cashflow.

At some point it makes sense to invest outside pension in equities? and stop accumulating cash? If so, which vehicle?


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## LDFerguson (31 Jul 2018)

Sarenco said:


> Personally, I take the view that our tax code is such that it makes no sense to invest in equities outside a pension vehicle while carrying a mortgage.
> 
> Once your mortgage is paid off, another approach is to maintain a high allocation to equities in your pension fund and to use any surplus cash flow to buy (tax-free) State savings products.
> 
> Keep it simple.



I'd be of the opinion that this approach would only be appropriate up to a point.  Let us assume that our sample person is suitably aware of the potential risks of investing in equities and other risk assets and is comfortable with this.  Pension fund in equities - grand.  Why?  Because equities have shown an ability to outperform any other asset class over the long-term and we'll assume that our sample person is far enough away from retirement to be looking at a long-term view.  Further disposable cash into State Savings products.  Grand also - always good to have a fund of cash available for short and medium-term needs.  

But what happens if your disposable cash pile grows to the point that under no reasonable circumstance you would expect to exhaust it within 5 - 10 years?  If we are agreeing that equities and other risk assets are a better option for the longer-term money, should the excess disposable cash not therefore be invested in something with a bit more potential than State Savings?


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## Sarenco (31 Jul 2018)

SPC100 said:


> At some point it makes sense to invest outside pension in equities? and stop accumulating cash? If so, which vehicle?


Personally, I would look at investment trusts in that scenario.


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## stanman (29 Aug 2018)

Sarenco said:


> Personally, I would look at investment trusts in that scenario.



What are the ways one can invest in an investment trust such as FRCL?

Do you need to go through a broker or financial intermediary and, if so, what would folks recommend?

Many thanks.


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## Sarenco (29 Aug 2018)

You need to open a brokerage account (Davy, DeGiro, Interactive Investors, etc.- take your pick) and then buy the stock.

Simples!


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## LoveTrees (30 Aug 2018)

Sarenco said:


> You need to open a brokerage account (Davy, DeGiro, Interactive Investors, etc.- take your pick) and then buy the stock.
> 
> Simples!



You can add ig.com. It's so easy to use as well!


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## Zenith63 (30 Aug 2018)

Another option for your list is to spreadbet on indices.  If you do it with no leverage/margin you won't pay any on-going interest/fees, entry and exit costs for the positions are extremely low.  Spreadbetting is (currently) classed as gambling and not liable to tax.


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## spanners (30 Aug 2018)

Zenith63 said:


> Another option for your list is to spreadbet on indices.  If you do it with no leverage/margin you won't pay any on-going interest/fees, entry and exit costs for the positions are extremely low.  Spreadbetting is (currently) classed as gambling and not liable to tax.



Presumably spreadbets are not very suitable for long term holders?


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## Zenith63 (30 Aug 2018)

spanners said:


> Presumably spreadbets are not very suitable for long term holders?


You can "bet" on the S&P500 and hold that position open for 10 years, only incurring the cost of the spread when you open the position and when you finally close it.  Again this is assuming you don't use margin, if you did then there would be fees for that borrowing and you would be taking on a very different level of risk.


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## Sarenco (30 Aug 2018)

I wouldn't consider 10 years to be a long-term holding period. 

Besides, you are taking a risk on your counterparty's ability and willingness to pay out on the bet - last time I checked gaming contracts were not legally enforceable.


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## Zenith63 (30 Aug 2018)

Sarenco said:


> I wouldn't consider 10 years to be a long-term holding period.


The original poster asked about long-term investing and used 10 years as their example timeframe so that number was in my mind, but you can hold your bet open 100 years if you want, it was just an arbitrary number.



Sarenco said:


> Besides, you are taking a risk on your counterparty's ability and willingness to pay out on the bet - last time I checked gaming contracts were not legally enforceable.


Interesting point and I'm by no means a spreadbetting expert or advocating for it, I don't do it myself.  It's just a method I am aware that people can and are using.  My instinct though is that the broker you are betting with would not be allowing you take one side if they didn't have the other side filled in their platform by somebody else and if they do they will be ensuring that other party has sufficient funds in their account in the same way they won't let you take a bet without cover for it.  But again, not an expert.


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## RedOnion (30 Aug 2018)

Zenith63 said:


> My instinct


Google Worldspreads


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## Zenith63 (30 Aug 2018)

RedOnion said:


> Google Worldspreads


Lovely!  Again though I'm in no way advocating for this, it's not something I've even tried, I'm just highlighting that people can and do do it.

Just to be the devil's advocate here though, what brought down Worldspreads would appear to be plain old fraud, a very different risk to the (interesting) one Sarenco mentioned.  I'd imagine we can find examples for most of the investment types the OP mentions where fraud has ended up impacting the customer.


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## Sarenco (30 Aug 2018)

I'm a great believer in keeping things as simple as possible.

FRCL has been around for 150 years - I wonder how many spread betting companies will be around in 150 years' time?


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## spanners (30 Aug 2018)

It's a nice idea in theory as a way of holding some ETF trackers I'd like to own, but in practice I don't think I'd have the guts to open a spread bet with a 10 year horizon. 

Though I guess you could spread your spread bets across accounts to ensure they'd be covered by a compensation scheme. Seems a little messy though, particularly if you are seeking passive simplicity.


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## Zenith63 (30 Aug 2018)

Sarenco said:


> I'm a great believer in keeping things as simple as possible.
> 
> FRCL has been around for 150 years - I wonder how many spread betting companies will be around in 150 years' time?


Lehman Brothers made it 158 years.

Again though, I'm not promoting SB here by any means, just throwing it out there for consideration.  Accumulating ETFs would be my personal path if I was OP.


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## Marc (30 Aug 2018)

Sarenco said:


> I'm a great believer in keeping things as simple as possible.
> 
> FRCL has been around for 150 years - I wonder how many spread betting companies will be around in 150 years' time?




The RIY of FRCL is 1.12%pa

The vanguard total world ETF has a TER of 0.1%


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## letitroll (30 Aug 2018)

Berkshire has a lot of the characteristics of an index fund being a diversified conglomerate (admittedly over weight financials / insurance) and with the added tax advantage of being averse to paying a dividend.....instead depoyling cash on new businesses or buying back it's own shares. 

You also get two of the best capital allocaters in the biz working for you.


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## SPC100 (30 Aug 2018)

Thanks for all the feedback so far.

I'm not interested in paying interest/fees to hold my position (unless ther are very small). So spreadbetting *without* leverage sounds interesting. *No tax! *The counter-party risk for spreadbetting would certainly worry me (but it worries me for my pension too and we can't eliminate all risk). Is there any formal compensation or insurance scheme for Spreadbetting accounts?

What about CFD, can you use CFDs without an ongoing holding cost?


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## spanners (31 Aug 2018)

If one is concerned about the house risk, presumably with a spread bet on an index or ETF you can simply close the position and open another after 1,2,3 years etc or whatever time frame makes you comfortable?

Obviously this only works if your bet is showing a profit. i.e no one is keen to lock in losses every year.



SPC100 said:


> Is there any formal compensation or insurance scheme for Spreadbetting accounts?



The spreadbetting firms in the UK are covered by their deposit guarantee scheme. Eg:

_"Any shortfall of funds of up to £50,000 may be compensated for under the Financial Services Compensation Scheme (FSCS). The FSCS is the compensation fund of last resort for customers of authorised financial services firms. It is designed by the UK government to act as a ‘safety net’, and usually covers private investors (retail clients) and small businesses if they have been clients of a financial services firm which becomes insolvent."
_
https://www.ig.com/uk/client-funds


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## sparkdev (1 Mar 2021)

letitroll said:


> Berkshire has a lot of the characteristics of an index fund being a diversified conglomerate (admittedly over weight financials / insurance) and with the added tax advantage of being averse to paying a dividend.....instead depoyling cash on new businesses or buying back it's own shares.
> 
> You also get two of the best capital allocaters in the biz working for you.


I bought BERK Shire stocks. Thanks for the suggestion


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## SPC100 (2 Mar 2021)

Congrats on taking action and thanks for resurrecting this thread.

There still is no perfect solution in Ireland for this.

How much are you holding/planning to hold in us equity? Have you looked into the US taxes on non citizen's holdings on death? I think they apply to us share like berkshire held directly.


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## letitroll (7 Mar 2021)

sparkdev said:


> I bought BERK Shire stocks. Thanks for the suggestion



Great - my second piece of advise if you’d like to continue down this path - is forget you own it - and look at it again in twenty years.......you should also be happy to hear that Warren Buffett is joining you in purchasing BRK-B from latest annual letter...........so you’ve got the greatest capital allocater of the last 100 years agreeing with your purchase and buying BRK himself.........Buffet has been clear that he’ll only buy BRK when its trading below his conservative estimation of intrinsic value.


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## sparkdev (8 Mar 2021)

Thanks @SPC100 and Letiroll, I would like to keep buying BRKB every month. This is with my money after paying maximum allowed into a PRSA.  I don't have a house and I may not buy it in the near future. I have another 50k in credit union for emergency fund. I don't know if I need to have that much in cash.


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