# Investment Portfolio Split



## Techhead (8 Sep 2016)

I have been slowly building a portfolio of shares and savings over the last few years. 

I am getting some income from interest(no much these days) and dividends from shares.

Majorityof my portfolio is weighted to savings at crappy rates 

I would like to have some steady income from investments when I approach retirement age. I am in my mid 30's.

I am ok with some risk and riding out volatility. Just wondering what kind of split other folks are working with? Thanks


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## rob oyle (8 Sep 2016)

If your investment horizon is 30 years (and you genuinely mean that) then shares have proven to be the best long-term investment vehicle. All of such investments should be widely diversified into shares.

As to how much should be set aside or what other purpose you may be planning for your savings in the future, you'd need to give a lot more information as to what you expect to do in the coming years, your employment status etc.

For the record, I'm 37 and 80% of my savings are in equities and 20% in deposits/savings schemes. Owning my own home is a medium term goal.


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## Techhead (8 Sep 2016)

Thanks for the reply rob. I am comfortable with an 80/20 split. I have invested in individual stocks - lately moving towards dividend paying as I like the idea of a quarterly payment.

I have avoided ETF in Euro due to the 7 year rule and the questions around US ETF have put me off. 

Do you pick indices or just pick great companies like coke and GE with long track records?


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## joe sod (8 Sep 2016)

I don't want to barge in on this but general electric went through a rough patch a few years ago with big falls in share price due to its exposure to financials. You would never think it from its name. If you were a shareholder then it was far from certain that it would come out the other end. There are no guarantees in the stock market just look at the Volkswagen scandal the bellwether of German industry. There is no such thing as a safe stock


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## Techhead (9 Sep 2016)

Thanks Joe. Point taken. Going back to my original question. I was just curious how much of a split people have in the markets roughly at any given time. I am personally all about buying stocks for the long term with dividends and have dipped my toes in but I am hesitant to go "All in"


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## Steven Barrett (9 Sep 2016)

joe sod said:


> I don't want to barge in on this but general electric went through a rough patch a few years ago with big falls in share price due to its exposure to financials. You would never think it from its name. If you were a shareholder then it was far from certain that it would come out the other end. There are no guarantees in the stock market just look at the Volkswagen scandal the bellwether of German industry. There is no such thing as a safe stock



Or even closer to home, Bank of Ireland. How many people ploughed their money into BoI shares as they were "blue chip" and paid dividends? There's never any certainty that a dividend is paid every year. 

Then there's the tax element of getting  a regular dividend. You are taxed at your marginal rate. Under gross roll up, the dividend is reinvested without triggering a tax liability. 

Steven 
www.bluewaterfp.ie


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## monagt (9 Sep 2016)

"Under gross roll up" is this only for Dividend/Income Funds?

Is there specific funds that allow an investor to use up "accrued CGT losses"?

Thx. M


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## Steven Barrett (9 Sep 2016)

Your bog standard insurance company fund or funds through fund platforms are all gross roll up. If a share is sold within the fund the profit is reinvested with no CGT. You do pay 41% tax on growth on the way out though. 

They are not liable to CGT so you can't offset accrued CGT losses. 

Steven 
www.bluewaterfp.ie


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## monagt (9 Sep 2016)

SBarrett said:


> They are not liable to CGT so you can't offset accrued CGT losses.
> 
> So is there funds/vehicles that that allow CGT accrued losses?


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## Gordon Gekko (9 Sep 2016)

Yes, investments such as Berkshire Hathaway (which doesn't pay a dividend) or US ETFs (which pay dividends) or UK Investment Trusts (which generally pay dividends).

Gains made on all of above investments can soak up capital losses.


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## galway_blow_in (10 Sep 2016)

SBarrett said:


> Or even closer to home, Bank of Ireland. How many people ploughed their money into BoI shares as they were "blue chip" and paid dividends? There's never any certainty that a dividend is paid every year.
> 
> Then there's the tax element of getting  a regular dividend. You are taxed at your marginal rate. Under gross roll up, the dividend is reinvested without triggering a tax liability.
> 
> ...



was bank of ireland ever " blue chip " ?

its a very small bank by global standards


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## Steven Barrett (11 Sep 2016)

galway_blow_in said:


> was bank of ireland ever " blue chip " ?
> 
> its a very small bank by global standards



Sure wasn't Ireland the centre of the universe back then!! Perception is something that changes a lot when it comes to investment. For a long time, Irish banks were viewed as "blue chip". After the crash, we realised that they weren't and there were a lots of other, bigger banks than BoI and AIB 

Steven
www.bluewaterfp.ie


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## MrEarl (12 Sep 2016)

Techhead said:


> I have been slowly building a portfolio of shares and savings over the last few years.



A brave move, you would benefit from diversifcation far more if you were investing in funds rather than individual shares (albeit they might not offer you the opportunity for a regular income). 



Techhead said:


> ..I would like to have some steady income from investments when I approach retirement age. I am in my mid 30's.



If the requirement for income as you approach retirement could be deferred until you actually retire, then I'm forced to ask - why not invest through a pension vehicle and get the tax break as you invest, along with the gross roll up while you remain invested ?


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## Brendan Burgess (12 Sep 2016)

Hi Techhead

A few observations. 

Do you own your own home - if not, then your investment horizon is a lot less than 30 years. Buying a home should be your first investment priority. 

If you have a home, have you paid off your mortgage?  If it's a tracker mortgage, then investing in shares is the right idea. If it's not a tracker mortgage, then you should be paying down your mortgage rather than investing in shares.  You get a guaranteed tax-free, cost-free and risk-free return of 3.5% by paying down your mortgage.  In fact, the benefits of paying down your mortgage are so high, than some would suggest that you should even pay down a tracker mortgage. 



MrEarl said:


> why not invest through a pension vehicle and get the tax break as you invest, along with the gross roll up while you remain invested ?



Only if you have bought a home and paid down your mortgage to a very comfortable level or have a vert cheap tracker mortgage. 



You are right to invest directly in shares rather than a fund, assuming you have around 10 shares.  It's only a small part of your overall wealth, and you have the capacity for the slightly increased risk.  Investing directly in shares is better from a tax point of view and from a costs point of view. 



Techhead said:


> I would like to have some steady income from investments when I approach retirement age.





Techhead said:


> I have invested in individual stocks - lately moving towards dividend paying as I like the idea of a quarterly payment.



Not sure why you would like income which is taxed at 50% which you will probably use to invest again in more shares.   In retirement, you want wealth. You can sell some shares when you need cash.


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## Brendan Burgess (12 Sep 2016)

Techhead said:


> Do you pick indices or just pick great companies like coke and GE with long track records?





joe sod said:


> There are no guarantees in the stock market just look at the Volkswagen scandal the bellwether of German industry.





joe sod said:


> general electric went through a rough patch a few years ago with big falls in share price





SBarrett said:


> How many people ploughed their money into BoI shares as they were "blue chip" and paid dividends?



Nothing long with General Electric over a 30 year horizon:





Thirty years ago, it was $3. Today it's $33. That is an 8% annual cumulative return. I assume that there were dividends on top of that. Of course, over a 16 year horizon, you would have lost half you  money. But over 18 year or more, you are ahead.

As you buying a portfolio of shares, you will pick a few duds, (I lost c. 90% of my investment in AIB)  but you will also pick many more which will do very well.(I more than doubled my money in DCC, Ryanair, Aryzta ) 

As you are building  a portfolio over time, you are getting further diversification. You will buy some shares at their highs and they will fall. But you will buy many more at lows.

The volatility in shares which the above graph demonstrates puts a lot of people off shares and they miss out on long term returns as a result or else they pay big costs to fund managers.

Brendan


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## MrEarl (12 Sep 2016)

Brendan Burgess said:


> ....You are right to invest directly in shares rather than a fund, assuming you have around 10 shares.  It's only a small part of your overall wealth, and you have the capacity for the slightly increased risk.  Investing directly in shares is better from a tax point of view and from a costs point of view.



Mr. Burgess,

I do not agree with you on all of that.

Firstly, how can you have any sort of reasonable diversification with something like 10 shares ?  Consider geographical locations, currency risk, industry sectors, growth or value shares, high yield etc. etc.  Sorry, but my view is that initially the fund approach is far better than a small selection of shares from a risk point of view, given the immediate benefit of diversification.

Following from that, your point about the cost is debateable.  I fully accept that some funds are a "rip off", but equally not all when you consider the benefits of access to immediate diversifaction without direct acquisition costs (and annual stockbroker account charges) for every share in a fund portfolio, the ease of administration, access to professional resources within the fund etc.  By all means, let the buyer beware but in this day and age, costs are far more transparent than they were historically so it's relatively easy to compare fund costs.

Is an ETF tracking say the S&P500 a compromise, between the traditional unit linked type funds which you might be thinking of and buying a few shares directly from time to time with the high overheads relative to the transaction size, concentration risk etc ?

I would be interested in reading a little more on your thoughts from the tax perspective, if you would be so kind.


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## Techhead (12 Sep 2016)

Sadly I dont have a tracker. I am on a variable rate with another 24 yrs to go. I hear your point regarding the mortgage and I 100% agree but its tough to give those guys any more money a month.  illogical I know . 

Agree with you Brendan regarding dollar cost averaging, in fact the shares I have done well on were the ones I dollar cost averaged!.


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## Brendan Burgess (13 Sep 2016)

MrEarl said:


> Firstly, how can you have any sort of reasonable diversification with something like 10 shares ?



Hi Mr Earl. This has been discussed often and I realise that the majority view is that  you should have millions of shares through a fund. 
http://www.askaboutmoney.com/threads/is-ten-irish-shares-enough.8375/

The reality is that the OP has only a part of his wealth in shares and so each individual share will be only  a small part of his overall wealth. 

Agree that costs are lower now, but I just don't see any benefit from paying them, when you don't need to. The fund has costs too. So it's not that you are simply paying the ETF annual charge and that a direct investor is paying stamp duty and transaction costs. 

*Do the tax advantages favour directly buying shares over ETFs?*


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## Brendan Burgess (13 Sep 2016)

Techhead said:


> Agree with you Brendan regarding dollar cost averaging,



Except that I said nothing about dollar cost averaging  

The fallacy of dollar-cost averaging


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## Sarenco (13 Sep 2016)

Brendan Burgess said:


> Agree that costs are lower now, but I just don't see any benefit from paying them, when you don't need to. The fund has costs too. So it's not that you are simply paying the ETF annual charge and that a direct investor is paying stamp duty and transaction costs.



To put these costs into perspective, Vanguard's flagship S&P500 ETF (VOO) has a total expense ratio of only 0.05% (the Irish domiciled version has a TER of 0.07%).

It's true that the fund incurs additional portfolio trading costs that are not reflected in the TER but these are more than offset by security lending income received by the fund - the total return of VOO has been within 0.04% of the S&P500 since inception.

0.04% of €10,000 is €4 - a fairly trivial cost for gaining exposure to such a major component of the global equity market.


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## Brendan Burgess (13 Sep 2016)

Hi Sarenco

Thanks for that.  How typical is that?  

Brendan


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## Sarenco (13 Sep 2016)

Hi Brendan

The big ETF providers (State Street, BlackRock, Vanguard) all offer ETFs that track the S&P500 to within ~10bps.

Vanguard's Total World Stock ETF (VT) (which tracks the FTSE Global All-Cap Index) has a TER of 0.14%.

It's worth noting that Degiro are currently offering ETFs on a zero commission basis.

Usual health warning re tax treatment applies.


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## Boyd (13 Sep 2016)

Ireland's stupid tax on UCIT is the biggest killer on funds though. If going down the funds route, I would favour Canadian ETFs to avoid this (and also to avoid the US estate tax)


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## MrEarl (14 Sep 2016)

Brendan Burgess said:


> ....
> 
> The reality is that the OP has only a part of his wealth in shares and so each individual share will be only  a small part of his overall wealth.*....*



Hello Mr. Burgess,

Thank you for the reply and the links (I will read them with interest and hope to learn from them).

While I take your point on the shares only representing a portion of the person's overall financial wealth, this point is focused on diversification across different asset classes, rather then specifically on the lack of diversification in the share portfolio.

Having chose an asset class to invest in (be it shares, bonds, property etc.), I would still be of the view that we should seek to reduce risk to the lowest possible level, subject to being able to achive the desired returns over the long term. 

For me, that means availing of the far greater diversification available through investing in funds, rather than 10 or even 100 individual shares.

Sarenco has provided an excellent example on the point about costs, so my thanks to Sarenco for the contribution.


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## Brendan Burgess (14 Sep 2016)

MrEarl said:


> While I take your point on the shares only representing a portion of the person's overall financial wealth, this point is focused on diversification across different asset classes, rather then specifically on the lack of diversification in the share portfolio.
> 
> Having chose an asset class to invest in (be it shares, bonds, property etc.), I would still be of the view that we should seek to reduce risk to the lowest possible level, subject to being able to achive the desired returns over the long term.



This is certainly the popular approach, but, in my view, it's completely wrong. 

Why do we diversify in the first place?  To reduce risk. It's not an academic exercise.  It's to make sure that a person's wealth is not adversely affected by a dramatic fall in the value of something. 

To take an exaggerated example.  Let's say I earn €200k a year. I have a house worth €2m mortgage free. I have €1m on deposit.  I think that Paddy Power is a good share. There is nothing at all wrong in investing €100k in just one share.  If it crashes to zero overnight, I lose 3% of my wealth. I can handle it easily.  

On the other hand a retired person depending on the state pension would be crazy to have  their total wealth of €100k in just one share. 

Brendan


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## Sarenco (14 Sep 2016)

Hi Brendan

That analysis appears to ignore any risk/reward considerations in relation to the investment itself and appears to focus exclusively on the _ability _of an investor to take a particular risk.

You seem to be suggesting that if an investor can afford to take a risk, and wants to do so, then they should fire ahead regardless of the expected return on the particular investment or whether the same expected return could be achieved by investing in a less risky asset (or pool of assets).

Is that fair or have I misrepresented your position?


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## MrEarl (14 Sep 2016)

Brendan Burgess said:


> .....
> 
> ....It's not an academic exercise.....



There's a fella called Harry Markowitz who I suspect would disagree with you there Mr. Burgess 



Brendan Burgess said:


> ....To take an exaggerated example.  Let's say I earn €200k a year. I have a house worth €2m mortgage free. I have €1m on deposit.  I think that Paddy Power is a good share. There is nothing at all wrong in investing €100k in just one share.  If it crashes to zero overnight, I lose 3% of my wealth. I can handle it easily.
> 
> On the other hand a retired person depending on the state pension would be crazy to have  their total wealth of €100k in just one share.
> 
> Brendan



While I understand your point perfectly, I think it continues to put the investor's money at unnecessarily high risk. 

Sure, in the overall scheme of things, it's a small percentage of their wealth, but why expose that part of their wealth more than they might have to, to get a certain return ?


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## Brendan Burgess (15 Sep 2016)

Sarenco said:


> You seem to be suggesting that if an investor can afford to take a risk, and wants to do so, then they should fire ahead regardless of the expected return on the particular investment or whether the same expected return could be achieved by investing in a less risky asset



I am not suggesting that at all. 

I was simply responding to Mr Earl's repetition of the commonly held view that people must diversify within an asset class irrespective of the proportion of the person's wealth that it makes up. 

In my view, this commonly held view is completely wrong. 

A person aged 60 who rents their home and has their entire wealth in equities would require far more diversification within those equities than someone with the same net wealth who has only 10% of their wealth in equities. 

The Original Poster has most of their savings in deposits.  They are gradually investing in equities. They are already well diversified. They do not need the same diversification within their equity portfolio as someone who is fully invested in equities. 

A practical example of this is where someone is starting an investment portfolio and expects to invest €10k a year over the next 10 years. They already have a pension fund and have paid off their mortgage.  From a practical point of view, I recommend that they just buy one share with the €10k. Next year, buy a different one. They will diversify their portfolio over time. 

Brendan


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## Sarenco (15 Sep 2016)

Brendan Burgess said:


> I was simply responding to Mr Earl's repetition of the commonly held view that people must diversify within an asset class irrespective of the proportion of the person's wealth that it makes up.
> 
> In my view, this commonly held view is completely wrong.



Hi Brendan 

Sorry but I'm really struggling to follow your logic.  

Why would maintaining a degree of (horizontal) diversification across asset classes have any impact on the desirability of maintaining an appropriate degree of (vertical) diversification within an individual asset class?

It seems obvious to me that a rational investor would at all times want to achieve the best possible return on each euro of their capital for a given level of risk, over a given investment horizon.  Surely a rational investor would always strive to pursue the optimum strategy to achieve their financial goals?

To put it another way, if there is no perceived benefit to taking the non-systemic, idiosyncratic risk of investing in an individual stock, then why take that risk in the first place?  

Given the trivial cost of gaining exposure to the entire global stock market (or a very significant representative sample of that market), the only reason a rational investor would ever purchase an individual stock is because they have a conviction that the market is underpricing that stock for some reason and that the stock is likely to outperform the broader market over the intended holding period.  Otherwise, why wouldn't an investor simply buy the "market"?



Brendan Burgess said:


> From a practical point of view, I recommend that they just buy one share with the €10k. Next year, buy a different one. They will diversify their portfolio over time.



Or they could simply buy an index fund and achieve an appropriate degree of diversification from day one.  There is no logical reason to hold a concentrated portfolio of individual stocks unless you trying to beat the broader market.

I appreciate that you are absolutely wedded to your 10-stock portfolio and it is probably a fool's errand on my part to try and persuade you that this is inappropriate advice for the vast, vast majority of retail investors.


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## Fella (15 Sep 2016)

I don't understand this thinking either , I think its based on if you can afford to take more risk you should take more risk.  I don't see the extra reward for more risk in investing in one share v an index. Your going to have higher variance in one share therefore  you are much more likely to double your money but also lose half.

I am often faced with these scenarios gambling , where you have a value bets , you might have 5 bets that are value ranging from 5%-20% 
you wouldn't put all your money into the 20% one or you would go broke fairly quick. Often the right thing to do is not the best thing to do. Like going on deal or no deal and turning down an offer for 100k on a box when there are two boxes left 250k and yours.


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## Brendan Burgess (15 Sep 2016)

Hi Sarenco 

I see where you are coming from. 

If you are happy to buy a fund, then your thinking is absolutely correct. 

But I am talking here about the OP who wants to build a portfolio of directly held shares, and about the rest of us who prefer the tax and cost advantages of directly held shares. 

The common argument is that funds are less risky than directly held shares.  I am saying that the risk is not relevant if the percentage of your total assets in the stock market is not material.  

The return will be different, but there is no reason to believe that it will be higher or lower. 

Brendan


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## galway_blow_in (15 Sep 2016)

Brendan Burgess said:


> This is certainly the popular approach, but, in my view, it's completely wrong.
> 
> Why do we diversify in the first place?  To reduce risk. It's not an academic exercise.  It's to make sure that a person's wealth is not adversely affected by a dramatic fall in the value of something.
> 
> ...



is it not the case though that most people are not smart enough to pick a winning share or shares ?, investing makes sense over the long term but is it not best to invest in a passive manner , therefore reducing risk through diversification while maintaining a disciplined long term investment strategy


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## MrEarl (16 Sep 2016)

Hello,

While I appreciate that this thread seems to be going no where fast, I'm afraid I don't see the logic in taking a higher risk with your money then you need to, in order to get a certain anticipated return on your investment.  

The percentage of your overall wealth invested in equities does not matter, the question regarding the additional risk level remains unanswered for me - sorry


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## Brendan Burgess (16 Sep 2016)

galway_blow_in said:


> is it not the case though that most people are not smart enough to pick a winning share or shares ?,



Hi Galway

Absolutely. But that does not stop you gradually accumulating 5 or 10 blue chip shares over time. 

Brendan


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## Brendan Burgess (16 Sep 2016)

MrEarl said:


> The percentage of your overall wealth invested in equities does not matter, the question regarding the additional risk level remains unanswered for me - sorry



No need to apologise.   I will see if I can try a third way of explaining it. 

Do you accept that it would be very unwise for someone with total wealth of €1m to invest it all in one share? 

Do you accept that for someone with €1m in cash to invest €1,000 in one share would be less unwise? 

Brendan


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## Sarenco (16 Sep 2016)

Brendan Burgess said:


> The return will be different, but there is no reason to believe that it will be higher or lower.



That's actually not true Brendan. 

There is a much higher probability that your randomly chosen 10-stock portfolio will under-perform the broader market - it's not a straight coin toss.

The reason is that market returns are always disproportionately driven by a small number of super-performers. For example, the S&P500 fell by less than 1% in 2015 but if the top ten performers are excluded the return would have been 3.7% worse.  The odds of a randomly selected portfolio of only 10-stocks missing the super-performers are obviously high.


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## Ceist Beag (16 Sep 2016)

Brendan have you done any research over past performance to compare how these performed (5 or 10 blue chip shares versus the overall stock market they are in)? I would have believed the stock market (or in other words an index linked fund investing in the whole market) outperforms any individual share, even 5 or 10 blue chip shares but I'd be interested to see if that has proven to be the case over say the last 20 years.


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## Brendan Burgess (16 Sep 2016)

Hi Ceist 

A portfolio of 10 blue chip shares is as likely to outperform as to underperform the index.  

A 10 share portfolio has a higher risk of losing money than a very low cost index. However, it has a roughly equal chance of outperforming the index.

The biggest risk from investing in shares is a long term sustained fall in the stockmarket.  Whether you have 10 shares or 1,000 shares, you will be affected by this. 

You increase the risk by a very small amount by investing in only 10 shares, but you can compensate this by higher returns.

Brendan


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## Sarenco (16 Sep 2016)

Brendan Burgess said:


> A 10 share portfolio has a higher risk of losing money than a very low cost index. However, it has a roughly equal chance of outperforming the index.



That's simply not true! 

It's mathematically irrefutable that a randomly selected portfolio of 10-stocks has a much higher chance of under-performing the broader market.  You are ignoring the dispersion of returns within the market.

You also seem to be suggesting that an investor will be compensated for taking a risk that can be diversified.  Again that's not correct.

The only logical reason an investor would prefer a concentrated portfolio is a conviction that they can beat the market.


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## Brendan Burgess (16 Sep 2016)

Hi Sarenco 

I said roughly equal because of the dispersion of returns. There was a thread here some time ago about a lot of the returns being due to a few outperformers.  If you picked 10 shares and missed out on any of these 10, then you would underperform the market. 

"It's mathematically irrefutable that a randomly selected portfolio of 10-stocks has a much higher chance of under-performing the broader market."

Do you mean that it has a higher chance of under-performing than out-performing? If so, then the potential gain from out-performing must exceed the potential loss from under-performing? 

The Expected Value of a 10 share portfolio must be the same as the index.  

I think that there are two issues here 
1) Under-performing the market 
2) A sustained loss of money

My concern is about a sustained loss of money.  I do not mind the "risk" of underperforming the market if it's balanced by the opportunity of outperforming the market. 

Brendan


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## Brendan Burgess (16 Sep 2016)

Sarenco said:


> The only logical reason an investor would prefer a concentrated portfolio is a conviction that they can beat the market.



Not at all. 

A smaller portfolio  of shares is easier and cheaper to manage.  

I have around 10 shares. If you convinced me that this has a much greater risk of losing money over a sustained period of time than a much larger portfolio, I could do one of the following: 

1) But 90 more shares - but you probably would still not be happy, but I would spend all day administering my portfolio. 
2) Buy and ETF and face the tax disadvantages which I am not prepared to do. 

Brendan


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## Sarenco (16 Sep 2016)

Brendan Burgess said:


> A smaller portfolio  of shares is easier and cheaper to manage.



What could be easier to manage than an index fund!  It's the ultimate buy and forget investment.

The cost issue is a red herring.  Since inception, the Vanguard S&P500 ETF has lagged its benchmark by 0.04% and that ETF can currently be acquired by Irish investors on a commission free basis.

How much does it cost to construct and maintain your 10-stock portfolio?

Tax is also largely a red herring.  Firstly, there is absolutely no difference in the tax treatment of a US-domiciled ETF and any other US security.  Zero.

Even with EU-domiciled ETFs, it is far from clear-cut that a portfolio of directly held shares is more tax effective than an index tracker in every scenario.  In most cases, when you run the numbers, making reasonable assumptions regarding the source of returns, the difference is minimal.

In any event, it is a truism of investing that you should never, ever let the tax dog wag the investment tail.


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## Brendan Burgess (16 Sep 2016)

The cost issue is not a red herring.  I manage my own portfolio of 10 shares. If I were to buy 100 shares, I would have higher commissions. And a lot of extra work. 

There have been extensive discussions of the tax treatment of ETFs. I was not aware that it had been 100% clarified.  

Is the tax treatment of my Irish shares the exact same as a US domiciled ETF which invests in Irish shares?   Is it the same as my shares in the UK and in Europe? 



Sarenco said:


> In any event, it is a truism of investing that you should never, ever let the tax dog wag the investment tail.




Not at all.  I have an ETF from a few years ago which is underwater. I can't set the losses against gains in other shares. 
Going along with your truism, I should not worry about this. 

Tax is an essential part of investment decisions. 

Brendan


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## Sarenco (16 Sep 2016)

Brendan Burgess said:


> I do not mind the "risk" of underperforming the market if it's balanced by the opportunity of outperforming the market.



Hi Brendan

I think this is the key point that you're missing - your risk of underperforming the market with a concentrated portfolio is not balanced by the opportunity of outperforming the market.

Let me try and explain it a different way-

Dispersion measures the average difference between the return of an index and the return of each of the index’s components.  However, dispersion is skewed - a small number components have a disproportionate impact on the index return.

In other words, the chances that your random selection of stocks will include "winners" are considerably lower than your odds of picking "losers" - it's not a coin toss.

A lot of investors suffer from what is sometimes called the "lottery effect" where they are prepared to accept below market returns in the hope that they will hit the jackpot with one of their stock picks.  That's obviously fine but it's not a sensible investment strategy.


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## galway_blow_in (16 Sep 2016)

Brendan Burgess said:


> Hi Galway
> 
> Absolutely. But that does not stop you gradually accumulating 5 or 10 blue chip shares over time.
> 
> Brendan



most people are not well informed enough to pick the right shares , many blue chips have underperformed the market this past fifteen years , perhaps its better in this case to go the route of a managed fund , you pay a professional to seek out growth , studies however show that an index fund which tracks the likes of the s + p will beat four out of five  managed funds most years


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## Sarenco (16 Sep 2016)

Brendan Burgess said:


> The cost issue is not a red herring.  I manage my own portfolio of 10 shares. If I were to buy 100 shares, I would have higher commissions. And a lot of extra work.



Who said anything about buying 100 shares?  Obvious straw man argument.

An Irish investor can currently buy an ETF that replicates the performance of essentially the entire global equity market with trivial tracking error for zero commission.   



Brendan Burgess said:


> There have been extensive discussions of the tax treatment of ETFs. I was not aware that it had been 100% clarified.



http://www.askaboutmoney.com/thread...ce-notes-on-the-tax-treatment-of-etfs.195443/

I'm not aware of any substantial remaining ambiguities regarding the Irish tax treatment of ETFs.



Brendan Burgess said:


> Tax is an essential part of investment decisions.



Of course - I never suggested otherwise. 

However, if you let tax considerations dominate the decision making process then the (tax) tail is wagging the (investment) dog.


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## MrEarl (18 Sep 2016)

Hello Mr. Burgess,



Brendan Burgess said:


> ...
> 
> Do you accept that it would be very unwise for someone with total wealth of €1m to invest it all in one share?
> 
> ...



Sure.

If we look specifically at the ISEQ and you pick the 10 biggest caps, then by virtue of the fact that they represent so much of the overall ISEQ (on a weighted basis), then I can see where you are coming from - obviously one could not implement the same approach of only buying 10 shares on the LSE or NYSE thuogh, without increased risk.

Thereafter, I have come to the conclusion that you have simply made a decision to invest in a lesser number of different shares, accepting "slightly" increased risk in return for the hope of "slightly" incresed returns (or potential losses, if things go wrong).  Thats fine as your chosen strategy, but does not reflect the approach I would think appropriate for those looking to hold the most efficient (best return, for least risk) portfolio.


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## Brendan Burgess (18 Sep 2016)

Sarenco said:


> Who said anything about buying 100 shares? Obvious straw man argument.



Hi Sarenco 

The OP has said that he is building up a portfolio. I have pointed out that a portfolio of 10 shares built up over time which is a small part of his overall wealth is adequately diversified.   I have argued that there is no need for 100 shares as managing 100 shares is more expensive and more time consuming.  

If I understand you correctly, you are saying:  

There is no tax difference at all between investing in a US domiciled ETF  and investing directly in equities - dividends  and Capital Gains are taxed exactly the same as investing in shares.  That this is absolutely clearly written down by Revenue and not open to challenge by them? 

The additional cost of investing in the US domiciled Vanguard ETF is immaterial 

I presume that there is no additional underlying exchange risk if you choose a US domiciled ETF which invests in shares in the Eurozone? 
If all those conditions are true, then I would recommend to people to invest in this over directly investing in shares. 

No one should be investing in unit linked funds with 1% management charges. No one should be investing in non US domiciled ETFs. 



Assuming I have understood you correctly, could you maybe write a Key Post or FAQ on this?  It is effectively a clear Best Buy? 

*1) Fund description *
Actual names of the different funds 

Eurozone funds 

US shares 

World funds 

Emerging markets 

etc 
*2) How to buy it *
From VAnguard? Through a stockbroker? 
Minimum amounts if there are any 
I presume that there are no external costs of holding it, or no significant costs. 

*3) Tax treatment for an Irish resident *
Dividends 
Capital Gains Tax 
4) *Advantages over a non US domiciled ETF 
5) Avantages over an Irish unit linked fund 
6) Advantages over directly held shares 
*


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