# Exposure to Equities via regular contributions



## gnf_ireland (6 Jan 2017)

If a couple got themselves into a position whereby their mortgage was effectively cleared (nominal amount remaining) and pension contributions were maxed out for both parties - what would the extertise on AAM suggest as suitable regular long term investment options. 

The horizon would be >15 years, as ideally it would be a SKI club fund (Spending Kids Inheritance).  

The most suitable would allow monthly payments (ideally similar to a regular savings account around 750 euro a month) but also support one off contributions both initially and periodically over the years. 

Is the only real option in Ireland something like a Life Assurance Company LifeSave scheme or are there other suitable alternatives out there? 

Given the regular contributions, a fee per execution would not be suitable per contribution. It would be better to build up the funds for a year and then make a single 9k investment contribution once a year.

Taxation wise, I am guessing most suitable products will work off the Exit Tax/Income Tax model than the CGT Model, unless I look at non-EU domiciled ETF's (but again this would not be suitable for regular contributions)


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## Sarenco (6 Jan 2017)

One strategy is to increase (or maintain) the level of equity exposure in your (tax advantaged) pension accounts and to plough any additional (after tax) savings into (tax exempt) State savings products. 

Bear in mind that there is good reason to increase the amount you have in "safe" investments as your investment horizon starts to shrink (because the probability that equities will outperform cash/bonds increases substantially over longer time periods).


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## gnf_ireland (6 Jan 2017)

@Sarenco 

Understand and agree with you, but if we take an average life expectancy of around 80 years (78 male and 82 female), we have close to a 40 year horizon to work with. I am all for reducing equity exposure as we get older, but at 41 I am not sure that is what I should be considering 

You can assume we would have sufficient 'safe' investments as well.

I am just wondering how I might get the exposure? I am wondering if there is anything similar to an ISA in Ireland that could be leveraged, or any plans to make them available?


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## Sarenco (6 Jan 2017)

No, I'm afraid there's no equivalent to an ISA in Ireland.  

One (admittedly conservative) rule of thumb is to maintain your age in bonds - so that would currently put you at 60% in equities, 40% in bonds.  Alternatives on this theme are to subtract your age from 110 (or 120) to arrive at the percentage of your portfolio to invest in equities.

However, these are just rules of thumb - ultimately it's all about your own personal need, willingness and ability to take equity risk.  Only you can decide where you want to position yourself on the risk/reward spectrum.

Also, bear in mind that if your are making regular contributions to a portfolio (as opposed to a lump sum investment) your (hopefully growing) won't all be invested for anything like 40 years.

If you really feel the need to invest after-tax money in taxable equity investments, I think UK investment trusts are a reasonable option if you want to avoid exit tax/US estate tax risk.  Something like Foreign & Colonial Investment Trust plc (the oldest collective investment vehicle of them all) would give you exposure to a diversified global equity portfolio at a fairly reasonable cost.


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## gnf_ireland (6 Jan 2017)

Sarenco said:


> If you really feel the need to invest after-tax money in taxable equity investments, I think UK investment trusts are a reasonable option if you want to avoid exit tax/US estate tax risk. Something like Foreign & Colonial Investment Trust plc (the oldest collective investment vehicle of them all) would give you exposure to a diversified global equity portfolio at a fairly reasonable cost.



Thanks for the tip - I will look into it

Its not a case of feeling the need to. Once the financial review is complete the pension contributions will be maxed out. The remaining funds either go on deposit or invested (unless I go on a spending spree), and don't like the idea of everything on deposit at current rates. I feel I can take a level of risk with the money


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## sunnydonkey (7 Jan 2017)

Why not just buy an equity every two months, for example?. Stick to large bluechip dividend payers. After a couple of years when you have a portfolio of 10 or 12, you can top up what you have or adjust your portfolio. If current affairs interests you, you will find that this will grow into an interesting and profitable hobby.
Tax on investments in Ireland is certainly not encouraging but try not to let tax issues affect your investment decisions.


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## gnf_ireland (7 Jan 2017)

sunnydonkey said:


> Why not just buy an equity every two months, for example?


If say I was looking to invest 750 a month, this would mean looking at making a purchase every 2-3 months, at say 1500/2000 euro a time. I am guessing someone like TD Investing at 20 euro flat fee a trade would be an option here - or use one of the cheaper online versions.

The question is would this be a better option that say Zurich LifeSave option using funds? I guess it all depends on the costs associated to Zurich LifeSave or similar


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## Gordon Gekko (7 Jan 2017)

For simplicity (in terms of tax and managing the investment risk) I would suggest something like the Zurich Life product.

Buying direct shares yourself can be messy.


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## Steven Barrett (7 Jan 2017)

The regular saver market is pretty small in Ireland. The best product out there is the Zurich Life one, the rest are more expensive. I've been paying into their Dividend Growth fund since 2009 and it's done very well. They now have a Blackrock Global Equity index fund if you want a passive strategy. 


Steven 
www.bluewaterfp.ie


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## Gordon Gekko (7 Jan 2017)

SBarrett said:


> The regular saver market is pretty small in Ireland. The best product out there is the Zurich Life one, the rest are more expensive. I've been paying into their Dividend Growth fund since 2009 and it's done very well. They now have a Blackrock Global Equity index fund if you want a passive strategy.
> 
> 
> Steven
> www.bluewaterfp.ie



Snap. Dividend Growth Fund up 17.5% last year!


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## Fella (7 Jan 2017)

Gordon Gekko said:


> Snap. Dividend Growth Fund up 17.5% last year!



Tell me more ! What kind of charges for these funds are these no loss relief / exit tax funds ?


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## Gordon Gekko (7 Jan 2017)

Investing in something because it did well is generally a bad idea.

The cost is generally 1%.

There is no loss relief and the tax rate is 41% on gains made when exiting or accumulated gains every 8 years.


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## Duke of Marmalade (7 Jan 2017)

Gordon Gekko said:


> Investing in something because it did well is generally a bad idea.
> 
> The cost in generally 1%.
> 
> There is no loss relief and the tax rate is 41% on gains made when exiting or accumulated gains every 8 years.


The disclosure document actually shows the cost at 2% p.a.  It is difficult to see how the costs can be less than this but the fact is that in today's very low return environment that is a very high charge.  I think the only economic option these days is DIY.


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## Fella (7 Jan 2017)

Gordon Gekko said:


> Investing in something because it did well is generally a bad idea.
> 
> The cost in generally 1%.
> 
> There is no loss relief and the tax rate is 41% on gains made when exiting or accumulated gains every 8 years.



I'd never invest because it did well in the past I'm a firm believer in efficienct markets and I'll generally buy anything that has enough money traded to become efficient. All I care about is low costs and the spread between bid and ask. 

The reason I asked the question tbh was because I see SBarret saying he's invested in this since 2009 and I figured he was a shrewdie as he gives investment advice and I found it confusing why he would choose this over just buying shares himself.


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## Gordon Gekko (7 Jan 2017)

Fella said:


> I'd never invest because it did well in the past I'm a firm believer in efficienct markets and I'll generally buy anything that has enough money traded to become efficient. All I care about is low costs and the spread between bid and ask.
> 
> The reason I asked the question tbh was because I see SBarret saying he's invested in this since 2009 and I figured he was a shrewdie as he gives investment advice and I found it confusing why he would choose this over just buying shares himself.



I don't think that any of us have the resources to research share purchases ourselves.


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## Fella (7 Jan 2017)

Gordon Gekko said:


> I don't think that any of us have the resources to research share purchases ourselves.



I think you don't need to the markets already priced it for you.


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## gnf_ireland (7 Jan 2017)

Gordon Gekko said:


> Snap. Dividend Growth Fund up 17.5% last year!



The only 'disadvantage' I associate to the Zurich option is the fact I have my pension with them, and therefore invested in the same exact funds (by enlarge). I have Dividend Growth in my pension (as does my wife in her's) but if its good enough for pensions, its good enough for investments



SBarrett said:


> The regular saver market is pretty small in Ireland.


Absolutely agree. There used to be Quinn Life and Rabo Direct serving this market but they are now gone as options. I would really love to see an ISA type product available to work with here. I am surprised we have not followed the UK on that (since we try and follow them in so many other ways)



Gordon Gekko said:


> There is no loss relief and the tax rate is 41% on gains made when exiting or accumulated gains every 8 years


Yes, this is most definitely a negative with investment funds. I really would like to see their taxation moved back in line with shares, whereby loss relief could occur and subject to capital gains. May not happen for a while though.



Duke of Marmalade said:


> The disclosure document actually shows the cost at 2% p.a.


I wonder is there room to negotiate on the annual management charges? I know there is for pensions, so wondering if this would be any different ?


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## sunnydonkey (8 Jan 2017)

Gordon Gekko said:


> I don't think that any of us have the resources to research share purchases ourselves.



If you were buying a car you would read the brochures, know the specs, look at the reviews etc.

It's exactly the same for shares. Educate yourself about the company and its business, look at its annual report, check (cynically) the discussion boards and alternative opinions.  Everything you need is online. You dont need to read up on every share, just the ones that interest you, and you will find that, over time, you will develop a healthy knowledge. Don't depend on analyst recommendations or newsletters, but try to work out why they have arrived at their conclusions and then consider opposing angles. All this is something that you will either interest you or will not. If it doesnt interest you, stick to index funds or the like rather than investing in individual shares.


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## Steven Barrett (9 Jan 2017)

Fella said:


> The reason I asked the question tbh was because I see SBarret saying he's invested in this since 2009 and I figured he was a shrewdie as he gives investment advice and I found it confusing why he would choose this over just buying shares himself.



I have no interest in researching companies to assess whether they are good value buys or not. And I certainly don't have the skill to buy at the correct price, so will probably buy at a higher price than someone with great knowledge of trading. 

I am fully aware that the regular saver plan is expensive but I am outsourcing all the work I don't want to do to Zurich and that comes at a cost. Trading relatively small premiums each month won't be that cheap either. 


Steven
www.bluewaterfp.ie


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## Dman35 (9 Jan 2017)

I believe investandsave.ie only charge 1% p.a. and they have access to a number of Zurich funds. 

I am not connected in anyway to investandsave..


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## gnf_ireland (9 Jan 2017)

thanks @Dman35


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## Sarenco (9 Jan 2017)

I assume the Government's 1% levy is applied to all premiums, in addition to whatever commission your broker charges, the fund's AMC and whatever other undisclosed costs on top of the AMC are applied by Zurich.

If you do somehow manage to generate a positive return after all those costs, the Government will happily take 41% of the upside! 

Can't see the attraction myself.


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## gnf_ireland (9 Jan 2017)

@Sarenco  Ok, I fully accept this is not a 'cheap' option. But what are the alternatives.

Lets assume a couple have been good with their finances and are in a very decent position. The couple both have good PAYE jobs (100k plus each), no kids, mortgage paid or on very low tracker and live a very good lifestyle. They max their pension contributions, but still have 20 years to retire. Between them they are in a position to conservatively save 2k a month after all of that, including the annual shopping tip to NYC. They already carry a sizeable emergency fund on deposit (this situation is not me personally!)

Their options for saving/investing are:
1. Put the money into a multiple regular savers @3% (max) before DIRT @40% in 2017. At the end of the year they have another 24k in the pot.
2. Invest it into something that may pay a better return. There are funds out there with an annualised return over 10 years in excess of 8%. Take off the 1% AMC, and you are still left with 7%. I accept Exit Tax at 41% is a pain, but it still leaves a 4% return after all charges and taxes
3. Balance between the two, and save up the funds for 6 months/1 year and then do a once off purchase of a ETF with much reduced costs - but also have the Exit Tax issue
4. Put 1k into deposits and 1k into investments each month and offset the risk in some way

I agree though, the charges and taxation environment do not make this a 'cheap' option, but what are the genuine alternatives for people with spare cash that are looking to make it work in the medium/long term?


This is where something like an ISA would be so attractive for people in this position - but sadly I cannot see it coming in the short term. Although the payments in are after tax, at least the returns are not taxed. I think a Junior ISA would be a major step forward to getting people to save for the future, or even a Mortgage Saver ISA etc


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## Sarenco (9 Jan 2017)

Well, in that scenario I would apply any monies in the following order:-

Continue to max out all pension contributions (that could be as much as €57,500pa, assuming the couple are both in their 40s) and invest all contributions in global equity index funds;
Pay down any remaining mortgage debt (including any mortgage on a tracker rate); and
Purchase 5-year State Savings Certificates on a rolling basis up to the maximum allowed for a couple (€240k per issue).
The fact that some funds had a particular return in the past is not predictive of future returns.

It's important to consider your asset allocation accross all accounts (pension and otherwise) taken together.

An Irish ISA would be wonderful but I can't see it happening any time soon.


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## Duke of Marmalade (10 Jan 2017)

_Sarenco_  I am with you up to a point but I would suggest the following qualifications.

Yes for the time being max out your pension contributions but keep an eye on the math.  A time will come when each extra contribution is effectively funding pension which will be taxed at the marginal rate so you will be getting 41% tax relief on the way in but paying 52% tax on the way out - time to stop. (remember to allow for the OAP in determining when you cross the line to the highest marginal rate.)

5 year savings certs yield .98% p.a. tax free over 5 years but if you cash out even after 4 years this reduces to .47% p.a.  I think we can expect interest rates to rise over the next few years.  Prize Bonds yielding .85% tax free is the more flexible option and these can be bought up to a joint max of €500K.


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## ant dee (10 Jan 2017)

gnf_ireland said:


> Lets assume a couple have been good with their finances and are in a very decent position. The couple both have good PAYE jobs (100k plus each), no kids, mortgage paid or on very low tracker and live a very good lifestyle. They max their pension contributions, but still have 20 years to retire. Between them they are in a position to conservatively save 2k a month after all of that, including the annual shopping tip to NYC. They already carry a sizeable emergency fund on deposit (this situation is not me personally!)



This is beyond the scope of the 'exposure to equities' question but, in my opinion, a couple that is at such a good position financially might want to get some exposure in cryptocurrencies and physically owing precious metals


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## gnf_ireland (10 Jan 2017)

Duke of Marmalade said:


> 5 year savings certs yield .98% p.a. tax free over 5 years but if you cash out even after 4 years this reduces to .47% p.a. I think we can expect interest rates to rise over the next few years. Prize Bonds yielding .85% tax free is the more flexible option and these can be bought up to a joint max of €500K.



So in essence both @Duke of Marmalade  and @Sarenco  you are saying that there is no scenario where you would recommend someone holding funds or equities outside a pension structure and should be on State deposit only?

The annualised growth for the S&P 500 index over the last 40 years was 12.2%; 5 years was 14.94%; 10 years was 8.65%; 20 years was 9.27%

Even accounting for 3% in costs and divergence from the fund, this shows the capability of earning in excess of 5% in return. Factor in tax at 40%, you still have a return of 3% after tax (I appreciate State savings are 'risk free'). 

I appreciate the tax environment is poor here, but surely some personal exposure to equities is not a bad thing?


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## Duke of Marmalade (10 Jan 2017)

_gnf_  I am wary of past performance. Not saying your facts are wrong but there is a big reason to believe as never before that the past is not a guide to the future.  And that big reason is inflation.  According to Rory Gillen the average house price in Ireland in 1970 was €7K.  

I also remember when 10% p.a. after tax was the accepted norm for state savings.  In any case in another thread it is hown that the apparent stellar growth of the S&P over the last 20 years actually translates to a very modest return after tax and charges when one does the sums for regular investment.


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## gnf_ireland (10 Jan 2017)

Duke of Marmalade said:


> I also remember when 10% p.a. after tax was the accepted norm for state savings.  In any case in another thread it is hown that the apparent stellar growth of the S&P over the last 20 years actually translates to a very modest return after tax and charges when one does the sums for regular investment.



So to summarise your concern - it is around the impacts of regular investments rather than the funds/equities themselves, or have I missed your point ?


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## Duke of Marmalade (10 Jan 2017)

No, it was pointed out that the S&P had done very well 1995 to date, but on doing the sums for a reguar contribution things were not at all so rosey.  Not that regular investment is bad but that the returns over the last 20 years averaged by year of investment are not at all impressive.  So what it all points to is that the experience of equities in the new millenium has not been a happy one.  Forget the 20th century.


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## gnf_ireland (10 Jan 2017)

@Duke of Marmalade 
Ok, I get you now. I accept the return on since 2000 has been much more volatile than previously and this obviously impacts the return more


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## Sarenco (10 Jan 2017)

gnf_ireland said:


> So in essence both @Duke of Marmalade  and @Sarenco  you are saying that there is no scenario where you would recommend someone holding funds or equities outside a pension structure and should be on State deposit only?



I wouldn't go that far! 

I was simply suggesting the approach that I would take if I was in the fortunate position of your hypothetical couple.

Bear in mind that this couple already has a significant exposure to equities if they have been maxing out their pension contributions and have invested 100% of those contributions in global equity funds.  I am suggesting that they continue with this approach as regards their (before-tax) retirement savings but start to invest their (after-tax) savings in safe, tax-free, State savings products once they have cleared their mortgage debt. 

Once the State starts deducting 1% from all contributions and 41% from any positive returns from an investment product, the odds of coming out ahead with that product lengthen dramatically. 

My main point, however, is that your hypothetical couple has no _need_ to take any further equity risk with their after-tax savings (whatever about their willingness or ability to do so).  Why take more risk with your money then you absolutely need to in order to reach your financial goals?


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## gnf_ireland (10 Jan 2017)

Sarenco said:


> My main point, however, is that your hypothetical couple has no _need_ to take any further equity risk with their after-tax savings (whatever about their willingness or ability to do so). Why take more risk with your money then you absolutely need to in order to reach your financial goals?



Like a lot of people, the financial position a couple like that are in is based purely on their continued income. If they wanted to retire earlier, take a sabbatical, or slow down earlier, they need financial means to do so. We have seen a few people comment on here regarding high income/high spending patterns. 

If I was in the position to gain financial freedom at 55 (for example), I would serious consider having an extended 2-3 year sabbatical and enjoy the world.

I guess the point I am trying to make is should people who can afford to take risks continue to do so in order to achieve financial freedom earlier. I 100% once financial freedom has been reached that is a different matter.

Sadly I am not in the position of that hypothetical couple, but I can envisage a position relatively shortly where mortgage is effectively cleared, reasonable emergency fund exists and a level of savings exist towards the longer term. However, with two young kids we would be no where close to financial freedom, but would like to target it around the age of 60 (~20 years time). With funds available for savings/investments, the question is where should these go. The clear recommendation from here appears to be State Savings, and completely understand why you are saying this !


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## GSheehy (11 Jan 2017)

The allocation rate on the InvestAndSave product is 101% on all contributions over the life of the contract, provided you Invest €5,000 and Save €100pm (minimums) at outset. I just wanted to clarify that in relation to the Levy.


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## Steven Barrett (11 Jan 2017)

GSheehy said:


> The allocation rate on the InvestAndSave product is 101% on all contributions over the life of the contract, provided you Invest €5,000 and Save €100pm (minimums) at outset. I just wanted to clarify that in relation to the Levy.



That's the standard rate that available to all in the market. Advisor commission of 10% is included in the charging structure. 


Steven 
www.bluewaterfp.ie


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## GSheehy (11 Jan 2017)

SBarrett said:


> That's the standard rate that available to all in the market.



According to the standard product guide, there are 18 commission structures available to all in the market. Of these, only 6 have an allocation on 101% and only 1 of these has an AMC of 1%.

The standard product has a minimum SP of €7,500. 

But, more significantly, the standard product has early surrender penalties, varying from 5% to 1% depending on which structure is sold, and these apply to full or partial encashments. The InvestAndSave product does not have any surrender charges.


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## Duke of Marmalade (11 Jan 2017)

Sarenco said:


> My main point, however, is that your hypothetical couple has no _need_ to take any further equity risk with their after-tax savings (whatever about their willingness or ability to do so).  Why take more risk with your money then you absolutely need to in order to reach your financial goals?


And therein lies a rather intractable contradiction at the heart of the investment decision.  Those who can afford to take risk don't need to and those who need to take risk can't afford to.

Put more graphically.  A choice to invest in state savings will say guarantee you lifestyle (2) in retirement.  Investing in equities gives a good chance of the somewhat higher lifestyle (3) but at the risk of the lower lifestyle (1).  What 1,2, and 3 are will vary by individual and indeed the utility put on the same 1,2 and 3 will also be personal.  For the hypothetical couple lifestyle (2) seems eminently acceptable so why risk dropping to (1) just for the chance of (3).  For the more average punter (2) is probably not very aspirational, she might prefer to risk the even worse prospects of (1) to at least have the hope (indeed expectation) of (3).


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