# Stockmarket - Investing Directly as opposed to via Quinn Life



## ronaldo (25 Oct 2006)

I'm 23 years old and own my own home (although this is currently rented out whilst I'm living at my parents home). The LTV is 55%. I have a credit card debt of €1,800 which should be paid off by January after which I will be earning about €1,900 - €2,000 after tax.

Looking at other investment opportunities, I feel that the stockmarket is my best bet. I have looked alot at German property but feel I have missed the boat on the big gains.

I had originally intended to open a Quinn Life freeway fund but now feel that, as I am in this for the long term, it may be best to invest directly in a basket of shares.

Looking at stockbrokers, NIB seems to be the best for me as it has very competitive charges and I will be soon moving all my banking business to them anyway (mortgage and currrent account). They charge 0.75% on the first €15,000 with a minimum of €20 commission. This gives access to all European and US stocks. Based on this, I work out that you can place a trade of €2,666 whilst paying the minimum commission of €20.

Therefore, my current plan is to save €890 per month and select one share every three months. I will then purchase €2,666 worth of that particular share. Using this approach, it will be 2.5 years before I have a basket of 10 shares. After I have a basket of ten shares (probably spread throughout Europe) and have saved a further €2,666, I will review the ten shares and, if there is any particular share I feel should be sold, sell it and purchase (€2,666 + proceeds from share sale) of another share. Otherwise, keep all ten shares and purchase €2,666 worth of my choice of one of the ten shares I currently hold thus increasing my holding.

In 2.5 years time, I will have spent a total of €26,660 on shares and paid €200 in charges. If I had been with quinn-life, I would now be paying a 1% p/a charge which is €267 p/a. I would also have paid their charges along the way which I work out at a total of €367 ( I can show my workings if you like but this is based on the values of the shares purchased not changing which will, obviously, not be the case. However, this is useful to illustrate the affect of charges ). 

Note: On the NIB fees page on their website, it doesn't mention an annual charge. I read two conflicting views on different forums - one saying that there was a €40 p/a maintenance charge and one saying there was no annual charge. Even if this charge is applicable, the NIB charges would amount to €300. Also, quinns current charge of €367 would increase as you purchase more shares. NIBs charge, if there is one, would stay the same at only €40. After 5 years, that €40 is nothing compared to Quinns €734.


I'm aware that I will be at increased risk during the initial period when I only own 1/2/3/4 different shares. However, would you agree that, in the long term, this is the best way someone can enter the stockmarket. Obviously, one exception is where someone wants to invest in the stockmarket but doesn't want to look at the nitty gritty of particular shares in which case a Quinn Life fund would be better.


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## ClubMan (25 Oct 2006)

Have you read the AAM Guide to Savings & Investments on direct versus indirect equity investments.


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## MugsGame (25 Oct 2006)

A fund may spread your risk more than individual shares. A fund provider will (usually) save you time -- no need to pick shares, calculate tax or make tax returns.


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## ronaldo (25 Oct 2006)

Whilst I agree that a fund spreads your risk over more shares, I feel that 10 well picked stocks, i.e. not high risk tech shares or the likes, will spread risk adequately for all but the most risk adverse of us. 

I also agree that a fund manager will save your time. However, using the approach below of investing €2,666 per quarter and assuming growth of 6% per annum, your investment will be worth €144,678 after 10 years. This means that your fund manager will be charging you €1,447 p/a (1%) for your saved time. I suppose it all depends on how long-term you are investing and how much time you would spend picking shares - which shouldn't be too much if you're using a buy and hold approach. 

Using the approach I plan to use, you wouldn't have to look near shares until once every three months.


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## MugsGame (25 Oct 2006)

Tax treatments for funds may also be more attractive -- gross roll-up within the fund (CGT on gains every 8 years) rather than income tax on dividends and CGT on disposal for shares.


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## Howitzer (25 Oct 2006)

ronaldo said:


> I'm 23 years old and own my own home (although this is currently rented out whilst I'm living at my parents home). The LTV is 55%. I have a credit card debt of €1,800 which should be paid off by January after which I will be earning about €1,900 - €2,000 after tax.


 
It's probably fair to assume you own the property less than 5 years? Have you exercised your tax liability wrt stamp duty clawback and have you been paying income tax on your rental income?

I'm not being pedantic. Before you start thinking about your future investments you need to ensure that your present investments are secure and you aren't hit with a massive tax bill in a couple of years. 



ronaldo said:


> I have looked alot at German property but feel I have missed the boat on the big gains.


 
German house prices lost value last year. Maybe the boat you're referring to is the Paddy price whereby Irish people simply trade properties between themselves and that this has been missed?


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## ronaldo (25 Oct 2006)

Ah tax.. that's one area that confuses the hell out of me. 

As far as I'm aware, you get an annual CGT allowance of €1,270. Is this correct?

If so, does this mean that it can be worthwhile selling of one batch of shares if they have increased in value by much. Let's say, for example, I purchase the shares of a particular company at €2,500 and the value rises to €3,700. It may be worth selling this before the end of the year for the following reasons:

the markets perceived "fair value" for that particular holding is €3,700,
the value *to you *is €3,700 + the CGT savings you could make by selling them and using your CGT allowances for the year, i.e. the value to you is €3,700 + (€1,200*20%) = €3,940
therefore, in order for you to break even when holding the shares through to the new year, they would have to increase in value to €3,940 or by 6.5%
Does this make sense. It may be totally of the mark as tax is a subject that baffles me...


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## Howitzer (25 Oct 2006)

ronaldo said:


> Ah tax.. that's one area that confuses the hell out of me.


 
I guess that answers my question. Oh well. Easy come, easy go.


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## ronaldo (25 Oct 2006)

Howitzer, there was a slight mistruth in my original thread. My own home is a self-build due to be completed next month. The equity in it is due to a combination of parental help and a relatively big deposit saved by myself. There is a contract in place to rent it to the council once complete. I had originally explained this in the original thread but it got a bit longwinded. The house will be rented under the RAS which is structured in such a way that there is no choice but to be tax compliant.


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## MfS (25 Oct 2006)

Is it just me or does this thread seem to be heading off in a tangent.




As regards charges, taxes and other costs is it better to invest directly in 8 different shares at 2700

or to put the money in with quinn life ?


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## ronaldo (25 Oct 2006)

As I see it (please suggest changes/edits to this if incorrect):

*Commissions*

*Option 1:* Investing in shares directly - 0.75% one-off charge assuming you invest a minimum of €2,666 in each trade via [broken link removed] sharedealing service. Nothing after this.

*Option 2:* Investing with Quinn Life - Annual charge of 1%.


*Taxes*

*Option 1: *At marginal rate annually on dividends, i.e. 20% or 42%. Let's assume an annual yield of 2.7% (this is the ISEQ 20 yield for 2005 - see link below). At a tax rate of 42%, your annual tax on dividends would be 42% of 2.7% which is 1.13% of total fund value. At a tax rate of 20% your annual tax on dividends would be 0.54%. Then, when you sell your holding, the tax on gains will be 20% (CGT). There will also be a 1% stamp duty on the purchase of shares using this option.

*Option 2: *No dividend tax but a tax on gains of 23%. This 23% will also be paid on the dividends that have accumulated within the fund. With dividends at 2.7% p/a, the 23% tax (payable on exit) equates to 0.62% of fund value per year.



*Summary*

*...............................Option 1................Option 2........................*
Entry Charge.............0.75% of value..........Nil................................
Annual Charge...........Nil...........................1% of fund value.............
Dividend Tax.............0.54% / 1.13%...........0.62% p/a - paid on sale..
Exit Tax ..................20% of gain...............23% of gain....................
Stamp Duty..............1% of value...............Nil................................. 


*Conclusion (assuming you're a 42% taxpayer)*

*Option 1: *In a 5 year timeframe, the entry charge works out at 0.15% p/a, the the dividend tax works out at 1.13% p/a and the stamp duty on purchase works out at 0.2% p/a. Then when you sell, you'll pay 20% of fund value.

*Option 2: *There is a 1.62% annual charges as opposed to the 1.38% annual charges when buying shares directly. Then, when you sell, you'll pay 23% on gains.


*Which option is best?*

As can be seen above, the charges for option 1 works out at 0.05% cheaper per year which is a very minor difference. Then, the tax on gains in the value of your shares works out at 3% cheaper using option 1. Assuming that your shares (without dividends reinvested) rise at 5% per year, after 5 years your gain will have been 28%. Therefore, you would be saving 3% in exit tax on 28% of the fund value = 0.85% of fund value. When this saving is added to your 0.05% per year for 5 years saving in other charges, it means that, after 5 years, you will have saved 1.1% of the fund value by using option 1.

In conclusion, you should invest directly in shares if you view it as a hobby and enjoy reading the financial pages of the newspapers and like the idea of choosing your own shares. Otherwise, if you would prefer a set amount of money coming out of your bank account each month and being invested in a fund by your fund manager, you should invest via quinn life. The differences in charges do not make enough a difference to have a major affect on the value of your investments. I should mention at this point that one additional advantage of investing directly in shares is that, each year, you get a CGT allowance of €1,270. This means that, every year, you can sell a portion of your shares that have risen in value by €1,270 and avoid paying the 20% exit tax thus saving an additional €254 (less the €20 charge for selling them). This works well if you think that a particular share in your portfolio has risen in value excessively and is now overvalued.

_ISEQ 20 Yield:_
[broken link removed]


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## MugsGame (25 Oct 2006)

Also factor in 1% stamp duty on purchase of Irish shares, payable via your broker. 

Some foreign shares (particularly US ADRs) may have brokerage or custodian fees which aren't included in your local broker commission and may not be discernable upfront.

I'd also estimate how much time your tax returns on shares will take each year -- half a day or more might not be unrealistic, which could be expensive if you value it at half a day's pay. Ditto for assessing your portfolio and picking new shares to buy.

Sorry I seem to keep throwing up reasons funds may be better. I don't actually know and don't have any particular bias. You are going about analysing it the correct way, which is why I keep thinking of things to throw in. I suspect the costs are about equal, but funds are likely to be simpler to use, more flexible, and provide better diversification.


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## ClubMan (25 Oct 2006)

ClubMan said:


> Have you read the AAM Guide to Savings & Investments on direct versus indirect equity investments.


And also:

Buying shares directly or through a Unit Linked Fund?
Key posts


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## Lumpsum (25 Oct 2006)

Why not buy an ETF or two and save on the stock picking/tax return time?


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## ronaldo (26 Oct 2006)

MugsGame, I have edited post #11 above to take into account the 1% stamp duty as suggested by yourself. I will also add this post to the key post that Clubman refers to below. Perhaps it may be possible for you all to come up with some suggestions to edit/reword the post in this thread and I can then make the updates to this thread and the thread in the key post.


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## ronaldo (26 Oct 2006)

Hi Lumpsum,

Would I be correct in saying that ETF's would incur the same trading commissions, taxes on dividends and taxes on sale as purchasing shares directly. However, they would also incur an additional management charge - 0.35% is one of the more competitive ones I can think of.


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## charttrader (26 Oct 2006)

_ Would I be correct in saying that ETF's would incur the same trading commissions, taxes on dividends and taxes on sale as purchasing shares directly. However, they would also incur an additional management charge - 0.35% is one of the more competitive ones I can think of.                                                                                                                                              

_Don't forget - no stamp duty with ISEQ 20 ETF.
_

_


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## darag (26 Oct 2006)

> Option 2: No dividend tax but a tax on gains of 23%. This 23% will also be paid on the dividends that have accumulated within the fund. With dividends at 2.7% p/a, the 23% tax (payable on exit) equates to 0.62% of fund value per year.


Depending on how long you plan to do this, you're neglecting the facts that: a) the "time value of money" means that the exit tax is worth much less than a yearly tax bill b) the .62% is sitting in the fund earning you gains (hopefully) until you cash out.

Also, I really don't believe a basket of 10 shares will diversify your risk sufficiently.  There is no way that you'll be able to cover even a tiny subset of types of shares you'll need to be diversified: e.g. large cap v. small cap, growth v. value, sector and geography.  ETFs are the only way to go.

To be honest I have investments in both but I think the overhead in terms of paperwork (for tax purposes) and the tax treatement of dividends has turned me off the direct share route.  The fact that I have to buy and sell in lumps of about 5 grand to minimise trading costs is also a turn off.  Maybe when my investment fund is five times the size it is now, I might reconsider.  Especially for someone starting off, I think index funds are the way to go.


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## pator (26 Oct 2006)

Two basis question  - EFT = ?

"Don't forget - no stamp duty with ISEQ 20 ETF." Could somebody expand on what this is ? Thanks


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## ClubMan (26 Oct 2006)

Where to buy ETF, iShares & QQQ shares 
ISEQ Exchange Traded Fund (ETF) FAQ

Exchange-traded fund - Wikipedia


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## Ollie12 (26 Oct 2006)

I'd open an E-Trade account. Trade US stocks and some of the big Irish companies that are quoted in US. You'll only pay $9.99 per trade - but you do have the FX risk


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## laragh (27 Oct 2006)

ronaldo said:


> Note: On the NIB fees page on their website, it doesn't mention an annual charge. I read two conflicting views on different forums - one saying that there was a €40 p/a maintenance charge and one saying there was no annual charge.


 
I went in to my local NIB branch to ask about availing of their share dealing service and was told that there is indeed a €40 charge to set up waht they call a custody account - I think its an account to manage your different sharholdings since you don't get any certs for the shares you buy.

With this charge + the €20 minimum charge per trade - does this leave NIB's share dealing service dear compared to other on-line share dealing services?

If so it's a pity since the share investment section of their excellent online banking website looks the business!!


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