19 year old looking for advice on portfolio

[airgeadman]

I am only after finding out about this forum and I am just looking for some feedback regarding my investment strategy. I plan on diversifying my investment in 4/5 ETFs. I don't plan on investing for another month or so until I do more research on this.

At the moment this what my portfolio roughly looking like:

iShares MSCI Core UCITs S&P 500 (50% of the portfolio)
iShares MSCI Core UCITs Emerging Markets (10%)
iShares MSCI EU small-cap UCITs (20%)
Has anyone any feedback, as it would be much appreciated. Also, my boss (I'm a part-time worker in a shop) once told me that a 15% return per annum is ideal. Is this too ambitious to achieve with an ETF based portfolio?

***EDIT & UPDATED (IGNORE EVERYTHING ABOVE!!)***
Appreciate the feedback. For some context. I have several thousand I intend on investing and this is taking into account that I have an 'emergency fund' set aside. I recognize my initial thought process on the portfolio is poor. I know some people are probably thinking why is this guy asking for advice if he isn't going to take it, but I just want to say I have taken all the advice on board and I am grateful for it. I am slightly more agro than putting 100% into global ETF. Just to explain my reasoning, to again going with 4 ETFs and not just the global. I want to invest 20% of my money in something (EM and Small Caps) more volatile than the global ETF as I am prepared to take on that risk. US Small Caps have outperformed Large Caps by an average of 2% per annum between 1926 and 2017. My reasoning behind choosing an exclusive European ETF is because the World ETF holds 70% US and Canada, and about 10% between Japan & Aus...ie. 20% Europe I would like more than 20% exposure to Europe. My new updated approach is:

iShares Core MSCI World UCITS ETF Acc 60%
iShares Core MSCI Europe UCITs 20%
iShares Core MSCI EM IMI 10%
Russell 2000 Small-Cap tracker fund10%

Still unsure about the EU ETF because the UK has a 20% holding in it, and I wouldn't be confident with the UKs economy over the coming years with the likelihood of a 'No Deal Brexit'... Will i scrap this and go 80% global, 10 EM, 10 Small cap.. OR maybe 60 global, 20 %QQQ, 10 EM, 10 SC.

Any feedback again is appreciated.

 

[AAAContributor]

Is there any particular reason you wish to invest in separate ETFs rather than a simpler approach with one that is invested in every geography, especially since you are a newbie investor? A world equity fund will most likely be 50-60% US which within that allocation will give you exposure to US tech. Also, can you clarify what your boss meant? Was he saying that you should expect 15% growth in your investments annually? Was he saying that if you put in €1,000 this year you should invest €1,150 next year? It's not too clear so hard to comment on it.

 

[airgeadman]

Is there any particular reason you wish to invest in separate ETFs rather than a simpler approach with one that is invested in every geography, especially since you are a newbie investor? A world equity fund will most likely be 50-60% US which within that allocation will give you exposure to US tech. Also, can you clarify what your boss meant? Was he saying that you should expect 15% growth in your investments annually? Was he saying that if you put in €1,000 this year you should invest €1,150 next year? It's not too clear so hard to comment on it.

I'm pretty sure he meant that a 15% earnings/return on your investments every year is steady and achievable. Also, I thought 4 ETFs isn't a huge amount. The global index is really good from that point of view but I would like a larger exposure to Small Caps which outperform Large Cap companies on average by 2% every year since the 70s. Also having a small amount in EM, because they are a high growth equity. But yes, I will take your suggestion onboard and thank you.

 

[AAAContributor]

You should quiz your boss a bit more. What are they invested in? How long have they been invested? Maybe that 15% p.a. was their experience but did they get lucky? Given your proposed strategy of a globally-diversified portfolio with a tilt towards small cap, a steady and consistent 15% p.a. is fanciful. If you are cultivating a curiosity in the markets and public equities, there is no harm in opening an account for yourself, investing in a few funds, and learning the nuts and bolts of the markets, corporate actions, filing a tax return, stomaching volatility on your small caps to get the extra return you speak of. However, if you are looking to invest in equity markets for the long-term as an Irish investor, there is more bang for your buck in a pension rather than using after-tax money like you are proposing. Also, at your age you'd also get more return by investing in your human capital - are you on course for getting a decent trade/qualification in something that will get you paid? Are you the entrepreneurial sort? Could you see yourself starting a business/website where the savings could be used as capital to develop that angle? Could you be taking off travelling in two years and need to tap your savings but COVID-19 has returned with a vengeance and markets are -50%?

 

[Boyd]

Also read up (loads of info on this site) about tax implications for UCIT funds. If you're following US-based books/internet forum advice of monthly investing, this doesn't work very well in Ireland, due to tax.

 

[cremeegg]

Also, my boss (I'm a part-time worker in a shop) once told me that a 15% return per annum is ideal.

A 15% return per annum is not a reasonable target. To measure yourseld against that is to set yourself up to fail.

Historically 6 to 7 %would have been normal. In the current low interest rate environment a much lower figure is likely.

 

[airgeadman]

Also, read up (loads of info on this site) about tax implications for UCIT funds. If you're following US-based books/internet forum advice of monthly investing, this doesn't work very well in Ireland, due to tax.

thanks for the advice! Yes, Ireland is cruel at times for investing compared to the US, they have really good tax-efficient Roth IRAs whereas we have a PRSA and company pension schemes. I'm aware that there is a tax due every 8 years on ETF gains but I don't think there is anything I can do about this. You can legally avoid tax on dividends earned by ETFs by selecting an accumulating type ETFs where the etf manager reinvests your dividends for you. Is there any key info I should know about when in comes to the taxation of ETFs in Ireland.

 

[AAAContributor]

Unlike securities subject to Capital Gains Tax (CGT), losses on UCITS funds cannot be offset against gains in other UCITS funds. Imagine the following scenario where you invest €10,000 today per the allocation in your original post. Fast forward three years and US markets go nowhere/fall slightly but the EUR strengthens against the dollar considerably. You are in a financial position where you need to liquidate the portfolio. You would realise a loss on your portfolio and to compound matters, you'd also have to pay tax:

Investment EUR	% Return	Market Value EUR	41% Tax EUR
5,000	-30%	3,500	0
1,000	15%	1,150	61.50
2,000	15%	2,300	123
2,000	10%	2,200	82
10,000		9,150	266.50

UCITS ETF investment is really a long-term play and you'd want to be sure you would not be chopping and changing strategy. That's why I suggested a world fund to you as you'd get all the exposure to the geographies and sectors you want without the added headache of accounting for tax on multiple funds. Accumulating funds does away with the headache of annual distributions as you say and it's just the investment anniversaries you have to worry about.

 

[Sarenco]

I'm a part-time worker in a shop

In that case, I'm guessing we are talking about relatively small sums.

I really don't think the administrative hassle is worth it.

Don’t invest in an ETF until you understand the tax

Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements

www.irishtimes.com

 

[Steven Barrett]

20% of the S&P 500 is made up of the Big 5 tech stocks, so you'll get plenty of exposure there. As has been mentioned already, there's no point in splitting your investments, just stick it all in something that tracks the MSCI world Index. They will do a much better job of designed a balanced portfolio that represents the global market that you (or I) can. Have a look here https://www.msci.com/developed-markets

If you are putting in relatively small amounts, maybe using an insurance company is the easier route and you can invest with €100 a month. They will look after the tax and admin for you

Steven
www.bluewaterfp.ie

 

[airgeadman]

A 15% return per annum is not a reasonable target. To measure yourself against that is to set yourself up to fail.

Historically 6 to 7 %would have been normal. In the current low interest rate environment a much lower figure is likely.

I obviously interrupted this incorrectly, he must mean his total investment portfolio returning 15% p.a then because he is a really well informed and experienced investor. Property is his niche but also has ETFs and individual equities. Yeah, 15% p.a isn't realistic with an ETF only portfolio. What can I do to get returns up? Should i invest maybe 20% of my money in some shares, I know that Apple has a 4:1 split on the 23rd which could favor some nice gains if the stock keeps gaining momentum with the iPhone 12 coming to market soon also

 

[airgeadman]

20% of the S&P 500 is made up of the Big 5 tech stocks, so you'll get plenty of exposure there. As has been mentioned already, there's no point in splitting your investments, just stick it all in something that tracks the MSCI world Index. They will do a much better job of designed a balanced portfolio that represents the global market that you (or I) can. Have a look here https://www.msci.com/developed-markets

If you are putting in relatively small amounts, maybe using an insurance company is the easier route and you can invest with €100 a month. They will look after the tax and admin for you

Steven
www.bluewaterfp.ie

Appreciate the feedback. For some context. I have several thousand I intend on investing and this is taking into account that I have an 'emergency fund' set aside. I recognize my initial thought process on the portfolio is poor. I know some people are probably thinking why is this guy asking for advice if he isn't going to take it, but I just want to say I have taken all the advice on board and I am grateful for it. I am slightly more agro than putting 100% into global ETF. Just to explain my reasoning, to again going with 4 ETFs and not just the global. I want to invest 20% of my money in something (EM and Small Caps) more volatile than the global ETF as I am prepared to take on that risk. US Small Caps have outperformed Large Caps by an average of 2% per annum between 1926 and 2017. My reasoning behind choosing an exclusive European ETF is because the World ETF holds 70% US and Canada, and about 10% between Japan & Aus...ie. 20% Europe I would like more than 20% exposure to Europe. My new updated approach is:

iShares Core MSCI World UCITS ETF Acc 60%
iShares Core MSCI Europe UCITs 20%
iShares Core MSCI EM IMI 10%
Russell 2000 Small-Cap tracker fund10%

Still unsure about the EU ETF because the UK has a 20% holding in it, and I wouldn't be confident with the UKs economy over the coming years with the likelihood of a 'No Deal Brexit'... Will i scrap this and go 80% global, 10 EM, 10 Small cap.. OR maybe 60 global, 20 %QQQ, 10 EM, 10 SC.

Any feedback again is appreciated.

 

[airgeadman]

Unlike securities subject to Capital Gains Tax (CGT), losses on UCITS funds cannot be offset against gains in other UCITS funds. Imagine the following scenario where you invest €10,000 today per the allocation in your original post. Fast forward three years and US markets go nowhere/fall slightly but the EUR strengthens against the dollar considerably. You are in a financial position where you need to liquidate the portfolio. You would realise a loss on your portfolio and to compound matters, you'd also have to pay tax:

Investment EUR	% Return	Market Value EUR	41% Tax EUR
5,000	-30%	3,500	0
1,000	15%	1,150	61.50
2,000	15%	2,300	123
2,000	10%	2,200	82
10,000		9,150	266.50

UCITS ETF investment is really a long-term play and you'd want to be sure you would not be chopping and changing strategy. That's why I suggested a world fund to you as you'd get all the exposure to the geographies and sectors you want without the added headache of accounting for tax on multiple funds. Accumulating funds does away with the headache of annual distributions as you say and it's just the investment anniversaries you have to worry about.

Yeah, not a pretty sight. I definitely would be a buy & hold investor, once I eventually select my ETFs, I will stick with them and only add to them once a year or so. You are correct about the taxation of them and how chopping and changing will destroy any ETF portfolio. Accumulating funds seem to be the way to go as you do not have to pay tax on dividends earned.

 

[PebbleBeach2020]

You are 19. Enjoy yr money. Go on holidays. Buy flash cars. Chase skirt. U can do yr investing and sensible stuff in 10 years time. Yr 20's are for living in.

 

[Steven Barrett]

The MSCI World Index has small and medium cap companies as well.


As someone who has worked as a financial advisor for over 20 years, for a lot of that time, part of our role was to make recommendations on asset allocations for clients. The truth is, advisors don't have the skills to do that. We wouldn't know how much to put into Japanese equity and how much into US or European. MSCI do have the people to do that and they have been doing it for decades. Their Indices are recognised as the benchmark for a representation of the global stock market. It may be boring and just one fund, but it works and saves a lot of hassle.


Steven
www.bluewaterfp.ie

 

[cremeegg]

I obviously interrupted this incorrectly, he must mean his total investment portfolio returning 15% p.a then because he is a really well informed and experienced investor. Property is his niche but also has ETFs and individual equities. Yeah, 15% p.a isn't realistic with an ETF only portfolio. What can I do to get returns up? Should i invest maybe 20% of my money in some shares, I know that Apple has a 4:1 split on the 23rd which could favor some nice gains if the stock keeps gaining momentum with the iPhone 12 coming to market soon also

Maybe he is consistently getting a return of 15% on his investments, maybe he is Warren Buffet, maybe he is trying to impress you.

 

[SPC100]

Well done on your progress, research and intetest so far.

I assume your reason for multiple funds is surely to try and increase the return and lower the volatility.

I too was interested in a 'complicated portfolio' to capture those returns.

I'd recommend insurance fund with multiple indexes and/or a single ETF.

It's time in the market and not selling low that predicts most of the returns you will get. So my immediate advise is just put it in a low cost insurance fund tracking some major index(s), until you have built up substantial fund and have strong earnings.

I think an insurance based fund will get you the vast majority of the returns for much less effort. Leaving you free to spend that time on fun or learning things that will earn you more income in the future.

Remember most insurance funds allow you to rebalance free of charge too. Which helps capture the premium of multiple funds.

If you are dead set on ETFs, once a year cash in insurance fund and make a single set of etf purchases to minimize accounting/tax effort.

If you are dead set on ETFs id suggest keeping the set as small as possible.

In practice if you invested 10k and managed to get one percent more return from multiple ETF strategy you gain 100 euro a year.

But you have had to spend a lot of time effort to achieve that. You potentially have increased your costs too. And you open more risk that you will make a mistake in the future and sell high but low, as you have several funds and will consider others and switches etc.

Taxes on the other hand are guaranteed to cause a significant reduction on your return and on the amount of time you spend managing your affairs.

To avoid taxes, for best investment returns I'd suggest consider prsa - you can have 40-80 years of tax free growth! At 6p.c. a year your money would increase about 8 times over 40 years and 64 times over 80 years. After opening insurance fund, I'd suggest researching this.

But as you are young you likely want to keep some money free to start thinking about purchasing a house. Rather than locking it all in pension till you retire.

Next point:

If you did a coursr that enabled a career that doubled your income, you are taking about tens if thousands of euros per year in extra return per year for 40 years. That's why folks say invest in your human capital.

Or if you did a course that allowed you to get a job with best employer in your industry you likely gain by about ten percent of your annual earnings and have better work life balance.


Next point:
If you are paying rent, consider saving a deposit to buy a house or apartment that suits you but has high rental yield (see daft report for which areas and types have best rental yield), live in it and rent out the other rooms. The Irish rent a room relief enables 'house hacking' of your home.

Eitherway don't delay too long in your decisions as it is time in market generates the returns. And crafting perfect strategy will only have small effect on overall returns.