About to take the plunge - anything I've missed?

S

Sparx123

Registered User
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8
Hi All,

I'm close to making my first foray into investment on my own behalf and would appreciate the guidance of the good people on AAM to see if I've missed anything. A few pieces of info:
  • I'm 42, investment window is 15-20 years. I'm happy to leave funds where they are until the end of this window
  • To date I have held investments in various managed funds, the larger part of which is with Rabo. Them closing their investment arm has spurred me to do some research of my own to make my investments more efficient and less dependent on third parties
  • Will have ~€100k to invest initially with ~€3k/month thereafter
  • I've opened a Degiro account in preparation and done some reading (this site and Rory Gillen's book have been especially helpful).
Broadly speaking my intention is to invest in a small number of ETFs and continue to contribute to these over time, avoiding the temptation to look too closely at the rise and fall. Options as I see them are:

  • Invest in US-based ETFs: This means CGT on gains, 41% + PRSI + USC on dividends (which is fine). There is the $60k question over inheritance tax, but my biggest concern in my mind is currency risk. Is there any way to mitigate this?
  • Invest in UCITS (EU-based) ETFs: Marginal rate of tax on all gains (which isn't too bad), the ability to have accumulating funds (nice), and the option to avoid currency risk by investing is ETFs with Euro-based underlying stocks. What I think will hurt here is the 8-year rollup tax which will force me to sell a portion of my fund after 8 years and every year thereafter. Given my investment horizon I'm concerned that this will seriously inhibit the compounding effect of the investments.
Are there other options I'm not aware of or not considering (such as Euro-based funds that are not subject to 8-year rollup etc)? Any other pointers or words of advice? I'm still dithering between the two choices above so anything that might lead me to firmly decide on one or the other would be great! :)

Any help would be much appreciated!

Sparx
 
Before you invest, ask yourself all of these questions:
  • What is attracting you to investing
  • What existing savings have you
  • Do you want to save or invest (and do you know the difference?)
  • Have you any high interest credit card etc
  • Have you a rainy day fund of 3-6 months salary
  • Have you a pension
  • Have you any investment property
  • What exactly constitutes success for any investment portfolio
  • How long are you happy to be without this money, you say 10-12 years but any chance of early access needed?
  • What would you do if value dropped 30% overnight
  • What is your tax rate
  • Are you taxed in Ireland
  • Have you any existing CGT losses
Sleep on it and then think again before deciding what to do.
 
Thanks for the thought-provoking questions. To answer:

  • What is attracting you to investing
    • Ultimately to provide a supplement to my existing pension. I want to do this in a manner that is as efficient as possible and lines my pockets rather than those of a fund manager (sorry if any fund managers are reading!)
  • What existing savings have you
    • Without the exact figures to hand, approximately 80k split between credit union, regular saver deposit accounts and prize bonds
  • Do you want to save or invest (and do you know the difference?)
    • I have no need for the money now or in the near future and would like to see it grow significantly. So I'm willing to invest and accept the higher associated risk in return for the opportunity of greater growth
  • Have you any high interest credit card etc
    • I have no debts at all, mortgage is paid off
  • Have you a rainy day fund of 3-6 months salary
    • Yes, see above
  • Have you a pension
    • Good pension with my current employment, AVCs are maxed out
  • Have you any investment property
    • No (I'm assuming you wouldn't count my primary dwelling as an investment!)
  • What exactly constitutes success for any investment portfolio
    • For me, long term growth that beats anything I can achieve using safer means (deposit accounts etc).
  • How long are you happy to be without this money, you say 10-12 years but any chance of early access needed?
    • My horizon is more like 15-20 years, I don't anticpate needing it until this point
  • What would you do if value dropped 30% overnight
    • Nothing - I'm content to sit and ride out market fluctuations. As I come closer to needing the money I'd intend to move a greater proportion into less volatile bonds, cash etc. so that large swings in the market won't affect me as much
  • What is your tax rate
    • 41%
  • Are you taxed in Ireland
    • Yes
  • Have you any existing CGT losses
    • No
Hopefully this info will help!

Thanks
 
Well its not really to help me! It was to get you to think of a holistic financial review rather than just about investing (which people often forget to do). However, you seem to have a great handle on finances.

My main point would be about the UCIT funds. IMO avoid those as the issue is not just the 8 year rule, its the fact that you cannot offset a loss against a gain, so you can end up taxing exit tax (deemed or actual) even though you may be down money overall!! There is an entire thread about this already so have a look at that if you need more information. IMO UCIT funds are not an option. Hopefully that narrows your decisions a little :p
 
Hi Sparx

The currency risk is not dependent on the residence of the ETF. It's dependent on where the ETF invests.

So if you buy a US ETF which invests in the Eurozone, you should not have any currency risk. If the dollar falls against the euro, the value of the ETF in dollars will rise, but your holding will be the same value in euro.

Likewise if you buy a Euro based ETF which invests in the US. If the value of the dollar falls, the value of your ETF will fall.

Brendan
 
@username123 : Thanks for that - perhaps unwisely I'm not that concerned about inter-ETF loss offsets. My hope is that given the timeframe over which I want to invest I will be able to avoid significant losses (assuming historical market trends are any indication!). There's always the possibility that I'll be caught out of course :)

@Brendan Burgess : I was hoping someone would say something like this. I wasn't sure how the internal mechanics of ETFs dealt with shifts in currency other than that in their native currency. An automatic change in the price of the ETF makes sense to me.

So 2:0 in favour of non-UCITS ETFs...thanks for the pointers so far.
 
I was in a similar position to you , I went the ETF route and it ended up melting my head , the tax treatment is a nightmare. UCIT ETF's don't work for averaging in because even buying the same fund twice at different fared you can't offset losses on one against the other. After much research and help here I ended up selling all ETF's and buying Investment trusts , I am happy with how this is going ,I am getting the market return, I am mostly invested in GBP but when Sterling falls FTSE seems to rise.
 
Thanks Fella, there certainly is a lot of info to absorb. I'll admit I've been intending to go down this route for a couple of years or more and each time my level of confusion has led me to give up the prospect and instead go for something easier like Rabo. I haven't really looked into investment trusts much - is the tax treatment that much more straightforward? What are the costs like for the trusts you're invested into? Maybe I've missed a viable alternative to ETFs?
 
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