An alternative to an ETF to avoid 8 year deemed disposal?

Fortune said:
There are some online brokers who allow fractional share purchases. This would solve the issue of a young investor needing to diversify small amounts.
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That is what's happening under the hood. Apple is trading at $250 so if you invest €100 in a pie it will buy some small % of one share in Apple.

It just does it all automatically instead of you making separate buy orders.
 
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Hi Brendan,

I agree that it is not proper diversified to have a single pie tracking the S&P top 50, it’s just a start. My next plan is to create a global equity pie also.

I disagree with your conclusion and your recommendation to split equally among the top 20/25 etc. The reason Apple/Nvidia/Msft etc are of higher weights in the S&P is because they have performed better in terms of returns and earnings. By definition their higher weighting is because more people wanted to buy in, hence the share price rises.

I know that by mimicking the S&P index, I will yield the same average return it does, which has been ~10.5% per year historically. Yes yes past performance is no guarantee, but that holds true for all investment strategies.

What will your strategy yield? So what has an equal distribution among the top 20/25 companies yielded historically? Is it more or less than the S&P500 index? If you don’t know, why have you come to your conclusion?

Ps: to add, if you have a strategy that beats the market index, you are in an elite group of fund managers!
 
Corola said:
But for new/young investors just starting out with a few hundred euro per month, it's impractical and costly to split small sums between many different companies. It would take many years to buy 50 companies if buying one per month.
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Interesting.

Let's say you are mid 20s and you want to invest €500 a month.
You have read somewhere that you should not put all your eggs in one basket so you are worried that if you buy €500 worth of Apple shares, you will be too concentrated.

This worry is misguided.
The increase in diversification from one share to two is huge.
The increase from 49 to 50 is tiny.

Your excess exposure falls dramatically one month later, when you buy €500 of shares in Walmart.
The following month you buy Berkshire Hathaway.
By the end of the year, you have a portfolio 12 shares. That is good diversification.

You can increase it every month for 4 years until you have 48 shares, but you should probably stop at 10 or 12.
The main risk you face is a general fall in the stockmarket - it won't matter if you have 10 shares or 100 shares if that happens.

Let's say you own 100 shares , so €50,000 worth. The stockmarket falls 30%, you have lost €15,000 - even if it's only temporary.

If you own 10 shares worth €5,000 each and one goes bust, you have lost €5,000.

My gut feeling is that 10 is about right in the accumulation stage.
Much easier to keep an eye on them, subscribe for rights, etc.
 
@jpmackey

I don't really understand the point you are making. You are putting 12% of your investments in one company Apple because it has done well in the past?

Shares fall in value for a few reasons
1) Their business declines e.g. Apple is banned from China.
2) Their business is fine but the market has just overvalued it for a long time and now rerates it downwards.
3) The market declines due to interest rates, the economic outlook, war, etc.

You can't do much about 3.

But you diversify to reduce the risk from 1) and 2)

If you think that 50 is the right number, putting 12% of your fund in one share because it has done well historically is wrong.
 
jpmackey said:
Hard to say any one method is the best, depends.

For me, I want to be risk averse and am quite content with matching the return of the big indices. The best solution to do so is typically ETFs, but they are taxed awkwardly and unfairly in Ireland. So, I set up a pie on 212 that mimics the top 50 or so of the S&P index with the weightings adjusted accordingly. So for example, if Apple are say 12% of the S&P 500, I give them 12 divided by the sum of the top 50 weightings, thus they come out at about 13%, which is what I set them to in my pie.

Do this for all of the top 50 and you have a diversified portfolio that closely mimics the returns of the S&P500 and ETFs that track it, with just 33% plain old CGT on disposal to worry about.

You can set the pie to always try to rebalance to your given weightings, or to continually split your future inputs as per the weightings each time. I go with the former as I believe that best aligns with the tracked index, although I’m not sure it matters much.
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I tried similar with the Trading 212 practice account by taking the top 15 from the S&P, top 15 from emerging markets etf and top 15 from EU. Currently this practice pie is returning 27% after a single bulk payment of pretend money about 9 months ago. The FTSE All World is returning 25.25% YTD.

But I opted to buy ETFs directly in the hope, rather than the expectation, a future gov will reduce the tax and scrap the DD. The pies are capped at around 50 stocks, you can only rebalance via future investments without triggering tax payments and this approach encourges constant tinkering and market timing which can cost in the long run.

Rebalancing using the Trading212 pie feature would likely trigger a taxable event funds are surely bought and sold? I've never used it for this reason.
 
theObserver said:
you can only rebalance via future investments without triggering tax payments and this approach encourges constant tinkering and market timing which can cost in the long run.
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You're not timing the market when you allocate more to the underweight stocks in your portfolio. You're restoring the same diversification level that you set at the outset, and reducing the volatility that comes from being overly concentrated in the stocks that have increased in value.

You're not making any prediction about the future price and don't expect those underweight stocks to perform better in the future than the others, which timing the market would be trying to do.
 
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This is a very interesting thread in working out the best strategy for diversification.

Re the T212 pies is there a fee when you sell a stock or a portion of a stock from your pie?

I invest into about 50 companies each month using Trade Republic - using their "savings plans" investing, some of these go in twice a month, once a month, or every three months. I started off going with companies in the S&P and approximating the amount I would invest in them to the weightings of the S&P, but now I'm playing around with the weightings a bit and I have added some companies in sectors like high speed rail and am on the look out for others.

My 50 or so companies I have invested in are in the following order by value of (fractional) shares bought: Microsoft, Berkshire Hathaway, Apple, Amazon, Alphabet, Nvidia, Meta, Broadcom, JPMorgan Chase, Airbus, Allianz, SLR investment, BMW, Pfizer, AXA, Eli Lilly, Roche Holding, LVMH, Salesforce, Deutsche Telekom, Booking Holdings, Visa, Siemens, TSMC, Hercules Capital, DHL Group, ASML, P&G, AbbVie, Duke Energy, Enel, American Electric Power, Mercedes-Benz, Unilever, BASF, J&J, NextEraEnergy, Adobe, AMD, Verizon, United Health, Orsted, L'Oreal, Netflix, Novo-Nordisk, Heineken, Diageo, Kawasaki Heavy Industries, Construcciones y Auxiliar de Ferrocarriles, Nokia, Hitachi. My holdings values range from 89eur and 74eur for my top two shares, to 1eur each in the last five. My monthy total investment amount is about 140/150, which I may increase as I go along.

Each time I sell a share or portion of, incurs a 1eur fee. I think I will be selling my 5eur or so in United Health in the wake of what just happened with the Luigi thing, I hadn't known too much about the denial of care so it just seems unethical in my book to keep investing in them. I might also down the line get out of a sector, reduce the number of companies, or rejig the weightings further.

So for me, diversification is a multiple of things including different sectors and regions coupled with dollar cost averaging rather than buying all at one time and not knowing if that was too high a price. Previously I invested in two companies in 2018 and 2020 in largely the latter buying strategy and I've suffered quite a devaluation in my share values of these stocks - Nokia, 2018 and Campari, 2020 - and it doesn't seem like they will recover to the initial price with respect to Nokia at all or to anywhere near the high price for Campari any time soon. So I am very wary of going with that type of buying again. I'm in my early 40s so I have 20 to 30 years for my investment portfolio to grow.
 
jpmackey said:
Hard to say any one method is the best, depends.

For me, I want to be risk averse and am quite content with matching the return of the big indices. The best solution to do so is typically ETFs, but they are taxed awkwardly and unfairly in Ireland. So, I set up a pie on 212 that mimics the top 50 or so of the S&P index with the weightings adjusted accordingly. So for example, if Apple are say 12% of the S&P 500, I give them 12 divided by the sum of the top 50 weightings, thus they come out at about 13%, which is what I set them to in my pie.

Do this for all of the top 50 and you have a diversified portfolio that closely mimics the returns of the S&P500 and ETFs that track it, with just 33% plain old CGT on disposal to worry about.

You can set the pie to always try to rebalance to your given weightings, or to continually split your future inputs as per the weightings each time. I go with the former as I believe that best aligns with the tracked index, although I’m not sure it matters much.
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the problem is it doesn't keep up over time, as old and new companies change in the s and p right?
 
theObserver said:
I tried similar with the Trading 212 practice account by taking the top 15 from the S&P, top 15 from emerging markets etf and top 15 from EU. Currently this practice pie is returning 27% after a single bulk payment of pretend money about 9 months ago. The FTSE All World is returning 25.25% YTD.

But I opted to buy ETFs directly in the hope, rather than the expectation, a future gov will reduce the tax and scrap the DD. The pies are capped at around 50 stocks, you can only rebalance via future investments without triggering tax payments and this approach encourges constant tinkering and market timing which can cost in the long run.

Rebalancing using the Trading212 pie feature would likely trigger a taxable event funds are surely bought and sold? I've never used it for this reason.
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exactly the issue is over time your pie will become more and more out of date or you'll be forced to sell/tinker about

it seems for the moment despite the etf taxation it appears perhaps the best option

but maybe a balance of investment trusts/the likes of berkshire mix with etf, but I'm not sold on this pie approach yet

lots of selling and buying to keep up and requires careful management
 
jpmackey said:
Honestly I can’t think of any significant downsides. I don’t think other brokers offer it; I was previously using Trade Republic and actually switched to 212 because of this “pie” feature.

Not sure about that. Even set to “rebalance”, it states that this feature adds less of your payments in to over-weighted stocks and adds more to under-weighted. So it is only buying, not selling, thus CGT on disposals don’t come into it. You can then only dispose manually when desired.

Nevertheless, as long as an app gives me the ability to export all transactions to excel, I can work my magic.
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Also T212 does not currently let you transfer, so they could in theory wack up the fees and you're a sitting duck

As a broker that's a considerable disadvantage compared to IBKR/Trade republic/degiro and so on
 
Is it possible to transfer fractions of shares from one broker to another?

Another reason for holding fewer shares in your portfolio. Transferring 10 is a lot less work than transferring 50 , unless it's automated.
 
Brendan Burgess said:
Is it possible to transfer fractions of shares from one broker to another?

Another reason for holding fewer shares in your portfolio. Transferring 10 is a lot less work than transferring 50 , unless it's automated.
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T212 FAQ says no :-

You can only transfer whole shares, fractional share transfers aren't supported. If you want to move the remaining fractional shares value, you will need to sell and withdraw the cash.

What is a portfolio transfer?

This is a feature that allows you to transfer your shares to and from other brokers without having to close your positions. Notes 90% of all users have the feature available. The full release...
helpcentre.trading212.com helpcentre.trading212.com
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Rather than having to setup a pie, what about buying an unleveraged CFD ETF? This would be subject to CGT, rather than exit tax, while mimicking the underlying ETF's performance.

Not perfect of course, but all these workarounds have their issues, it's crazy to have to go through this nonsense to try to invest in ways like these, because our tax system is kilter with most other western countries.
 
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