ETF Portfolio

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patrickjd

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Hi, I opened an account with Degiro to create a lazy portfolio for long term hold.
Due to the ridiculous tax implications of holding eur domiciled etfs I specifically bought US domiciled Vanguard ETF's. These etfs must distribute dividends but I can live with that as any gains (excl dividends which are taxed as income) on these ETFs are considered Capital gains and I have a substantial capital gains loss that I crystallised last year so I believe I can eventually offset any gains on these US domiciled ETFs against this. In light of this I consider the currency risk to be acceptable. My brokerage costs were EUR4.09 in total :). Oh and I did fill out a W8 BEN form which Degiro asked me to do.

I bought as follows:

50% Vanguard S & P 500 ETF
25% Vanguard FTSE All World excl. USA
25% Vanguard Total International Bond Market

Would appreciate any feedback as this is something I have been planning to do for some time now.

Thanks.
 
US equities make up about 54% of the total global market capitalisation, so you're investment weighting is probably alright. The duration term of your bonds is probably a bit long in the current environment. I would be looking for shorter term duration.

Deemed distribution aside, the gross roll up mechanism in Ireland is quite valuable. All dividends are reinvested into the fund without any tax liability. Compare that to the CGT method where dividends are taxed as income and can incur a 50% annual tax bill if earning at the higher rate. I've been told (but haven't seen the workings) that gross roll up is more profitable...except where there are capital losses, which Patrick has.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Your bond investments are in US$ and not hedged back to euro.

So you have a lower risk investment in bonds subject to significant currency volatility which cancels out a lot of the benefit.

Suggest US total stock market (3000 plus stocks) rather than S&P 500.

You are very light in Emerging Markets.

Maybe better to use vanguard total international excludes US and Emerging and then buy emerging markets separately.

Maybe use other investments to diversify the portfolio instead of bonds? REITs, min volatility ETFs etc.

US source income obtains an automatic 15% tax credit in ROS taking 55% marginal tax down to 40%.

85 cents of US dividend income ($1 less DWT in the USA) earned by an Irish gross roll up fund is then subject to exit tax at 41% (tax year 2017) giving total deductions of 49.85% in a gross roll up fund vs 55% for income tax.

Standard rate taxpayers and those not subject to PRSI do even better.
 
Can anyone recommend a suitable REIT etf (to replace the bond etf) which is US domiciled please?
 
Ticker REET

Just to be clear, REITs have equity like risk characteristics so don’t perform the same function as currency hedged bond funds, but do provide modest diversification benefits.
 
Last edited:
Marc said:
Ticker REET

Just to be clear, REITs have equity like risk characteristics so don’t perform the same function as currency hedged bond funds, but do provide modest diversification benefits.
Click to expand...
But better than the existing Bond ETF I have?
 
The portfolio is overweight large cap US equities (66% of equity portion of portfolio versus ~40% of global market cap) and is underweight everything else.

The portfolio already contains REITs - they make up ~4% of the global public equity market. Whether it makes sense to overweight REITs above their market cap is debatable - they aren't very efficient from a tax perspective.

The total international bond ETF is actually USD hedged, which doesn't make much sense for a Eurozone based investor.

Suggest holding a single global equity ETF (like VT) and keeping the fixed-income portion of the portfolio in a simple savings account or 5-year State savings certificates.
 
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