Investment makeover for 35 year old living abroad

[Jim2007]

Your objective needs to be general, maximising and protecting wealth. At 35, it's pretty meaningless to have an objective of "40k income in retirement". So don't bother with any calculations which purport to show how you might achieve this.

Interesting. This is contrary to several sources of info I've read so far, but it does have merit, and I am a bit of a generalist by nature.

It is not about accuracy, it is about trying to ensure that you don't take on more risk than is necessary to achieve your objectives. The exercise shows that you can achieve your objectives without having to take on unnecessary risks. And so it has merit, of course you should redo the figures every so often and adjust your strategy accordingly.

Be really conscious of costs. You can keep them to an absolute minimum by buying shares directly rather than investing through ETFs. While the costs of ETFs are low, they do still eat into your returns.

In theory this is a good idea, in practice it seldom works for two reasons, firstly while most people do not have a problem identifying good companies they find it nearly impossible to determine the price they should buy at and secondly individual stocks are more volatile which often leads to people yoyo in and out of the market. With few exceptions, most people who got this route fail to track the index.

The other thing is that this is a small portfolio at this stage and so buying an ETF will achieve a good level of diversification at reasonable costs.

 

[He-Man]

While I do appreciate Brendan's caution about cost, I will definitely be going the ETF route because of diversification, simplicity, and cost effectiveness.

As mentioned, I'll be looking at broad-based ETFs like S&P 500 and Developed Europe. I was looking at investing in some sector-specific ETFs like aerospace and consumer discretionary, but in general over a long period I have faith in the returns of the index rather than any one sector or company.

I had been geared towards Vanguard, but I would prefer one that reinvests dividends automatically. For this reason, I am now considering iShare's SACC rather than Vanguard's VUSA. The expense ratio of SACC is 0.08% whereas Vanguard's is 0.15%.

What are people's feelings on ETFs that automatically reinvest dividends versus those that don't from a tax point of view?

 

[Jim2007]

The author advocates a balanced portfolio of low-fee, highly diversified ETFs and adheres to the precepts of The Intelligent Investor. The book really cleared the fog of ignorance from my mind about investing and for that, I consider it one of my best ever purchases. I does not, however, discuss property and concentrates exclusively on bonds and ETFs, and controlled consumer spending.

As I showed with the back of a napkin figures we used before there, is every chance you could end up with a figure of over 1M after thirty years (starting with 50K, adding 12K a year for 30 years with an expected return of say 6% to 8% would give you around 1.3M to 2M). Most people however fail to achieve this because they lack the will power required to carry it through.

There are many behavioural issues that case investors to achieve less that expected when using ETFs and dollar cost averaging including:

- They stop investing when the price falls rather than carrying on with the plan
- They increase their investment amount when the price is rising
- They fail to rebalance the portfolio on a regular basis
- They get distracted by market noise and start to divert funds to other assets
- They start to look for quick killings

Most Swiss citizens end up with a good asset pot on retirement, not because they are more disciplined investors than the rest of us, but because they have not choice by law, but to do it.

 

[He-Man]

So, Jim, based on the above (and which I agree with), how would you feel about Brendan's suggestion to cash in part of the investments for home-purchase if living in Ireland?

I see the definite advantage of what he's saying, don't get me wrong, but there are three potential problems as well:

1) at the time of realization it may have lost value

2) it would incur a capital gains tax

3) it would negatively affect the process of compound interest

 

[west_bound]

While I do appreciate Brendan's caution about cost, I will definitely be going the ETF route because of diversification, simplicity, and cost effectiveness.

As mentioned, I'll be looking at broad-based ETFs like S&P 500 and Developed Europe. I was looking at investing in some sector-specific ETFs like aerospace and consumer discretionary, but in general over a long period I have faith in the returns of the index rather than any one sector or company.

I had been geared towards Vanguard, but I would prefer one that reinvests dividends automatically. For this reason, I am now considering iShare's SACC rather than Vanguard's VUSA. The expense ratio of SACC is 0.08% whereas Vanguard's is 0.15%.

What are people's feelings on ETFs that automatically reinvest dividends versus those that don't from a tax point of view?

only advantage is you dont need to make a trade , you still have to pay tax on the value of the dividend which is re-invested

i always choose the cash option as i use stocks for income to a degree

 

[He-Man]

only advantage is you dont need to make a trade , you still have to pay tax on the value of the dividend which is re-invested

i always choose the cash option as i use stocks for income to a degree

Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.

Do you generally use Vanguard or iShares?

 

[monagt]

Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.

Yes, as you must track the buy prices of the shares and pay tax on the dividend.



I have to ask.............who owns all the property in Germany and Switzerland that all the people rent?

 

[Brendan Burgess]

I have to ask.............who owns all the property in Germany and Switzerland that all the people rent?

I had wondered that myself. I presume institutional investors?

We have very few institutions investing in residential property in Ireland. Irish Life used to own the Mespil Flats complex but it just was not profitable to run residential investment in Ireland. If people don't bother paying their rent, there isn't too much you can do about it. I suspect, that there is more respect for and enforcement of the law in Switzerland and Germany.

Brendan

 

[Jim2007]

Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.

Do you generally use Vanguard or iShares?

In many countries you do not need to pay taxes on the accumulating dividends, in fact it is one of the reason why ETFs come in both varieties. So check out what the tax situation is in your country before you get too excited.

[Other than yourself, it seems I'm the only one commenting who lives in a country where the gains from investing are tax free...]

 

[He-Man]

In many countries you do not need to pay taxes on the accumulating dividends, in fact it is one of the reason why ETFs come in both varieties. So check out what the tax situation is in your country before you get too excited.

[Other than yourself, it seems I'm the only one commenting who lives in a country where the gains from investing are tax free...]

Indeed, in my present country everything is tax free, including investment returns.
However, I have one eye on the possible implications of repatriating to Ireland in a few years - though as mentioned, this would be a worst-case scenario for me.

 

[Jim2007]

who owns all the property in Germany and Switzerland that all the people rent?

The pension funds are major players, by law they are required to hold major blocks of property. However it is not held as part of an investment portfolio, but as an income source to match pension payments.

It also has one one other advantage it means the banks are no heavily weighted in property and have fund available to invest in industry instead.

 

[monagt]

However it is not held as part of an investment portfolio, but as an income source to match pension payments.

I keep hearing property is not an investment, but what is an investment if it is not for income and/or capital gain?

Property and/or mortgage, I agree is a concentration of risk with issues such as asset class, currency, borrowing to invest thus increasing the "bet" up or down which as we have seen is dangerous.

So, what is the consensus on the current situation here where people are taking money out of low interest accounts (very low net interest after tax & PRSI) and purchasing property to rent as an investment.

Karl Deeter on Newstalk was very much in favour of it while Jill Kerby on same programme was wary but not against it (warning on tax, costs, property taxes, vacant time, etc) but not saying don't.

 

[RainyDay]

So, what is the consensus on the current situation here where people are taking money out of low interest accounts (very low net interest after tax & PRSI) and purchasing property to rent as an investment.

Karl Deeter of Irish Mortgage Brokers on Newstalk was very much in favour of it while Jean Kirby on same programme was wary but not against it (warning on tax, costs, property taxes, vacant time, etc) but not saying don't.

Just added a little clarification to your post there

 

[west_bound]

Gosh --then the reinvestment option serves only to complicate matters and perhaps save a little on trades.

Do you generally use Vanguard or iShares?

it doesnt complicate things , a trade can cost 50 euro with some brokers and some people might forget to use their cash to rebuy more stocks

i often use the cash so it suits me not to choose reinvestment of dividend , plus i have a very large portfolio ( nearly 200 k )

 

[west_bound]

I had wondered that myself. I presume institutional investors?

We have very few institutions investing in residential property in Ireland. Irish Life used to own the Mespil Flats complex but it just was not profitable to run residential investment in Ireland. If people don't bother paying their rent, there isn't too much you can do about it. I suspect, that there is more respect for and enforcement of the law in Switzerland and Germany.

Brendan

god help anyone who ever invested in any irish life funds , for every ten they sold , nine were dogs , managment and exit fees were scandalous prior to the crash

 

[west_bound]

I keep hearing property is not an investment, but what is an investment if it is not for income and/or capital gain?

Property and/or mortgage, I agree is a concentration of risk with issues such as asset class, currency, borrowing to invest thus increasing the "bet" up or down which as we have seen is dangerous.

So, what is the consensus on the current situation here where people are taking money out of low interest accounts (very low net interest after tax & PRSI) and purchasing property to rent as an investment.

Karl Deeter on Newstalk was very much in favour of it while Jean Kirby on same programme was wary but not against it (warning on tax, costs, property taxes, vacant time, etc) but not saying don't.

karl deeter has a lot more credibility than jill kirby when it comes to theese matters , kirby ( along with eddie hobbs and constantine guirdiev ) was encouraging people to buy gold in 2011 when deeter was telling them property was looking good

property in dublin ( where ive only ever heard karl deeter comment on ) is up at least 50% since then ( in desrable areas of dublin ) and gold is down at least 25%


property is not a particulary high risk investment compared to other assets , its much less risky than commodities or trading currency to give just two examples , a house or land cannot disapear , it will always have some value and is tangible , a publically listed company can become worthless eventually and the health of the company is usually unknown to most share holders until something big happens , thats why its better for most people to simply buy the market instead of individual shares , on the other side of the coin , gains are also on average lower on property , it also requires a lot more hands on managment , over the long term , equities trump every other asset class

i would not invest in property with the banks money however , mortgages should only be for buying a home to live in ( IMO )

 

[RainyDay]

property is not a particulary high risk investment compared to other assets , its much less risky than commodities or trading currency to give just two examples , a house or land cannot disapear , it will always have some value and is tangible , a publically listed company can become worthless eventually and the health of the company is usually unknown to most share holders until something big happens , thats why its better for most people to simply buy the market instead of individual shares , on the other side of the coin , gains are also on average lower on property , it also requires a lot more hands on managment , over the long term , equities trump every other asset class

You are ignoring the reduced risk through a diversified equity portfolio. While you are technically correct so that that a company can become worthless (e.g. Anglo or AIB), a well diversified portfolio that spreads investment across many geographic regions and many industries minimises this risk to an insignificant level.

 

[drrkpd]

A practical question?

may i ask for the financially challenged ie me-it is clear that looking up vanguard and ishare that you cannot buy into these funds directly. Vanguard gives a list of UK and Irish stockbrokers.
if you are in Middle East ( and very very wary of financial advisors) how do you actually buy into these funds??
Sorry if this is a stupid question but I genuinely do not know. And again these intermediaries must also charge commission- how do you pick one??

If considered off topic then I will put in a new thread as i am sure I cannot be the only person who may be confused

I can see online uk sterling brokers eg nutmeg but not euros??

 

[drrkpd]

thanks he-man by PM- I have got it now - you use an online broker like saxobank and buy them that way

 

[He-Man]

OP here again. So, at long last I'm about to make my investments during the coming week and I'm suddenly paralyzed with the following doubts:

• I chose euro as my base brokerage currency. But it seems most of the ETFs I'm interested in have their base currency as dollar; i.e., the ETFs can be bought in euros from European stock exchanges, but the underlying currency is dollar. My concern is that in choosing euro as my brokerage currency, I have chosen inefficiently.
  
• I had intended to buy two equity ETFs: VUSA (for US exposure) and VEUR (for European exposure). VUSA, when bought in euros, does not track the same as its NYSE equivalent, VOO. So, I am now thinking to buy VWRL instead of those two. VWRL is an all-world stock ETF which I can buy in euros; but again, the ETFs base currency is US dollar.
  
• Another nagging doubt is that all the ETFs are domiciled in Ireland, and although I am a non-resident Irish national, I have discovered that I would fall into the category of "ordinarily resident" for another 12 months. Therefore, I'm concerned I have tax exposure.
  
• I'm trying to choose a government bond ETF but don't know whether or not to choose an inflation-linked ETF.
  
• Finally, I hold the brokerage account which is handled by a well known Danish broker, jointly with my wife. My wife is a non-EU citizen and a long-time Middle East resident. I am thinking I should have set up the account in her name only to eliminate tax exposure.

I have not yet deposited funds to my broker account, though I'm sitting on 20k ear-marked for it. Would appreciate some opinions regarding the base currency of my brokerage account, the base currency and domicility of the ETFs I should buy, and whether the account should be in my name or my wife's name only, or whether it's OK to have it in both our names.