investment value inc vs dividends

[centsworth]

New to investing, therefore excuse ignorance! My query yesterday must not have made much sense, so I'll have another stab at posing the question. I'm trying to figure out the strategy with share investments for 1. keeping up with inflation, and 2. gaining an income. I understand the risks involved. If I were to invest 100k today in a portfolio (top 10 Irish share as suggested elsewhere on the forum) then how do I realise the returns (hopefully returns, not losses!). The shares go up over time, and dividends are paid, but if I wish to use investments as a source of regular (quarterly or annual) income, how should it be drawn down? Should I just expect the dividend payments, or should I also think about selling shares at the end of a year in order to gain the profit (leaving in enough to cover inflation, leaving a little for growth, and taking any remainder, if there is any, as 'income'). Or, is investing in shares not a realistic option if hoping to earn income on a yearly basis? An asset manager has advised me to invest in a portfolio of shares (1.5%annual fee), he is not independent, and I'm also seeking independent advice elsewhere. I'm also looking at all the various managed funds by Eagle Star, etc, including property funds. Quinn have been mentioned here quite a lot on older threads due to their low fees, are they still in favour? I have to say though, that so far, reading this forum has been the most useful source of information.

Hoping somebody can shed some light
Thanks in advance
Cents Worth

 

[Brendan Burgess]

In my mind, there is not much difference between a share such as Ryanair which pays no dividends and say AIB which pays around 3% dividend. Let's say that the overall return is the same. Ryanair goes up 10% in a year. AIB goes up 7% but also pays a 3% dividend.

If you invest €100k in Ryanair and you need 10k, you sell 10k worth of shares.
If you intest €100k in AIB, you sell €7k worth of shares.

The advantage of selling shares is that any gain is taxed at 20% Capital Gains Tax after the annual exemption. Dividends, are taxed at your marginal rate of tax - usually 41%.

You do need to be careful about the stockbrokers' commissions eating up your profits. If you buy shares today and sell them after 1 year, your costs will be around 3%.

So you would probably be better off investing any money you intend to cash within 5 years in a unit linked fund which has no exit or entry charges. So you put in €50k now and take out €10k in twelve months. There will be no transaction charges.

Brendan

 

[centsworth]

Thanks for that Brendan, I understand your explanation regards dividends/share value and the subsequent taxing implications. Well worth taking on board.

You say 'unit linked fund', does Quinn do these?

On a more practical note. If using an on line trading system, is there a way to put a trigger on a share to automatically sell once it reaches a certain level, or does the user have to watch and act on a day to day/minute to minute basis?

 

[RedJoker]

On a more practical note. If using an on line trading system, is there a way to put a trigger on a share to automatically sell once it reaches a certain level, or does the user have to watch and act on a day to day/minute to minute basis?

Yes there is; it's called a limit order. If a stock was trading at 14 and you wanted to sell at 15 then you could put in a sell order for 15. Once it hits 15 or goes above, your shares are sold.

You can put in a limit order when buying as well, if you wanted to buy the same share at 13 then you could put in a buy order for 13 and, once it trades at or below that level, you will buy the shares.

There are also stop losses and trailing stops which can be used to protect against sudden drops when you don't have time to watch the shares yourself, go to www.investopedia.com for an explanation.

 

[centsworth]

Those options for sell/buy limits make life easier and on line trading more realistic.

Brendan you suggested Unit Linked Funds. I've researched it a little and would like your, and others opinion on thiss view from the guide on this site ;

'[FONT=Verdana, Arial, Helvetica, sans-serif]on a £ 10,000 investment for 20 years, you would be £11,000 better off investing directly in shares than investing in the Quinn Life fund and don't forget, this is the cheapest fund available.'

What is the pro / con of investing in Quinn compared to investing in the top 10 Irish shares, and /or a range of other blue chip companies Irish and abroad (taking into account currency risks). Can I avail of any gains from something like a Quinn indexed fund over the year, or does it all have to stay put for a fixed time?

The share slice of my portfolio is only one section. I'm also trying to read up on government bonds and the various managed funds invested in property which seem to be doing well. If you know of any links to help me on this exponential learning curve I'd be very grateful (this time last week I didn't even know what a share was!).

Again, thank you
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[RedJoker]

[FONT=Verdana, Arial, Helvetica, sans-serif] What is the pro / con of investing in Quinn compared to investing in the top 10 Irish shares[/FONT]

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Investing in only 10 companies focuses a significant amount of risk. I assume Quinn life invests in more companies, therefore offering more[/FONT] diversification.

[FONT=Verdana, Arial, Helvetica, sans-serif]

and /or a range of other blue chip companies Irish and abroad (taking into account currency risks).

Sector specific risk, in this case blue chips. Why do you think blue chip companies will outperform in the future?


The more areas your portfolio covers, the less risk you face.
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