(Request) Spreadsheet/Model comparing after tax returns of ETF, Life assurance, Directly held shares, non tax relieved pension contribution?

[Zenith63]

I am that man on the street procrastinator. I am overwhelmed with the tax implications of EFTs. What do I need to record for (potentially) 8 years time. Should I buy monthly or does that complicate a future tax return.

Do I need to buy more than one EFT for a balanced investment?

The above has convinced me that EFTs are for me. Particularly the post about the value of my time and being awake at 4am. I want to buy and forget.

To extend it further. Which EFT would you buy? Do those that offer diffident add more tax complications?

You want to record the date you buy, the number of shares, the price per share and the fees, that’s it for 8 years.

You want an accumulating ETF, not one that distributes dividends because that means taxes/admin every year.

So something like this is perfect -

iShares Core MSCI World UCITS ETF USD (Acc) | A0RPWH | IE00B4L5Y983

Key facts and comparisons for iShares Core MSCI World UCITS ETF USD (Acc) (EUNL | IE00B4L5Y983) ➤ justETF – The ETF Screener

www.justetf.com

 

[faketales]

You want to record the date you buy, the number of shares, the price per share and the fees, that’s it for 8 years.

You want an accumulating ETF, not one that distributes dividends because that means taxes/admin every year.

So something like this is perfect -

iShares Core MSCI World UCITS ETF USD (Acc) | A0RPWH | IE00B4L5Y983

Key facts and comparisons for iShares Core MSCI World UCITS ETF USD (Acc) (EUNL | IE00B4L5Y983) ➤ justETF – The ETF Screener

www.justetf.com

Thank you.

I don't need to declare anything when I buy?

What fees should I look out for, it seems another minefield, or is there a competitive platform for beginners / average Joe to use that might be the simplistic if not the absolute best.

If I have 24k to invest is it in general better to drip feed that in at 2k a month rather than a one off purchase. My understanding is that it would be but may make declaring tax more complex in 8 years and I would be hit with more fees.

 

[3CC]

I am that man on the street procrastinator. I am overwhelmed with the tax implications of EFTs. What do I need to record for (potentially) 8 years time. Should I buy monthly or does that complicate a future tax return.

Do I need to buy more than one EFT for a balanced investment?

The above has convinced me that EFTs are for me. Particularly the post about the value of my time and being awake at 4am. I want to buy and forget.

To extend it further. Which EFT would you buy? Do those that offer diffident add more tax complications?

I was in that position myself about 10 years ago so I understand your dilemma. When I bought, I made a few mistakes, and if I was doing it again I would do it differently. But in spite of that, I am much better off now than had I not invested.

I am reluctant to give advice as everyone's circumstances are different but if I was in your shoes, I would do the following.

1) Only invest what you can afford to lock away for at least 10-15 years.
2) Pay off your mortgage and max out your pension before you invest in an ETF.
3) Pick a broker and open an account. There are lots of good ones - just do a bit of research here on AAM.
4) Pick an Accumulating ETF which tracks a large index of your choice. Do a bit of research to make sure it is UCITs compliant using this link .
5) Buy one single ETF in one single transaction. That will make deemed disposal a doddle later on.
6) Register for ROS and do a form 11 every year from now on. The purpose of this is to declare what you have purchased and, in time, pay the tax due on deemed or actual disposal. Doing form 11 is also not that hard and most of it will be already prepopulated if you are PAYE.

Once you have done that, you have the next 8 years to figure out the deemed disposal but it's not that hard especially if you only have a single transaction.

Best of luck...

 

[ClubMan]

2) Pay off your mortgage and max out your pension before you invest in an ETF.

They don't seem receptive to that suggestion:

Investing Children's Allowance Options

We are fortunate enough to be able to put the Children's Allowance for our one year old aside.However I am confused at the options. Option 1: An investment account in my child's name. However I don't understand what level of tax applies to them. Once I set it up in his name can I take the...

www.askaboutmoney.com

 

[Corola]

If I have 24k to invest is it in general better to drip feed that in at 2k a month rather than a one off purchase. My understanding is that it would be

What you've probably heard of is "dollar-cost averaging". That's where you drip feed money in on a monthly basis as you earn it, rather than saving it up and putting it in in one go after say one year, or trying to time the market. But you already have the 24k saved up so you can frontload it all now. Drip feeding it would still be leaving most of in uninvested for six months.

 

[Zenith63]

Thank you.

I don't need to declare anything when I buy?

What fees should I look out for, it seems another minefield, or is there a competitive platform for beginners / average Joe to use that might be the simplistic if not the absolute best.

If I have 24k to invest is it in general better to drip feed that in at 2k a month rather than a one off purchase. My understanding is that it would be but may make declaring tax more complex in 8 years and I would be hit with more fees.

In theory I believe you are supposed to declare purchases, in practice I’m not sure anybody bothers.

DeGIRO or IBKR are both competitive online platforms.

Invest that all in one go, no need to drip feed.

 

[faketales]

I was in that position myself about 10 years ago so I understand your dilemma. When I bought, I made a few mistakes, and if I was doing it again I would do it differently. But in spite of that, I am much better off now than had I not invested.

I am reluctant to give advice as everyone's circumstances are different but if I was in your shoes, I would do the following.

1) Only invest what you can afford to lock away for at least 10-15 years.
2) Pay off your mortgage and max out your pension before you invest in an ETF.
3) Pick a broker and open an account. There are lots of good ones - just do a bit of research here on AAM.
4) Pick an Accumulating ETF which tracks a large index of your choice. Do a bit of research to make sure it is UCITs compliant using this link .
5) Buy one single ETF in one single transaction. That will make deemed disposal a doddle later on.
6) Register for ROS and do a form 11 every year from now on. The purpose of this is to declare what you have purchased and, in time, pay the tax due on deemed or actual disposal. Doing form 11 is also not that hard and most of it will be already prepopulated if you are PAYE.

Once you have done that, you have the next 8 years to figure out the deemed disposal but it's not that hard especially if you only have a single transaction.

Best of luck...

1. This would have been my timeline.
2. My pension is maxed out for last 2 years. Will need to do some more research on not investing prior to paying off mortgage. Is it the view that ETFs are unlikely to out perform my mortgage interest? In which case I would want to try and pay my mortgage off my 50, I'm currently 39 with 21 years left. Then invest for 10 years or so from 50.

Thanks for the rest. I need to make a decision of mortgage vs investment. I had read about a more balanced approach.

 

[faketales]

dollar-cost averaging

Similar but referred to as a systematic implementation plan to avoid buying a spike. I'm not sure of the benefits.

 

[Corola]

In the long run it doesn't matter how you do it. Just get your money into the market.

 

[faketales]

I used AIB overpayment calculator to understand what the interest savings would be if I paid 100k lump some off my mortgage.

Based on 22 years remaining, 3% interest (I have 2 years left at 2.4%) the interest savings would be 64k. If I use 3.5% its about 77k.

I'm not sure what is a reasonable % to use.

 

[ClubMan]

Based on 22 years remaining

I'm not sure what is a reasonable % to use.

Impossible to say over that timeline.

 

[3CC]

... Is it the view that ETFs are unlikely to out perform my mortgage interest? ...

Thanks for the rest. I need to make a decision of mortgage vs investment. I had read about a more balanced approach.

Just to point out that ETF returns are subject to charges and taxes. Anything you pay off your mortgage is nett.

Also, the return you would get from paying down your mortgage is certain - there is no volatility which would result in lower risk in the short/medium term.

Maintaining your mortgage while investing in an ETF is effectively borrowing to invest. This is known as leveraging and is considered by many as unnecessarily high risk.

So bottom line, ETFs will probably return a little more, but this might not be worth it for the extra volatility that you will endure.

 

[Corola]

Also, the return you would get from paying down your mortgage is certain - there is no volatility which would result in lower risk in the short/medium term.

The return is only certain during the current fixed period, not over the remaining term of the mortgage when the future interest rate is unknown. It is volatile in the long term.

 

[faketales]

Just to point out that ETF returns are subject to charges and taxes. Anything you pay off your mortgage is nett.

Also, the return you would get from paying down your mortgage is certain - there is no volatility which would result in lower risk in the short/medium term.

Maintaining your mortgage while investing in an ETF is effectively borrowing to invest. This is known as leveraging and is considered by many as unnecessarily high risk.

So bottom line, ETFs will probably return a little more, but this might not be worth it for the extra volatility that you will endure.

I understand the EFT taxes and charges.

Playing devil's advocate here a little...

Surly the return from paying down my mortgage depends on the interest rate? It's rare for people in Ireland to have a fixed mortgage rate for the lifetime of the mortgage. Although we could agree it won't go lower than 2%. Using the €100k example for my mortgage for every 1% interest I am saving about €20k. I just can't lose money.

My thought process is now turning less around it being a better investment to more lifestyle ideas.

Having a mortgage doesn't add a lot of stress to my life. I don't feel at risk from missing a payment and being evicted. Possible because of having money available and the slow eviction process in Ireland.

Using savings to pay down the mortgage reduced my emergency fund. I would still keep something obviously. However investing it means thatif I did need access early I could sell ETF. I can't not pay the mortgage or pull case back out.

 

[3CC]

OK - I could have explained that better.

Yes- mortgage rates will vary but the returns are much less volatile than an index fund. Mortgage rates will always be positive whereas something like the S&P 500 can be much more volatile and can often be negative.

Like you say, for you this might be less about which investment choice is objectively the best and more of a lifestyle choice based on your own personal appetite for risk. If that's the case, then go with your gut and welcome aboard the ETF train.

And to be fair, you have a point about it being easier to free up cash from an ETF than from a mortgage overpayment if you ever need it. You could remortgage but that would not be quick.

However, no matter what you choose, keeping your emergency fund in cash would be my preference. Investing some or all of it in ETFs and pulling it back out a few years later could go either way for you.

 

[faketales]

OK - I could have explained that better.

Yes- mortgage rates will vary but the returns are much less volatile than an index fund. Mortgage rates will always be positive whereas something like the S&P 500 can be much more volatile and can often be negative.

Like you say, for you this might be less about which investment choice is objectively the best and more of a lifestyle choice based on your own personal appetite for risk. If that's the case, then go with your gut and welcome aboard the ETF train.

And to be fair, you have a point about it being easier to free up cash from an ETF than from a mortgage overpayment if you ever need it. You could remortgage but that would not be quick.

However, no matter what you choose, keeping your emergency fund in cash would be my preference. Investing some or all of it in ETFs and pulling it back out a few years later could go either way for you.

Interesting debate. Yes emergency fund in cash. I'm thinking of some unforeseeable emergency or perhaps multiple emergency scenario.

If I were to invest in ETF now my timeline would be say 15-20 years.

The worst 20 year gain for the S&P500 was 2%, that incl. WW2 and the Great Depression. 90% of the time it was 7% or higher. 55% of the time 10% or higher.

If I was 10 years younger and had 30 years to play with:

"The lowest annual return over any 30 year period going back to 1926 was 7.8%. That’s what you got had you invested at the peak of the Roaring 20s boom in September 1929."

"the past 30 years were up 9.8% per year.

The most recent 30 year period since 1993 includes:

"The Asian currency crisis, the dot-com crash, 9/11, the Iraq/Afghanistan wars, the Great Financial Crisis, the biggest global pandemic since 1918, the war in Ukraine and 9% inflation not to mention flash crashes, a few recessions, government shutdowns, trade wars, an insurrection, multiple impeachment hearings, 4 legitimate bear market crashes, 9 other stock market corrections"