Stockmarket - Investing Directly as opposed to via Quinn Life

marathonic

I'm 23 years old and own my own home (although this is currently rented out whilst I'm living at my parents home). The LTV is 55%. I have a credit card debt of €1,800 which should be paid off by January after which I will be earning about €1,900 - €2,000 after tax.

Looking at other investment opportunities, I feel that the stockmarket is my best bet. I have looked alot at German property but feel I have missed the boat on the big gains.

I had originally intended to open a Quinn Life freeway fund but now feel that, as I am in this for the long term, it may be best to invest directly in a basket of shares.

Looking at stockbrokers, NIB seems to be the best for me as it has very competitive charges and I will be soon moving all my banking business to them anyway (mortgage and currrent account). They charge 0.75% on the first €15,000 with a minimum of €20 commission. This gives access to all European and US stocks. Based on this, I work out that you can place a trade of €2,666 whilst paying the minimum commission of €20.

Therefore, my current plan is to save €890 per month and select one share every three months. I will then purchase €2,666 worth of that particular share. Using this approach, it will be 2.5 years before I have a basket of 10 shares. After I have a basket of ten shares (probably spread throughout Europe) and have saved a further €2,666, I will review the ten shares and, if there is any particular share I feel should be sold, sell it and purchase (€2,666 + proceeds from share sale) of another share. Otherwise, keep all ten shares and purchase €2,666 worth of my choice of one of the ten shares I currently hold thus increasing my holding.

In 2.5 years time, I will have spent a total of €26,660 on shares and paid €200 in charges. If I had been with quinn-life, I would now be paying a 1% p/a charge which is €267 p/a. I would also have paid their charges along the way which I work out at a total of €367 ( I can show my workings if you like but this is based on the values of the shares purchased not changing which will, obviously, not be the case. However, this is useful to illustrate the affect of charges ).

Note: On the NIB fees page on their website, it doesn't mention an annual charge. I read two conflicting views on different forums - one saying that there was a €40 p/a maintenance charge and one saying there was no annual charge. Even if this charge is applicable, the NIB charges would amount to €300. Also, quinns current charge of €367 would increase as you purchase more shares. NIBs charge, if there is one, would stay the same at only €40. After 5 years, that €40 is nothing compared to Quinns €734.


I'm aware that I will be at increased risk during the initial period when I only own 1/2/3/4 different shares. However, would you agree that, in the long term, this is the best way someone can enter the stockmarket. Obviously, one exception is where someone wants to invest in the stockmarket but doesn't want to look at the nitty gritty of particular shares in which case a Quinn Life fund would be better.

BendiBus

If you own shares directly you will need to do your own taxes each year. You will need to pay tax on your dividends (at your marginal rate) and CGT on any profit realised due to sale of shares. This includes selling one set of shares to buy another.

With a fund like QL, they will calculate all your taxes. Dividends are reinvested and you only pay tax when you cash in. You can transfer between funds within QL with no tax liability arising. Although you will be charged a fee of €25 if you do more than 2 switches in a caledar year.

Being able to move between funds without tax issues is, for me, a big advantage of funds over shares.

Alternatively, have you considered ETFs (Exchange Traded Funds)? These can be bought & sold like shares. It means that from your first purchase, you are always well diversified.

Sonderval

€20 comission is very high, I found.

Similar to yourself, I started trading via AIB/Goodbody's, mostly for NYSE, NASDAQ and DOW stocks. I found that the conversion cost to dollars and the comission quickly ramped up and bit into my earnings from trading.

I think you should consider which markets you want to invest in directly; Euro zone markets or the US markets? If your going to be going for the US markets, you should consider opening a trading a/c with one of the online brokers and wire your funds directly across. This is what I currently do (I use firstrade as my online broker and have found them very professional and easy to use). The comission for trades done online with most US brokers is below 10 dollars. I find the US markets superior for investing as there is a plethora of information available on companies, whereas it is difficult to come across some info for eurozone companies.

If you've any questions, let me know!

marathonic

As I see it (please suggest changes/edits to this if incorrect):

Commissions

Option 1: Investing in shares directly - 0.75% one-off charge assuming you invest a minimum of €2,666 in each trade via www.nib.ie sharedealing service. Nothing after this.

Option 2: Investing with Quinn Life - Annual charge of 1%.


Taxes

Option 1: At marginal rate annually on dividends, i.e. 20% or 42%. Let's assume an annual yield of 2.7% (this is the ISEQ 20 yield for 2005 - see link below). At a tax rate of 42%, your annual tax on dividends would be 42% of 2.7% which is 1.13% of total fund value. At a tax rate of 20% your annual tax on dividends would be 0.54%. Then, when you sell your holding, the tax on gains will be 20% (CGT). There will also be a 1% stamp duty on the purchase of shares using this option.

Option 2: No dividend tax but a tax on gains of 23%. This 23% will also be paid on the dividends that have accumulated within the fund. With dividends at 2.7% p/a, the 23% tax (payable on exit) equates to 0.62% of fund value per year.



Summary

...............................Option 1................Option 2........................
Entry Charge.............0.75% of value..........Nil................................
Annual Charge...........Nil...........................1% of fund value.............
Dividend Tax.............0.54% / 1.13%...........0.62% p/a - paid on sale..
Exit Tax ..................20% of gain...............23% of gain....................
Stamp Duty..............1% of value...............Nil........................... ......


Conclusion (assuming you're a 42% taxpayer)

Option 1: In a 5 year timeframe, the entry charge works out at 0.15% p/a, the the dividend tax works out at 1.13% p/a and the stamp duty on purchase works out at 0.2% p/a. Then when you sell, you'll pay 20% of fund value.

Option 2: There is a 1.62% annual charges as opposed to the 1.38% annual charges when buying shares directly. Then, when you sell, you'll pay 23% on gains.


Which option is best?

As can be seen above, the charges for option 1 works out at 0.05% cheaper per year which is a very minor difference. Then, the tax on gains in the value of your shares works out at 3% cheaper using option 1. Assuming that your shares (without dividends reinvested) rise at 5% per year, after 5 years your gain will have been 28%. Therefore, you would be saving 3% in exit tax on 28% of the fund value = 0.85% of fund value. When this saving is added to your 0.05% per year for 5 years saving in other charges, it means that, after 5 years, you will have saved 1.1% of the fund value by using option 1.

In conclusion, you should invest directly in shares if you view it as a hobby and enjoy reading the financial pages of the newspapers and like the idea of choosing your own shares. Otherwise, if you would prefer a set amount of money coming out of your bank account each month and being invested in a fund by your fund manager, you should invest via quinn life. The differences in charges do not make enough a difference to have a major affect on the value of your investments. I should mention at this point that one additional advantage of investing directly in shares is that, each year, you get a CGT allowance of €1,270. This means that, every year, you can sell a portion of your shares that have risen in value by €1,270 and avoid paying the 20% exit tax thus saving an additional €254 (less the €20 charge for selling them). This works well if you think that a particular share in your portfolio has risen in value excessively and is now overvalued.

ISEQ 20 Yield:
http://www3.ncbdirect.com/./images/g...h%20Report.pdf

PDelux

If you're talking about investing in the best stocks in Europe you could look at the Eurostoxx 50.

Regarding the dividends, if the particular company has a DRIP (Dividend Reinvestment Program) you can have your dividends reinvested in more shares for little or no charge.
http://www.dripcentral.com/