Financial Advisor

ixus

Clicker. The point of the averaging in is smoothing out returns over time. So, if you bought at a unit 30, goes to 40 and you add, you're in with 2 units at 35. Random walk theory suggests you should be up over time. Of course, that depends on if you retire during a crash!

I agree with you on allocating bond fund in cash at present. Reason being is equities and bonds are almost one asset during the present QE / central bank intervention environment. I'd favor accumulation of the cash to use as a reserve to add during a future market crash. Maybe in 13 years there's a major crash amd you've a serious pot to put in.

clickerquicklic wrote: »

Same age as your good self and same plan , I made an initial lump sum investment in ETF's and am adding to it quarterly , I've ignored bonds my bond allocation I've just put in term deposit accounts , 8 years deemed disposal is a pain but maybe it will take a couple of hours work to work out exactly what you owe , no loss relief on the same ETF is also a pain , so if you buy MSCI WORLD today and it makes you 100 profit and then buy MSCI world next year and that one makes you a 100 loss they don't offset each other .

Good luck

FURET

ixus wrote: »

I agree with you on allocating bond fund in cash at present. Reason being is equities and bonds are almost one asset during the present QE / central bank intervention environment. I'd favor accumulation of the cash to use as a reserve to add during a future market crash. Maybe in 13 years there's a major crash amd you've a serious pot to put in.

Investing in a diversified high-quality short-term (0-3 years) bond ETF should at least keep track with inflation as fresh bonds are constantly being added as older ones mature. Cash over 13 years probably won't. Bonds and equities do not behave similarly even during quantitative easing - they didn't in the US during its QE run of recent years (stocks up 230% since '09, short-term bonds circa 1.5% p.a.) and they haven't so far during Europe's (stocks up ca. 15% YTD, bonds flattish).

I don't like investing in bonds right now...I'm not going to say they are an attractive asset at the moment. They're very uninspiring. But my mantra is the Vanguard mantra: stay the course.

clickerquicklic

ixus wrote: »

Clicker. The point of the averaging in is smoothing out returns over time. So, if you bought at a unit 30, goes to 40 and you add, you're in with 2 units at 35. Random walk theory suggests you should be up over time. Of course, that depends on if you retire during a crash!

I agree with you on allocating bond fund in cash at present. Reason being is equities and bonds are almost one asset during the present QE / central bank intervention environment. I'd favor accumulation of the cash to use as a reserve to add during a future market crash. Maybe in 13 years there's a major crash amd you've a serious pot to put in.

Dollar cost averaging smooths out returns but it will under perform lump sum investment , time in the market is always better than timing the market. Making a lump sum investment if you have the money and can take the volatility is always the best way to invest , you are also going to save on transaction costs over time. I also believe dollar cost averaging is a poor way to invest specifically in ETF's because of that lack of loss relief on the same ETF , every time you buy an ETF it is treated as a unique investment by revenue . So lets look at your example on buying at 30 and buying at 40

Lets say you buy MSCI world today at 30
1 unit @30

next month you buy MSCI world at 40
1 unit @40

you do nothing else and fast forward 8 years to deemed disposal and the price is now 35 you should be level right? But your not

No loss relief means you pay revenue 41% exit tax on your net gain of 5.

FURET

Yep, studies have shown that lump sum investing is usually better. I suppose for most mortals, euro-cost averaging is useful because it forms a good habit (invest regularly) and because most people don't have lump sums. But if I had, say, 100k to invest, I'd probably dump it all in at once.

topper_harley2

Time in market yes but 20 years in market could be a long tough ride if you invest 100k lump sum today with markets up 209% since 2009! Crash coming anyone.....?!

clickerquicklic

topper_harley2 wrote: »

Time in market yes but 20 years in market could be a long tough ride if you invest 100k lump sum today with markets up 209% since 2009! Crash coming anyone.....?!

We are young there is going to be crashes but we have time on our side to ride them out , i've invested over 100k lately myself , I never look at charts and don't mind when I put my money in it could crash tomorrow but even the worst crashes your probably looking at 15 years before your back in profit if you invested the day before a crash , It can go up or down , if it crashes tomorrow at least i'll be buying cheap for the next few years.

FURET

topper_harley2 wrote: »

Time in market yes but 20 years in market could be a long tough ride if you invest 100k lump sum today with markets up 209% since 2009! Crash coming anyone.....?!

Well, in our scenario, you'd only put 70k in stocks and 30 in bonds. So in a 50% decline you wouldn't actually experience a 50% decline. But honestly speaking, if your stock-bond allocation is right, a 50% decline is a cause for celebration, not sadness. It will reverse, and before it does you have a great opportunity to throw in fresh money and buy the dip, or even sell your bonds to buy the cheap stocks.

I have six figures in both VEUR and VUSD and I am always hoping for a crash because my horizon is long.

ixus

I kind of expected that response. My point isn't how much each asset class has inflated, it's how the CB's have been behind the inflation of the asset prices. CB's have been behind the bid across the yield curve pushing the asset price higher and pushing investment into equities.

You've taken short term debt as your measurement. The long end has performed quiet strongly but, they have a ceiling as to where they can go versus equities.

The ishares euro inflation linked bond etf posted above is made up of 85% French, Italian and Spanish debt. Less than 17% is shorter than 3 year duration. While French debt is often regarded as core Europe, I don't. Italian and Spanish debt just tracks the equity market at present.No thank you. It is not diversified. The CB's have removed diversification from the market. Many many articles & blogs about this out there.

E.g. for this can be seen as recently as the Greek affair. Spanish & Italian bonds were hammered with equities. French stood up well. German and other core were strongly. Yet, German debt is only 14% of that ETF.

FURET

ixus wrote: »

I kind of expected that response. My point isn't how much each asset class has inflated, it's how the CB's have been behind the inflation of the asset prices. CB's have been behind the bid across the yield curve pushing the asset price higher and pushing investment into equities.

You've taken short term debt as your measurement. The long end has performed quiet strongly but, they have a ceiling as to where they can go versus equities.

The ishares euro inflation linked bond etf posted above is made up of 85% French, Italian and Spanish debt. Less than 17% is shorter than 3 year duration. While French debt is often regarded as core Europe, I don't. Italian and Spanish debt just tracks the equity market at present.No thank you. It is not diversified. The CB's have removed diversification from the market. Many many articles & blogs about this out there.

E.g. for this can be seen as recently as the Greek affair. Spanish & Italian bonds were hammered with equities. French stood up well. German and other core were strongly. Yet, German debt is only 14% of that ETF.

Meh, I measure return in percentage terms. If bonds earn me 1%, that's 1%. I don't buy bond ETFs that are only 17% short-term. You technically shouldn't need an inflation-linked bond ETF if your bond ETF is short-term. This is a well established concept among low-cost indexers. We don't try to time the market or analyze trends. We establish a sensible plan and stay the course, rebalancing periodically and controlling costs. That said, I do understand why in some cases cash is preferable for some investors to bonds - but over 13 years, it's not a bet I'd like to take.

ixus

Are we still talking about pensions here? One way to look at it is that your tax relief on contribution outperforms the use of any CGT losses/write offs v gains.

clickerquicklic wrote: »

Dollar cost averaging smooths out returns but it will under perform lump sum investment , time in the market is always better than timing the market. Making a lump sum investment if you have the money and can take the volatility is always the best way to invest , you are also going to save on transaction costs over time. I also believe dollar cost averaging is a poor way to invest specifically in ETF's because of that lack of loss relief on the same ETF , every time you buy an ETF it is treated as a unique investment by revenue . So lets look at your example on buying at 30 and buying at 40

Lets say you buy MSCI world today at 30
1 unit @30

next month you buy MSCI world at 40
1 unit @40

you do nothing else and fast forward 8 years to deemed disposal and the price is now 35 you should be level right? But your not

No loss relief means you pay revenue 41% exit tax on your net gain of 5.

topper_harley2

No not pensions for me anyway, this is outside a pension. I already have maxed my pension contributions into occupational pension scheme before investing in ETF.

clickerquicklic

No I'm just speaking about general investing not pensions , think we are all in agreement on best investment practices anyway , lets hope the government reduce the exit tax by the time deemed disposal comes about 41% is horrible

jive

topper_harley2 wrote: »

After much deliberating I am planning on setting up a very lazy (2 fund) DIY portfolio as follows:

• Assert split: 2/3 equities, 1/3 bonds.
• Investment vehicle: accumulating ETFs
• Timeline: long term, 20 years
• Strategy: dollar cost average with annual rebalance
• 1000 investment per month
• 8 investments in equity ETF, 4 in bond ETF, spread across the year
• Trading costs are E2 + 0.02%, so it will cost E2.20 to invest the E1000 each month i.e. 0.22%.
• TER of both funds is quite low, 0.2% and 0.25% respectively.

Hence, the total annual broker charge is 2.2 * 12 = 26.40, for an investment of 12,000 is 0.22%. Adding the TER for each fund gives 0.42% and 0.47% total annual cost for each fund. Averaging the two gives 0.445% total annual cost, which is not bad (especially compared with 1.25% AMC of various active funds)

World Equity ETF:
IWDA - ishares msci world accumulating (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund

Euro bond ETF:
IBCI - iShares Euro Inflation Linked Government Bond UCITS ETF (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251739/ishares-euro-inflation-linked-government-bond-ucits-etf

Both are accumulating to avoid having to deal with tax returns on dividends every year. I couldn't find any world bond ETF that was accumulating, so the euro one will have to do. I also like that its inflation linked.

I will (barring any govt policy change) still have the 8 year deemed disposal tax but I have spreadsheet tracking purchases so don't think it will be that taxing (ha ha) when time comes. I know there are tax disadvantages to this, no offsetting losers etc. I'm hoping to be able to pay the deemed disposal without selling the ETF to keep compounding process going.

I've also now maxed out my pension contributions, 20%. With employer contributions, there is now 26% going into pension. I checked, and it is passively managed and index linked, with .45% annual fee.

I'm going to invest 70k in low-cost index funds / bonds (75%/25%) in a portfolio like the above. Due to the current euro-dollar exchange rate would it be better to invest in a euro stock or does it really matter? I could do 80/20 and choose a euro and dollar fund to make up the 80%. In it for the long run but would still like to get good value on my initial investment given it will likely be my largest.

topper_harley2

jive wrote: »

I'm going to invest 70k in low-cost index funds / bonds (75%/25%) in a portfolio like the above. Due to the current euro-dollar exchange rate would it be better to invest in a euro stock or does it really matter? I could do 80/20 and choose a euro and dollar fund to make up the 80%. In it for the long run but would still like to get good value on my initial investment given it will likely be my largest.

You could buy IWDE which is a world index hedged to euro (higher TER than IWDA though). Personally I didnt as I think the FX will even out over time and the lower TER is more attractive.

topper_harley2

FURET wrote: »

It is a very low cost, balanced portfolio. If it were me, I would probably add an accumulating European index (ex-UK), just to get a bit more exposure to the continent (and home currency), but this is not required imo.

A portfolio like yours will certainly beat 90% of investment professionals over periods greater than 10 years.

Having re-looked at the geographical breakdown of IWDA index, I agree a euro equity index would be a good idea. IWDA has almost 60% in US stocks, which is very high for a European.

As you pointed out, current portfolio TERs are:

0.66 * 0.2 = 0.132
0.33 * 0.25 = 0.0825

= Weighted TER of 0.2145% per annum.

I am looking at "Source EURO STOXX 50 UCITS ETF A", which has TER of 0.05%. Its got a brilliant TER, but only 50 stocks.

Meanwhile, "Source STOXX Europe 600 UCITS ETF A" has 600 stocks, but the TER is 0.19%.

I'm torn between the two!

Also, Im currently planning to buy equities 8 months out of 12, to get my 66/33% asset allocation. Each month is a 1K buy. Therefore, I would either need to split the 1K between IWDA and one of the euro ETFs (say E750 and E250), but then I have to make two purchases and doubles my broker charges.

Alternatively I could reduce my buying of IWDA to 6 months a year and replace the other two buys with the euro ETF. This keep charges the same but has the negative of reducing my sampling rate on both ETFs.

Any thoughts on a which euro ETF to chose, and which buying strategy to follow?

ixus

Just do quarterly? Given your intended timeframe, this reduces your transaction costs by 75% at risk of missing a move over a period of time.

Check your weightings on stoxx 50 v 600. You can talk all you want about exposure to loads of companies but the reality is movement is affected by weightings. Total, basf etc...

topper_harley2

ixus wrote: »

Just do quarterly? Given your intended timeframe, this reduces your transaction costs by 75% at risk of missing a move over a period of time.

Check your weightings on stoxx 50 v 600. You can talk all you want about exposure to loads of companies but the reality is movement is affected by weightings. Total, basf etc...

50 is free-float market cap. Looking at the prospectus, highest % holding is just under 5%.

600 invests in 200 large, medium and small cap companies. Constituent holdings are weighted by free float market capitalisation, subject to a 20% cap.

jive

Are all ETFs hit by 41% capital gains? Is there any taxed at 33%? Finding it difficult to actually find out what these are taxed at. Also, looks like a mess to calculate after 8 years if you're consistently putting in money.

topper_harley2

UCITS ETFs are 41% exit tax, it's not CGT.

Non-UCIT ETF are CGT.

Lots of info on this available in this forum and ask about money investment forum

vigos

Hi Toppper_Harley2

Great thread you started and very educational to me. just a quick question what broker are using to trade ETF's, would you recommend any one in particular?

topper_harley2

Using Degiro. Seem fine so far. Haven't used any other broker before....

vigos

Thanks just starting to look into this so need to educate myself first, but have money sitting savings that I know could get a better return somewhere else

jive

topper_harley2 wrote: »

UCITS ETFs are 41% exit tax, it's not CGT.

Non-UCIT ETF are CGT.

Lots of info on this available in this forum and ask about money investment forum

Thanks. I've read that forum alright and there's some good information but I was still confused regarding the taxation.

UCIT ETFs - 41% exit tax or 41% after 8 years.

Non-UCIT ETFs - 33% CGT?

What is the drawback to Non-UCIT ETFs in this case?

Also I take it the 8 year period is just based on the calendar year with returns being done in November. In this case, unless I have got this arseways which is very possible, would it be wisest to invest in December?

I'm ready to take the plunge but need to get the taxation sorted in my head before making a move. To be honest it's very confusing for me to get my head around.

topper_harley2

Non UCIT ETFs seen harder to find and come with their own issues such as US estate tax for US ones. Similar to you I got sick of looking at them and UCIT over seemed easier to understand.

I plan on dollar cost averaging so buying in particular month didn't matter to me. You pay and file the following year, so it's actually nine years really I.e. if eight years is up in May 2024 them you actually pay in November 2025

jive

Cheers topper_harley2, very helpful!

Is simply buying through a broker the most efficient way to invest? Is it more tax efficient, or even possible, to invest via AVCs? At the moment, I have maxed out my contribution (i pay 4%, employer pays 8% - this is a no brainer). There is still tax relief on AVCs, are low-cost indexes still the way to go even with the heavy tax? 1% charge PA with the crowd who manage the pension.

topper_harley2

Depending on your age you can contribute much more than 4%. 30-39 year-olds can contribute up to 20% of your salary excluding employer contributions. This is what I've done. My pension is 3% and 6%, but I contribute 20%. The AMC on my pension is .45%.

Investing outside of pension is not the most tax efficient as you can see based on tax. Conversely, your money is locked up if you use AVCs though so its a matter of preference. I'm doing both.

jive

topper_harley2 wrote: »

Depending on your age you can contribute much more than 4%. 30-39 year-olds can contribute up to 20% of your salary excluding employer contributions. This is what I've done. My pension is 3% and 6%, but I contribute 20%. The AMC on my pension is .45%.

Investing outside of pension is not the most tax efficient as you can see based on tax. Conversely, your money is locked up if you use AVCs though so its a matter of preference. I'm doing both.

Is maxing out AVC the best way to go do you think? Assuming you don't have massive AMC fees? Mine are 1% unfortunately.

connacht_man

topper_harley2 wrote: »

Having re-looked at the geographical breakdown of IWDA index, I agree a euro equity index would be a good idea. IWDA has almost 60% in US stocks, which is very high for a European.

As you pointed out, current portfolio TERs are:

0.66 * 0.2 = 0.132
0.33 * 0.25 = 0.0825

= Weighted TER of 0.2145% per annum.

I am looking at "Source EURO STOXX 50 UCITS ETF A", which has TER of 0.05%. Its got a brilliant TER, but only 50 stocks.

Meanwhile, "Source STOXX Europe 600 UCITS ETF A" has 600 stocks, but the TER is 0.19%.

I'm torn between the two!

Also, Im currently planning to buy equities 8 months out of 12, to get my 66/33% asset allocation. Each month is a 1K buy. Therefore, I would either need to split the 1K between IWDA and one of the euro ETFs (say E750 and E250), but then I have to make two purchases and doubles my broker charges.

Alternatively I could reduce my buying of IWDA to 6 months a year and replace the other two buys with the euro ETF. This keep charges the same but has the negative of reducing my sampling rate on both ETFs.

Any thoughts on a which euro ETF to chose, and which buying strategy to follow?

VEUR has about 500 stocks and can be bought in euro on the Amsterdam exchange , its vanguard and fees are very low

topper_harley2

connacht_man wrote: »

VEUR has about 500 stocks and can be bought in euro on the Amsterdam exchange , its vanguard and fees are very low

It's also distributing though so you have way more tax issues. Hence I avoided.

ixus

The market impact of passive trading.

http://www.researchaffiliates.com/Our%20Ideas/Insights/Papers/Pages/218_The_Market_Impact_of_Passive_Trading.aspx?_cldee=Y2FyYm9uMTk0M0BnbWFpbC5jb20%3d&curator=thereformedbroker&utm_source=thereformedbroker