How to Invest in (buy) Index Fund or ETF for a long term gain on compounding

omeatheopian

I'm just wondering what the most cost effective , and admin efficient method is for someone living in Ireland to do this.
Completely green as the title and wording of this thread might suggest, so appreciate any advice at all.

iainBB

omeatheopian wrote: »

I'm just wondering what the most cost effective , and admin efficient method is for someone living in Ireland to do this.
Completely green as the title and wording of this thread might suggest, so appreciate any advice at all.

Long term investment with ETF is straight forward buy a big wide EFT that matcher the underlying index such as s and p 500.

Very passive approach no work no effort it will go up and down over the years but SHOULD give a ok return in the long run.

Frogdog

From what I've seen, the most cost effective way of buying them in Ireland is through Degiro. Open an account with them.

omeatheopian

Frogdog wrote: »

From what I've seen, the most cost effective way of buying them in Ireland is through Degiro. Open an account with them.

Thanks a mill. This is what I was looking for. Any other transaction options greatly appreciated

Strettie11

omeatheopian

Have you looked at taxation of ETFs ?

Has a huge impact depending on where the ETF is domiciled.

iainBB

Strettie11 wrote: »

omeatheopian

Have you looked at taxation of ETFs ?

Has a huge impact depending on where the ETF is domiciled.

Where can we find that info is there a general rule to follow etc.

Strettie11

If you google "ETF Revenue" the first link should be a link to a PDF from Revenue detailing tax treatment.

In summary though the main issues are:

- Irish or EU domiciled ( where they are established) ETF's are taxed @ 40% both Income (dividends) and gains. No PRSI or USC applies

- US, EEA & OCED domiciled ETF's
gains subject to Capital gains tax @ 33%
income (dividends) taxed at 40 % PLUS PRSI & USC

so lets take an example I invest in 2 ETFS last year both Irish domiciled , I sell both yesterday one I make a gain of 2000 and one I make a loss of 1000

I will pay tax of 800 ( 2000 X 40% ). Please note there is no deduction allowable for the loss of 1000 on the second ETF


Similiar example but I invest in 2 US domiciled ETF's last year I sell both yesterday one I make a gain of 2000 and one I make a loss of 1000

I pay no tax as they are treated as capital gains and losses I can set the 1000 loss against the 2000 profit leaving 1000 taxable but I can also use my capital gains tax free allowance of 1270 which leaves nothing subject to tax !!!

So if you are investing for gains it is better from what I can see to invest in US domiciled ETF's . Remember a US domiciled ETF can be an ETF based on euro indexes/ currencies.

If you are investing in income ETF's that pay regular divs it is better to invest in Irish EU domiciled ETF as you avoid PRSI and USC

Hope this helps I would advise seeking your own financial advice before investing in an ETF.

omeatheopian

Thanks a mill for taking the time to post that, really helpful.
I wouldn't be thinking of investing in a product that pays a regular dividend, rather something that I can put some money into, top up regularly and reap the reward of in 20 - 30 years. Should I be looking at something other than an ETF or Index fund? Also what are the major differences between the two.

Thanks in advance for any advice or opinions.

Strettie11 wrote: »

If you google "ETF Revenue" the first link should be a link to a PDF from Revenue detailing tax treatment.

In summary though the main issues are:

- Irish or EU domiciled ( where they are established) ETF's are taxed @ 40% both Income (dividends) and gains. No PRSI or USC applies

- US, EEA & OCED domiciled ETF's
gains subject to Capital gains tax @ 33%
income (dividends) taxed at 40 % PLUS PRSI & USC

so lets take an example I invest in 2 ETFS last year both Irish domiciled , I sell both yesterday one I make a gain of 2000 and one I make a loss of 1000

I will pay tax of 800 ( 2000 X 40% ). Please note there is no deduction allowable for the loss of 1000 on the second ETF


Similiar example but I invest in 2 US domiciled ETF's last year I sell both yesterday one I make a gain of 2000 and one I make a loss of 1000

I pay no tax as they are treated as capital gains and losses I can set the 1000 loss against the 2000 profit leaving 1000 taxable but I can also use my capital gains tax free allowance of 1270 which leaves nothing subject to tax !!!

So if you are investing for gains it is better from what I can see to invest in US domiciled ETF's . Remember a US domiciled ETF can be an ETF based on euro indexes/ currencies.

If you are investing in income ETF's that pay regular divs it is better to invest in Irish EU domiciled ETF as you avoid PRSI and USC

Hope this helps I would advise seeking your own financial advice before investing in an ETF.

Strettie11

an ETF is a very good way of investing cheaply in a passively managed fund that can follow any number of indexes, currencies bonds by country or particular niche area.

a good site to filter ETFs is ETF.com when you go to this site there is an ETF database filter on the right. They also provide grades on the ETF's with expense ratios and bid/offer spreads.

ETF's on the big US indexes tyically have annual fees less than 0.25% even as low as 0.01% with the bid offer spread also as low.


If you take the ETF "SPY" which tracks the S&P500 the expense ratio is 0.09% that is for every $1000 you invest your annual fee is $0.90 !!!

Starting out invest in ETFs related to the bigger stock indices and also ETFs issued by the bigger issuers such as Blackrock(ishares) and Vanguard.

Also on ETF.com pay particular attention to the Efficiency, Tradibility & Fit scores for every ETF

omeatheopian

Thanks so much again!

Strettie11 wrote: »

an ETF is a very good way of investing cheaply in a passively managed fund that can follow any number of indexes, currencies bonds by country or particular niche area.

a good site to filter ETFs is ETF.com when you go to this site there is an ETF database filter on the right. They also provide grades on the ETF's with expense ratios and bid/offer spreads.

ETF's on the big US indexes tyically have annual fees less than 0.25% even as low as 0.01% with the bid offer spread also as low.


If you take the ETF "SPY" which tracks the S&P500 the expense ratio is 0.09% that is for every $1000 you invest your annual fee is $0.90 !!!

Starting out invest in ETFs related to the bigger stock indices and also ETFs issued by the bigger issuers such as Blackrock(ishares) and Vanguard.

Also on ETF.com pay particular attention to the Efficiency, Tradibility & Fit scores for every ETF

topper_harley2

OP, do you own a house or have mortgage? If youre on an SVR mortgage, you would get guaranteed (and risk free) return of about 4% (or whatever your interest rate is) by overpaying your mortgage. Just an alternative perspective.

topper_harley2

Also, investing in US ETFs exposes you to dollar/euro currency swings, which could double or half your gains/losses depending on which way currencies move.

omeatheopian

Hey, thanks! Yes have a mortgage which is where the bulk of my "disposable" cash goes after repayment is met. Thanks

topper_harley2 wrote: »

OP, do you own a house or have mortgage? If youre on an SVR mortgage, you would get guaranteed (and risk free) return of about 4% (or whatever your interest rate is) by overpaying your mortgage. Just an alternative perspective.

Sean Quagmire

just to piggy back off the op.

(using degiro)

When some 'tops up' the account each month, are they having to manually buy more shares in the etf like a new transaction? I am going to put in about 3k in one go (over 2 or 3 etfs) and about 500 a month thereafter. how would I handle the monthly transaction? looking to leave it sit for about 3 years.

secondly, in terms of income from the shares.
How do dividends appear on the account?
when you sell shares in etfs, how does the money appear on the account?

excuse the basic questions.

iainBB

Sean Quagmire wrote: »

just to piggy back off the op.

(using degiro)

When some 'tops up' the account each month, are they having to manually buy more shares in the etf like a new transaction? I am going to put in about 3k in one go (over 2 or 3 etfs) and about 500 a month thereafter. how would I handle the monthly transaction?

Make as few transaction as possible. So instead of transferring 200 a month and then buying an ETF with the 200. Put in 800 quarter and buy ETF with the 800.

gavmcg92

Sean Quagmire wrote: »

just to piggy back off the op.

(using degiro)

When some 'tops up' the account each month, are they having to manually buy more shares in the etf like a new transaction? I am going to put in about 3k in one go (over 2 or 3 etfs) and about 500 a month thereafter. how would I handle the monthly transaction? looking to leave it sit for about 3 years.

secondly, in terms of income from the shares.
How do dividends appear on the account?
when you sell shares in etfs, how does the money appear on the account?

excuse the basic questions.

No not at all.

If you put money in at a later date then you need to purchase more shares with the top up. The money that you transfer over appears in your cash account. Provided that the ETFs that you are buying are on Degiro's free ETF list then you have 1 free transaction per ETF per month. You are charged a flat fee of 2.50 per exchange you trade on. So for example, I am trading on 2 exchanges and so I am charged 5 euro a year.

If you go over your free ETF trades a month then the charge is 2 euro per trade plus 2 cents a share.
The dividends appear in your account tab and the funds are applied to your cash account.

cdlmarie

What are the tax implications if you just continue to buy shares in one or several etfs but you never sell, you just earn money on the dividends, is it 40% on top of your regular income rate? Thanks.

topper_harley2

cdlmarie wrote: »

What are the tax implications if you just continue to buy shares in one or several etfs but you never sell, you just earn money on the dividends, is it 40% on top of your regular income rate? Thanks.

Impossible to answer based on the above. Read up on UCIT vs US domiciled ETFs for tax purposes. Its explained many time on this forum as well as here https://www.askaboutmoney.com/threads/the-tax-treatment-of-etfs-for-irish-residents.199443/, and on the thread you started yourself.