Investing in S&P500 ETFs

baaryyy

Hi,
I want to start investing in index funds ie. Something like the vanguard with tracks the S&P 500.

I've read its a great option for investing but am wondering about how the irish state would tax me on this? Is it still worthwhile? I think it would be due to some tax on dividends and then capital gains tax at the time of selling the funds at 33 percent?

Thanks,
Barry

Viscount Aggro

You would be taking on FX risk wholesale. Its not worth investing in USD assets if you live and spend in EUR.

baaryyy

What FX risk wholesale? and why are US assets a bad idea trading in euro?

Sabre Man

Viscount Aggro wrote: »

You would be taking on FX risk wholesale. Its not worth investing in USD assets if you live and spend in EUR.

I agree its more risky, but that doesn't necessarily mean it isn't worth doing. You get more shares for your money when the euro is strong but if the euro keeps getting stronger and stronger your investments will be worth less.

baaryyy

Is it worth doing, considering irish taxes?

Cute Hoor

Viscount Aggro wrote: »

You would be taking on FX risk wholesale. Its not worth investing in USD assets if you live and spend in EUR.

This isn't necessarily true.

OP asked specifically about Vanguard S&P 500, presumably VOO

If OP had asked this same question on 24/8/2015 and went ahead and invested in VOO, the following is how he would have done:

24/8/2015 bought VOO at $173
25/4/2017 sold VOO at $219
Profit 26.6% - not bad for a 20 month investment

Now suppose he had used his euros to buy:
24/8/2015 bought VOO at $173 (€149.40 - exchange rate 1.158)
25/4/2017 sold VOO at $219 (€200.18 - exchange rate 1.094)
Profit 34% - fairly tasty for a 20 month investment

OP would also have received quarterly dividends on his VOO shares, on which he would of course have to pay income tax + PRSI, but c'est la vie if you are making money.

The example I've given here is a random one, you can pick any date and do the same calculation, it may/may not work out as positive as the above example. And of course the currency risk does have to be factored in, if the dollar went back up to 1.50 (which it could) then your investment would want to be performing well to beat the currency change.

Most importantly, past performance is no guarantee of future results, the line that gives every predictor an out on their prediction.

baaryyy

Ok thanks. I think ill go ahead with it

Prezatch

OP, there is a very important difference between US ETFs and Irish domiciled ETFs. You would be wise to read up on the taxation benefits of investing in the former before rushing in. Have a search through this forum, plenty of info.

gavmcg92

Prezatch wrote: »

OP, there is a very important difference between US ETFs and Irish domiciled ETFs. You would be wise to read up on the taxation benefits of investing in the former before rushing in. Have a search through this forum, plenty of info.

Based on similar research I did, for me US domiciled ETFs came out on top. What makes you say that Irish domiciled is better?

prmcnamara

gavmcg92 wrote: »

Based on similar research I did, for me US domiciled ETFs came out on top. What makes you say that Irish domiciled is better?

Where did he say that Irish domiciled ETFs are better? He said that the former (i.e. US ETFs) have tax benefits.

topper_harley2

OP, have you searched this forum for info on this? This has been discussed ad-nausem, almost twice a week i'd say e.g see www.boards.ie/vbulletin/showthread.php?p=103351475 :-)

You are also mixing up index funds and ETFs. Have a read of my post on above thread, where I explain that you cannot buy index funds in Ireland.

Vanguard ETFs are all US domiciled meaning they have issues with US estate tax issues if you die: https://www.askaboutmoney.com/threads/be-careful-if-you-hold-more-than-60-000-in-us-equities.191697/

phantom_lord

Viscount Aggro wrote: »

You would be taking on FX risk wholesale. Its not worth investing in USD assets if you live and spend in EUR.

I can't help thinking that opening yourself up to currency risk could actually lower your overall risk. Think of someone in the UK post-brexit, by having their income and all assets in GBP they took a big hit. Not locally, but in terms of their global income, and it will have an effect down the line on imports and holidays, or if they wish to move abroad.

And that's before considering that something like the S&P is going to have correlations to Eurodollar.

If something happens in Italy/France/Greece, you may be delighted you had foreign assets.

Prezatch

Topper summed it up well in the link he posted:

you should NOT buy UCIT ETFs, due to their terrible taxation. That means, do not buy any ETF domiciled in OECD, not just Ireland, which is pretty much all of them. Hence, if you are doing this, you should concentrate on US/Canadian domiciled ETFs only.

If you don't plan on dying any time soon, go for a US ETF

smug_dude

ignore that rubbish about FX risk , any decent fund will have a majority of U.S denominated companies even the fund itself is priced in euro or sterling etc , usually about 55% with the rest spread between europe , japan and perhaps 10% in emerging markets , the u.s is the 500 pound gorrilla of equity markets and cannot be ignored as europe has never been in a bull market while the usa was going the other way , europe follows so you have to have u.s exposure

the only issue you need to prioritise is tax , some etf,s are more tax friendly than others , i cannot advise you on this one however

topper_harley2

FX risk swings both ways, sometimes you benefit, other times you don't. General consensus is that over 20+ years it should balance out.