Confused about ETF's

c.p.w.g.w

Hey all.

Just a quick question in relation to ETF's and the risks.

I have been told the only risk is losing the initial investment. But a friend* was then saying I could be left owing money if fund doesn't perform.

My question is specific to ETF

* Works in financial services

Rulmeq

Your frind is probably talking about CFDs, an ETF is just like owning a number of stocks in a market (yes, you can lose money, but not more than you invested, unless someone lets you buy them on margin). The only worry you should have with ETFs is the tax (different types based on where the ETF is based)

c.p.w.g.w

Rulmeq wrote: »

Your frind is probably talking about CFDs, an ETF is just like owning a number of stocks in a market (yes, you can lose money, but not more than you invested, unless someone lets you buy them on margin). The only worry you should have with ETFs is the tax (different types based on where the ETF is based)

Cheers.

With tax, I thought you declare profits on sale of stock under CGT and dividends under income tax.

Is there a big difference between buying an etf traded in Amsterdam and Paris with tax since they are both within the EU?

Dytalus

c.p.w.g.w wrote: »

Cheers.

With tax, I thought you declare profits on sale of stock under CGT and dividends under income tax.

Is there a big difference between buying an etf traded in Amsterdam and Paris with tax since they are both within the EU?

Between Amsterdam and Paris, probably not.

But if you buy an ETF from outside the EU it's taxed similar to shares (ie, pay CGT when you sell it and losses can be used to offset future profits for tax purposes), including income tax on dividends. This also, AFAIK, involves paying tax abroad but you can get some of the tax paid abroad taken off the tax you pay here (at least with the US you can).

Within the EU, more specifically UCITS ETFs, your investment is taxed at a 41% exit tax on profits. And that has to be paid every 8 years, whether you've sold your ETF or not (deemed disposal).

Rulmeq

c.p.w.g.w wrote: »

Cheers.

With tax, I thought you declare profits on sale of stock under CGT and dividends under income tax.

Is there a big difference between buying an etf traded in Amsterdam and Paris with tax since they are both within the EU?

Revenue have a document with the details (lots of details ): https://www.revenue.ie/en/companies-and-charities/documents/exchange-traded-funds-guidance-note.pdf

Voltex

...and this why I have an accountant..for when your affairs become a bit complex.

c.p.w.g.w

Looking at ETF's that track S&P500...

Is there any significant difference between the different ones. If they all track the same thing, what can the differences be?

Voltex

c.p.w.g.w wrote: »

Looking at ETF's that track S&P500...

Is there any significant difference between the different ones. If they all track the same thing, what can the differences be?

New into it myself and wondered the same thing. The go-to fund seems to be SS's SPY fund...but at $250 a pop seems a bit expensive. I went with Blackrocks iShares. Nice way to get into the S&P.

Mad_maxx

Voltex wrote: »

New into it myself and wondered the same thing. The go-to fund seems to be SS's SPY fund...but at $250 a pop seems a bit expensive. I went with Blackrocks iShares. Nice way to get into the S&P.

Makes no difference what each unit costs, its the total spend on the fund which tracks the s+p which counts

c.p.w.g.w

Some of these ETF's have the following letters asigned to them UCITS, what does that actually mean?

Voltex

c.p.w.g.w wrote: »

Some of these ETF's have the following letters asigned to them UCITS, what does that actually mean?

Basically it means the fund conforms to certain European quality standards.

Voltex

Mad_maxx wrote: »

Makes no difference what each unit costs, its the total spend on the fund which tracks the s+p which counts

I agree and your right...but when your new to the world of ETF's it feels better to be investing smaller amounts on a regular basis, until you have a clearer idea of what your goals are and the strategy to get get there. Its a confidence thing.

Sabre Man

Make sure the expense ratio isn't too high:
https://www.investopedia.com/articles/personal-finance/092613/pay-attention-your-funds-expense-ratio.asp

c.p.w.g.w

Rulmeq wrote: »

Revenue have a document with the details (lots of details ): https://www.revenue.ie/en/companies-and-charities/documents/exchange-traded-funds-guidance-note.pdf

Does anyone have another source for this, URL is dead?

Dytalus

c.p.w.g.w wrote: »

Does anyone have another source for this, URL is dead?

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-03.pdf

Here ya go.

setanta1000

c.p.w.g.w wrote: »

Looking at ETF's that track S&P500...

Is there any significant difference between the different ones. If they all track the same thing, what can the differences be?

Great question - complicated answer!

The significant difference between ETFs that track the same index is the total end cost to the investor, which can have a major impact on actual returns to the investor (as opposed to the gross performance of the ETF).

Some good summary analysis here (https://etfdb.com/etf-education/understanding-etf-s-total-cost-of-ownership/) or if you google ETF Total Cost of Ownership but the summary is that there are many hidden costs or drags on performance that can impact actual returns (e.g. management fees, initial charges, trading costs within the fund, AP spreads, settlement costs, etc).