S&P 500 ETF or imitate using individual shares ?

BK92

Hi all, long time lurker here that has learned a lot from this forum. A big thanks to Jim2007, Bob 24 and KyussB for all the wise words.

Right, I know Revenue's disapproval of Joe Soap trying to make a few bob in the markets and the pain in the rear end that is the exit tax on ETFs.

My question is: would you consider it feasible to buy individual shares to avail of the lower tax rate (33% CGT v 41% exit tax) and avoid the 8 year deemed disposal, which I imagine is a bit of a roadblock to compounding.

The obvious snag here is that I wouldn't be buying a 'slice of the pie' but the 'individual ingredients'. By the time I get around to buying a share it could've shot up and been the main driver of that week's growth. Equally, I could hit a share that'd be at it's peak.

I've never heard of anyone doing this before bar one person who recommended buying two shares from each decile every month.

What are your thoughts on it ?

Supercell

You could get Investment Trust shares instead (also known as CEF's) , no deemed disposal. Gains charged against CGT compared with ETFs which are charged as income tax.

Good examples SMT, ATT, PCT all which are mostly American stocks and all wildly outperforming the S&P500 this year. If environmental is your thing IEM is worth a look too. For a European look try BGEU

Thing is, all these are wildly overpriced currently imho (as is the S&P500).
I think most of these trackers are due to stagnate or have little or no growth for a few years after the recent crazy run up.

PRSA's may be worth a look too due to their preferable tax treatment of ETF's in a pension - I know very little about those however, others here may be able to advise better.

Jimbobjoeyman

if you were hell bent on this there are better ways to go aout this as an individual rather than buying all 500 or so components.

I know certain index tracking funds might not hold all of the holdings within the index they track but instead they replicate the risk and return characteristics as closely as they can with less holdings to cut down on expenses.

probobly not worth the hassle but if you replicate the indexes beta(equity market risk exposure charateristics) you should at least in theory over the long run replicate its return +/- a margin of error.

But on the down side you do lose some of the diversification benefits of just holding a tracker that fully replicates the index as you have less holdings.

Jim2007

Right, I know Revenue's disapproval of Joe Soap trying to make a few bob in the markets and the pain in the rear end that is the exit tax on ETFs.

The Revenue, don't give a crap about it, they are there to enforce the law as set out by the Dail. Take it up with your TD, it is not going to change until people do.

BK92 wrote: »

I've never heard of anyone doing this before bar one person who recommended buying two shares from each decile every month.

That would be because it is not possible, you will not have enough capital to replicate the index. The main underlying reason why active funds rarely beat the index is because they can't replicate the index due to the having to have a cash float to service the public, so they try to do what you are suggesting.


Dollar cost averaging on an index and value investing are two strategies that work very well, but they are not interchangeable.


If you are not interested in Trusts and still want to go with individual shares then, perhaps look at some kind of variation of the "Small Dogs of the Dow" strategy.

BK92

Thanks for the advice. I thought as much, if it was a workaround worth doing, it would've been done before. And thanks for the 'home truths' Jim, I'll take it up with my TD.

Would anyone know the names of investment trusts which would track more or less the S&P500 or ressemble in some way Vanguard's total stock market ETF (VTI) ?

Taylor365

BK92 wrote: »

I'll take it up with my TD.

Mention the fact that CGT allowance hasn't changed in 30 years and that uk has one of 12k while ours is 1,270! A real kick in the teeth for the small time investors.


If you want to mimic with individual shares, i would look at the ark funds too, for more innovation and growth:


ARKK
ARKG
ARKF
ARKQ
ARKW


The S&P has plenty of dinosaurs.

Supercell

Taylor365 wrote: »

Mention the fact that CGT allowance hasn't changed in 30 years and that uk has one of 12k while ours is 1,270! A real kick in the teeth for the small time investors.


If you want to mimic with individual shares, i would look at the ark funds too, for more innovation and growth:


ARKK
ARKG
ARKF
ARKQ
ARKW


The S&P has plenty of dinosaurs.

Can you buy those in Ireland, not available on Degiro from what I can see?

Taylor365

Supercell wrote: »

Can you buy those in Ireland, not available on Degiro from what I can see?

Not sure, but looking at their holdings and % given to each is a good start!