ETF Vs Stocks

Dellboy2007

My plan is to start investing a portion of monthly salary into either stocks (min. 10 diversified blue chip) or just lumping it into one of the cheap S&P 500 / Global ETFs. My question is two fold, which is more tax efficient and which is more realistic? I understand stocks are taxed at @ 33% CGT. ETFs/Mutuals seem a little bit more cumbersome with the deemed sale every 8 years as well as as the higher tax rate. So am I better off from a tax perspective of going the individual stocks route? Secondly, let's say i go the stock route and select circa 10 of the biggest S&P 500 stocks (ensuring to hit all/most of the main sectors) as well as a few global ones to buy every month, am I being realistic in being able to obtain a good return?

Appreciate any advice and apologies if this is a question which has been asked before. I tried the search function.

Jim2007

Dellboy2007 wrote: »

Secondly, let's say i go the stock route and select circa 10 of the biggest S&P 500 stocks (ensuring to hit all/most of the main sectors) as well as a few global ones to buy every month, am I being realistic in being able to obtain a good return?

In a word NO. Dollar Cost Averaging works, Buy And Hold Value investing works, but trying to do DCA with BAHV will not work.


Successfully investing in individual stocks requires a lot of skill and effort, something most individual don't have if they are honest with themselves.


You are probably better of to look at some investment trusts instead, something like the Foreign & Commonwealth Investment Trust, for example (NOT a recommendation)

Dellboy2007

Jim2007 wrote: »

In a word NO. Dollar Cost Averaging works, Buy And Hold Value investing works, but trying to do DCA with BAHV will not work.


Successfully investing in individual stocks requires a lot of skill and effort, something most individual don't have if they are honest with themselves.


You are probably better of to look at some investment trusts instead, something like the Foreign & Commonwealth Investment Trust, for example (NOT a recommendation)

May I ask why and how it doesn’t work? Isn’t this essentially how pensions are structured? Apologies I’m still in the understanding phase. I’m also not sure how the above is different.

DilD

Jim2007 is correct. Selecting stocks and watching the profits roll in is no easy task. It sounds like you are leaning more to being a passive investor and in that case you're most likely better off buying into a fund or yes, some ETF of the S&P or NASDAQ perhaps. If your plan is to buy and hold a number of "top" stocks across a broad range of sectors, then just buy an S&P ETF, do you have the time or know-how to research these "top" stocks? And then monitor them and decide if they are still top performers or should you rotate into the new leaders/top stocks? It's not as simple as buying what's hot right now, if you don't have the time to put in the research then better off just buying into a fund/ETF and letting someone else do that work for you.

Dellboy2007

DilD wrote: »

Jim2007 is correct. Selecting stocks and watching the profits roll in is no easy task. It sounds like you are leaning more to being a passive investor and in that case you're most likely better off buying into a fund or yes, some ETF of the S&P or NASDAQ perhaps. If your plan is to buy and hold a number of "top" stocks across a broad range of sectors, then just buy an S&P ETF, do you have the time or know-how to research these "top" stocks? And then monitor them and decide if they are still top performers or should you rotate into the new leaders/top stocks? It's not as simple as buying what's hot right now, if you don't have the time to put in the research then better off just buying into a fund/ETF and letting someone else do that work for you.

Ok, so if I go down the ETF route, what’s the tax implications? If I’m contributing every month into an ETF won’t I have a deemed sale every month once 8 years passed? How will this work? Do I have to submit tax return? I’m a paye worker.

DilD

Dellboy2007 wrote: »

Ok, so if I go down the ETF route, what’s the tax implications? If I’m contributing every month into an ETF won’t I have a deemed sale every month once 8 years passed? How will this work? Do I have to submit tax return? I’m a paye worker.

I can't say for sure, I'm an individual stock trader so have not gone down the ETF route. One thing I would say is get in contact with whatever fund etc you choose and make sure you research thoroughly before buying in. I wouldn't take anything off here for certainty as different investment vehicles carry different rules so to speak. Sorry it's so vague but just making sure you are 100% before you transfer funds anywhere.

Diarmuid

Dellboy2007 wrote: »

Ok, so if I go down the ETF route, what’s the tax implications? If I’m contributing every month into an ETF won’t I have a deemed sale every month once 8 years passed? How will this work? Do I have to submit tax return? I’m a paye worker.

Yes. It's a pain in the hole. Thank your local TD. Your options are to invest in US domiciled ETFs or invest in a stock that's a proxy for the stock market. Like Berkshire. Not risk free but they have been tracking the index for the past 10 years

namloc1980

Dellboy2007 wrote: »

Ok, so if I go down the ETF route, what’s the tax implications? If I’m contributing every month into an ETF won’t I have a deemed sale every month once 8 years passed? How will this work? Do I have to submit tax return? I’m a paye worker.

ETF investing if a pain. You're right if you invest monthly you'll have a deemed disposal every month after 8 years. You'll have to make a tax return also and understand the tax rates which is currently 41% on disposal and any dividends. It's possible to do this if you keep accurate records and keep track of everything in excel or something like that. If you invest in an accumulating ETF you won't have to worry about tax for 8 years when the deemed disposal kicks in but if you invest in a distributing ETF you'll have tax to deal with in year 1.

Dellboy2007

Thanks for the information guys. I think I may have found a solution. The online broker I use offers all the usual US ETFs but as CFDs rather than underlying share. Given these are CFDs my understanding is that these are taxed at 33% CGT rate. Anyone see any issue with this?

Jim2007

Dellboy2007 wrote: »

Thanks for the information guys. I think I may have found a solution. The online broker I use offers all the usual US ETFs but as CFDs rather than underlying share. Given these are CFDs my understanding is that these are taxed at 33% CGT rate. Anyone see any issue with this?

You need to decide if your investing or gambling....

Dellboy2007

Jim2007 wrote: »

You need to decide if your investing or gambling....

So you think investing in a CFD that tracks an index fund is gambling?

RedRochey

For US ETFs, pretty sure we can't invest in them because we're EU citizens and they don't produce a KIID document, not sure how that works with CFDs

Dellboy2007

RedRochey wrote: »

For US ETFs, pretty sure we can't invest in them because we're EU citizens and they don't produce a KIID document, not sure how that works with CFDs

Hence the CFD

jwof2006

namloc1980 wrote: »

ETF investing if a pain. You're right if you invest monthly you'll have a deemed disposal every month after 8 years. You'll have to make a tax return also and understand the tax rates which is currently 41% on disposal and any dividends. It's possible to do this if you keep accurate records and keep track of everything in excel or something like that. If you invest in an accumulating ETF you won't have to worry about tax for 8 years when the deemed disposal kicks in but if you invest in a distributing ETF you'll have tax to deal with in year 1.

Do you not still have to pay tax on the dividends each year in an accumulating ETF?

I wonder would you be better just saving over the course of the year, and purchasng into an ETF once a year(instead of monthly), to lessen the complexity around the deemed disposal down the road?

I know the higher tax and deemed disposal are a bit of pain when it comes to ETFs, but they seem to have a lot going for them still, especially around the low management fees, and security of following an index. I haven't used them yet myself, but considering trying one.

cooperguy

DilD wrote: »

in that case you're most likely better off buying into a fund or yes, some ETF of the S&P or NASDAQ perhaps.

Why limit yourself to US stocks? Why not a global index tracker like VWCE?

Dellboy2007 wrote: »

Ok, so if I go down the ETF route, what’s the tax implications? If I’m contributing every month into an ETF won’t I have a deemed sale every month once 8 years passed? How will this work? Do I have to submit tax return? I’m a paye worker.

Would it not be one tax return at the end of the year declaring 12 deemed disposals?

jwof2006 wrote: »

Do you not still have to pay tax on the dividends each year in an accumulating ETF?

In an accumulating ETF you dont need to pay tax on dividends. It is covered in the deemed disposal after 8 years

namloc1980

jwof2006 wrote: »

Do you not still have to pay tax on the dividends each year in an accumulating ETF?

I wonder would you be better just saving over the course of the year, and purchasng into an ETF once a year(instead of monthly), to lessen the complexity around the deemed disposal down the road?

I know the higher tax and deemed disposal are a bit of pain when it comes to ETFs, but they seem to have a lot going for them still, especially around the low management fees, and security of following an index. I haven't used them yet myself, but considering trying one.

No not in an accumulating ETF. They are taxed under the gross rollup regime so are subject to exit tax at deemed disposal every 8 years or upon actual disposal but you get the benefit of tax free growth in the interim. Good article here on it all:

https://anirishinvestorsguide.com/2018/10/27/taxation-of-etfs-in-ireland/

frebel

Good thread Dellboy

These links break down some scenarios for you in terms of 'timing' v 'time in' market and various tax implications
https://mrsmoneyhacker.com/is-it-better-to-invest-regularly-or-in-lump-sums/
https://mrsmoneyhacker.com/how-to-invest-in-ireland/#How_to_maintain_your_investments

I've been investing over the last year in ETFs which have returned around 13%... I'm deferring the hassle of deemed disposal to my future self and hoping the process will be easier in 8 years time!

Lately, I'm being distracted (getting a buzz out) of high potential returns on some US stocks and spacs which I was then hoping to add to the etfs eventually...

You've taken the right approach in doing your research first whereas I just got stuck in and while I've made very good returns (in a bullish market) but in terms of tax, it will be 33% cgt on the stocks and then if I invest returns in etfs, 40% in 8 years time (all from money I've paid income tax on already!!)

kapisko1PL

I am in the same boat as OP and found out (I think) that after 8 years during the "deemed disposal" you pay whatever tax you need to pay on the gain but whenever you actually sell your ETFs after 8 years (Irish domiciled) then you're given a tax credit for the tax you've paid.

Someone correct me if I am wrong please.

Bawa

Jim2007 wrote: »

Successfully investing in individual stocks requires a lot of skill and effort, something most individual don't have if they are honest with themselves.

I'm honestly pretty good at it, but the time commitment is very high because you have to review financial statements over many quarters and read press releases of quarterly results.



Most people should go for the well diversified ETF