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Where to invest €500a month?

  • 13-11-2020 6:47pm
    #1
    Registered Users Posts: 1,217 ✭✭✭ lightspeed


    Hi all

    I'm thinking of investing €500 a month in an investment fund but I'm not sure what would give decent and stable returns.

    I'd like to aim for a return of 5% a year . I looked at the below and see there are good returns from several. One such that caught my eye was 5 star 5 America fund. However, when I click on it and scroll down to the factsheet the returns seem different from what calculator shows whether I pick annualised or calendar year.

    https://www.zurich.ie/funds/fund-performance-calculator/

    https://www.zurich.ie/funds/fund-products/equity-funds/american-equity-funds/5-star-5-americas/

    I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?

    Do I have to pay income tax each year on profits made on the fund even if I dont make any withdrawals or sale of my shares in the fund?


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Comments

  • Registered Users Posts: 3,960 ✭✭✭ Diarmuid


    5% after inflation? You are looking at equities.

    Stable and decent are usually translated into risk and reward. And it shouldn't be a surprise that they are related. One goes up the other goes down. If you are not willing to either invest for say 5+ years or could not handle a 20% loss in a single year then equities are not for you. And you are not going to get a 5% return (after inflation)

    Those are managed funds which are well documented to underperform index funds in the long run. You need to read up on the difference between the two

    The tax treatment of investment funds in Ireland is needlessly complex and again probably something that you need to read up on


  • Posts: 0 ✭✭✭ [Deleted User]


    I'm interested in this too so gonna monitor here for other useful info.


  • Registered Users Posts: 1,217 ✭✭✭ lightspeed


    Diarmuid wrote: »
    5% after inflation? You are looking at equities.

    Stable and decent are usually translated into risk and reward. And it shouldn't be a surprise that they are related. One goes up the other goes down. If you are not willing to either invest for say 5+ years or could not handle a 20% loss in a single year then equities are not for you. And you are not going to get a 5% return (after inflation)

    Those are managed funds which are well documented to underperform index funds in the long run. You need to read up on the difference between the two

    The tax treatment of investment funds in Ireland is needlessly complex and again probably something that you need to read up on

    Thanks I did some googling on mutual funds and index funds. Its seems odd to me that index funds outperform mutual funds considering my understanding is that mutual funds cost more as the funding is paying people huge salaries on basis that they can make the right investment decisions.

    My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund.

    So for example, If I'm understanding things right if I invested 6000 a year for 15 years in S&P 500 id have 201,518 even with adjusting for inflation according to calculator in the below if results were repeated. I put in start year of 2004 to 2019 on below calculator for S&P 500.

    https://financial-calculators.com/historical-investment-calculator

    Any idea how much fees would be or what the best way to invest in an index fund would be?

    I did have a look at tax implications but how are index funds specifically taxed?

    I'd have thought it would only be when I sell my shares that any profit realised would be taxed at 33% based on current CGT rate.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    lightspeed wrote: »
    Thanks I did some googling on mutual funds and index funds. Its seems odd to me that index funds outperform mutual funds considering my understanding is that mutual funds cost more as the funding is paying people huge salaries on basis that they can make the right investment decisions.


    Well contrary to what a lot of people think, these fund managers not particularly bad at there job, in fact many of them do a good job, given the handicaps the face.


    There are several disadvantages to managing the typical fund as opposed to say a pension or sovereign fund.
    - The first is that you can't be fully invested, you must always maintain a high degree of liquidity to be able to facilitate all the withdrawals and so on.
    - Then there is the need to attract and retain investors, so you need to be invested in the popular stocks at all times. Because when an investor reads a story about great result etc... they are going to check their fund to see if it has a position
    - The need to track a benchmark as closely as possible.
    - They are restricted by the legal and fund framework



    So the task of a typical fund manager is to try and replicate the performance of a given benchmark without being fully invested, while at the same time attract and retain investors by keeping up with the trend.


    So it is not really surprising that they often fail to deliver in such circumstances. And those that do well in such circumstances tend to get head hunted by pension and sovereign funds.


  • Registered Users Posts: 17,024 ✭✭✭✭ namloc1980


    Unfortunately tax laws in Ireland are punitive for regular investors. Pension funds offer the only real way to shelter your investments from the Taxman. As mentioned above the taxation of funds is quite complex and needlessly punishing. Investing directly in shares is an option.


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  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    namloc1980 wrote: »
    Investing directly in shares is an option.


    It is not a realistic option for the average Joe or Mary, most will dramatically under perform the the typical index fund, even after taxes.


  • Registered Users Posts: 1,256 ✭✭✭ JackieChang


    Have a look at Scottish Mortgage Investment trust. Although might be too risky for you.

    It's the only stock in my retirement portfolio. Yolo to the max baby.

    If it's a bit high risk for you, you could look at their other funds: https://www.bailliegifford.com/en/uk/individual-investors/funds/


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    lightspeed wrote: »
    I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?


    I would say no. General consensuses is that equities should return about 8%. Allowing for fees that would mean a realist expectation would be about 6.5% to 7%. Also note that the funds you have referenced are reporting gross returns.


    On the other hand the two trust funds I'm most familiar with have annualized returns of 18% - 20%, which is the kind of return you'd expect from an actively managed fund over the period.


  • Registered Users Posts: 21 Jcarver


    Hi all,

    Since this discussion is broadly on different investment funds, does anyone have any experience or opinions on Altana Wealth?

    I am considering investing in their 'Top Billion Fund'
    https://www.altanawealth.com/tbf-overview

    Cheers!


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    Jcarver wrote: »
    Hi all,

    Since this discussion is broadly on different investment funds, does anyone have any experience or opinions on Altana Wealth?

    I am considering investing in their 'Top Billion Fund'
    https://www.altanawealth.com/tbf-overview

    Cheers!

    I have neither the time nor the motivation to dig into it, but a quick look would lead me to advise great caution.


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  • Registered Users Posts: 1,217 ✭✭✭ lightspeed


    Jim2007 wrote: »
    I would say no. General consensuses is that equities should return about 8%. Allowing for fees that would mean a realist expectation would be about 6.5% to 7%. Also note that the funds you have referenced are reporting gross returns.


    On the other hand the two trust funds I'm most familiar with have annualized returns of 18% - 20%, which is the kind of return you'd expect from an actively managed fund over the period.


    I'm a bit confused as you say no with regard to my question of realistic returns of 5% after inflation but then quote higher rates?

    Are you saying in some cases returns could be higher? I assume gross rates dont include fees. Would these be typically 1.5 to 2%?

    Why do people opt to invest in mutual funds over index? Is it just that they believe the mutual fund they have chosen will offer a greater return?

    If one was to invest in an index funds, are they putting their money into a pot effectively that is used as capital or are they actually buying shares?

    I'm trying to figure out if I invest in an index fund will i pay income tax on any profits each year at 51% marginal rate, or just Cgt at 33% when I sell all shares and realise the profit?


  • Registered Users Posts: 309 ✭✭ Saudades


    lightspeed wrote: »
    I did have a look at tax implications but how are index funds specifically taxed?

    Gains on Index funds like the S&P are taxed at 41%.

    This article is almost three years old but still up to date as far as I know - https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331


  • Registered Users Posts: 862 ✭✭✭ unplayable


    lightspeed wrote: »
    Hi all

    I'm thinking of investing €500 a month in an investment fund but I'm not sure what would give decent and stable returns.

    I'd like to aim for a return of 5% a year . I looked at the below and see there are good returns from several. One such that caught my eye was 5 star 5 America fund. However, when I click on it and scroll down to the factsheet the returns seem different from what calculator shows whether I pick annualised or calendar year.

    https://www.zurich.ie/funds/fund-performance-calculator/

    https://www.zurich.ie/funds/fund-products/equity-funds/american-equity-funds/5-star-5-americas/

    I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?

    Do I have to pay income tax each year on profits made on the fund even if I dont make any withdrawals or sale of my shares in the fund?


    Do 400 pm in a mix of Zurich prisma 3 and 4 very good funds.

    Maybe the other 100 into Bitcoin.


  • Registered Users Posts: 689 ✭✭✭ jams100


    lightspeed wrote: »
    My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund

    Why would you put money in an investment fund before paying off the mortgage?
    Your going to end up paying tax on any profits from the investment funds and your immediately negating any profits by not paying off more of your mortgage.
    I really don't see why you wouldn't pay off your mortgage quicker?
    To get a more assured return on your investment fund your going to have to leave it there for 5+ years anyway otherwise its just too risky.
    My two cents are: pay off mortgage quicker whilst at the same time look around at what funds are most suitable to your needs


  • Registered Users Posts: 17,211 ✭✭✭✭ dxhound2005


    This site will let people calculate how much they can save by increasing their monthly mortgage repayments and/or paying in a lump sum.

    https://www.ccpc.ie/consumers/money-tools/extra-mortgage-payments-calculator/


  • Registered Users Posts: 1,217 ✭✭✭ lightspeed


    jams100 wrote: »
    Why would you put money in an investment fund before paying off the mortgage?
    Your going to end up paying tax on any profits from the investment funds and your immediately negating any profits by not paying off more of your mortgage.
    I really don't see why you wouldn't pay off your mortgage quicker?
    To get a more assured return on your investment fund your going to have to leave it there for 5+ years anyway otherwise its just too risky.
    My two cents are: pay off mortgage quicker whilst at the same time look around at what funds are most suitable to your needs

    Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

    I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

    Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?


  • Registered Users Posts: 17,211 ✭✭✭✭ dxhound2005


    You said this in an earlier post:

    "My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund."

    Does that mean you are making extra payments or lump sums to shorten the life span of the mortgage? If you haven't done so already find out the exact interest rate you are paying and put that information in the calculator, along with a €500 a month top up. You could find that you will have paid off the mortgage in maybe 8 years instead of 15. Which means you will have cleared the principle as well the interest, and that needs to be taken into account in a long term calculation.


  • Registered Users Posts: 2,649 ✭✭✭ cooperguy


    unplayable wrote: »
    Do 400 pm in a mix of Zurich prisma 3 and 4 very good funds.

    Maybe the other 100 into Bitcoin.

    Gambling 20% of your monthly savings seems like a very high proportion to me.


  • Registered Users Posts: 8,749 ✭✭✭ Shedite27


    lightspeed wrote: »
    Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

    I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

    Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?

    Correct. While mortgages are this low you're far better off investing your spare money.


  • Registered Users Posts: 689 ✭✭✭ jams100


    Shedite27 wrote: »
    Correct. While mortgages are this low you're far better off investing your spare money.

    Ok, that's a fair point but there is still a risk even if its small by investing the money but there is no guarantee that the mortgage will be at that rate either, unless its a fixed rate.

    The way I see it is that paying the mortgage quicker is a 100% guaranteed way of saving money rather than investing it where it could (however unlikely) return a minimal amount.


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  • Registered Users Posts: 192 ✭✭ conor1979


    lightspeed wrote: »
    Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

    I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

    Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?

    Am I getting this wrong, would it not be better to pay down the mortgage if you can?

    Based on the fact that 2.3% interest on the principal amount (assuming its 6 figures) would be higher than 5% investment income (unless the investment is also 6 figures, or at least half of the mortgage)???


  • Registered Users Posts: 12,274 ✭✭✭✭ y0ssar1an22


    Have you got a pension?


  • Registered Users Posts: 812 ✭✭✭ Dellboy2007


    I’m doing something similar, except putting the €500 a month into a CFD which tracks a well known index. Benefit of doing this is tax at 33% rather than the aforementioned 41%.


  • Moderators, Business & Finance Moderators Posts: 7,818 Mod ✭✭✭✭ Jim2007


    lightspeed wrote: »
    Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

    The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
    - You borrowed to invest
    - You invested in a high risk asset class
    - You failed to diversify the risk
    - More than 7% of your wealth is in a high risk asset class leaving you very exposed
    - you are invested in a high risk asset class with a low rate of return.
    - you have invested in an illiquid asset

    There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

    If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.


  • Registered Users Posts: 2,872 ✭✭✭ BailMeOut


    Are you maxing out your pension as investing pre tax in a self managed PRSA might be a better option and diversify what you investment in each month.


  • Registered Users Posts: 812 ✭✭✭ Dellboy2007


    Jim2007 wrote: »
    The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
    - You borrowed to invest
    - You invested in a high risk asset class
    - You failed to diversify the risk
    - More than 7% of your wealth is in a high risk asset class leaving you very exposed
    - you are invested in a high risk asset class with a low rate of return.
    - you have invested in an illiquid asset

    There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

    If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.

    Two questions on this:

    1. What’s the realistic alternative living somewhere in Dublin with a family? Rent?
    2. What other investment opportunity allows you to leverage up to buy an asset by 10x 20x. I’m not sure if I went to the bank and asked them for a loan for half a million for buying a diversified pool of securities they would buy into it.

    It all sounds very much like what David McWilliams spouts, i.e. the commonwealth (and ex commonwealth) country’s obsession with owning property, I’m just not sure how renting in places like Dublin is a viable alternative.


  • Site Banned Posts: 32 ✭✭✭ ShlugMurphy


    I've put on average 1000 quid into the markets since around May time - not each month but kinda lumped at different times.

    Bought single stocks on DeGiro. Main holdings are BRK.B and BABA which is about 73% of my portfolio.

    Other stocks I have are real estate and airlines which I am up about 40+% on these.

    In total I am up around 7%. And if there were't any currency losses, I would have about 40% more profit currently, so maybe close to 10 or 11%.

    I am really comfortable with BRK.B, well run, no major risks and well diversified.

    I am down about 10% on BABA but confident this will turn around aswell. Breakeven on MSFT.


  • Site Banned Posts: 32 ✭✭✭ ShlugMurphy


    Jim2007 wrote: »
    The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
    - You borrowed to invest
    - You invested in a high risk asset class
    - You failed to diversify the risk
    - More than 7% of your wealth is in a high risk asset class leaving you very exposed
    - you are invested in a high risk asset class with a low rate of return.
    - you have invested in an illiquid asset

    There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

    If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.


    Property owners are cleaning up to be realistic though.

    We had a once in a lifetime property crash and you'd still be better off buying at the worst possible time in the tiger than renting all the way through.


  • Registered Users Posts: 122 ✭✭ angryInch


    I’m doing something similar, except putting the €500 a month into a CFD which tracks a well known index. Benefit of doing this is tax at 33% rather than the aforementioned 41%.

    What platform are you using for this?
    Around what percentage are you paying in fees annually? Or are these short term trades?


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  • Registered Users Posts: 812 ✭✭✭ Dellboy2007


    angryInch wrote: »
    What platform are you using for this?
    Around what percentage are you paying in fees annually? Or are these short term trades?

    I’m using eToro. No overnight fees or weekend fees. No broker commissions or transaction fees either. Etoro makes money off the spread which in my case will be on the buy side. I’ve researched it and couldn’t find a better way to do what I’m doing.


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