Beginning to Invest - All questions go here please

Geuze · 01-07-2021 2:01pm

Bob24 wrote: »

Yes correct. And then if you haven’t sold by then you will have to do it again starting at year 16 (while remembering what you had already declared and paid in the previous cycle for each batch, so that you only declare and pay for the balance).

Also you might be aware already but another disadvantage of ETFs in terms of taxation is that you cannot offset losses on one ETF against gains made on another ETF, on company shares, or on other assets.

Forgive my language, but Jesus Christ.

I had read about this, but wasn't aware of the full implications.

On AAM it was said that the life cos / pension firms don't want any changes, as they don't want more competition.

Brutal.

ETFs offer low costs, and passive tracking of very wide indices, it's such a pity.

01-07-2021 2:20pm

I would just add that just because passive index tracking has been successful for the past 40 years, it does not mean that it will continue to be for the next 40. It might go down or sideways for ages like Japan did

But yeah, the tax situation, to me, makes funds/etfs not worth it outside of pension wrapper.

Brian201888 · 01-07-2021 2:48pm

Passive tracking is taking a huge amount of capital, far more than any other time in history. It does seem like it's getting to the stage where value is being generated by the virture of being in an index rather than the merits of a company.

Shedite27 · 01-07-2021 3:08pm

Bob24 wrote: »

Also note that this is at the 8th anniversary of each individual purchase transactions.

So if as per the original exemple you are buying 250 euros worth of ETF shares each month, in 8 years time every month you will have to calculate the unrealised gains for one of these 250 euros tranches (the one witch just tuned 8 years old) and file a return for it. You will also need to remember how much unrealised gains you have filed for each given tranche, so that when you eventually sell it (or when it turns 16 years old) you only file Athena leftover amount.

Total pain of a tax calculation rule if you ask me …

I think you're over complicating it there. You don't need to calculate it every month.

You only make a return once a year. So one evening in December, go to Google Finance, get the price on the day you bought it 8 years ago, and the price at the same date this year, repeat for 24 dates if you're buying every two weeks (or half your work by investing monthly). It takes about a hour once a year to do it. Anyone who invests in shares has to do more complicated calculations.

Geuze · 01-07-2021 4:00pm

Shedite27 wrote: »

I think you're over complicating it there. You don't need to calculate it every month.

You only make a return once a year. So one evening in December, go to Google Finance, get the price on the day you bought it 8 years ago, and the price at the same date this year, repeat for 24 dates if you're buying every two weeks (or half your work by investing monthly). It takes about a hour once a year to do it. Anyone who invests in shares has to do more complicated calculations.

Yes, fair enough, keeping a spreadsheet of each monthly purchase helps.

Say I pick one ETF, the same ETF each month, 250 every month.

At the end of 7/8 years, I have 84/96 transactions.

Each transactions look like this:

(quantity bought)*(price) = 250 euro

The Q and P will vary each month.

Using the price at the start of year 7/8, I then add up the 84/96 individual gains/losses, to calculate total gains/losses, and declare that in my tax return?

Bob24 · 01-07-2021 4:26pm

Shedite27 wrote: »

I think you're over complicating it there. You don't need to calculate it every month.

You only make a return once a year. So one evening in December, go to Google Finance, get the price on the day you bought it 8 years ago, and the price at the same date this year, repeat for 24 dates if you're buying every two weeks (or half your work by investing monthly). It takes about a hour once a year to do it. Anyone who invests in shares has to do more complicated calculations.

Yes sure you don’t have to actually sit down and calculate each month. But what I meant is that if you make a purchase ones a month, at the end of the year (starting on year 8) you will have to make 12 calculations per year based on 12 different cost basis (price on the day that lot was purchased) and 12 different valuations (price on the day it hit its 8th anniversary).

Someone who is buying shares in investment trusts actually doesn’t have any calculations to do if they are not selling, since they are only paying CGT on actual disposals.

Bob24 · 01-07-2021 4:33pm

Geuze wrote: »

Forgive my language, but Jesus Christ.

I had read about this, but wasn't aware of the full implications.

You are forgiven, we were all speechless when we found out about this ;-)

Geuze · 01-07-2021 5:01pm

Brian201888 wrote: »

Passive tracking is taking a huge amount of capital, far more than any other time in history. It does seem like it's getting to the stage where value is being generated by the virture of being in an index rather than the merits of a company.

I have wondered about that.

What would happen if all inflows of new savings were to passive tracking funds/ETFs, with no active management?

Shedite27 · 01-07-2021 5:12pm

Geuze wrote: »

Yes, fair enough, keeping a spreadsheet of each monthly purchase helps.

Say I pick one ETF, the same ETF each month, 250 every month.

At the end of 7/8 years, I have 84/96 transactions.

Each transactions look like this:

(quantity bought)*(price) = 250 euro

The Q and P will vary each month.

Using the price at the start of year 7/8, I then add up the 84/96 individual gains/losses, to calculate total gains/losses, and declare that in my tax return?

Yeah, and it's only 12 individual gains/losses each year to worry about, you'll never have to look at 80/90 rows in the spreadsheet.

In 2029, you need to do the maths for the 12 purchases in 2021, in 2030 you have to maths for the 12 purchases in 2022 etc.

I work with shares, and my spreadsheet for last year was about 50 rows, nobody should be scared of 12 calculations, seriously it's an hours work, max.

Brian201888 · 01-07-2021 5:14pm

Someone more educated on the matter may explain more thoroughly but it would continue a flow of money into large companies whilst stifling smaller competition from getting the capital they need to advance.

I can't see how it would work out well in the longer term

Shedite27 · 01-07-2021 5:15pm

Bob24 wrote: »

Yes sure you don’t have to actually sit down and calculate each month. But what I meant is that if you make a purchase ones a month, at the end of the year (starting on year 8) you will have to make 12 calculations per year based on 12 different cost basis (price on the day that lot was purchased) and 12 different valuations (price on the day it hit its 8th anniversary).

Someone who is buying shares in investment trusts actually doesn’t have any calculations to do if they are not selling, since they are only paying CGT on actual disposals.

If you're holding investment trusts longer than 8 years, yes you don't have to worry about it until you finally sell (when BTW you'll have to do the maths and pay tax for all those years of purchases).

With ETF's, you do 12 calculations an pay tax each year.
With IT's, in 20 years time you have 20 years worth of calculations and tax due.

I'm not advocating for ETF's BTW, I don't use them outside my pension, but if someone's looking for something that passively tracks an index, it's a better option than an IT. An IT, you're backing the fund manager to beat the index.

Bob24 · 01-07-2021 5:18pm

Geuze wrote: »

I have wondered about that.

What would happen if all inflows of new savings were to passive tracking funds/ETFs, with no active management?

Look-up for Mike Green interviews about this very topic. He is on of the people who have given it the most thoughts. I remember a good with him on the Grant Williams podcast with Bill Fleckenstein. It should be this one: https://www.grant-williams.com/podcast/the-end-game-ep-3-mike-green/

In theory, if there is almost only passive investment and virtually no active at all, the very extreme scenario is that the market can break down. I.e. if people start withdrawing money from their passive funds, the funds have to sell shares. But if there are no large buyers with spare cash because active is dead, the sell orders from passive ETFs would not be met with any buy orders at any price.

Bob24 · 01-07-2021 5:30pm

Shedite27 wrote: »

I'm not advocating for ETF's BTW, I don't use them outside my pension, but if someone's looking for something that passively tracks an index, it's a better option than an IT. An IT, you're backing the fund manager to beat the index.

For sure people should be clear on what they are looking for.

But independently of their suitability, to me there is no question that ETF taxation is less favourable.

Not necessarily because of the complexity of the calculation method (sure it is very doable but I am sure many people don’t understand it and are doing it wrong). The main issues are that:
1) you have to pay tax on unrealised gains which is reducing your compounding effect
2) if you are out of luck, whatever index you decided to track goes down, and you want to sell to cut losses -> you can’t offset those losses against gains made elsewhere

Geuze · 02-07-2021 12:47am

I have a further question, again about regular monthly saving into 100% equities over ten years.

I bought shares in the four quoted banks between 2007-2014, and I have unrealised capital losses of approx. €10k on three of them.

AIB = €2,750 approx
Anglo = €3,000 approx
PTSB = €4250 approx

Bank of Ireland – still in massive loss, but I intend to keep, this is the only one with any long-term chance to breakeven

I also bought Ryanair shares on four occasions, and I have unrealised capital gains, about €8k approx

I could do the following:
Sell the few AIB and PTSB shares now, and crystallise the capital losses
Sell some/all of Ryanair now, generating a capital gain
Next day, buy the same number of Ryanair shares (obviously with risk of price changes)
In my tax return, put the capital losses against the gain, pay zero CGT
Establish a new higher base price for the Ryanair shares

If I wish to start regular monthly saving into 100% equities over ten years, should this capital loss affect my decision?

What I mean is should I tilt towards ITs as I have existing capital losses to put against future gains?

Or I shouldn't less taxes influence my decision?

Shedite27 · 02-07-2021 8:55am

Yeah you could re-set by selling your losses and offsetting against your gains. Nothing against rebuying the Ryanair shares immediately. You're right that it should be no CGT on that transaction.

Taxes should definitely be considered, but don't let it sway your decision. Work out the real rate of return (including taxes) for your options, and work from there.

spalpeen · 26-07-2021 1:52am

Who is the best broker at the moment?

(Mods pls delete, meant to put in crypto forum)

timetogo1 · 06-08-2021 2:16pm

I've a weird question about taxes.

When a stock splits e.g. Apple split 4 to 1 last year is the sell of the 1 share and buy of the 4 shares treated as taxable in the year of the split?

The reason I'm asking is that I'm looking at my Degiro report for 2020 and my profits for Apple are more than what I made for Apple. I can't make the sums add up. My sums say I made €527.12 from sales of Apple shares in 2020. Degiros report says I made €620.

I was assuming (probably wrongly) that if I had bought a share for €200 in 2019 and it split 4 to 1 in 2020 I should account for purchasing 4 shares in 2019 at €50 each. Then if I sell the 4 shares in 2021 for €100 each the profit would be calculated at (4X100) - (4X50) in 2021 and the tax on the €200 would be due in 2021.

The maths I'm doing for other years for Apple is fine and for other stocks is fine. I'm just unsure what the correct method is to account for splits.

It will be annoying if that's the case as Nvidia split this year and I've a few grand of profit accumulating on them.

Shedite27 · 07-08-2021 10:04am

https://www.boards.ie/discussion/comment/117715573#Comment_117715573

Stock splits isn't a sale, it's just the way Degiro accoutn for them. If you did nothing else with Apple this eyar, you've no tax event or liability

timetogo1 · 08-08-2021 12:13pm

https://www.boards.ie/discussion/comment/117718902#Comment_117718902

That's what I was assuming. So I reported too much to the taxman last year. At least I know for this year.

Rock Paper Scissors · 03-09-2021 9:05am

Guys am I correct in saying that If I buy some Scottish Mortgage IT shares today, I won't have any tax liability until I sell? And then it's just a straight 33% of my profit?

namloc1980 · 03-09-2021 9:37am

https://www.boards.ie/discussion/comment/117840683#Comment_117840683

The consensus is that Investment Trusts fall within the CGT regime, however my understanding is that Revenue (as usual) have never formally confirmed this.

Note that Scottish Mortgages Trust pays out a dividend which you will need to account for as income on your annual tax return.

Rock Paper Scissors · 03-09-2021 3:45pm

https://www.boards.ie/discussion/comment/117563801#Comment_117563801

Can you explain what you mean when you say:

"With IT's, in 20 years time you have 20 years worth of calculations and tax due"

Surely if I buy into an IT and pay the tax on the twice yearly dividends when I file my return, the only other calculations and tax due, is when I sell?