Financial Advisor

FURET · 10-05-2015 04:57PM

Yes, you need to do whatever it takes to:

Shelter your retirement savings from tax
Ensure that you pay the minimum costs in management fees
Diversify sufficiently

topper_harley2 · 15-05-2015 09:03AM

I've gotten Millionaire Teacher and Random Walk Down Wall Street as suggested. On your sheltering from tax point, I'm finding this is quite hard in Ireland. Any Irish or EU domiciled ETF will result lots and lots or chargeable tax events after eight years if you were dollar cost averaging. This makes them less attractive for buy and hold investor I think.

US ETFs don't attract this but they aren't accumulating. Getting tax efficient investments for DIY seems to be non straight forward for Irish residents

guile4582 · 20-05-2015 10:19AM

half way through Millionaire Teacher and I must say what a great read. Even if you don't plan on investing afterwards, it is a great read and how he simplifies things brilliantly and uses some great examples (or stories) to illustrate the basics.

Really has me thinking about dead cash I have lying around in prize bonds and very low interest accounts

FURET · 20-05-2015 02:44PM

topper_harley2 wrote: »

I've gotten Millionaire Teacher and Random Walk Down Wall Street as suggested. On your sheltering from tax point, I'm finding this is quite hard in Ireland. Any Irish or EU domiciled ETF will result lots and lots or chargeable tax events after eight years if you were dollar cost averaging. This makes them less attractive for buy and hold investor I think.

US ETFs don't attract this but they aren't accumulating. Getting tax efficient investments for DIY seems to be non straight forward for Irish residents

The thing is, now you know the best way to invest and you know what an optimal portfolio should look like. The next step is to look at the options available within the Irish retirement planning paradigm and use them in such a way that they are as close to the ideal as possible.

The Boglehead approach to investing is instructive here. For example, they recommend maxing out their employer 401ks, using IRAs, taxable accounts, etc. You need to find the Irish equivalents and invest accordingly, building the most low-cost, passive, diversified funds possible. It *may* be possible to add accumulating ETFs in an Irish self-directed PRSA (which would be the equivalent of an IRA in the US). I don't know as I'm not based in Ireland - but at least you now know what questions to ask and what an optimal portfolio should look like. And that's a great place to start.

And I suggest everyone interested starts a mass letter-writing campaign to Vanguard requesting they set up shop in Ireland so people no longer need to use the likes of Irish Life.

FURET · 21-05-2015 10:32AM

guile4582 wrote: »

half way through Millionaire Teacher and I must say what a great read. Even if you don't plan on investing afterwards, it is a great read and how he simplifies things brilliantly and uses some great examples (or stories) to illustrate the basics.

Really has me thinking about dead cash I have lying around in prize bonds and very low interest accounts

I'm a huge fan of Andrew Hallam. He basically destroyed the financial sales industry in Singapore when he lived there. He has a decent blog too where he answers individual questions. One of the things I really like about him is that he's given me some fresh perspectives on what I'll do after I retire. He gave up teaching last year and now basically trots around the globe with his wife, living low-cost in places like Mexico and Vietnam while writing articles about personal finance.

I do slightly disagree with him on his aversion to emerging markets (he buys none). I try to maintain a 5% allocation to Vanguard's VDEM ETF.

topper_harley2 · 23-05-2015 11:08AM

I got the following reply from Revenue regarding the eight year rule, it might clear up a few things for people:

I refer to your queries below.

1. If you acquire an interest in an Irish domiciled ETF you do not need to notify Revenue. However, for any year in which you acquire an interest in an EU domiciled ETF then you must notify Revenue of same (via (h) – (j) of line 319 (Offshore Funds) of Form 11).

If you acquire new units each month, you will have a deemed disposal in respect of each acquisition in 8 years time, unless, of course, you sell the units before you’ve held them for 8 years. If you receive a payment (e.g. an annual distribution) from either an Irish or EU domiciled ETF, you must return the details of same on Form 11.

You do not need to complete a Form 11 on each occasion that you receive a payment or have a deemed disposal, rather you will total all payments and/or all gains for the year of assessment and enter the relevant details at (a) – (f) of line 319 of Form 11 and submit the return and payment in the October following the year of assessment. See page 1 of Form 11 for further details in relation to filing/payment dates.

If, say, you commence purchasing ETFs on a monthly basis in June 2015, by the end of 2015 you will have 7 different ETFs. If you hold these investments for 8 years, you will return the total of the deemed disposals of the 7 ETFs on the various dates in 2023 in you tax return in 2024. And so on for subsequent purchases.

2. Because US ETFs are not regarded as having structures and regulation that are similar in all material respects to Irish ETFs, they are taxed as share investments generally. Income payments i.e. annual distributions/dividends will be subject to income tax at the standard or higher rate as appropriate, and gains on disposals will be subject to capital gains tax. The deemed disposal provisions apply to gross roll-up funds only. However, PRSI and USC will apply.

I hope the above helps clarify the issue.

FURET · 23-05-2015 11:28AM

topper_harley2 wrote: »

I got the following reply from Revenue regarding the eight year rule, it might clear up a few things for people:

But is that the case if you buy an ETF as part of a PRSA?

topper_harley2 · 23-05-2015 11:35AM

I dont know, didnt ask them about the PRSA route, I will follow up....

FURET · 23-05-2015 11:53AM

You should also ask if it would be more tax efficient to buy a distributing ETF (i.e. one that pays dividends) or an accumulating ETF (i.e. one that does not pay dividends).

Best case is that you can open a PRSA and use it to buy low cost ETFs in a tax free way.

topper_harley2 · 12-07-2015 07:26PM

After much deliberating I am planning on setting up a very lazy (2 fund) DIY portfolio as follows:

Assert split: 2/3 equities, 1/3 bonds.
Investment vehicle: accumulating ETFs
Timeline: long term, 20 years
Strategy: dollar cost average with annual rebalance
1000 investment per month
8 investments in equity ETF, 4 in bond ETF, spread across the year
Trading costs are E2 + 0.02%, so it will cost E2.20 to invest the E1000 each month i.e. 0.22%.
TER of both funds is quite low, 0.2% and 0.25% respectively.

Hence, the total annual broker charge is 2.2 * 12 = 26.40, for an investment of 12,000 is 0.22%. Adding the TER for each fund gives 0.42% and 0.47% total annual cost for each fund. Averaging the two gives 0.445% total annual cost, which is not bad (especially compared with 1.25% AMC of various active funds)

World Equity ETF:
IWDA - ishares msci world accumulating (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund

Euro bond ETF:
IBCI - iShares Euro Inflation Linked Government Bond UCITS ETF (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251739/ishares-euro-inflation-linked-government-bond-ucits-etf

Both are accumulating to avoid having to deal with tax returns on dividends every year. I couldn't find any world bond ETF that was accumulating, so the euro one will have to do. I also like that its inflation linked.

I will (barring any govt policy change) still have the 8 year deemed disposal tax but I have spreadsheet tracking purchases so don't think it will be that taxing (ha ha) when time comes. I know there are tax disadvantages to this, no offsetting losers etc. I'm hoping to be able to pay the deemed disposal without selling the ETF to keep compounding process going.

I've also now maxed out my pension contributions, 20%. With employer contributions, there is now 26% going into pension. I checked, and it is passively managed and index linked, with .45% annual fee.

FURET · 12-07-2015 09:21PM

Topper, did you check whether you can buy these ETFs through a tax-protected PRSA?

Also, do not add the commission charged by the broker to your TER - it is a separate, one time cost per batch purchased (rather than a compounded cost) and extremely minor compared with the TER of the funds themselves.

topper_harley2 · 12-07-2015 09:51PM

I haven't really. I was thinking that I didn't want to tie up 26% in pension and rest of my cash into PRSA, as then I would no longer be in control of any wealth, since pension and PRSA have age limits of when you can access it.....

Good point on the charges, I didn't think of it that way

FURET · 13-07-2015 07:52AM

Also the total expense ratio of your funds is as follows:

0.66 * 0.2 = 0.132
0.33 * 0.25 = 0.0825

= Weighted TER of 0.2145% per annum. Meaning if the benchmark of your portfolio grew 10% in a given year, your portfolio should grow 9.7855%, not accounting for the inevitable ETF tracking errors.

(You do not add together the two TERs of your ETFs...rather, you must calculate the weighted average. If you had a 50:50 portiolio, and both ETFs cost 0.2%, your total expense ratio would not be 0.4%. It would be 0.2%

)

topper_harley2 · 13-07-2015 08:50AM

Ah I see. I did a regular average, not a weighted one....

0.21% is pretty good IMO

FURET · 13-07-2015 10:51AM

topper_harley2 wrote: »

Ah I see. I did a regular average, not a weighted one....

0.21% is pretty good IMO

It is a very low cost, balanced portfolio. If it were me, I would probably add an accumulating European index (ex-UK), just to get a bit more exposure to the continent (and home currency), but this is not required imo.

A portfolio like yours will certainly beat 90% of investment professionals over periods greater than 10 years.

topper_harley2 · 13-07-2015 08:49PM

Lets hope so!

Yeah I dont think ill put in 3rd ETF as it will mess up my frequency of buying (8 equities, 4 bonds). Hoping the euro bond will suffice.

plasmin · 18-07-2015 08:22AM

topper_harley2 wrote: »

After much deliberating I am planning on setting up a very lazy (2 fund) DIY portfolio as follows:

World Equity ETF:
IWDA - ishares msci world accumulating (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund

Euro bond ETF:
IBCI - iShares Euro Inflation Linked Government Bond UCITS ETF (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251739/ishares-euro-inflation-linked-government-bond-ucits-etf

Both are accumulating to avoid having to deal with tax returns on dividends every year. I couldn't find any world bond ETF that was accumulating, so the euro one will have to do. I also like that its inflation linked.

What are your thoughts on currency risk- USD for ticker IWDA

robp · 18-07-2015 10:05AM

cais wrote: »

What are your thoughts on currency risk- USD for ticker IWDA

One would hope it ceases to be an issue over a 20 year investing horizon.

topper_harley2 · 19-07-2015 01:01PM

cais wrote: »

What are your thoughts on currency risk- USD for ticker IWDA

There was one that was euro hedged, IWDE. However TER is .55%. Hoping the lower TER of .2% IWDA vs .55% IWDE will offset currency risk over time....

topper_harley2 · 20-07-2015 02:36PM

FURET wrote: »

It is a very low cost, balanced portfolio. If it were me, I would probably add an accumulating European index (ex-UK), just to get a bit more exposure to the continent (and home currency), but this is not required imo.

A portfolio like yours will certainly beat 90% of investment professionals over periods greater than 10 years.

Actually, for my age, do you think 66.6% equity and 33.4% bond is a little too conservative? Would it be more appropriate to up it to 80/20, since I have alot of time on my side.....

FURET · 20-07-2015 08:24PM

topper_harley2 wrote: »

Actually, for my age, do you think 66.6% equity and 33.4% bond is a little too conservative? Would it be more appropriate to up it to 80/20, since I have alot of time on my side.....

I don't know how old you are, but if you are likely to have a guaranteed pension and if you are emotionally capable of being unphased by potentially 50%-60% of the value of your stocks disappearing during years like 2008/2009, then imo it's ok to reduce your bonds to 20% or even 15%.

Bonds are there mainly to dampen volatility and help you sleep better at night during turbulent times. As I said, if the turbulent times don't bother you, then it's fine to reduce your bond holdings.

I myself do try to maintain a 70:30 allocation (I may even go 65:35 next year) but I don't live in a country with social security or pension plans. So I need to take a bit more care.

That said, I have a commitment to myself that if my stocks ever fall more than 40% from their highs, I will sell all my bonds to buy discounted stocks and all fresh contributions will go towards the stocks. When they begin to move north again, all my fresh contributions will be to bonds until I'm back at the desired allocation.

topper_harley2 · 20-07-2015 11:03PM

Haha whoops! I'm 33. OK think I'll stick with 66/33 as I would like small parachute in event of crash.

We should reconvene in 15 years and update this thread!

One More Toy · 21-07-2015 08:31PM

topper_harley2 wrote: »

After much deliberating I am planning on setting up a very lazy (2 fund) DIY portfolio as follows:
Assert split: 2/3 equities, 1/3 bonds.

Investment vehicle: accumulating ETFs

Timeline: long term, 20 years

Strategy: dollar cost average with annual rebalance

1000 investment per month

8 investments in equity ETF, 4 in bond ETF, spread across the year

Trading costs are E2 + 0.02%, so it will cost E2.20 to invest the E1000 each month i.e. 0.22%.

TER of both funds is quite low, 0.2% and 0.25% respectively.

Hence, the total annual broker charge is 2.2 * 12 = 26.40, for an investment of 12,000 is 0.22%. Adding the TER for each fund gives 0.42% and 0.47% total annual cost for each fund. Averaging the two gives 0.445% total annual cost, which is not bad (especially compared with 1.25% AMC of various active funds)

World Equity ETF:
IWDA - ishares msci world accumulating (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund

Euro bond ETF:
IBCI - iShares Euro Inflation Linked Government Bond UCITS ETF (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251739/ishares-euro-inflation-linked-government-bond-ucits-etf

Both are accumulating to avoid having to deal with tax returns on dividends every year. I couldn't find any world bond ETF that was accumulating, so the euro one will have to do. I also like that its inflation linked.

I will (barring any govt policy change) still have the 8 year deemed disposal tax but I have spreadsheet tracking purchases so don't think it will be that taxing (ha ha) when time comes. I know there are tax disadvantages to this, no offsetting losers etc. I'm hoping to be able to pay the deemed disposal without selling the ETF to keep compounding process going.

I've also now maxed out my pension contributions, 20%. With employer contributions, there is now 26% going into pension. I checked, and it is passively managed and index linked, with .45% annual fee.

Good to see another 2/3 fund investor around here

Im into vanguard etfs, with a dollar hedge, but its time i got into euro ones, might join you on these funds!

So now to my question:

I have a prsa with zurich which i dump 15% of my salary into each month, can i stop this and join my employer scheme?

One More Toy · 21-07-2015 08:33PM

topper_harley2 wrote: »

After much deliberating I am planning on setting up a very lazy (2 fund) DIY portfolio as follows:
Assert split: 2/3 equities, 1/3 bonds.

Investment vehicle: accumulating ETFs

Timeline: long term, 20 years

Strategy: dollar cost average with annual rebalance

1000 investment per month

8 investments in equity ETF, 4 in bond ETF, spread across the year

Trading costs are E2 + 0.02%, so it will cost E2.20 to invest the E1000 each month i.e. 0.22%.

TER of both funds is quite low, 0.2% and 0.25% respectively.

Hence, the total annual broker charge is 2.2 * 12 = 26.40, for an investment of 12,000 is 0.22%. Adding the TER for each fund gives 0.42% and 0.47% total annual cost for each fund. Averaging the two gives 0.445% total annual cost, which is not bad (especially compared with 1.25% AMC of various active funds)

World Equity ETF:
IWDA - ishares msci world accumulating (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund

Euro bond ETF:
IBCI - iShares Euro Inflation Linked Government Bond UCITS ETF (TER 0.2%)
https://www.ishares.com/uk/individual/en/products/251739/ishares-euro-inflation-linked-government-bond-ucits-etf

Both are accumulating to avoid having to deal with tax returns on dividends every year. I couldn't find any world bond ETF that was accumulating, so the euro one will have to do. I also like that its inflation linked.

I will (barring any govt policy change) still have the 8 year deemed disposal tax but I have spreadsheet tracking purchases so don't think it will be that taxing (ha ha) when time comes. I know there are tax disadvantages to this, no offsetting losers etc. I'm hoping to be able to pay the deemed disposal without selling the ETF to keep compounding process going.

I've also now maxed out my pension contributions, 20%. With employer contributions, there is now 26% going into pension. I checked, and it is passively managed and index linked, with .45% annual fee.

Just a little advice on this one, you should review your allocation closer to retirement ie. shift into bonds

topper_harley2 · 21-07-2015 09:27PM

Yep I plan to rebalance each year and then re-assess asset allocation every five or ten years. I'm 33 at moment so no immediate need to increase bond allocation just yet.

As regards PRSA, I would switch if your employer contributes decent percentage, since it's basically free money if they do....

capailldubh · 22-07-2015 01:47PM

Sorry for butting in but can someone tell me the best way to buy these ETF's and add them to a pension without going through a pension broker and stay tax compliant?
I have a TD Waterhouse account. Also, I have a self managed pension where I bought a small apartment (just after the crash).
I pay 1% to the pension managers and an annual fee to a "financial adviser" who set it up. (It was my idea)
There is substantial rent accumulating in a Rabo account within the scheme so I would like to invest that preferably myself to avoid more fees.

topper_harley2 · 25-07-2015 07:33PM

Here is my template for tracking purchases. Ive included one sample to show what fields are dynamic e.g. the totals, roll up dates etc

clickerquicklic · 26-07-2015 09:53AM

topper_harley2 wrote: »

Here is my template for tracking purchases. Ive included one sample to show what fields are dynamic e.g. the totals, roll up dates etc

Same age as your good self and same plan , I made an initial lump sum investment in ETF's and am adding to it quarterly , I've ignored bonds my bond allocation I've just put in term deposit accounts , 8 years deemed disposal is a pain but maybe it will take a couple of hours work to work out exactly what you owe , no loss relief on the same ETF is also a pain , so if you buy MSCI WORLD today and it makes you 100 profit and then buy MSCI world next year and that one makes you a 100 loss they don't offset each other .

Good luck

plasmin · 26-07-2015 12:31PM

topper_harley2 wrote: »

Here is my template for tracking purchases. Ive included one sample to show what fields are dynamic e.g. the totals, roll up dates etc

Hiya,

Did you consider this ETF? The TER is is 0.07 and is accumulating, albeit it is tracking S&P 500

http://www.ishares.com/uk/individual/en/products/253743/CSPX

thanks,

topper_harley2 · 26-07-2015 12:43PM

cais wrote: »

Hiya,

Did you consider this ETF? The TER is is 0.07 and is accumulating, albeit it is tracking S&P 500

http://www.ishares.com/uk/individual/en/products/253743/CSPX

thanks,

I did but as you say it's just the S/P and I was looking for world index. Really good TER though

Financial Advisor

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