ETF advice

mrbrian

Registered User
Messages
22
Hello, I've spent days reading about the ETF vs. regular save life cover debate. Maybe someone really nice could help?

Basically I'm 35, married, one child and debt free. Looking at investing circa €1,500 per month in a medium risk savings product with a 5-10 year horizon. I initially looked at the life companies but couldn't really get my head around the feed - no issue paying fees but would they actually deliver any benefits above ETF? That's probably anyone's guess.

Anyhow, looking to invest 10k + regular monthly payment. Going for diversified 40% North America / 40% European and / 20% emerging markets with an 80% equity / 20% commodity mix. I'm thinking of a buy and hold approach.

1. What are your thoughts on ETF vs life company
2. Where is the most cost effective purchase of ETF ?
3. What your thoughts on diversification strategy?
4. Is the tax thing really that bad if I sit on them for 8 years ?

Thanks ,

Brian
 
Hi Brian
I'm not stalking you, I swear!! :D

Active managed funds will not outperform index funds in the long run because it is incredibly difficult to beat the market and no one has proven that they can do it on a consistent basis.

Life companies offer ETF's as well as actively managed funds. I think the issue you are talking of is fees. The annual management charge is the life companies charge for their costs and profit. There is also fees for running the fund. If you buy ETF's, you will also pay whoever runs the ETF and whoever you buy it off.

Your approach is aggressive and as long as you are happy with the downs that go with that, then that mix is fine...in equities. I don't see the point in commodities. They are uncorrelated to equities but they are extremely volatile and their long term returns aren't great. If you want to reduce volatility, I'd invest in bonds (difficult to do at the moment though).

Steven
www.bluewaterfp.ie
 
Well 20% commodities does not mix with a medium risk savings concept! And 10K is not an awful lot of cash to be spreading around like that, you'll end up burning a lot more than is necessary of fees etc....

I would suggest you make it a lot simpler - put say 70% - 80% in to a large cap ETF like the STOXX 50 and the remainder into a medium term bond ETF. Accumulate your cash until you have may be 5K before buying to keep the transaction costs low. Rebalance your portfolio by adding new purchases to the out of favour element of your portfolio (the part that is performing the worst). When you hit around the 100K then thinking of adding a few more elements.
 
I think your strategy is well thought out. I don't think it is particularly risky considering you are now 35 and will be investing for the long term. According to John Hussman, two factors are important in achieving wealth (a) the number of years you are consistently saving and investing and (b) the proportion of funds allocated to higher returning investments such as stocks. You have a long investment horizon ahead of you; you intend to invest regularly and you intend to invest mainly in stocks, so you have a good plan.

I'd go for commodities. (I do.) Historically, commodities have delivered returns roughly equivalent to US equities, but with higher volatility and lower correlation. So including commodities should provide substantial diversification benefits.

If you think 20% to commodities is too much you could split your allocation 10% to commodities and 10% to property. Then you'ld have everything covered.

I agree with Jim207, post #3, you need 5,000 minimum to invest otherwise it just gets eaten up by fees so invest your initial 10,000 in two of your asset classes and then save up until you can invest another 5,000. And do it in blocks of 5,000, and not 1,500 monthly. When you start getting dividends you can add these to your investments.
 
Thank you very much for the advice. I actually had my notifications turned off and didn't think anyone replied so excuse the repeated post.

Agree in terms of blocks of 5k. Will look to reduce commodities to 10%.
Might pop 2 x 5k in ETF's eg european and world mix.
Will also look to diversify property somehow too - would appreciate any product recommendations.

Should I also consider a Zurich saver / Irish life saver too? Say €500 per month and then two 5K ETF annually?
 
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