Which ETF for €100 a month?
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Don’t invest in an ETF until you understand the tax
Exchange-traded funds may be less attractive than they appear due to onerous tax reporting requirements
Any EFT tracking the MSCI World index. It "tracks stocks from 23 developed countries worldwide". It's about 70% US, so does give you some geographical diversification in comparison to S&P 500.
There's also an MSCI All Country World index, which includes "developing" countries. It's still about 62% US. Possibly slightly higher risk to include the developing countries.
Search for either index on www.justetf.com to get more details of the indexes and the various ETFs available for each one.
There's also an MSCI All Country World index, which includes "developing" countries. It's still about 62% US. Possibly slightly higher risk to include the developing countries.
Search for either index on www.justetf.com to get more details of the indexes and the various ETFs available for each one.
And yes, the tax is a pain. My advice (which I didn't follow myself as I didn't appreciate it at the time) is to stick to a single ETF that is as well diversified as your risk appetite. You can't offset losses on one ETF against gains on another ETF for tax purposes (unlike direct shares). So there's much less benefit in "diversifying" by picking multiple ETFs.
Thanks for your advice. I understand the tax implications very well. Actually one of the reasons why I am choosing ETFs instead of IrishLife or Zurich Savings plan is the way they handle the deemed disposal tax. They deduct it from the fund so that just kills off any compounding. But with the ETF, my understanding is that I can decide to pay for the deemed tax myself when filling the Form 11 or 12. So I can pay that tax by using an alternative method and not necessarily from the fund.
My issue with MSCI World or All Country Index is that they are heavily shifted towards US so they're not that diversified after all. So I am stuck a little hence the request for advice.
Gordon Gekko
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Couldn’t you just top-up the life fund by an amount equal to the tax?
Money is fungible…
Don't think of it by country, think of it by company. You are buying a share of almost every significant company in the world, you can't get much more diversified than that. They just happen to mostly be in the US.
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time to plan
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If desired, you could diversify by putting 10 to 20% in an Emerging Markets index.
Gordon Gekko
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My Dad and I have all of our surplus money invested in Zurich’s International Equity fund. Eagle Star/Zurich have consistently delivered for us.
MSCI All Country World Index already includes emerging markets.
MSCI ACWI Investable Market Index also includes small caps if you really wanted to diversify further, but doesn't change the tilt towards US.
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The problem with IrishLife is that their funds are actively managed with the promise that they will beat the markets but we all know that this is not true in the long run.
Also, the fees involved are just too much. With an AMC of 1.25%, 1% Levy and other expenses, I just don't think it is worth the hassle. I actually hold a Pinnacle account but I wasn't aware of the full extend of fees until when I joined. ETFs investing therefore seems a no brainer.
Gordon Gekko
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I’d be wary of ETF investing personally. Even your opening post is salutary. The S&P is just one index in one country so it’s not globally diversifie, investing monthly will make keeping track of tax challenging, and CGT ETFs aren’t available cheaply.
As I said before the tilt towards US makes this ETF unappealing to me. It is not different than a standard SP500 ETF.
Please could you elaborate more on the tax issues? As far as I know, all the ETFs are accumulating, so the only tax that is due is the exit tax when I decide to cash in or the deemed disposal tax on 8th anniversary of when I first bought the ETF. Also, as far as I am aware these taxes are due to be filled as part of the Form 11 or 12. Am I missing something?
Is computing the deemed disposal tax very complex? I agree with you on the S&P ETFs.
is that invested within a pension to avoid all the deemed disposal malarkey?
You can find ETFs for whichever country/region you prefer. Buy more of them if you want to reduce your exposure to US.
You're not achieving more diversification though, since the All World ETFs are already fully diversified. You're increasing the concentration in whichever country you choose.
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I know I said it's best to just invest in one ETF. But if you're planning on holding for the long term, and are looking for something reasonably conservative, then you could look at two different ETFs to reduce your US exposure. The MSCI World has very little Eurozone exposure. Looking at the factsheet for IE00B4L5Y983, it's 70% US, 6% Japan, 4% UK, 3% France, 3% Canada, 3% Switzerland, 2% Germany etc (rounded to nearest whole number). The Eurozone countries make up less than 10% and Europe as a whole is less than 15%. So you could buy both the MSCI World and the MSCI Eurozone or MSCI Europe in whatever ratio you want to get your US exposure down to a level you are happier with, assuming that you are happy with an increased European exposure.
Well, that’s not true - there are plenty of distributing ETF share classes.
Trying to calculate exit tax/deemed disposal if you are making a dozen ETF purchases every year will be an absolute nightmare.
A far simpler approach is to maximise your tax-relieved pension contributions and keep your pension pot 100% invested in global equities.
If you have any after-tax savings, having maximised your pension contributions, just keep them on deposit. Or better still, pay down any debts you might have (including your mortgage).
It’s important to look at your overall financial position and not to think in silos.
Keep it simple!
All the ETfs that I am considering are accumulating, so it should make tax calculations easier since the dividends are automatically reinvested into the fund.
Please could you elaborate how/why computing the exit tax and/or the deemed disposal tax is a nightmare? I am seeing this phrase all the time, yet nobody bothers to explain why it is the case. I haven't seen a single post trying to explain how it is computed but everybody just assumes that it is a nightmare, so I would love to learn more about that.
I already have a pension pot albeit not max out yet. The point I was making in this post was to invest on a short time, not a long term commitment like the pension. For the record, in pension I am already investing in world equities.
Leaving money in a bank account (unless it is an emergency fund) isn't a savvy move as inflation will gradually eat it up.
I don't believe and I don't have a mortgage thankfully as it is the worth financial decision someone can make. As Robert Kiyosaki said in his book Rich Dad Poor Dad, a mortgage is a liability as it takes money away from you instead of putting it in your pocket.
Gordon Gekko
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There are many aspects of what you’re doing that I’d disagree with.
A mortgage isn’t a bad thing, ETFs are a minefield to be avoided, I wouldn’t invest at all until I’m maxing out my AVCs, and investments shouldn’t be short-term.
A mortgage isn’t a bad thing, ETFs are a minefield to be avoided, I wouldn’t invest at all until I’m maxing out my AVCs, and investments shouldn’t be short-term.
The complexity of buying monthly is often overstated. It's one line in a spreadsheet versus twelve lines in a spreadsheet.
Calculating the tax is simple arithmetic and is still only done once per year.
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