Which ETF for €100 a month?

[franc82]

Fees are based on 1% amc.

If you are paying for tax out of your own pocket, you are saving more than €400 a month then as you are always going to be saving future tax costs.


It's not for everyone. The most cost efficient way of doing anything is to do it yourself. Lots of people are happy to outsource and then spend their time doing other things they enjoy while someone else is looking after the admin and taxes for them.

The reality is that most life insurance companies charge more than 1% AMC, for my child saving account Zurich is charging me 1.25% which is A LOT. At the time, I was fully aware of the potentially of investing into passive funds.

I just recently became aware of the way the deemed disposal tax is paid by life insurance companies, which in effect negates compounding. In an ideal world, customers should be given the option to pay for it with their cash if they wish. After all, Revenue will still get their money.
The realty is that it is done that way to hinder anyone who wants to invest in non-conventional ways (aka property investing etc.)
The complexity of computing deemed disposal tax and the exit tax is just overstating. In this very same thread, you saw how people came up with simple spreadsheet to do just that.

If you are investing in accumulating Irish domiciled ETFs you don't even have to report anything to Revenue until either you decide to cash in or the deemed disposal tax is due. In addition, they're several online platforms that makes investing in passive funds so easy that you wonder why life insurance companies are charging so much.

The amount of work involved is simply not too much to outsource and especially for that fee. Right now, I can barely see the point in investing in those companies given that the returns over the long term won't be as good as a passive index. As you said in your post entitled: 'A snap shot of the highs and lows of investing', investing is easy and I would add that passive investing is easier than active investing.
This is not me ranting about being ripped off by life insurance companies but just pointing out the facts.

 

[Gordon Gekko]

The reality is that most life insurance companies charge more than 1% AMC, for my child saving account Zurich is charging me 1.25% which is A LOT.

I just recently became aware of the way the deemed disposal tax is paid by life insurance companies, which in effect negates compounding. In an ideal world, customers should be given the option to pay for it with their cash if they wish

- 1.25% of what’s usually a relatively small amount of money isn’t necessarily a lot (e.g. 1.25% of €30,000 is only €375).

- As I posted previously, there is that option…simply lodge an amount equal to the tax payment into the fund!

 

[Fortune]

The reality is that most life insurance companies charge more than 1% AMC, for my child saving account Zurich is charging me 1.25% which is A LOT. At the time, I was fully aware of the potentially of investing into passive funds.

I just recently became aware of the way the deemed disposal tax is paid by life insurance companies, which in effect negates compounding. In an ideal world, customers should be given the option to pay for it with their cash if they wish. After all, Revenue will still get their money.
The realty is that it is done that way to hinder anyone who wants to invest in non-conventional ways (aka property investing etc.)
The complexity of computing deemed disposal tax and the exit tax is just overstating. In this very same thread, you saw how people came up with simple spreadsheet to do just that.

If you are investing in accumulating Irish domiciled ETFs you don't even have to report anything to Revenue until either you decide to cash in or the deemed disposal tax is due. In addition, they're several online platforms that makes investing in passive funds so easy that you wonder why life insurance companies are charging so much.

The amount of work involved is simply not too much to outsource and especially for that fee. Right now, I can barely see the point in investing in those companies given that the returns over the long term won't be as good as a passive index. As you said in your post entitled: 'A snap shot of the highs and lows of investing', investing is easy and I would add that passive investing is easier than active investing.
This is not me ranting about being ripped off by life insurance companies but just pointing out the facts.

I have a life insurance savings plan in Vanguard funds for less than 1%

 

[messyleo]

- 1.25% of what’s usually a relatively small amount of money isn’t necessarily a lot (e.g. 1.25% of €30,000 is only €375).

- As I posted previously, there is that option…simply lodge an amount equal to the tax payment into the fund!

Exactly - plus paying with cash instead of the fund manager sorting it from the fund, is a bit messier for the next deemed or actual disposal.
Really don't see the big advantage in paying it yourself when you can alternatively top up the fund if you wish

 

[franc82]

Exactly - plus paying with cash instead of the fund manager sorting it from the fund, is a bit messier for the next deemed or actual disposal.
Really don't see the big advantage in paying it yourself when you can alternatively top up the fund if you wish

Fair point about topping up but the high fees still make this type of investing very unappealing. Also, you will need to manually work out the value of the deemed tax to top up your account accordingly.

An AMC of 1.25% is still a lot. If you think about it over 10 years, 12.5% of your funds would have been eaten up by various charges. For comparison, you can invest in some ETFs and you get a TER of 0.12%.

 

[Sarenco]

An AMC of 1.25% is still a lot. If you think about it over 10 years, 12.5% of your funds would have been eaten up

You might want to check your maths here…

 

[Corola]

It's not far off.

1 - (1 - 0.0125)^10 = 0.118 = 11.8%

 

[messyleo]

Fair point about topping up but the high fees still make this type of investing very unappealing. Also, you will need to manually work out the value of the deemed tax to top up your account accordingly.

An AMC of 1.25% is still a lot. If you think about it over 10 years, 12.5% of your funds would have been eaten up by various charges. For comparison, you can invest in some ETFs and you get a TER of 0.12%.

Well the fund manager tells you what the tax they have taken is so there is no manual calculation
A lot only charge AMCs of 1% tbf if you look in the right places - it is maybe a fairer comparison

 

[Steven Barrett]

The reality is that most life insurance companies charge more than 1% AMC, for my child saving account Zurich is charging me 1.25% which is A LOT. At the time, I was fully aware of the potentially of investing into passive funds.

I just recently became aware of the way the deemed disposal tax is paid by life insurance companies, which in effect negates compounding. In an ideal world, customers should be given the option to pay for it with their cash if they wish. After all, Revenue will still get their money.
The realty is that it is done that way to hinder anyone who wants to invest in non-conventional ways (aka property investing etc.)
The complexity of computing deemed disposal tax and the exit tax is just overstating. In this very same thread, you saw how people came up with simple spreadsheet to do just that.

If you are investing in accumulating Irish domiciled ETFs you don't even have to report anything to Revenue until either you decide to cash in or the deemed disposal tax is due. In addition, they're several online platforms that makes investing in passive funds so easy that you wonder why life insurance companies are charging so much.

The amount of work involved is simply not too much to outsource and especially for that fee. Right now, I can barely see the point in investing in those companies given that the returns over the long term won't be as good as a passive index. As you said in your post entitled: 'A snap shot of the highs and lows of investing', investing is easy and I would add that passive investing is easier than active investing.
This is not me ranting about being ripped off by life insurance companies but just pointing out the facts.

It's up to yourself. If you would prefer to track it yourself on a spreadsheet, manually work out the deemed disposals and tax on regular withdrawals, do the more complex year 16 deemed disposal, that's fine. Or you can sign a direct debit and let someone else do it for you, that's up to you. There's always people would prefer to DIY and others who want to outsource.

The big issue is the tax of 41% which effects everyone. It is far too high. The best we can hope for is that it is gradually brought down to 2% over DIRT again but that would take a number of years and there will be a change of government in the meantime, so who knows if that will happen.


Steven
www.bluewaterfp.ie

 

[Corola]

what do you think of this ETF: iShares Smart City Infrastructure UCITS ETF USD (Acc) ISIN IE00BKTLJC87

Any thematic ETF that is following a popular trend should only be seen as something "fun" to invest in. If you have an interest in the topic then by all means invest a small part of your portfolio to it. But it's a totally different asset than a broad market ETF that follows a world index.

This one in particular has been highly correlated with the overall market but with a higher TER.

 

[franc82]

It's up to yourself. If you would prefer to track it yourself on a spreadsheet, manually work out the deemed disposals and tax on regular withdrawals, do the more complex year 16 deemed disposal, that's fine. Or you can sign a direct debit and let someone else do it for you, that's up to you. There's always people would prefer to DIY and others who want to outsource.

The big issue is the tax of 41% which effects everyone. It is far too high. The best we can hope for is that it is gradually brought down to 2% over DIRT again but that would take a number of years and there will be a change of government in the meantime, so who knows if that will happen.


Steven

There is very little work involved to be charging that much. Latest technologies make it incredibly easy to manage issues that you mentioned (direct debit, saving plan). I use an App that allows me to setup regular saving plan and bank transfer for free, I get to decide the frequency and the amount that I want to invest.

The computation of tax isn't an issue as it is overstated. A simple excel spreadsheet does the trick. With the exit tax that high, investors need to optimize their costs which unfortunately is bad news for actively managed funds. I wouldn't count on the government to incentivize investing as they will be scoring an own goal. It is obvious to me that the government's goal is to encourage real estate investing.

The only other investment that is being encouraged by the government is pension and it is easy to see why. So, unless life insurance companies up their games in the face of competition, I am afraid they'll struggle to woo investors in their saving plans (talking mainly about Easy access invesment bonds, Pinacle). If you consider all the costs involved (AMC, commissions to the financial advisor, government levy), it is simply too expensive.

 

[franc82]

Any thematic ETF that is following a popular trend should only be seen as something "fun" to invest in. If you have an interest in the topic then by all means invest a small part of your portfolio to it. But it's a totally different asset than a broad market ETF that follows a world index.

This one in particular has been highly correlated with the overall market but with a higher TER.
View attachment 8458

Thanks for your advice, makes totally sense to me. Not sure if you think it makes a difference but that ETF has a relatively cheap share price compared to MSCI All World ETF.

And finally out of curiosity what tool do you use to compare the correlation between ETFs?

 

[Corola]

The relative share price is meaningless. There is no difference between one share at €100 and two shares at €50 of the same stock. It just makes it easier to buy smaller amounts.

I use justetf.com for information on ETFs:

ETF portfolios made simple | justETF

Invest broadly diversified at low cost. justETF will guide you there.

www.justetf.com

 

[Racrus]

- 1.25% of what’s usually a relatively small amount of money isn’t necessarily a lot (e.g. 1.25% of €30,000 is only €375).

- As I posted previously, there is that option…simply lodge an amount equal to the tax payment into the fund!

With the Zurich funds at least, this is not an option. They don't let you pay the tax via alternative means like from your cash, it's taken directly from the fund, but also they don't let you top up the fund either. Well, they don't let you top up the bond type funds which were a single lump sum investment, if you wish to add more money you have to set up a new separate bond investment.

I guess it's different for the savings funds where you are lodging money every month or so, I guess you could lodge extra money to cover the tax amount in that kind of savings investment? Is that the type of scenario you're speaking of?

 

[Steven Barrett]

There is very little work involved to be charging that much. Latest technologies make it incredibly easy to manage issues that you mentioned (direct debit, saving plan). I use an App that allows me to setup regular saving plan and bank transfer for free, I get to decide the frequency and the amount that I want to invest.

The computation of tax isn't an issue as it is overstated. A simple excel spreadsheet does the trick. With the exit tax that high, investors need to optimize their costs which unfortunately is bad news for actively managed funds. I wouldn't count on the government to incentivize investing as they will be scoring an own goal. It is obvious to me that the government's goal is to encourage real estate investing.

The only other investment that is being encouraged by the government is pension and it is easy to see why. So, unless life insurance companies up their games in the face of competition, I am afraid they'll struggle to woo investors in their saving plans (talking mainly about Easy access invesment bonds, Pinacle). If you consider all the costs involved (AMC, commissions to the financial advisor, government levy), it is simply too expensive.

How is the technology paid for? As well as the servers that hold it and the people who write the code as well as the people who repair it when it breaks?

Then of course there's the capitalisation requirements, regulatory requirements and processing of changes, encashments and increases and decreases. And the accountants and other staff in the life companies.

Just wondering where the money for that comes from?

 

[franc82]

How is the technology paid for? As well as the servers that hold it and the people who write the code as well as the people who repair it when it breaks?

Then of course there's the capitalisation requirements, regulatory requirements and processing of changes, encashments and increases and decreases. And the accountants and other staff in the life companies.

Just wondering where the money for that comes from?

As a customer, I don't need/want to know where/how a company funds its operations as long as its services are up to the standard that I expect.

Millions of people used Google/Facebook everyday for free, do they care how these companies are funded? Not really.

As for the company that I am talking about, they are already very regulated and they're based in a country where discipline is a must: Germany. They're many reasons why they provide cheap services but I will be digressing this thread if I dwelt into it. One hint: they build the necessary technologies themselves and haven't outsourced it which means that they control how much money they can spend in their IT systems.
So to wrap up, I just don't see any reason why I would drop their service in favour of life insurance companies that charge enormous fees for nothing. It is just hard to objectively justify that. We're living in tough and uncertain times and one cannot afford to throw money around like a fool. Don't forget that the margins are already very tight due to the 41% tax so essentially I am optimising my gains on the remaining 59%.

 

[jpd]

It a bit unfair to say "life insurance companies charge enormous fees for nothing" - I agree that they charge enormous fees but they do provide a service for those fees.

Yes, they are overpriced, but baldly stating "for nothing" is disinformation by anyone's standards

 

[Steven Barrett]

As a customer, I don't need/want to know where/how a company funds its operations as long as its services are up to the standard that I expect.

Millions of people used Google/Facebook everyday for free, do they care how these companies are funded? Not really.

When you think the product is free, you are the product.

Don't be fooled into thinking these products are free.

 

[franc82]

When you think the product is free, you are the product.

Don't be fooled into thinking these products are free.

Nobody said that these products were free. They're just way cheaper than actively managed funds.
Morale and ethics don't pay bill or put bread on the table.

Life insurance companies should revamp their products in light of competition, that's the way they will get better and I will start to look at them but at the moment there is just no incentive or any reason to invest in them.

Given that there is no political appetite to reconsider aspects that can enhance investments (for instance lower exit tax, reconsider deemed disposal tax, etc.), I fear for those actively managed funds.

That's the reality at the moment. I am so sorry it's going against your daily job Steven but I have got to be honest with myself and our readers.

 

[Gordon Gekko]

What is a fair fee for a small investment though, with tax managed at source, investment management, and regulation to give the investor greater protection?

If I want to lob €100 a month into an account for my kids, the life company makes €7.50 in Year 1 at 1.25%.

If it grows to €30k the life company is making €375 a year, hardly a king’s ransom.

Some people seem to know the cost of everything and the value of nothing.