Hi all,
Having underwent a lot of research in the last few weeks, I'm going to outline my argument here as to why I believe the an Irish Life fund product would be a better choice for someone looking to invest a lump sum of +20k such as myself and would like to see any feedback. For simplicity, I'm taking the Irish Life Consenus Fund which has the most capital of any fund in Ireland.
Consensus Fund pros:
UPDATE:
Shares pros:
Lowest costs of all if you resist the temptation to call the market and avoid trading
Tax efficient use of capital gains and losses
Subject to CGT at 33% instead of 41% on unit-linked funds and ? on ETFs.
0% CGT if you still own the shares when you die - compared with 41% on the unit-linked funds. Older people should only invest directly in shares because of this huge advantage.
Shares cons:
Having underwent a lot of research in the last few weeks, I'm going to outline my argument here as to why I believe the an Irish Life fund product would be a better choice for someone looking to invest a lump sum of +20k such as myself and would like to see any feedback. For simplicity, I'm taking the Irish Life Consenus Fund which has the most capital of any fund in Ireland.
Consensus Fund pros:
- Automatically rebalances your portfolio for no additional charge. There are many articles/books written on the importance of rebalancing a diversified 'lazy portfolio' at least annually. UPDATE: Seen as a pro if you're entire 'investments pot' would be in a fund (see post number 7)
- Has a 5 year per annum return of 10.3% (before taxes and charges- see cons below) UPDATE: Past performance is not an indicator of future performance (see post number 7)
- Has assets to the value of €5.3 billion. UPDATE: Not seen as particularly important - no research to suggest that large funds perform better. However they tend to have a better record.
- Is highly diversified across equities, bonds and a little in cash and property UPDATE: This can easily be achieved with ETFs - added as a pro for ETFs.
- You are allowed to move your portfolio from one fund to a more/less risky fund free of charge whilst investing.
- I believe you can add savings amounts to it occasionally, however I am focusing here on investing a lump sum. UPDATE: yes you can invest additional lump sum amounts - they must be at least €1,000. Also you could do this with any type of investment however others may incur transaction costs
- All taxation issues are handled by Irish Life (submitting returns/forms, the deduction of stamp duty etc.)
- According to AIB Portfolio Invest (I cant post the link as this is my first post), the annual fee is 1%. According to Irish Life the annual fee is 1.5% - I'm currently investigating this. It should be noted that Irish Life's "regular invest" version of the funds charge 1.65% therefore lump sum is more tempting for me
- 1% stamp duty wiped off your investment straight away
- You are betting on the success of Irish investment managers
- Minimum investment of 20k
- Additional charges (on top of taxation) for making a withdrawal within 5 years - 5% within 3 years, 3% in 4th year, 1% in 5th year
- You get to decide which markets you invest in and at what asset allocation percentages
- The expense ratio's of ETFs are generally very low for large ETFs (can be less than 0.1% in most cases) and a highly diversified portfolio can be (arguably) made with as little as 2-3 ETFs
- It can be fun and a hobby to be in full control of your portfolio
- You don't pay any stamp duty when investing in ETFs
- Easy and cheap to achieve portfolio diversification
- I believe the cheapest online broker is TD Direct. Charges are €20 per trade. As long as you invest more than 5k, you won't be charged any quarterly fees.
- You must declare purchases of any ETFs not listed on the IFSRA website as a UCITS
- If you hold an ETF for more than 8 years you need to fill out a form 11 as also discussed in the above thread and pay tax (I believe this is a type of preliminary tax - your actual tax bill will be calculated on actual disposal and you will either pay more or receive a reimbursement at this time)
- Detailed records will need to be kept of all purchases and sales, number of shares, price, date, tax rate at that date in order to calculate your taxes due. Having said that, this sounds more complicated than it may be if you are comfortable keeping an excel sheet with the data
- It would be advisable to only invest in ETFs that reinvest dividends otherwise all dividends will be taxed and if you wanted to manually reinvest them, you would incur transaction costs with the broker
- Lastly, a very important point - the cost of rebalancing an ETF portfolio doesn't seem to be mentioned very much in this forum. Rebalancing effectively means maintaining the asset allocations to each ETF market you are invested in. With ETFs, if you wish to rebalance you will be taxed and also incur the broker transaction costs - the combination of the two on an annual/semi annual basis I think would be crippling to portfolio returns. There was an excellent post here in relation to the matter in the thread "Availability of Index tracking funds in Ireland" by Olivetti but I can't post the link without having more posts myself
UPDATE:
Shares pros:
Lowest costs of all if you resist the temptation to call the market and avoid trading
Tax efficient use of capital gains and losses
Subject to CGT at 33% instead of 41% on unit-linked funds and ? on ETFs.
0% CGT if you still own the shares when you die - compared with 41% on the unit-linked funds. Older people should only invest directly in shares because of this huge advantage.
Shares cons:
- Higher tax on the dividend income than on profits of pooled funds
- Unable to achieve the diversification of funds. This is massively overstressed by people selling funds.
Last edited: