Anyone fancy doing a Key Post : How to invest in ETFs?

Discussion in 'Exchange Traded Funds (ETFs)' started by Brendan Burgess, Mar 7, 2017.

  1. Brendan Burgess

    Brendan Burgess Founder

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    I have recommended ETFs to some people, but I have no idea about the actual mechanics. Any volunteers to do a Key Post on the topic?

    The idea would be that someone who has decided to buy an ETF would be able to follow the instructions and would be made aware of some of the downsides. But without a repetition of the debates on other threads. Links would be provided to these debates.

    1) Buy a US domiciled ETF as it will be taxed like a share.

    2) Here are three examples of US Domicled ETFs


    3) How to buy them ....
    Open a stockbroker account....


    4) How to account for tax on them

    Things to watch out for

    Be careful if you hold more than $60,000 in US assets

    If you do not have taxable income, go for an ETF which is geared to high dividend paying companies e.g. ...


     
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  2. Donnie

    Donnie Registered User

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    I am new to investing and have recently opened an account with Degiro but am yet to make a transaction. I have a small pool of approx. €3,000 lump sum at the moment but might set up a standing orders of €100 each month into an investment perhaps. The aim is to make returns that would be better than any deposit account on offer at the moment. I wont need access to the cash and will be able to leave it as an investment for 3 - 5 years. My appetite for risk would be low - medium.

    I am thinking of diversifying so investing in various Blue Chip companies, US domiciled ETFs and maybe a few Irish and UK listed companies. I stress that I am only beginning to do research so nothing confirmed yet.

    However I came across this thread on US ETFs and it would be very useful so a beginner like me.

    Would anyone be able to expand a bit further on this US ETFs thread?

    Thanks all
     
  3. Sarenco

    Sarenco Frequent Poster

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    An investment horizon of only 3-5 years is not really sufficient for an equity investment, particularly if you have a low risk appetite.

    Are you maxing out your pension contributions? That's a much more tax efficient way of investing in equities for the long term.

    Are you carrying any debt? Paying down debt will give you a guaranteed, tax-free return with zero investment expenses.
     
  4. Donnie

    Donnie Registered User

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    34
    Maxing out my pension contributions at the mo and in addition my employer contributes a generous 15%.

    Only debt at the moment is a mortgage. 29 years remaining so still a long way to go.

    To be honest I was thinking of US ETFs and perhaps some equities and relatively low risk blue chips mainly because deposit rates are just so low at the moment.
     
  5. Sarenco

    Sarenco Frequent Poster

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    That really is a very generous employer contribution to your pension.

    Is your pension invested 100% in equities? It's important to consider all your accounts together.

    What rate are you paying on your mortgage? Unless it's a really cheap tracker you are almost certainly better off paying that down ahead of schedule.

    A US domiciled ETF is taxed like any other US stock. So, you will pay income tax on dividends at your marginal rate and CGT on any gains.
     
  6. Donnie

    Donnie Registered User

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    Yes the pension contributions are good. To be honest I am unsure of the allocations and how diversified the pension investments are.

    I am on a SVR mortgage of 3.1%. I switched provider about a year ago. I am currently paying an additional 8% each month on top of my monthly re-payments.

    I know the best thing in the long term is to be debt free and pay off the mortgage as soon as possible and pump as much money into paying it off. However realistically if I did that the best I could do would probably be to knock 4/5 years off the 29 year term.

    I was hoping to try to build up some cash reserves rather than using any savings account that are available as there isn't any value in keeping money on deposit anymore.
     
  7. Gordon Gekko

    Gordon Gekko Frequent Poster

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    Conventional wisdom is that one should build up a slush fund equal to approximately six months worth of living expenses and max out one's AVCs before looking at personally held investments. At your age, your pension should be 100% invested in equities.
     
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  8. Donnie

    Donnie Registered User

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    Thanks GG and Sarenco. Sound advice.

    I have €12k (I have already deducted the entry mgt fee) in a KBC Sivek Low investment fund. I only opened it at the end of Sept 16 at a price of 351.32 and the latest price if 366.82 so that low risk investment is going well so far. Redemptions require T-5 days notice I think so the cash is pretty much available if I ever needed to redeem some or all cash.

    I also have €14k just sitting in a deposit account with an Irish bank that is not really doing anything for me. Perhaps I should take 50% or more of this €14k and reduce my mortgage o/s balance.
     
  9. Sarenco

    Sarenco Frequent Poster

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    That's a very expensive fund and is subject to a 41% exit tax - best avoided.

    Once you have six months' expenses set aside in the best yielding deposit account you can find, I would apply any surplus cash against your mortgage balance. The return on paying down your mortgage will be equivalent to the weighted average interest rate over the remaining term of your loan. You won't do better then that on a risk-adjusted basis, particularly once you take investment costs and taxes for any alternative into account.

    As Gordon says, at your age your pension can be heavily invested in equities.
     
  10. Donnie

    Donnie Registered User

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    Im 35 but sounds like sticking to maxing out the pension and paying off the mortgage seems the best idea. There is still €349,000 o/s in the mortgage.

    Just in relation to your point on the KBC Sivek low fund, this has an annual mgt fee of 1.6% - 1.9% and then a 41% Irish exit tax on any gains I make. My thinking here though was this is still better than DIRT and leaving this sum on deposit. Not sure how this exit tax could be avoided unless I invested in an Irish product or as per my initial query on this thread by investing in a US domiciled ETF.
     
  11. username123

    username123 Frequent Poster

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    Jeez at 1.6% - 1.9% AMC, you'd be better off playing the lotto with the investment! Anything over 1% will decimate any investment gains over time, and adding in the 41% tax I doubt you'll do much better than deposit account.