I think this is a crucial point which many new investors are not taking into account when they look to invest exclusively in the S &P 500, it has become very tech heavy now, that has been great for its performance in the last decade. However it should be remembered that the tech behemoths now like Amazon and Microsoft took over a decade to recover their year 2000 highs after the dot com collapse, how many tech investors then would have kept the faith and held on through all that time. Also remember that in 1989 the tech heavy JapaneseIn my opinion, an Irish investor is better off having a diversified portfolio of around 20/30 stocks than investing in ETFs.
1. An ETF often gives a false sense of security regarding diversification and risk reduction. For example, the very popular S&P 500 ETF is a market capitalisation weighted index. The top 6 companies (Apple, Microsoft, Alphabet, Facebook, Amazon, Tesla) account for 22.5% of the overall value of the index. It's tech-heavy and not as diversified as people may think. The NASDAQ ETF is even more concentrated with the same top 6 companies accounting for 44% of the overall value of the index!
In my opinion, an Irish investor is better off having a diversified portfolio of around 20/30 stocks than investing in ETFs.
1. An ETF often gives a false sense of security regarding diversification and risk reduction. For example, the very popular S&P 500 ETF is a market capitalisation weighted index. The top 6 companies (Apple, Microsoft, Alphabet, Facebook, Amazon, Tesla) account for 22.5% of the overall value of the index. It's tech-heavy and not as diversified as people may think. The NASDAQ ETF is even more concentrated with the same top 6 companies accounting for 44% of the overall value of the index!
2. Losses on an ETF cannot be offset against profits on other ETFS/stocks. This compares unfavourably with buying individual stocks.
3. The 8 year deemed ETF disposal and payment of exit tax 41% of ETFs is very harsh . The Irish government must have consulted with disciples of Karl Marx before introducing this regime. No such restrictions exist regarding individual stocks or closed-ended investment trusts.
4. Whereas popular ETFs like the S&P have low annual fees, some of the thematic ETFs can charge fees of up to 1% per annum. Individual stocks can be purchased cheaply these days as there is a lot of competition among online brokers.
It would make far more sense to allow distributing ETFs to follow the same CGT/dividend tax/no exit tax/no 8 year deemed disposal rules as other investments such as shares. I believe that the UK/US and most EU countries tax ETFs in such a manner. As it stands, accumulating ETFs offer a poor deal for Irish investors. How ironic, considering that so many worldwide ETFs are actually Irish-domiciled.
@Marc Would you mind talking a bit more about being tax-free due to non-domicile status? Perhaps I'm missing something here as
I was looking at this recently and from what I could find, income from investment funds is taxed under case 4 to which remittance basis doesn't apply so no use of not being domiciled in Ireland. I most likely got something wrong here, so I would appreciate if you could explain. Thanks in advance.
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