Investing for a total beginner

susano

Registered User
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3
Hi all. There's similar threads out there but I'm still a little bit lost when it comes to investing and the "best" approach to take. To give you some background, 35 y/o earning 35k and contributing 15% to my pension per month (started late so the fund value is only around the 8k mark). Don't have a whole lot to my name in savings either (20k). Currently renting and have no debts.

I try and save around 1000 p/m (not saving for anything in particular). Even though the rate is good (?!) at 2.5%, I'd like to switch things up a little and maybe reduce my regular savings down to 500 and look to put deposit 500 into my Degiro account each month.

Let's say that in the first year I invest a total of 6,000 (500 x 12) in the EFT VOO. And in this example, the value of the portfolio at the end of each year is:

Year 1: 6,500
Year 2: 12,570
Year 3: 20,560
Year 4: 32,380
Year 5: 43,240
Year 6: 50,000
Year 7: 61,520
Year 8: 79,360

So, total amount invested = 48,000
Portfolio value after 8 years = 79,360

Let's say I don't sell throughout that period and just continue to invest 500 p/m. After 8 years I understand that I will have to pay tax on any profit so am I right in saying that the tax to be paid would be (79,360 - 48,000) * 33% = 10,349?

Am I missing something? Is there a "better" way to approach the above?

Thanks!
 
Hi,
Its great to save and to look into the best way to do that with the most effect in your country of residence and especially take advantage of any reduced tax within a pension. Put together an investment plan, lots of advice on the net for that. I would keep reading here and in particular concentrate on the tax aspects of investing as an Irish tax resident. If you are looking to invest in the future in VOO (not sure if you have a legacy investment) you probably already know that this is domiciled in the US and may not be available to you, it is also a large cap US equities fund (S&P 500) so will not reflect global diversity if you are aiming at the widest developed markets. For EU investors they have generally to look at UCITS designated ETF's.
BTW the tax on UCITs ETF's is high at 41% although there is no PRSI nor USC. Others better qualified here will probably chip in with more clarity.
J
 
I cannot answer your question in its entirety as I am not sure whether VOO would be treated as falling under income tax or CGT rules, and I'm also not sure whether you need to sell your full position in a given security at the deemed disposal date, or just the shares that were bought >8 years prior.

One thing to note on your calculation is that the first €1270 of your gains per year are not taxed, so your calculation would be ((79,360 - 48,000) - 1270) * 33% = 9,929.70. There may be circumstances where it would make sense to sell part of your holding sooner than 8 years to make use of this annual CGT exemption.

Two good papers from Revenue on these topics -
[broken link removed]
https://www.revenue.ie/en/tax-profe...ins-tax-corporation-tax/part-19/19-04-06a.pdf
 
Hi,
Its great to save and to look into the best way to do that with the most effect in your country of residence and especially take advantage of any reduced tax within a pension. Put together an investment plan, lots of advice on the net for that. I would keep reading here and in particular concentrate on the tax aspects of investing as an Irish tax resident. If you are looking to invest in the future in VOO (not sure if you have a legacy investment) you probably already know that this is domiciled in the US and may not be available to you, it is also a large cap US equities fund (S&P 500) so will not reflect global diversity if you are aiming at the widest developed markets. For EU investors they have generally to look at UCITS designated ETF's.
BTW the tax on UCITs ETF's is high at 41% although there is no PRSI nor USC. Others better qualified here will probably chip in with more clarity.
J

All the above is correct. You don’t have global exposure with your choice of fund and you should consider a pension or mortgage if that’s on the cards. You’ll save more in a pension as you’ll avoid a certain % of tax on your contributions.

The other thing about UCITs, aside from the 41% exit tax, is that there is rollup taxation where you must fork out every 8 years for every investment made. That means (please correct me if I’m wrong, somebody) 12 investments a year will result in 12 taxation events 8 years later on profits accrued for each investment. It’s annoying.
 
Hi,
Its great to save and to look into the best way to do that with the most effect in your country of residence and especially take advantage of any reduced tax within a pension. Put together an investment plan, lots of advice on the net for that. I would keep reading here and in particular concentrate on the tax aspects of investing as an Irish tax resident. If you are looking to invest in the future in VOO (not sure if you have a legacy investment) you probably already know that this is domiciled in the US and may not be available to you, it is also a large cap US equities fund (S&P 500) so will not reflect global diversity if you are aiming at the widest developed markets. For EU investors they have generally to look at UCITS designated ETF's.
BTW the tax on UCITs ETF's is high at 41% although there is no PRSI nor USC. Others better qualified here will probably chip in with more clarity.
J

Thanks. I'm taking advantage of the tax savings by putting funds into a pension but currently I'm at the lower band (20%) so it could be a lot better if I was earning a little bit extra, but that's the position I'm in at the moment and can't do a whole lot about it. I mentioned VOO as a random example (and clearly showing how much of a novice I am by not realising that it's not available in Ireland) but thanks for the info.

I cannot answer your question in its entirety as I am not sure whether VOO would be treated as falling under income tax or CGT rules, and I'm also not sure whether you need to sell your full position in a given security at the deemed disposal date, or just the shares that were bought >8 years prior.

One thing to note on your calculation is that the first €1270 of your gains per year are not taxed, so your calculation would be ((79,360 - 48,000) - 1270) * 33% = 9,929.70. There may be circumstances where it would make sense to sell part of your holding sooner than 8 years to make use of this annual CGT exemption.

Thanks. So taking that a step further, if I didn't need to sell my full position the calculation would be:

Year 1: ((6,500 - 6,000) - 1,270) = 500 (no CGT)
Year 2: ((12,570 - 12,000) - 1,270) = 570 (no CGT)
Year 3: ((20,560 - 18,000) - 1,270) less 33% CGT = 2,134
Year 4: ((32,380 - 24,000) - 1,270) less 33% CGT = 6,034
Year 5: ((43,240 - 30,000) - 1,270) less 33% CGT = 9,290
Year 6: ((50,000 - 36,000) - 1,270) less 33% CGT = 9,799
Year 7: ((61,520 - 42,000) - 1,270) less 33% CGT = 13,498
Year 8: ((79,360 - 48,000) - 1,270) less 33% CGT = 21,430

After doing all of the above I can tell that it's all over the shop and I'm missing something. Please feel free to correct!

All the above is correct. You don’t have global exposure with your choice of fund and you should consider a pension or mortgage if that’s on the cards. You’ll save more in a pension as you’ll avoid a certain % of tax on your contributions.

The other thing about UCITs, aside from the 41% exit tax, is that there is rollup taxation where you must fork out every 8 years for every investment made. That means (please correct me if I’m wrong, somebody) 12 investments a year will result in 12 taxation events 8 years later on profits accrued for each investment. It’s annoying.

I have a pension (15% contribution and work puts in another 10%) and I'd like to bump this up to 20% in the future. And thanks for the other tip regarding regular investments causing a bit of a headache down the line.
 
Great start. Max out your pension contributions as long as they make tax sense and ensure that you have a good deal on any charges. It's good to have some reference reads to orientate yourself as you learn the ropes of DIY investing, I would suggest having a read of Taylor Larrimore's books including: "The Bogleheads guide to investing". This will provide a basic intro to indexing and asset allocation. This will open up some other paths.
(However beware the Irish tax system which causes uncalled for chaos and confusion for a DIY index investor). I am guessing you need to allow a good 6 months to orientate yourself with research and reading generally, so no need to rush. Some good material here too.
good luck
J
 
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