Hi Fella
3CC's spreadsheet is excellent but I think the calculations are based off an exit tax of 36% (it's now 41%) and a marginal income tax rate of 52% (on the basis of what you have written elsewhere, I suspect you have a significantly lower marginal income tax rate). If you adjust these rates (but otherwise make the same assumptions), you will arrive at a materially different result over a 16-year holding period.
My preference for equity investment outside a pension wrapper is a widely diversified investment trust (or, ideally, a dozen or so different ITs). That seems to me to be the best compromise between achieving a significant degree of diversification at a reasonable cost and (relative) tax efficiency.
I agree that investing in a concentrated portfolio of 10-20 individual stocks makes no sense unless you are prepared to put in a very significant amount of research to arrive at a conviction that your portfolio will beat (or even match) the return of the wider market - and even then you have to accept that you could be wrong.
Incidentally, if I was in your position I would still prioritise paying off your mortgage, notwithstanding the fact that you are on a cheap tracker, before investing anything in equities outside a tax-deferred pension wrapper. Totally risk-free return with zero tax complications or investment costs.
Edit: apologies, I've re-read your post and I see that you have re-run the calculations to allow for the change to the exit tax rate. Did you adjust the "dividend tax" rate for your own circumstances?
Hi Sarenco
Thanks for your reply you have been a wealth of knowledge on this forum and I have learned a lot from you.
The reply I made was to this post
41% versus 33% is 8% which is hardly peanuts!.............
So i was saying it more or less is peanuts, i used the higher tax rate in my calculations , It is often stated categorically on this site that "investing directly in a basket shares is the most tax efficient way to invest" I don't think its clear cut as I feel people don't take into consideration the fact that your dividends are allowed to grow before you pay tax.
Practically though to reinvest the dividends manually would be expensive most people would not receive a huge amount of dividends and to pay the fees to reinvest and the cost of the spread each time would add up to a lot over time which isin't factored in , lets say you get 100 dividend reinvesting is pointless , you could save it up and do it in one batch but your missing time in the market.
Re paying off the mortgage , I am going to try save for and pay that off in a defined period of like 2 years I have to contact the bank and find out what way to go about it , but it will motivate me to work hard and pay it off .
I decided to just make a lump sum investment in ETF's the price they where lately was not far off the prices i bought at last year so I invested a bit more to leave it at a nice round lump sum as they are not a good dollar cost averaging mechanism IMO . I am going to forget about these for 8 years minimum.
I am not going to do any more investing for the moment when/if I pay off the mortgage (assuming life runs smoothly) I plan to revisit the stockmarket , I will probably just buy Investment trusts every month or so with whatever I earn as I believe they are the best for me outside a pension wrapper.