Please critique my strategy

D

Dar2100

Registered User
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10
Hi
Any pointers on my current strategy appreciated. I am looking at a 20 year time frame for this after which I intend to leave my employment or at least have the option to do so if I wish. I will be around 50 or so.

I have around 1100 a month going into the Irish life consensus fund via a pension. Current value of this is around 60k. This is more or less maximising the tax advantage of my contributions.
I also have 3k per quarter going into the vanguard total US stock market etf via Degiro. Current value of this is 6k (just started recently). I am slightly concerned with currency risk as I see the value of my degiro portfolio jumping around wildly with the currency conversion. Is this something I should just ignore or should I be looking at buying vanguard ftse Europe instead? Sorry if that is a silly question the only investing information I seem to be able to access is US based so I'm not sure how to apply a long term passive investing strategy to Ireland . I am aware of the US funds being taxed more favourably but the ftse Europe is US domiciled anyway. Is there anything else I should be thinking about or am missing here ? Any insight appreciated thanks.
 
Hi Dar2100

While I think IL's Consensus Fund is a perfectly decent default option for most people, I think it would actually make more sense for you to adopt a 100% equity strategy within your tax-deferred pension fund before investing any of your after-tax savings in equity funds.

As such, I would suggest you switch your pension fund to an All World Equity Tracker - with, perhaps, a small allocation (10% or so) to an emerging markets equity index - if you think you can handle the volatility.

You could then use simple regular savings accounts for your after-tax savings - check out the "Best Buys" section for the best options.

It's important to consider your asset allocation across all accounts - both taxable and tax-deferred - anything else is just "mental accounting".

As regards currency risk, remember that this cuts both ways - sometimes it helps, sometimes it hurts. However, over the long term the expected return on foreign currency is zero. In other words, with a sufficiently long time horizon it's best to simply ignore currency risk.

Are you carrying any debt (credit card, car loans, mortgage, etc)? Given our punishing taxes on investment income/gains, it invariably makes more sense to simply pay down debt (or avoid debt in the first place) before investing outside a pension wrapper.

Hope that helps.
 
Sarenco said:
Hi Dar2100

While I think IL's Consensus Fund is a perfectly decent default option for most people, I think it would actually make more sense for you to adopt a 100% equity strategy within your tax-deferred pension fund before investing any of your after-tax savings in equity funds.

As such, I would suggest you switch your pension fund to an All World Equity Tracker - with, perhaps, a small allocation (10% or so) to an emerging markets equity index - if you think you can handle the volatility.

You could then use simple regular savings accounts for your after-tax savings - check out the "Best Buys" section for the best options.

It's important to consider your asset allocation across all accounts - both taxable and tax-deferred - anything else is just "mental accounting".

As regards currency risk, remember that this cuts both ways - sometimes it helps, sometimes it hurts. However, over the long term the expected return on foreign currency is zero. In other words, with a sufficiently long time horizon it's best to simply ignore currency risk.

Are you carrying any debt (credit card, car loans, mortgage, etc)? Given our punishing taxes on investment income/gains, it invariably makes more sense to simply pay down debt (or avoid debt in the first place) before investing outside a pension wrapper.

Hope that helps.
Click to expand...

Thanks for the input. I picked the consensus fund for its low fees as even the indexes in irish life funds seem to have rediculous fees. Maybe I was prioritising low fees instead of picking the best fund for me. The only debt I have is a mortgage of 170k on a tracker so I considered it not worth paying down. Maybe I'll give that a little more thought also.
 
Dar2100 said:
Thanks for the input. I picked the consensus fund for its low fees as even the indexes in irish life funds seem to have rediculous fees.
Click to expand...

Really?! I can't see any reason why the fees on the Consensus Fund should be cheaper than any other index fund offered by IL.

Can you tell us a little more about the type of pension you have? Is it an occupational pension scheme/PRSA/RAC?

Bear in mind that the AMC doesn't tell you the full story - there are also (opaque) internal portfolio trading costs to consider and the Consensus Fund has an allocation to (directly held) property (which is expensive to manage).

Here's a debate we had a couple of years ago on the wisdom (or otherwise) of paying down a tracker mortgage ahead of schedule (bottom line, would you borrow money to invest in equities?) -
https://www.askaboutmoney.com/threads/is-it-mad-to-pay-off-a-cheap-tracker.193088/
 
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Sarenco said:
Really?! I can't see any reason why the fees on the Consensus Fund should be cheaper than any other index fund offered by IL.

Can you tell us a little more about the type of pension you have? Is it a an occupational pension scheme/PRSA/RAC?

Bear in mind that the AMC doesn't tell you the full story - there are also (opaque) internal portfolio trading costs to consider and the Consensus Fund has an allocation to (directly held) property (which is expensive to manage).

Here's a debate we had a couple of years ago on the wisdom (or otherwise) or paying down a tracker mortgage ahead of schedule (bottom line, would you borrow money to invest in equities?) -
https://www.askaboutmoney.com/threads/is-it-mad-to-pay-off-a-cheap-tracker.193088/
Click to expand...


Global equity has a 1.6% fee. Consensus is 0.6%. Seems extraordinary considering some of the low fees I can get with vanguard. It's an occupational pension I have. I'm already over paying my mortgage and should have it paid in 10 or 11 years but I could consider paying it even faster. That might take some convincing however as its at 1.15% for now . I'd like to have some form of liquidity instead of having all my worth locked away in pensions and property.
 
Dar2100 said:
Global equity has a 1.6% fee. Consensus is 0.6%.
Click to expand...

Wow! You're right that does seem extraordinary. I'd stick with the Consensus Fund in that case - we have to play the cards we're dealt.

I certainly agree that it is important to have a liquid reserve of savings outside your pension - I would suggest something like six months' expenses in an instantly accessible deposit account.

After that - well, in your circumstances, I guess it's a fine call between paying down the tracker more aggressively and investing after-tax money in equity funds. I would personally lean towards the former but ultimately this comes down to your personal risk tolerance - there is no obvious "right" answer here.
 
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Sarenco said:
Wow! You're right that does seem extraordinary. I'd stick with the Consensus Fund in that case - we have to play the cards we're dealt.

I certainly agree that it is important to have a liquid reserve of savings outside your pension - I would suggest something like six months' expenses in an instantly accessible deposit account.

After that - well, in your circumstances, I guess it's a fine call between paying down the tracker more aggressively and investing after-tax money in equity funds. I would personally lean towards the former but ultimately this comes down to your personal risk tolerance - there is no obvious "right" answer here.
Click to expand...


Thanks for the input a different perspective has been helpful in adding a little more weight to the mortgage argument. Maybe when rates go up the decision will be made for me.
 
Your strategy is actually pretty similar to mine! I'm with Irish Life too. Where you getting the figure of 1.6% as matter of interest? I'm in the Index World Equity Fund-Partially Hedged with Irish Life, which I thought was 0.7% from their pdf doc ("standard annual management charge"), but I'll move to another fund if there's cheaper. I've seen the Unhedged one is 0.65% just now, so maybe that.

I have yet to start my ETF but I'm planning something like that vanguard total US stock market ETF, also through DeGiro. Is that considered a 'bad' ETF for tax purposes? I guess so?
 
The source I got the info on the charges from is irish lifes own site i cant post links unfortunately. Not sure how you have gotten a different price structure to me. Maybe iv got it wrong I'll email irish life and find out just to be sure. As for the etf US domiciled funds are treated more favourably (CGT) rather than 42% and 8 year deemed disposal that's my understanding . There is a lot of info on them on this site which is very helpful have a look at the etf thread that's where I got my info.
 
Dar2100 said:
As for the etf US domiciled funds are treated more favourably (CGT) rather than 42% and 8 year deemed disposal that's my understanding.
Click to expand...

The exit tax on "good" funds is currently 41% (not 42%).

On the other hand, distributions on "bad" funds are now subject to USC (and, depending on the investor's individual circumstances, may be subject to PRSI).

When you run the numbers, and depending on the assumptions you make regarding expected growth/income, it is far from clear that US domiciled ETFs will always be more favourable from an Irish tax perspective than "good" ETFs.
 
Dar2100 said:
Hi
Any pointers on my current strategy appreciated. I am looking at a 20 year time frame for this after which I intend to leave my employment or at least have the option to do so if I wish. I will be around 50 or so.

I have around 1100 a month going into the Irish life consensus fund via a pension. Current value of this is around 60k. This is more or less maximising the tax advantage of my contributions.
I also have 3k per quarter going into the vanguard total US stock market etf via Degiro. Current value of this is 6k (just started recently). I am slightly concerned with currency risk as I see the value of my degiro portfolio jumping around wildly with the currency conversion. Is this something I should just ignore or should I be looking at buying vanguard ftse Europe instead? Sorry if that is a silly question the only investing information I seem to be able to access is US based so I'm not sure how to apply a long term passive investing strategy to Ireland . I am aware of the US funds being taxed more favourably but the ftse Europe is US domiciled anyway. Is there anything else I should be thinking about or am missing here ? Any insight appreciated thanks.
Click to expand...

you should not worry about currency moves , the u.s market is the 500 pound gorilla , no equity fund will be without close to 50% u.s based companies , the rest is usually made up of europe and japan with about 10% in emerging markets , any currency effects will balance out long term
 
Dar2100 said:
Global equity has a 1.6% fee. Consensus is 0.6%. Seems extraordinary considering some of the low fees I can get with vanguard. It's an occupational pension I have. I'm already over paying my mortgage and should have it paid in 10 or 11 years but I could consider paying it even faster. That might take some convincing however as its at 1.15% for now . I'd like to have some form of liquidity instead of having all my worth locked away in pensions and property.
Click to expand...

irish life were charging 5% on many of their funds pre crash , fees have never been lower on bank offered funds though they are still quite expensive compared to simply buying the same through an etf with a broker
 
Dar2100 said:
Global equity has a 1.6% fee. Consensus is 0.6%. Seems extraordinary considering some of the low fees I can get with vanguard. It's an occupational pension I have. I'm already over paying my mortgage and should have it paid in 10 or 11 years but I could consider paying it even faster. That might take some convincing however as its at 1.15% for now . I'd like to have some form of liquidity instead of having all my worth locked away in pensions and property.
Click to expand...

irish life were charging 5% on many of their funds pre crash , fees have never been lower on bank offered funds though they are still quite expensive compared to simply buying the same through an etf with a broker
 
galway_blow_in said:
you should not worry about currency moves , the u.s market is the 500 pound gorilla , no equity fund will be without close to 50% u.s based companies , the rest is usually made up of europe and japan with about 10% in emerging markets , any currency effects will balance out long term
Click to expand...

I'll just have to learn to ignore the volatility so. Thanks for the input.
 
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