Regular monthly equity saving

Protocol

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I have a question about regular monthly saving into 100% equities over ten years.

I bought shares in the four quoted banks between 2007-2014, and I have unrealised capital losses of approx. €10k on three of them.

AIB = €2,750, Anglo = €3,000, PTSB = €4250, all approx
Bank of Ireland – still in massive loss, but I intend to keep, this is the only one with any long-term chance to breakeven

I also bought Ryanair shares on four occasions, and I have unrealised capital gains, about €8k approx

I could do the following:
Sell the few AIB and PTSB shares now, and crystallise the capital losses
Sell some/all of Ryanair now, generating a capital gain
Next day, buy the same number of Ryanair shares (obviously with risk of price changes)
In my tax return, put the capital losses against the gain, pay zero CGT
Establish a new higher base price for the Ryanair shares



If I wish to start regular monthly saving into 100% equities over ten years, should this capital loss affect my decision?

What I mean is should I tilt towards Investment Trusts as I have existing capital losses to put against future gains? Or go for ETFs?

Or I shouldn't let taxes influence my decision?
 

Marc

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Yes the capital losses are absolutely relevant.

If you go to your high street bank or most financial brokers for financial advice, they can’t provide a suitable solution and will therefore push a life insurance savings plan which is tax ineffective for you.

The main advantage of a life insurance plan is the convenience of having the taxes dealt with at source.

However, it’s not that difficult to file 10 years worth of dividends and then a single disposal at the end. It’s certainly less complex than accounting for the insanely complicated tax treatment of EU ETFs.

it gets a bit more tricky if you make a series of disposals.

Net of tax returns

Of course you are paying a higher rate of tax for a Life Insurance saving plan at 41% compared to 33% CGT (or possibly 0% if you have losses)

Past performance is, of course, no guarantee of future returns, but a well-constructed portfolio has delivered similar returns to an index in the past (net of costs) so it really all comes down to the tax treatment

This is one of our monthly saver portfolios compared to the FTSE All World Index Net return (which of course has no costs at all)
1626250894341.png


So in very simple terms over the last 10 years

CGT portfolio net of fund charges charges returned 13.03%pa which net of CGT at 33% is 8.73%pa (this excludes dealing costs, fx etc)
Whereas the index (not accounting for charges at all) returned 12.11%pa which net of exit tax at 41% is 7.1449%pa

So, you would need to knock at least another 1%+ off of the index return for an actual savings product in Ireland making the difference between the two something on the order of 2.5%pa!!!!


I set out in detail how to do this including how to set up a cost effective direct debit in Sterling in my guide. Whilst this is written from the perspective of a savings plan for my son, it’s still relevant.

 
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Protocol

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If my plan is:
  • regular monthly saving into 100% equities over a minimum of ten years, e.g. 250 pm
  • passive index tracking
  • exposure to a wide index of shares
It seems that the only options are:

(1) EU ETFs, which I can buy through the likes of DeGiro, BUT, which have tax disadvantages (41% exit tax at every 8 year anniversary)

(2) using a life assurer, like IL or Zurich, with a regular savings plan, BUT, with high costs, e.g. see here:


Save 1k per year for seven years, Zurich charge you, for example 1,471 on the Indexed Global Equity (BlackRock) fund, a RIY of 3.48%, these charges are unreal

(3) buy shares in a diversified UK IT, but these are not passive index trackers (and DeGiro don't allow them anymore?)

(4) buy shares in Berkshire Hathaway?


I really am grateful for any comments.
 

Protocol

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I bought Marc Westlake's regular saver guide, which is useful, and good value.

It seems to recommend regular saving in a UK IT via an intermediary payments processor.

You would think with modern technology, and the likes of Revolut and DeGiro, there could be some way to buy shares in the IT directly??
 
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GSheehy

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(2) using a life assurer, like IL or Zurich, with a regular savings plan, BUT, with high costs, e.g. see here:


Save 1k per year for seven years, Zurich charge you, for example 1,471 on the Indexed Global Equity (BlackRock) fund, a RIY of 3.48%, these charges are unreal

Please remember that Key Investment Documents (KIDs) are generic and that they do not represent the competitive charging structures available in the market.

They are indicative of the worst charging structure product you could buy via Zurich Life.

For €100pm you could buy into that fund with 100% allocation, 1% AMC + Other Ongoing Costs of 0.01% (TER 1.01%).

So, your RIY is closer to 1% than 3.48%

Gerard

www.investandsave.ie
 

Protocol

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Sorry for asking yet another question, but is the tax treatment the same in these two scenarios?

(1) manually put 250 pm into a world equity ETF vis DeGiro, every month, year and year, into the same world equity ETF

Do the calculations yourself, and pay exit tax after 8 years on gains made from a deemed disposal of all 96 purchases




(2) Put 250pm into a unit-linked fund, e.g. Irish Life, Zurich, etc., and select a fund that tracks world equities

There is gross roll-up of dividends and gains, until the 8th anniversary, where the life company do the calculations and apply the exit tax on a deemed disposal


So, ignoring differences in the equities in each fund, the tax treatment of gains is the same? Exit tax on gains at 8th anniversary?
 

jpd

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The exit tax will kick in in 8 years but will have to be calculated every month after that - each monthly purchase is considered a new investment and treated independently. The 12 monthly values for the year are added together for reporting on Form11 but a loss can not be offset against a gain.
 

Protocol

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Thanks, so the tax treatment is the same?

I have run the numbers on 250pm into Zurich Regular Save, with 101% allocation = 252.50 per month, and with a 1% AMC charged annually.

The charges after 10 years on 30k contributions / 30,300 allocation are 1,667 (this ignores any growth).

That is a net cost of 1,337.

Or I could manually put 250 pm into an ETF on DeGiro, and pay much lower fees.

I am still thinking about it.
 

50andOut

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I am currently using Degiro for monthly purchases. I haven't looked at it yet, but at 8 years will look at the cost to just sell all units and rebuy the same day. This crystalises any gain for a simply tax return, and also means I do not have rolling tax returns needed until another 8 years.

I feel the costs to book the trades could be worth the tax reporting hassle - or at least that's the thought process, no idea until I actually look at it (plus the risk of a market shock at the exact few minutes I make the trades).

Regardless, I have a simple spreadsheet that I use to track each months purchase, and I am comfortable I can do the returns each year at year 8, 9, 10 and so on.

with any luck they will have sorted out this ridiculous approach before I get to year 8

50
 

Protocol

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50andOut,
thank you.


The commission-free ETFs on DeGiro are attractive: no fees to purchase, low AMCs of 0.07% to 0.22% for example.

I am looking at these four:


All four are priced in USD.

Three of them are distributing, and one is accumulating.

I have some idea of what this means, I wonder can anybody advise further?
 

TheBig40

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The distribution ones will pay a dividend that you will need to pay tax on each year when you file your returns. The accumulating the dividends are automatically reinvested in the fund and you see the additional benefits of that compound over time.
If you’re wanting the dividends as additional income that can be handy, if you’re trying to simplify your tax return and just want to watch the fund grow (hopefully) accumulate is the better option.
 

Protocol

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Thanks.
It looks like I will go for:

iShares Core MSCI World UCITS ETF

USD, accumulating.
ISIN: IE00B4L5Y983


However, when I search for that ISIN in DeGiro, I get six results?

Five different exchanges, some EUR, some USD?

Which exchange should I use?
 

jpd

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It doesn't matter as long as the volume is significant - pick the one with the most volume of shares traded
 

TheBig40

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For volume Xtera has the highest volume and I think it’s on their low or no trade fee list on that that exchange but I’d double check that
 

Protocol

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Thanks.
I bought my first chunk just now.
The fees are zero only on Euronext Amsterdam.

I wonder is there any way to set up regular monthly purchases on DeGiro?
 
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