Where to invest monthly

Discussion in 'Investments' started by irishguy, 1 Jan 2019.

  1. irishguy

    irishguy Frequent Poster

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    Hi, currently trying to figure out what makes the most sense to invest a monthly amount of €1500 in.

    I am already paying the max into my pension for my age, in addition, we have our mortgage down to 1 times our income (2.3% fixed) and making large overpayments (im not going to make higher overpayments for non-financial reasons)

    I also have enough on deposit for a rainy day. I was looking for some sort of index tracker, but all the ETF tax rules/accounting make it a bit complicated.

    Should I pay more into my pension (not getting an income tax credit allowance) and invest that way or outside a pension (I dont need the money in the short/medium term)?

    What would people suggest doing?
     
  2. Brendan Burgess

    Brendan Burgess Founder

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    With a well funded pension and a house with plenty of equity and a rainyday fund, you can buy equities directly. It's the lowest cost and probably the most tax-efficient.

    Don't forget that your rainyday fund does not need to be in cash. In fact, it probably shouldn't be. So buy a small portfolio of equities directly. If the rainyday fund is called on, just sell some of the shares.

    Brendan
     
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  3. irishguy

    irishguy Frequent Poster

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    Thanks Brendon. Would I not be wiser to buy into a fund for diversification? Also I wont have much time to research individual stocks, so how would you advise in doing this?
    If I was to go this route how would it work? I assume each month I would buy 1 or 2 shares, to keep fees down.

    I was reading https://anirishinvestorsguide.wordpress.com/2018/10/27/taxation-of-etfs-in-ireland/

    And I was considering using an accumulating EU domiciled EFT, but with monthly investing its still a bit of a pain with tax calculations, no loss offsetting and the 8 year rule.
    I was looking at:
    iShares Core MSCI World UCITS
    iShares Core S&P 500 UCITS ETF
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    You are already well diversified with your home and your pension fund. Investing €10k in one share will not change your overall portfolio or risk.

    You don't need to buy €1,500 worth of shares every month. When you have €10k buy one share. When you next have €10k buy a second share.

    No need for research. Just buy a few of the bigger company shares and forget about them.
    Brendan
     
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  5. Wollie

    Wollie Frequent Poster

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    Last edited: 1 Jan 2019
    Agree. Also, as you build up your portfolio (by buying €10,000 worth of one company's shares every 6 months or so), you should avoid over-concentration, in terms of geography (e.g. don't just buy Irish shares), industry sector, etc. From a tax perspective, it's probably best to buy shares that pay a low dividend. Some companies use their spare cash to reduce the number of shares outstanding rather than pay it out in dividends. For someone in your position, they're a better bet than high dividend-payers.
     
    Last edited: 1 Jan 2019
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  6. irishguy

    irishguy Frequent Poster

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    Last edited: 2 Jan 2019
    Thanks for the advice guys. Ill look at buying a few shares across sectors on the s&p 500.

    Also can you guys recommend any ways of reducing the risk of investing in overvalued stocks, as it would appear that tech stocks are currently overvalued and potentially other sectors?

    Would you suggest in also purchasing bonds or some other asset class?

    My pensions are currently c. 80% equities.

    Brendan you also mentioned not keeping a rainy day fund in cash. Are you talking about bonds? If so can you suggest certain ones to look at?
     
    Last edited: 2 Jan 2019
  7. Brendan Burgess

    Brendan Burgess Founder

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    No, I don't bother with bonds. So I don't know anything about them.

    You can invest a rainy day fund in equities as you can access the money very quickly if you need to.

    Brendan
     
  8. irishguy

    irishguy Frequent Poster

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    Do you have any large-cap stocks in mind that are low dividend payers?

    The few I was looking at are (not sure if this is allowed?) I have intentionally left out technology companies as I believe its a bit of a bubble at the moment (and I work in that area)


    Financial
    JPMorgan Chase & Co./Citigroup Inc.
    Mastercard Inc.
    MetLife Inc.

    Telecoms/Utilities
    Verizon Communications
    Consolidated Edison/Duke Energy
    United Utilities/Veolia Environnement

    Pharma/Medical
    Pfizer Inc.
    Procter & Gamble
    United Health Group Inc.

    Consumer staples/Foods
    Mondelez International
    Kraft Heinz Co/Tyson Foods
    McDonald's Corp.

    Commodities
    Halliburton Co./Exxon Mobil Corp.
    DowDuPont?
    BHP

    Construction/Building supplies/Machinery
    Johnson Controls International?
    CRH
    Deere & Co./Caterpillar Inc.

    Logistics/Transport
    FedEx Corporation
    Ryanair
    A shipping company

    Business Services
    Accenture plc
    Booz Allen Hamilton
    An Accounting practice

    Other
    Berkshire Hathaway
     
  9. irishguy

    irishguy Frequent Poster

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    Does that not somewhat go against investment advice? As I would more than likely need my rainy day fund during a recession i.e. if I was out of work or at short notice so there would be a high likelihood that I would have to sell at a bad time.
     
  10. Wollie

    Wollie Frequent Poster

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    Even if I had any stocks in mind, I don't think Brendan would want me to mention them.
    The simplest approach is to start from the premise that the thousands of experts employed by the various banks, asset management companies, insurance companies, etc. have done their sums well and that all stocks, irrespective of the sector, are "fairly" valued, so it doesn't matter too much which ones you buy.
    I suggest that your first purchase should be in the business sector you're involved in yourself. Select a company that has a good reputation in that business and that you believe will be around for years to come, that its business won't be wiped out by one of the tech companies.
    I had a quick look through your list. I am familiar with only a few from an investment perspective. I don't think that CRH qualifies as a low-dividend company.
    I've only just noticed that you work in the tech area. However, you believe companies in this sector are in a bubble, which means that you're unlikely to follow my advice for your first investment. I'm surprised at your conclusion. I presume you know that the FAANGS and other tech stocks have fallen a heck of a lot in the last few months? If they're in a bubble now, they were in a massive one a while ago!!
    It's also worth adding that there is as much variation in valuation metrics within the tech area as there is between tech and the wider market. It would be wrong to tar them all with the same brush. Some are generating massive profits and are on lower PE multiples than traditional bricks and mortar type companies. I wouldn't be so quick to write them off as a category.
     
  11. Sarenco

    Sarenco Frequent Poster

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    Last edited: 2 Jan 2019
    It certainly goes against the standard advice to keep a rainy day fund in cash - Brendan’s view on this subject is very unconventional.

    Unless you really know what you’re doing, I would caution against picking individual stocks. Roughly 66% of individual stocks under perform the broader market so the odds of you picking “losers” is much higher than your odds of picking “winners”.

    Two further thoughts -

    1. Paying down your mortgage ahead of schedule will give you a guaranteed, tax-free, return equivalent to the weighted average interest rate that you would otherwise pay over the remaining term of your mortgage - that’s where I would continue to direct any after-tax savings; and

    2. Once your mortgage is paid off, you could maintain (or even increase) your allocation to equities within your pension fund and direct any after-tax savings to (tax-free) State savings certificates.

    Hope that helps.
     
    Last edited: 2 Jan 2019
  12. notthatkeen

    notthatkeen New Member

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    I'm curious what people think ofour idea of investing via non-tax-deductable payments to your pension.
    Assuming you don't need the money before retirement, and your pension allows you to direct the extra money to some sort of index find, and the fees are low, that seems reasonable.
    I'm in a very similar situation, so watching this thread with interest :)
     
  13. Sarenco

    Sarenco Frequent Poster

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    Well, I don’t think it’s a terrible idea but any subsequent drawdowns would obviously be taxable.

    Paying down (mortgage) debt would give you a better risk-adjusted return, at least on an after-tax basis.
     
  14. notthatkeen

    notthatkeen New Member

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  15. NoRegretsCoyote

    NoRegretsCoyote Frequent Poster

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    I don't think this is standard advice. Buying one of any share instead of a basket absolutely decreases the diversification of your portfolio.

    Take two Irish shares I semi picked at random today and twelve years ago.

    Bank of Ireland: €17.22, now €4.84

    Glanbia: €4.55, now €16.30

    Bank of Ireland has decreased by three-and-a-half times and Glanbia has increased by three-and-a-half times.

    Choosing Glanbia over Bank of Ireland would have seen your return vary by a factor of ten! This is not unusual for individual stocks, and is why it is generally advised to buy a basket.
     
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  16. mattmacg

    mattmacg Frequent Poster

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    Bank of Ireland had a 30 shares to 1 consolidation in 2017, so the loss on Bank of Ireland shares are even more.
     
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  17. irishguy

    irishguy Frequent Poster

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    Lots of good points here. So if I was to invest in a basket of shares from what iv read the main means of doing that is via a ETF, which is a bit of a pain from a tax point of view. Also as Sarenco/notthatkeen mentioned investment trusts which appear to the pre curser of an EFT, ill have to look at that further. It appears its taxed as per shares which is handy. Any other options for spreading risk for share investment?

    I have discounted extra mortgage payments and state saving for various reasons.

    Also using taxable pension contributions might still be one of the easiest ways of investing, I'm finding it hard to put money in when im not getting the tax benefit, even though I wouldn't get it anyway if I invested outside it.
     
  18. RedOnion

    RedOnion Frequent Poster

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    Just remember, under current tax rules, if you invest more in your pension that you can get tax relief on in a given year, you can carrt that forward and claim tax relief in future years. So you benefit from longer tax free compounding within the pension, and if in a year or 2 you have less money you take a break from contributing to pension and claim a tax refund on the but you've carried forward.