I want to Buy Shares.

Recondite49

FURET wrote: »

Well, I'll begin my response by stating that I am in no way an authority on these matters and I am open to correction on any point I make. I am currently doing a lot of research, however.

The key to finding the answer to the dividend taxation issue is the following question, to be asked of both the ETF manager and the broker:

"When you pay me a dividend, is the dividend gross or net?"

• If they say "gross" it means dividend withholding tax has not been deducted, at which point - it seems to me - it is up to the account holder to make a declaration to Revenue.
• If they say "net" it means that someone has deducted the dividend tax already before distributing / reinvestment. The question for the ETF manager or broker then becomes "who did you give it to?" The answer will almost certainly be "the Irish Revenue Commissioner" or "it was withheld at source in the US (for example)".

You might then approach revenue and see if you can get anything back.

Note that I am speculating -- but the above approaches seem workable to me. Key question: "Is the dividend I receive gross or net". Everything follows from that.

The capital gains issue would be a problem for someone who has a two- or three-part portfolio and who wants to rebalance once or twice per year by selling part of the high-performer to buy more of the low-performer.

In my case, my wife is neither domiciled, nor resident, nor ordinarily resident, so she will be buying the ETFs, not me. And I will make sure to be a very, very good husband!

That sounds like an excellent idea chief. When it finally comes to time to cash out, I take it then your wife can give you the money tax free or will you simply buy your dream home / boat / insurance annuity in her name too?

I imagine what you said will be important for the Vanguard ETF's which are domiciled here in Ireland. I would imagine that the tax on dividends is deducted at source but then again Vanguard are a private company so maybe they'll just give us them gross and let us have it out with the tax man.

Electric Boobs

FURET wrote: »

Well, with regard to Kerry Group and Ryanair, why does Electric Boobs feel that they are a good investment? Has s/he studied their balance sheets, PE ratios, price to book ratios? What are the earnings per share over the past five years? Is the business currently overpriced on the market or underpriced? Is he in it for the long haul or to make a quick buck?

All I know is that I've made money on all of the following companies over the last 4 years; Ryanair, Kerry Group, Providence(2 week investment), Irish Continental, Paddy Power and Betfair. I usually end up staying in each company for about 9 months and make about 20% of a gain(~€250). I usually bank my gains too soon as without foresight, I don't have the understanding to know what the future looks like, and just feel lucky to have made a few bucks

Although I feel like I'm a good investor, I know that I'm not really, and must have been lucky. You could say that I'm now perhaps due some bad luck, but I don't know if I'll be able to resist buying more. I know what a PE ratio is, but I wouldn't have a clue where to access a company's balance sheets, or be able to understand them!!

Recondite49

Electric Boobs wrote: »

All I know is that I've made money on all of the following companies over the last 4 years; Ryanair, Kerry Group, Providence(2 week investment), Irish Continental, Paddy Power and Betfair. I usually end up staying in each company for about 9 months and make about 20% of a gain(~€250). I usually bank my gains too soon as without foresight, I don't have the understanding to know what the future looks like, and just feel lucky to have made a few bucks

Although I feel like I'm a good investor, I know that I'm not really not, and must have been lucky. I'm now perhaps due some bad luck, but I don't know if I'll be able to resist buying more. I know what a PE ratio is, but I wouldn't have a clue where to access a company's balance sheets, or be able to understand them!!

Well done on the investments you made so far!

One of the things I've enjoyed about joining Investopedia is that there is k stock market simulator so you can pit your wits against the market with only imaginary money.

I've managed to generate a modest return by following Buffet's three simple rules:

- Has the company floated for at least ten years on the stock exchange? (Excludes tech stocks like Facebook & Twitter)

- Has the company consistently made a profit for the last five?

- Could you explain to a ten year old satisfactorily how the company makes money?

Once you've satisfied those criteria, I would suggest looking at Price to Earnings ratios, Betas and quarterly earnings reports etc.

Having said this while Buffet has enjoyed extraordinary success as an Investor, in most years his fund Berkshire Hathaway only barely outperformed the market and he himself admitted that you're better off investing in an index fund.

It's important to bear in mind as well that index funds simply track a particular sector or market, so they're largely automated. This is reflected in the very low commission charged.

Mutual fund managers however all need to be paid a fat salary to select stocks on your behalf. If, worse still you decide to play the market yourself, every trade you make is 15 Euros down the swanee.

The solution? Invest a regular amount in a broad index fund tracking the market and watch your wealth grow slowly over a long period.

Then cash out and buy that house in the Caribbean. :-P

FURET

Electric Boobs wrote: »

All I know is that I've made money on all of the following companies over the last 4 years; Ryanair, Kerry Group, Providence(2 week investment), Irish Continental, Paddy Power and Betfair. I usually end up staying in each company for about 9 months and make about 20% of a gain(~€250). I usually bank my gains too soon as without foresight, I don't have the understanding to know what the future looks like, and just feel lucky to have made a few bucks

Although I feel like I'm a good investor, I know that I'm not really, and must have been lucky. You could say that I'm now perhaps due some bad luck, but I don't know if I'll be able to resist buying more. I know what a PE ratio is, but I wouldn't have a clue where to access a company's balance sheets, or be able to understand them!!

I know what you mean. The reality is that almost anyone investing in stocks since 2011 would have made handsome money between then and now.

Here is an example of how someone would assess a company (in this case, Coca-Cola).

The thing is, when people say "you won't make much", I wonder what their basis is.

• I mean, if I invest 1000 euros and hold it for 30 years, and if it grows by an average of 8% per year over that period, it would have grown to 10,062.66.
  
• If I invested 1000 euros and added 1000 to it every year for 30 years and it grew by 8% per year, I would have 132,408.52 euros.
  
• But if I invest 1000 euros and hold it for only one year and it grows 8%, I would have only 1080.

To make money, most people have to hold for a long time so that you get some good compounding. This to me is real investing - investing time and money into good businesses.

FURET

Recondite49 wrote: »

That sounds like an excellent idea chief. When it finally comes to time to cash out, I take it then your wife can give you the money tax free or will you simply buy your dream home / boat / insurance annuity in her name too?

Most probably as soon as my ordinary residence expires we will migrate the investments to a joint brokerage account and continue investing for as long as it takes.

I know this might sound a bit odd, but neither me nor my wife see the purchase of a home or "things" as important. We actually don't spend very much on things. More important for us is to build up financial independence so that we create choices for ourselves: the choice to work, or not. The choice to travel for one month per year, or six. The choice to live wherever we want. We both realize that if we buy new cars every few years, pump money into a single house, and buy expensive clothes and electronics, that we won't really have much money left over to achieve our goal of financial independence.

Be that as it may, as index investors, we are delighted to see everyone else splash out on new cars and expensive clothes and electronics! There's a vast mall near where we live which contains hundreds of shops. If we were to buy the Vanguard ETFs "VEUR" and "VTI" for example, we would own a little bit of almost every single restaurant and shop in the place, so I'd be very happy to see it thronged with shoppers day in and day out. But we generally are not shoppers ourselves. (Heck, if I bought VWRL I'd even own a little bit of the property company that built and owns the mall itself.)

I imagine what you said will be important for the Vanguard ETF's which are domiciled here in Ireland. I would imagine that the tax on dividends is deducted at source but then again Vanguard are a private company so maybe they'll just give us them gross and let us have it out with the tax man.

I'll call Vanguard Netherlands today and ask what they do with the dividends.
Update: Vanguard pay a gross dividend. The broker (in this case Saxo) pays a net. There is an intermediary between Vanguard and Saxo which Saxo calls their "custodian". The custodian is the entity that settles the dividend withholding tax. Capital gains tax is not deducted and it is the individual's responsibility to declare their capital gain when selling.

topper_harley2

Recondite49 wrote: »

The solution? Invest a regular amount in a broad index fund tracking the market and watch your wealth grow slowly over a long period.

Then cash out and buy that house in the Caribbean. :-P

How do you avoid getting killed with charges for regular investment?

FURET

topper_harley2 wrote: »

How do you avoid getting killed with charges for regular investment?

Charges are a pain!

But the first thing is to choose the broker wisely. Interactive Brokers seem to me to be the cheapest by far and you get multiple currency support by default.

The second strategy would be to minimize your trades. So, for example, invest lump sums every 2 or three months and sell only once or twice per year for rebalancing purposes.

Also, only buy from exchanges that don't charge a stamp duty or financial transaction tax.

Charges are a pain but the aim should be to minimize activity. People who buy and sell two or three times per month will pay a lot more than people who buy 6 times per year and sell once or twice per year.

Electric Boobs

Recondite49 wrote: »

If you want to learn a little more about Financial Theory in general, MIT Openware does a great free course using video lectures

That's seems to be a little hard to find. Can you pm a link please?

Recondite49

Electric Boobs wrote: »

That's seems to be a little hard to find. Can you pm a link please?

http://ocw.mit.edu/courses/sloan-school-of-management/15-401-finance-theory-i-fall-2008/

Recondite49

FURET wrote: »

Charges are a pain!

But the first thing is to choose the broker wisely. Interactive Brokers seem to me to be the cheapest by far and you get multiple currency support by default.

The second strategy would be to minimize your trades. So, for example, invest lump sums every 2 or three months and sell only once or twice per year for rebalancing purposes.

Also, only buy from exchanges that don't charge a stamp duty or financial transaction tax.

Charges are a pain but the aim should be to minimize activity. People who buy and sell two or three times per month will pay a lot more than people who buy 6 times per year and sell once or twice per year.

What he said /\

I put money into my brokerage account once a month but only execute a trade once every four (at least this is my plan as I've only been doing this for 8 months!).

I'm with Keytrade who charge just under 15 Euro a trade, so 45 Euro a year isn't too much to part with in my view.

This also ties in with the reasons why it's not easy for mutual funds to beat the market. Hundreds of trades a year cost money for both buying and selling!

Electric Boobs

So my understanding of an index fund is that you let others invest your money in a set of similar companies from a certain financial market, which is probably incorrect. I also don't understand why they are considered to be a more reliable way of making profit?

I trade in my Dad's Goodbody account. I'd imagine it wouldn't be possible to use Goodbody to invest in an index stock!?

Recondite49

Electric Boobs wrote: »

So my understanding of an index fund is that you let others invest your money in a set of similar companies from a certain financial market, which is probably incorrect. I also don't understand why they are considered to be a more reliable way of making profit?

I trade in my Dad's Goodbody account. I'd imagine it wouldn't be possible to use Goodbody to invest in an index stock!?

Hi Electric Boobs,

Index funds can in theory track any sector or market. In the case of VEUR for instance it tracks the performance of the top earning companies in Western Europe.

Part of the reason they make money over time is that they mirror the overall stock market and don't try to outguess it.

With an index fund tracking the top companies there is also inherently less risk but when one company has a particularly poor year for instance, this doesn't cause your investment to plummet as much as your money is spread across all the top earners.

Most importantly with an index fund, quite a number of trades are being made per day to reflect the allocation of shares in the market overall e.g if 10% of all shares in the top earning companies are Facebook then the fund buys shares accordingly to mimic this.

In plain English this means you're spared hundreds of Euros/Dollars/Pounds in trading fees.

One excellent book you can read to explain more about index funds and why they are the best way to grow your wealth is "A Random Walk down Wall Street." It's available for a few pennies on Amazon.

I had a look at Goodbody's website and it seems they do offer online brokerage services and can follow the European and US markets so it seems you're along the right lines.

We've already discussed Vanguard Index Funds ; they're not the only poker game in town but they do operate on a not for profit basis.

FURET

Yes, imagine a book. At the back of the book is an index of hundreds of entries representing every concept or idea mentioned throughout the book.

If the European stock market was a book, you could look at its index and you'd see Nestle, HSBC, SAP, Lloyds, Ryanair, Swatch, BP, Shell, Bank of Ireland and many more.

A total European stock market ETF would own a little bit of all the companies in the index.

You can also buy USA ETFs, Asian ETFs, or global ETFs.

The thing is though, for Ireland-based investors, taxation is an issue. There's a good thread on Askaboutmoney about ETF taxation in Ireland. In a more tax-friendly environment ETF investing is a no-brainer. In Ireland I'm not so sure...

sperm_whale

Electric Boobs wrote: »

How old would you be?

Yeah, if you're not that experienced yet, then I'd just stick to the Irish market. Something like Kerry Group, you can't go wrong with. But don't expect to make a lot out of it. Or if you want to be a little bit more bold, try Ryanair!

id have thought that someone who is not " that experienced " would be better to avoid individual shares and go with index funds

as for the companies you recommend , both are good companies but are they expensive , kerry certainly appears to be and ryanair is pretty volatile

id consider both much less risky than bank of ireland but were i as inexperienced as the OP , i would consider them to be not safe enough

stocks are expensive right now which is why so many people are interested in buying , an auctioneer once said to me , no one wants to buy property when its cheap , same with stocks , they were for absolutely nothing as recent as two years ago and at a generational low around 2009 in the usa and as recent as early 2012 in the eurozone

sperm_whale

Electric Boobs wrote: »

So my understanding of an index fund is that you let others invest your money in a set of similar companies from a certain financial market, which is probably incorrect. I also don't understand why they are considered to be a more reliable way of making profit?

I trade in my Dad's Goodbody account. I'd imagine it wouldn't be possible to use Goodbody to invest in an index stock!?

not nescesserily , an index fund is a passive way of investing in that while the fund is structured by a particular provider ( ishares , vanguard etc ) , it is not managed on an ongoing basis like a mutual or managed fund

fees for ETF,s are usually about a tenth of the cost of what an investment house would charge