20 year old looking to invest/save

9bred4

I dont come with massive money but I am looking for ways to invest my money. I don't pay rent as I still live at home, for now, and I have a job also. Is there anything I can do to invest or do I need a lump sum amount

Digital Society

Do you have an education?

Investing in yourself will give you by far the best return as you get older.

vgrainge

Im new myself and from what i can gather a stock market index fund would be a good choice to begin with "What an index fund does is simple: It invests in the entire index. For example, an S&P 500 index fund buys all the stocks in the S&P 500 index. And that's it." This takes the guess work out of picking individual stocks!

These have minimum initial deposits but expenses seem to be low. Thats my 2 cents.

FURET

9bred4 wrote: »

I dont come with massive money but I am looking for ways to invest my money. I don't pay rent as I still live at home, for now, and I have a job also. Is there anything I can do to invest or do I need a lump sum amount

Low cost, broad-market, self-directed, annually rebalanced ETFs are indeed to key to growing your wealth over time exponentially. Unfortunately, Ireland is not a good place to be an intelligent investor. The tax regime in Ireland doesn't allow you to:

• Add cash regularly to ETFs cost-effectively
• Reinvest dividends cost-effectively
• Rebalance your portfolio cost-effectively

So this means that the most successful investment strategy ever devised cannot be used optimally by inhabitants of Ireland.

Therefore, for Irish people in Ireland, it may be better to hold a portfolio of 20-30 blue chip stocks, diversified across geographies and regions. This is much more risky than investing in ETFs. What can I say...the gubbermint want you to put all your money into bricks and mortar. My advice: Don't do it.

You're young. If you're smart and you seriously want to build wealth and enjoy life at the same time, you should get a good education, get a good profession that you enjoy, excel at it, and then get out of Ireland to an expat haven like Singapore or the UAE. When you're there and have lost your Irish ordinary tax residence, open a discount brokerage account with Interactive Brokers or a similar outfit, and invest in a total US stock market ETF, a developed world ex-US ETF, and a high quality short-term bond ETF. And keep on at it, through thick and thin, through crashes and recessions and booms, rebalancing every year by selling the winners and buying the losers to maintain a target allocation of approximately 70% stocks to 30% bonds, slowly increasing your percentage of bonds as you get older, so that by the time you retire a wealthy man, you've approximately 60% bonds to 40% stocks.

Simultaneously, try not to fall into the trap of buying new cars and expensive watches and designer clothes. It's much better to buy Volkswagen stock than a Volkswagen car.

But before all that, before you invest, you need to:

• Build up an emergency fund of cash that would cover around 6 months of living.
• Clear all stupid debt (stupid debt is credit card debt, car loan debt, vacation debt)
• Read some books to familiarize yourself with the fundamentals of investment. You could start with the Dummy's Guide to Index Investing, a Random Walk Down Wall Street, or Millionaire Teacher.

If you don't read at least one of these books, your chances of investing success are low.

vgrainge

Hi FURET

Im in sort of the same situation as OP and was planning to do the following but from your advice it would not be such a good thing to do cost effectively? Any help greatly aprreciated...

Long term, Im planning on investing 10k into VTSAX, 3K into VGTSX and probably 3k into VBMFX to try and diversify abit. Will plan on adding to these three each year. Expenses are low on these from what i can see and historical a good return

Currently have a large holding of tech. shares (intc) so planning on selling some of these and buying some energy (coal/oil) shares and maybe some gold! Plan would be to buy and hold these also.

FURET

vgrainge wrote: »

Hi FURET

Im in sort of the same situation as OP and was planning to do the following but from your advice it would not be such a good thing to do cost effectively? Any help greatly aprreciated...

Long term, Im planning on investing 10k into VTSAX, 3K into VGTSX and probably 3k into VBMFX to try and diversify abit. Will plan on adding to these three each year. Expenses are low on these from what i can see and historical a good return

Currently have a large holding of tech. shares (intc) so planning on selling some of these and buying some energy (coal/oil) shares and maybe some gold! Plan would be to buy and hold these also.

Unless you live in the US, you will not be able to buy these funds. Unfortunately they are for Americans only. However:

VTSAX tracks the US Total Stock Market. You can't buy VTSAX, but you could buy VTI, which is the ETF equivalent (i.e. it contains exactly the same stocks, but comes in a different wrapper, so to speak). To do so, you would need to open an trading account with an e-broker such as Interactive Brokers or Saxo. Unfortunately, you would face two challenges, both of which reduce the attractiveness of what would otherwise be a great investment choice:

Challenge 1: VTI can only be bought from the New York stock exchange. Once the value of your stocks bought from US exchanges reaches 60k dollars, if you die, Uncle Sam will take 40% as a death tax, so your heirs wouldn't get the whole amount.

• Solution 1: Buy the US Total Stock market by using another Vanguard ETF - VUN - from the Canadian exchange. The trading currency there is CAD, though. Or, buy the Spider ETF that tracks the broad US market from the Frankfurt exchange. The fees are ridiculously high though, so I don't think it's a good option.
• Solution 2: Buy the S&P 500 from the London stock exchange in USD (ticker is VUSD, and the annual charges are just 0.07%) or the Amsterdam exchange in euros (ticker is VUSA also just 0.07%).

The S&P 500 isn't as diversified as the Total US stock market, but it's still an excellent index and has yielded a historic average of over 9% per annum. This would compound very nicely over an investing lifetime of 30+ years. However, here's where you run into challenge 2:

Challenge 2:
The Irish government won't allow your money to grow without taxing the hell out of you. Firstly, all Vanguard ETFs pay you a dividend. This is only right: after all, you legitimately own all those companies, so you're entitled to your share of their profits. But when Vanguard pays the dividends (usually quarterly), this becomes a "taxable event", meaning you have to give the Irish government its due. Solution: Don't buy an ETF that distributes dividends. Instead, buy an ETF that reinvests the dividends. This sucks as it will reduce your overall return by the tune of around 2% or almost one-third of your expected profits. Over a life time, this number (i.e. the lost profits) will probably come to a handsome six figure sum. But at least you avoid the dividend tax issue.

Another tax-related issue is that even if you want to hold an ETF for 20 years and never sell it, every 8 years after you bought it, the Irish government wants 40% of the profits, even though these profits aren't realized. They're not realized because you didn't sell the ETF (you intend to hold it for 20 years through thick and thin after all), so although your money may have grown very significantly, you haven't actually crystalized the growth, i.e. you don't have it in your pocket. But the government doesn't care - it wants 40% of the profits. To pay that bill, you probably would have to sell. And doing so would destroy the vital compounding process. The only solution here for those who can do it and who don't mind doing it is to either not buy ETFs OR leave Ireland and live in a country where intelligent investing isn't penalized. Alternatively, you can simply accept that Ireland is a pretty lousy place to be an ETF investor, do it anyway, and see the tax as a consequence of your success. You are unlikely to build real wealth if you're paying tax on the capital gain every 8 years though.

The same goes for the other funds you mentioned - VGTSX and VBMFX. Again, there are ETF equivalents you can buy, such as VTI and BND. As a non-American, you would want decent exposure to the US (it's half the global stock market after all), but also some decent exposure to the rest of the world, mainly the developed world. Alternative to the US-centric BND, for example, include SAAA and SYBA. Vanguard's VWRD is another great ETF which you can buy from the London or Amsterdam exchanges. VEUR will give you exposure to 500 companies across Europe.

FURET

vgrainge wrote: »

Hi FURET

Currently have a large holding of tech. shares (intc) so planning on selling some of these and buying some energy (coal/oil) shares and maybe some gold! Plan would be to buy and hold these also.

This comes down to philosophy and kind of investor you are, but I would not be happy to hold tech shares at all. If you look at a company like Coke, we can say that people were buying coke 50 years ago, they buy it today, and we can be fairly sure they'll still buy it in 50 years. The beauty is that it's a simple product, people often buy it, and people tend to associate it with good things, like birthday parties and going to the cinema.

Was Google there 50 years ago? Nope. Was Apple or Facebook or Amazon? Nope, nope, nope. Will they still be there is 50 years? Honestly, who can say? Look at Nokia. A giant of the 90s, decimated because it missed the latest innovation. In contrast to making nice, simple, fizzy drinks, tech is hard to predict. Everyone thinks of the winners when it comes to tech - Microsoft shareholders for example - but such success stories are very rare. Amazon is a total con right now: If you bought the company today, it would take you more than 700 years to make your money back at their current rate of profit-making. Of course, they're a growth company - but they sure have a lot of growing still to do before they even begin to resemble value for money. And who wants that risk. Many people evidently, but they'd all probably be better off just buying an index and holding it for 20 years.

As for gold, this is an emotive subject. Personally I'm not a fan, but there are reasons to buy gold, mainly to take advantage of other peoples' fear (which is a universal constant). Here's Warren Buffet on gold:

Gold can play some sort of a role, but not in my portfolio.

vgrainge

Thanks so much for the detailed reply FURET, taught i had it all planned! Now ive to really look into my options, such a pity cant invest in them funds, where to go from here now!?

robp

FURET wrote: »

Unless you live in the US, you will not be able to buy these funds. Unfortunately they are for Americans only. However:


Challenge 1: VTI can only be bought from the New York stock exchange. Once the value of your stocks bought from US exchanges reaches 60k dollars, if you die, Uncle Sam will take 40% as a death tax, so your heirs wouldn't get the whole amount.

• Solu.

This is certainly the default scenario with the US. However Ireland has a tax treaty with the US so I think different rules apply. I could be wrong but this is the impression I got from elsewhere.

FURET

robp wrote: »

This is certainly the default scenario with the US. However Ireland has a tax treaty with the US so I think different rules apply. I could be wrong but this is the impression I got from elsewhere.

Any stock bought from a U.S. stock exchange is subject to the Estate Tax. If you buy US stock from a non US exchange, you escape the Estate Tax. Tax treaties don't exempt the estate tax unfortunately.

FURET

vgrainge wrote: »

Thanks so much for the detailed reply FURET, taught i had it all planned! Now ive to really look into my options, such a pity cant invest in them funds, where to go from here now!?

There are funds you can use - they're just a poor substitute for Vanguard funds. Your fundamental understanding is very correct: aim for a simple, diversified portfolio that tracks broad indexes. And read this.

You will be able to identify several fund providers in Ireland tyhat should be able to build some sort of decent portfolio for you. Or, you should be able to find a fund provider in Ireland who will allow you to build your own portfolio from a range of their vehicles. The trick for you will be to keep costs at a minimum. Americans are lucky - they get to keep their portfolio costs at below 0.3% if they like. Irish people are not so lucky. So try to keep the total costs below 1% and always insist on passive funds rather than active. You don't need more than 4 funds in your portfolio; three is optimal. The fancier sounding the fund, the more it is to be avoided.

Be wary of the big providers like Irish Life and Zurich...they usually charge a lot.

But for someone who is in their early twenties, you really do have the gift of time on your side. By all means, start investing now, but I'd encourage you to also focus on investing in yourself in terms of getting an good profession that you enjoy and that allows a good standard of living. Enjoy life, don't be a miser, but be aware of the damaging financial consequences of buying new cars, expensive clothes, bling, etc. Be debt averse. Debt is a destroyer of wealth. Most people are clueless when it comes to finances, so don't take your cue from the masses.

vgrainge

Thanks again Furet, taking everything you say on board. My cousins friend is a financial advisor who said he will chat to me about my options. I will be taking on board what you said and quizzing him, to see if he is just pushing some financial product!

What you think of AVCs to pension? Good or bad idea?

FURET

vgrainge wrote: »

Thanks again Furet, taking everything you say on board. My cousins friend is a financial advisor who said he will chat to me about my options. I will be taking on board what you said and quizzing him, to see if he is just pushing some financial product!

What you think of AVCs to pension? Good or bad idea?

I don't know much about the pension fund structures available in Ireland as I'm not there anymore. But you would do well to remember this quote (another from Warren Buffet):

Full‐time professionals in other fields, let's say dentists, bring a lot to the layman. But in aggregate, people get nothing for their money from professional money managers.

You already know the types of funds that perform best - low-cost, passive, broad-market ETFs and index funds. Professional advisers will bring nothing to the table despite their protestations to the contrary. Therefore I feel you need to contact the Pensions Authority and see what kinds of schemes are out there that you could use to build a truly simple and elegant portfolio as cheaply and tax-efficiently as possible.

I would try to get a personal, self-directed fund going where YOU get to choose your own investments as long as you follow whatever is permissible by the government-defined scheme structure. Personally I avoid salesmen financial advisers just like I avoid rats, especially if they're not fee-only index advocates. Your investments should fund your future, not theirs! The fundamentals of investing and personal finance are very simple and you can learn them yourself.

valderrama1

vgrainge wrote: »

Thanks again Furet, taking everything you say on board. My cousins friend is a financial advisor who said he will chat to me about my options. I will be taking on board what you said and quizzing him, to see if he is just pushing some financial product!

What you think of AVCs to pension? Good or bad idea?

Just my two cents, AVCs are an excellent way of investing because you're getting 20 or 40% + tax relief depending on your tax rate. You will pay tax when you draw down your pension (it is just deferred tax), but in the meantime between age 20 and 60 (or whatever) the money will be compounding and you will still be better off.

I would just get a cheap online share account, not necessarily in Ireland, buy x amount of an etf every month and keep it up. If possible get one that reinvests dividends automatically as stated above because reporting the tax on dividends even if small is a pain in the ring.

Very wise move what you're doing in general because the saving and compounding that you will get between ages 20 and 30, is very hard to "catch up with" once you're say 35 or 40. Also keep some cash in case there is a crash... Warren Buffet says 10% of the total

Johnerr

valderrama1 wrote: »

Just my two cents, AVCs are an excellent way of investing because you're getting 20 or 40% + tax relief depending on your tax rate. You will pay tax when you draw down your pension (it is just deferred tax), but in the meantime between age 20 and 60 (or whatever) the money will be compounding and you will still be better off.

I would just get a cheap online share account, not necessarily in Ireland, buy x amount of an etf every month and keep it up. If possible get one that reinvests dividends automatically as stated above because reporting the tax on dividends even if small is a pain in the ring.

Very wise move what you're doing in general because the saving and compounding that you will get between ages 20 and 30, is very hard to "catch up with" once you're say 35 or 40. Also keep some cash in case there is a crash... Warren Buffet says 10% of the total

If you buy an ETF than has a DRIP scheme, it is my understanding that even if the dividends are reinvested you are still liable to pay income tax on reinvested dividends if you pay higher rate of tax?

valderrama1

Yes as far as I know - if it's a DRIP then in revenues eyes it's exactly the same thing, just that the company is automatically buying more shares for you with the money. Probably even on the lower rate of tax as well...
If on the other hand no dividend was declared and no shares awarded, and instead the funds were invested in more of the shares backing the ETF then there'd be no income tax due, just capital gains tax when you eventually sell. It would be treated like a company reinvesting funds in itself rather than paying out a dividend (share price would increase instead because one unit of the ETF is backed by more and more shares as time goes on).

IpreDictDeatH

FURET wrote: »

Unfortunately, Ireland is not a good place to be an intelligent investor.

This is a bit of a bummer seeing as i was only starting to get interested in investing in stocks/shares. So am i wasting my time reading books from Uk/USA or the investors chronicles thinking i can apply what im reading from Ireland?

robp

IpreDictDeatH wrote: »

This is a bit of a bummer seeing as i was only starting to get interested in investing in stocks/shares. So am i wasting my time reading books from Uk/USA or the investors chronicles thinking i can apply what im reading from Ireland?

Anything relating to tax is going to be very different. Generally what folks do in the US etc is possible here too but it just may not be as advantageous due to tax diffrences. For example holding ETFs suffer from higher tax rates then shares.

IpreDictDeatH

robp wrote: »

Anything relating to tax is going to be very different. Generally what folks do in the US etc is possible here too but it just may not be as advantageous due to tax diffrences. For example holding ETFs suffer from higher tax rates then shares.

So it's not a pointless exercise trying to trade in shares from Ireland? Its just that you get better returns in US or Uk?

Very basic questions i understand but i just want to know if i should be directing my time and resources elsewhere at this early stage if i will not be able to create wealth in the same way as ive been reading about in other countries.

Thanks for feedback.

arrowloopboy

IpreDictDeatH wrote: »

So it's not a pointless exercise trying to trade in shares from Ireland? Its just that you get better returns in US or Uk?

Very basic questions i understand but i just want to know if i should be directing my time and resources elsewhere at this early stage if i will not be able to create wealth in the same way as ive been reading about in other countries.

Thanks for feedback.

I've been investing/trading(call it what you like ) for about 10 years ,and for the past 5 years solely via spreadbetting .Spread betting is an alternative way to invest ,but insted of buying and owning shares ,you ''bet'' on the direction you think their going to move in .The main advantage in operating this way is because its classed as betting,you don't have to pay any cgt on your earnings(unless its your main source of income).Spread bets work best in most cases on sub 1yr positions.
Your only 20,do your homework ,you'll see the advantages...

robp

IpreDictDeatH wrote: »

So it's not a pointless exercise trying to trade in shares from Ireland? Its just that you get better returns in US or Uk?

Very basic questions i understand but i just want to know if i should be directing my time and resources elsewhere at this early stage if i will not be able to create wealth in the same way as ive been reading about in other countries.

Thanks for feedback.

It certainly is not pointless. Its just not as profitable as some other countries.

IpreDictDeatH

Thanks for the feedback folks. Dont have to cancel my christmas amazon book order so

I'll read up on spreadbetting, seems to tick some of my boxes.

phishcakes

robp wrote: »

Anything relating to tax is going to be very different. Generally what folks do in the US etc is possible here too but it just may not be as advantageous due to tax diffrences. For example holding ETFs suffer from higher tax rates then shares.

Is the tax really that high?

Blacktie.

Is the tax really that high?

41% on profits earned every 7 years I believe. I obviously need to change my strategy as this is what I was doing originally.

phishcakes

Blacktie. wrote: »

41% on profits earned every 7 years I believe. I obviously need to change my strategy as this is what I was doing originally.

Is that on ETFs or shares?

robp

It refers to ETFs and other similar funds (not shares) but its every eight years not even years. Possibly this may not be true if the fund is domiciled outside Europe but I am not sure.
Check out askaboutmoney
The Tax Treatment of ETFs for Irish residents

arrowloopboy

Blacktie. wrote: »

41% on profits earned every 7 years I believe. I obviously need to change my strategy as this is what I was doing originally.

And they don't even use a syringe or wear a balaclava :mad:,suppose someone has to keep this great little welfare state going :mad::mad::mad:,this bullsh1t is exactly why I now trade/invest (WIN) exclusively via spreadbetting !

pokerface11

I predictdeath....Just a few pointers on Spreadbetting. Il just take an example on Facebook. It is currently at $76.40. You can execute a €1 a pip trade that this will go to $80 which would gain 360 pips. However you will need to put in a stop loss that if it went in the opposite direction that you will take a set loss and not risk all your funds.
If you use a risk reward of 1:2 you would set stop loss at say 74.40 and limit or gain at 80.40. If your trade was successful you will gain €400 but if it didnt go as expected you will take a loss of €200. This is only a very simple example and not a trade tip by any means.

Few tips......always set a stop loss, never risk more than 5 % of account in 1 trade, have a strict money management system in place that will cut out the psychology of greed and fear, start studying the basics of technical analysis. Do a lot of research before you attempt to start trading this way.

Maybe other board members can put up sample trades be it for short, medium or long term for others to get the idea.

arrowloopboy

Another few pointers..... research the fcuk out of it BEFORE starting ,have a read of The Naked Traders guide to Spreadbetting ,its a very easy book to read and ideal from taking a novice right from the start to placing trades.
Forget about oil/fx etc ,their too volatile to start with.
2% of your account is enough to be trading on any one trade.
A 10% stop loss is the minimum s/l i'd use ,ALWAYS set a s/l when you open a trade.
So in a nutshell,pick a share you fancy,take 2% of your acc,devide that into a 10%(minimum) s/l ,set the s/l ,if its not a trailing stop ,move your stop manually as the trade goes in your direction.
By doing things this way ,the max you can lose in 2% of your account (which is rare ,unless the share drops 10% right after your open) ,but the upside is unlimited:D,limited downside,unlimite upside .
Getting into a routine of trading a set stratagy ,is very important ,it helps greatly with the psychological end of things.

IpreDictDeatH

Great insight there folks thanks. I have no eagerness to start trading asap so i deffo wont be jumping in blindly. I am a good reader and have a thirst for knowledge so will read read read for now. Have to say though, spreadbetting does look attractive to me right now. How long do you hold a trade for usually? Days, weeks, months?

Nice one for the tips on books, any other resources would be greatly appreciated.

FURET

Arrowloopboy has made it clear what he's talking about - betting - but I want to emphasize to the younger readers on this thread who are eager to invest that spreadbetting is not investing, not remotely.