Author Topic: New to investing, complex situation  (Read 3847 times)

settlement

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New to investing, complex situation
« on: August 14, 2015, 03:56:59 PM »
Hi all.

I'm a 25 year old Irish citizen who has recently moved to Australia and am now resident here for tax purposes. I have always been interested in financial independence and I follow the mustachian way of life: save prolifically, minimise expenditure, avoid debt etc. Recently I have become interested in investing in stocks and bonds.

I left 30,000 in my Irish bank account when I came to Australia as I didn't want to deal with currency exchange charges and risk. I am now saving 2-3k $AUD monthly here. I want to invest in stocks and bonds, with 75% in the former and 25% in the latter. My time horizon is at least 15 years and I'm interested in the simple three fund portfolio.

My confusion relates in part to geography and currencies. I don't know where I'll be in a few years as I like to travel.

Should I transfer the 30k here and invest it, along with monthly Australian dollar contributions? Or should I invest the 30k in Ireland with a broker there and invest my Australian dollars separately here in a similar but separate portfolio? Alternatively would be wise to invest the Irish money as the interest rates are terrible at home, and just keep my aus dollars in a 3.5% interest account? In this case I'd need a broker who wouldn't charge inactivity fees for my once off euro transaction.

I'm anxious about fees regarding contributions, taxes and withdrawal should I end up in an entirely different country. It is most likely I'll eventually settle in Europe or Australia, but which one I don't know. I'm unlikely to settle elsewhere.

What is the best way to go about this? Advice greatly appreciated as I can't figure this one out

daverobev

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Re: New to investing, complex situation
« Reply #1 on: August 14, 2015, 08:07:09 PM »
Move everything to Oz for simplicity, then invest your AUD in globally diverse ETFs. Assuming there are good ones in Oz.

Underlying currency makes no different. Don't go overweight in Australian stock, find out what the Aussie market cap is and do roughly that.

daverobev

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Re: New to investing, complex situation
« Reply #2 on: August 14, 2015, 08:10:06 PM »

settlement

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Re: New to investing, complex situation
« Reply #3 on: August 14, 2015, 08:21:04 PM »
Thanks daverobev.

But what abut the following pitfalls:

1. Charges incurred from transferring euro to AUD (despite using P2P agent eg currency fair)
2. Charges incurred from transferring AUD back to euro should I ever need to spend in euro or move back to the EU
3. The AUD is a less stable currency than the euro
4. The AUD is currently VERY weak (not sure if this is actually good or bad)

acorn

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Re: New to investing, complex situation
« Reply #4 on: August 14, 2015, 10:16:46 PM »
Thanks daverobev.

But what abut the following pitfalls:

1. Charges incurred from transferring euro to AUD (despite using P2P agent eg currency fair)
2. Charges incurred from transferring AUD back to euro should I ever need to spend in euro or move back to the EU
3. The AUD is a less stable currency than the euro
4. The AUD is currently VERY weak (not sure if this is actually good or bad)

You're living in Australia now, so you're going to spend AUD. The longer you stay in Australia, the more AUD you'll earn/spend/save. Unless you are certain that you're going to move back to Europe, I see no reason why you'd want to complicate things by having a second separate account in Europe. I'll keep things simple in one currency and one brokerage account in Australia.

1. Pay the forex fee
2. If you don't move back to the EU, you'll never need to pay this
3. If you live in australia, earn/spend/save in australia, does it matter what the euro does? Unless you plan to make frequent trips to Europe to visit family
4. Same as 3. Although it works in your favour, since you'll get more AUD for your euros now.

settlement

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Re: New to investing, complex situation
« Reply #5 on: August 15, 2015, 12:11:36 AM »
I see your point acorn. But realistically I will move back to Europe at some stage. I am not sure if it will be a permanent move or not but I will live there again. It's 50/50 between Europe and Australia as regards where I'll finally end up

daverobev

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Re: New to investing, complex situation
« Reply #6 on: August 15, 2015, 10:29:11 AM »
For a large sum you'll be losing half a percent, perhaps.

Currency is irrelevant when you invest in international stocks. The ETFs I gave are wrappers; if you invest in the S&P500 in AUD, EUR, or USD the outcome is the same. The *holdings* underlying the ETF are the same. Just the listing currency is different.

So if you invest in EUR or AUD, the outcome when you convert to the currency you want to spend will be the same.

settlement

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Re: New to investing, complex situation
« Reply #7 on: August 16, 2015, 12:16:27 AM »
If currency is irrelevant then why change it to AUD to invest at all? You think the simplicity outweighs the Fx?

brainfart

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Re: New to investing, complex situation
« Reply #8 on: August 16, 2015, 01:06:20 AM »
Whatever you decide to do I'd try to keep that Irish bank account open, even if has just  a minimum sum in it. Unless it costs lots of fees of course. If you ever feel the need to have a bank account outside of Australia it will be there. Opening a bank account from abroad usually sucks.

settlement

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Re: New to investing, complex situation
« Reply #9 on: August 16, 2015, 02:16:58 AM »
That's true. I have multiple accounts in Ireland and will try to keep them all open.

What would you do in my situation, brainfart?

brainfart

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Re: New to investing, complex situation
« Reply #10 on: August 16, 2015, 08:58:24 AM »
Quote
What would you do in my situation, brainfart?

I don't know.

Make a big list with all the facts. Investigate the tax situation, is there a double taxation agreement between Ireland and Australia? I assume that if you invest in Ireland you will have to pay some taxes there, what other taxes will be due in Australia?

Maybe invest about equal sums in both countries for a year or two in the same or substantially similar funds/ETFs/whatever, decide which country is better and then move all your money. I don't think that you will take a big financial hit after such a short period. Most likely Australia will win, and even if it doesn't and is a close second it might be less complicated and therefore better.

Another option: 30K isn't all that much compared to the money you hope to have in 20 years, so invest those 30K in one (MSCI ACWI or similar broad index) or two (e.g. 70% MSCI World + 30% EM or similar) cheap, reinvesting, possibly synthetic and tax efficient ETFs and simply let them grow unmolested. Don't touch them unless you absolutely have to, except for yearly rebalancing, maybe keep some cash in there for travel and other expenses and let time do its magic. With the right ETFs and bank/broker you will be due zero taxes and fees as long as you leave them alone. Worry about withdrawal strategies later when the need arises. You don't know what the future brings and how taxation will change anyway so don't worry about that now.
Even if this will produce less than optimal results you added some kind of diversification and will have more options in the future if you ever decide to return to Europe.
Then concentrate your efforts on your Australian investments where you can do all the complicated strategies involving 7 different funds and strategic overweighting of sectors etc ;)

daverobev

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Re: New to investing, complex situation
« Reply #11 on: August 16, 2015, 09:13:50 AM »
If currency is irrelevant then why change it to AUD to invest at all? You think the simplicity outweighs the Fx?

Because you have to report dividends, capital losses and so on to the country of your residency. Only a couple of countries tax non-residents on non-related income (the US being the major one). If you live in Oz, you pay tax in Oz; do you want to keep track of your ACB in EUR, convert each dividend payment from EUR to AUD in order to pay tax, and so on.

Yes, simplicity is good, unless you've been through it and know that doing it the hard way is not that hard.

This is from someone with investments in GBP, USD, and CAD. I wish I'd converted all my GBP to CAD the instant I got it and invested it in a Canadian listed ETF. Not *quite* as tax efficient, not quite as flexible, but a lot simpler. I have FTSE 250, Europe, high divi yield ETFs that just don't exist in Canada (and I don't want to pay the US withholding tax, thanks).. great... except ZEA.TO would be so much simpler.

settlement

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Re: New to investing, complex situation
« Reply #12 on: August 16, 2015, 07:13:18 PM »
Thanks brainfart and daverobev, really informative stuff

I've googled taxation agreement between Ireland and Australia and found this:
http://www.revenue.ie/en/practitioner/law/double/australia.html

Anyone good at translating legalese?

Edit: also, brainfart, I like the look of those low cost ETFs. If I went with them would you advise buying bonds also? Or leave that and do so in Australia?
« Last Edit: August 16, 2015, 07:56:48 PM by settlement »

brainfart

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Re: New to investing, complex situation
« Reply #13 on: August 17, 2015, 12:04:43 AM »
If you want bonds in Euro then then I assume that would be German government bonds? Since interest rates are close to zero and inflation pretty low in Europe I see no point in bonds personally. If interest rates go up you lose money, they can't go further down because yield is already close to nothing. There are ETFs with bonds, but when I look at the charts I see an up and down. No thanks. Bonds are supposed to be the risk free part of your investment, I rather take the risk in my other asset classes or by changing my AA, so I (and lots of other investors in Europe) currently hold cash exclusively. I currently get 3% interest for cash for one year from my broker, so that's what I do. Since I might need a larger sum in the near future that's perfect for me.
Other investors around here do the same even when they receive less interest (current rate seems to be around 1% or less). Keep it simple. Cash will do. You can change that anytime you like in the future.

What the situation in Australia is like I don't know.

settlement

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Re: New to investing, complex situation
« Reply #14 on: August 17, 2015, 01:31:48 AM »
I was looking at Irish bonds, the best was 2.25% interest free.

Since the interest rates are pretty low I might be better off substituting cash in an instant access savings account for bonds in my AA? I can get 3.5% interest here in Australia before tax in an instant access account, that's about 2% after tax. Would this be reasonable? I will research Australian bonds and see if they are a better option