Hacker Portfolio

[Kellye Tunks]

Thiswas my weakest essay of the class. As seen in the comments, it establishes a main point but never does much with it. It was when I got this back that I first realized I had a problem keeping my observations thesis-driven. If I had known to be on the lookout for this type of error, hopefully the essay would have turned out a lot differently and I might have chosen some different sources. This essay could use some major reconstruction from the ground up, but it can be made a bit better with a modified conclusion and the addition of sentences at the end of each paragraph which attempt to create a better connection between the sources and the thesis.

Communication within the white hat hacker culture is a combination of many outside influences. Often in a subtly humorous way, early hackers combined seemingly incompatible concepts such as Zen Buddhism and programming languages into an incredibly rare, unique style of communication. It remained this way until white hat hackers placed a high value on developing guidelines for spreading this non-conformity to veteran and aspiring hackers alike. There are now so many people involved that it has become yet another case of conforming to non-conformity.

Firstly a little about ETFs (exchange traded funds). These are essentially funds that bundle a large number of individual stocks, commodities and / or bonds under one fund. This allows you to easily track the trend of the whole stock market with only a handful of ETFs. This makes it easy for passive/lazy investing over longer terms. ETFs also offer low expense ratios and fewer broker commissions than buying the stocks individually. Historically since the inception of the stock market returns have averaged 9-11%. By having a well diversified range of ETFs you can also achieve these levels of returns with little effort.

After reading many blog posts about portfolio options I settled with a variation to the Escape Artists suggestion explained here. Some bloggers suggest a very simple portfolio where you just chuck whatever money you have, whenever you have any extra, into one Global ETF fund like the Vanguard All-World fund (VWRL) but the reason I decided against that approach is because that fund is heavily invested in US equities (55%) and I wanted something that was a bit more diversified.

According to the Escape Artist, US equities may be overpriced at the moment which may doom long-term investors to under-performance. For example: when you buy high you need to make massive gains to make up the same returns you would have gotten if you had bought low and made smaller gains.

A part of investing is deciding what asset allocations you are comfortable with. Depending on how those assets perform over the year you may need to rebalance your portfolio to ensure that you maintain those allocations.

I buy the Amsterdam market ETFs as they are in Euro and not subject to currency exchange fluctuations. That said, all of my dividends except VEUR are paid out in USD and converted to EUR. This means you will still have some currency exchange exposure if you want to consideration this for your own portfolio.

Based on reader feedback (thank you), I will likely be shifting this portfolio a little bit. There are ETF funds called accumulating funds which automatically reinvest any dividends into those funds.

Only thing I can think of off the top of my head is it might make it harder to balance your portfolio if you need to extract money from one and move it to the other. Also harder for you to see overall losses or gains and possibly harder to compile gains for deemed disposals and other tax reporting etc.

Although this was one of the simplest posts to put together compared to some of my more extensive articles, this one seems to be one of the most popular so the more I can add that would be of use, the better for the wider audience.

The Irish UCITS do not suffer any DWT at source.

Any ETF with IE in the ISIN.

Are any of your Vanguard such ETFs?

Do you get taxed any DWT at source?

I have a German ETF with ishares, and it gets 20% taken at source by my Irish broker. Its a minefield, the different tax treatments.

It would indeed, however back in 2018, new regulations (PRIIP regime requiring all funds to come with a Key Investment Document (KID)) came in that stopped retail investors from being able to buy US or Canadian-domiciled ETFs. This has not changed as far as I know.

Hi Meagan,

Good info on ETFs.

Do you know if the 8 year deemed disposal 41% tax applies to traditional Vanguard index funds (non ETFs).

Say the Vanguard U.S. 500 Stock Index Fund (Bloomberg:VANUIEN) which is also domiciled in Ireland?

Hi Meagan,

How does the 41% tax affect the SWR of 4%. From what I can gather if an ETF returns 10% (which I feel is optimistic) and inflation is 3% then the real rate of return is more like 4.65% after fees. (I may be wrong) Do you think does the 4% rule still hold up in this case? Cheers

Here is an excellent article in terms of historical returns since 1926 (the history of the stock market), showing different returns for various allocation splits -returns-of-different-stock-bond-portfolio-weightings/.

In terms of planning all we can do is base it on historical data. A 100% stock allocation historically has returned 10.2%. Of course, if you want to be cautious you can build in a buffer in your analysis :).

Hi Meagan,

Im reconsidering my allocation to pension v taxable and was wondering would you have any idea what the tax treatment of an ETF held with Degiro is once you start taking it as income? Would the exit tax still be due as well as income tax, prsi and usc? Thank you.

Hi Paul, apologies for the LONG delay. Ya I am focusing on clearing our mortgage first before continuing to invest in ETFs, only a small portion of our net worth is in ETFs for the moment but once the mortgage is cleared that will be our main investment vehicle to work towards passively covering our remaining expenses.

Hi Mark, Good question. I have started dabbling in investment trusts due to the reasons you outlined, however, investment trusts are riskier and less diversified than ETFs. Investment trusts, as far as I know, are investing in a single company to buy stocks on your behalf rather than buying the stocks themselves through an index. So if anything happens to the company that is holding the investment trust, you could lose your assets. The rule of thumb I am trying to follow is not to have any more than 5% of my portfolio in any one investment trust. They also have higher purchase costs than ETFs which can add up over time.

Would it be possible for you to detail the exact ETF you invested in that accumulate. When reviewing within degiro there are two or three of each with either MIL or XET from a European perspective. I am trying to ensure I buy the correct ones that will accumulate.

Great read, i am in investor from Germany, can you emphasis on expense ratio in long run, as i see some etf of vanguard example VFEM has 0.22%, is it the same in ireland too, if so, does it matter to you? Or you have set some limit yourself when choosing it.

very interesting article!

Did you also backtest your portfolio?

This website seems great for playing around and adjust portfolio according to past performance:

I wonder if you would make any adjustements looking at the results?

Hi Meegan

With regard to investing in UK trustfunds versus ETF.

While UK trusts will usually all have higher ongoing charges vs, ETF, you will benefit from lower capital gaines tax, including the annual cgt allowance of 1270euro, if you capture some realised gain each year, but this may or may not be worth the effort once investment gets larger.

Most UK trusts are actively managed rather than passive, and some investors prefer passive index tracking ETFs because they closely follow an index and have low fees.

And lastly their is less choice with UK trustfunds compared to ETFs, but even with all these factors, I believe they can be a good option.

You raise the issue of currency exposure to GBP because the trustfund is in GBX, but if you invest in a trustfund, that itself buys a basket of shares, your true exposure should be to the currency of the underlying investments, which I think is explained in this post (which is talking about ETFs but same logic should apply to Trustfunds)

-investors-does-it-matter-which-currency-your-etf-is-listed-in/

Do UK investment trusts perform better than ETFs, I guess that depends on which ones you pick. There are some very high performing funds in 2020, which are focussed on US market with high exposure to US tech, but I am sure it is possible to select a number of uk trustfunds to cover your desired geographic regions, equity or bonds.

Hi Andrew, Thanks for that. I agree with all you have said. At the end of the day, it comes down to personal preference in terms of effort to maintain, risk and goals. Some will be chasing the highest net worth while others are happy to balance off the maintenance, effort and risk against potential lower returns in the long run.

Hi Mike, As far as I know your online broker will disclose and summarise any withholding taxes on your annual tax report, you may not see it on your dividend payout. Log into your online broker and see if there are any annual tax reports in your documents section. In there it should detail any taxes withheld at source. As far as I know withholding taxes are withheld at source by your broker and you can claim them back when you file your taxes at the end of the year if you are eligible to claim them back.

If you are investing in ETFs they are subject to something called exit tax which is currently at 41%. ETFs also currently have an 8 year deemed disposal where you pay taxes on the 8th anniversary of each purchase. On the other hand, stocks and investment trusts are subject to income tax rates for dividends and capital gains tax for gains. Definitely, a lot to consider but for me the simplicity of ETF investing keeps outweighing all the other investment options even if I will pay more tax in the long run.

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