Hi Kirsty,

Thanks for reading! I think trying to mirror a fund would be quite time consuming as they often rebalance and this would mean you might need to transact far more than you’d like but I certainly understand where you are coming from.

A similar but alternative method would be pick 25 blue-chip stocks (nationally recognized, well-established, and financially sound companies eg Apple, Microsoft, Facebook etc) and stick 4% in each. To minimize fees you could just make one purchase each month so Apple in Jan, Microsoft in Feb, Facebook in March until you get to the end of your list then purchase your second lot of Apple and so forth. This is a complete made up example if it wasn’t already clear, you could change the total number of stocks and % allocations to preference.

I do think the tax benefits are significant especially over the long term. This is a great thread on Twitter that demonstrates the impact of Tax Deferred Compounding https://twitter.com/10kdiver/status/1396125686138490888?s=20

There is a definite time trade off however. It really does depend on how much time you can commit to investing activities. If you do not have the time or the interest in individual stocks then low cost ETFs might be the best option

I hope that helps,

WOHS

Thanks a million for replying Meagan. I guess this isn’t really a workable solution.

Im going to start looking into investment trusts next as I believe they are similar to etfs but taxed a bit more favourably.

Thanks again for your advice.

Hiya, Interesting idea, I’ve considered this approach myself but ultimately ruled it out due to the fees on purchase and sale and the effort required to maintain the balanced and diverse portfolio and I was only looking at buying the top 10 stocks individually. If you want to buy 50% of the stocks of VWRL for example, you will have to buy about 150 individual company stocks. That’s a lot of fees on purchase (at least 300€ in flat fees and percentage of the purchases) and again on sale when you want to rebalance. Also you mention the tax credit but that is a use it or lose it credit in that you only claim that credit when you sell and actually make a gain, so it will not be of benefit during accumulation but will do well in the drawdown phase. Those company’s also have dividends which are going to be taxed at 11% MORE than an ETF if you are in the higher tax bracket (52%) while you are accumulating. With an accumulating ETF you only pay 41% on the dividends and only in year 8 which allows you to compound for the first 8 years. Individual stocks pay out dividends from year 1 so you pay taxes on those which reduces compounding. I did a post comparing a stock portfolio to an ETF portfolio taking all things into consideration and the ETF portfolio was only 0.3% less than the stock portfolio in the long run so I’m willing to take that hit in an effort to free up my time and effort and risk on maintaining a portfolio of 150 stocks to save on taxes on gains (but not on dividends), if that makes sense? Also, when it comes time to withdraw, how do you manage that with 150 stocks, do you sell just one company’s stocks to fund your expenses for year 1, then a different company for year 2 etc? My personal mantra is that I don’t care if I have 1 million or 10 million, as long as I have enough to cover my cost of living that’s enough and I’ll choose simplicity of execution and maintenance over potential tax savings any day. If you are saving 50% or so of your income per year, your time to FI won’t change that much regardless of which approach you take as the growth is mainly from your contributions and not the growth or taxes. That’s my take on it.

I don’t hare time for an active investment strategy, but I would obviously prefer to avoid as much tax on investment as possible. I have thought of a pseudo-passive strategy.

I could pick an etf fund that I would like to invest in, but instead of investing in the fund directly, invest in the same stocks that the fund invests in. You say in your article not to copy an individual investor, but this would be copying an ETF fund rather than an individual investor.

The funds publish what stocks they hold and its usually list them in order of the percentage of the total value of the fund. So let’s say a funds value is comprised of 5% apple, 3% Microsoft, 2% nestle etc… I could start by buying one share of apple, one share of Microsoft, one share of nestle. Then continue on down the list until I’ve bought one share of each holding. Of course the downside of this is that you then have an equal amount of shares of Apple and nestle, and depending on stick price you might have invested more money in nestle than in apple. And if I was to continue blindly down the list forever I would own the same number of shares of Tha funds smallest holding as of its largest. So once I’ve reached one share of each stock that makes up 50% of the value of the fund. I would then look at the actual amount invested in each and adjust by adding more shares of the larger holdings / lower prices shares, until the percentage value of my investments matches more closely the etf. Then once I’ve achieved that I would go back to the list of holdings in order and add more of the smaller holdings, then when I’ve reached 75% of the funds total value, rebalance again. The more money I invest the more closely I could approximate the holdings of the etf. I would not be doing all this in real time of course, I would be making a shopping list in excel until I’ve allocated all the money I have to invest at a time. I would buy and hold each share and any readjustment would be done by buying more of other shares not by selling.

This would also allow me to easily exclude any company that doesn’t meet my personal ESG preferences.

Of course the biggest downside of this is the fees, as I would be charged for each company that i buy shares in, rather than buying an etf for free from degiro. But the tax savings are a minimum of 8% (41 – 33), and in reality a lot more due to the first a thousand or so exemption, so that should offset the cost of fees for any share where the fee is less than 8% of the cost of the purchase.

As two investors with opposite strategies (mmh and wohs), what do you guys think of this?