Withdrawing profits from ETF yearly a sensible idea?

[thesartist]

He guys, is it a bad idea to put €7,055 into an the Vanguard S&P 500 ETF that goes up roughly 18% a year and withdraw the profits on a yearly bases? This would result in making around €1,270 a year, which from what I can tell from a bit of research online is that this would be untaxed.

Is it worth the risk for a bit of extra cash? Is my math completely wrong here either? Is there something that I am missing? I'm far from educated in this area, but to me its a foolproof plan. But then again, I am a bit of a fool when it comes to this type of thing. Thanks for any advice in advance

 

[evegpt]

@thesartist Markets go up and down, highly unlikely the S&P increases 18% every year, there will be down years.

If you don’t need the money for 10-12 years it’s probably a solid investment over that time horizon. Definitely wouldn’t be banking on making €x per year

 

[dinu]

@thesartist “that goes up roughly 18% a year”

It does not.

 

[thesartist]

@dinu Yeah, as I said, not exactly educated in this field, hence why I am asking. Simply looked at at the previous 5 years growth, which is 85.35%, divided by 5 is 17.07%

 

[dinu]

@thesartist Yeah that’s not how it works and 5 years is too short a period to look at.

https://www.sofi.com/learn/content/average-stock-market-return/#

“The average stock market return of the S&P 500 is about 10% annually — and 6% to 7% when adjusted for inflation. Of course, there have been years with much higher returns and years with much lower returns. Over the past 25 years, from 1998 to 2022, the market peaked at 32% (at the end of 2013) and bottomed at -37% (at the end of 2008).”

 

[rosyy57]

@dinu Then factor in unusual inflation, pandemics and wars. Past does not equal the future as they always say.

 

[timmay_95]

@thesartist Etfs are subject to exit tax not capital gains tax so you are off base.

 

[thesartist]

@timmay_95 Ah cheers, knew I was being a fool, just didn't know how. Thanks for the info

 

[thankfull4grace]

@timmay_95 Can you detail into this? I though ETFs gains were also taxed as CGT. For context in investing in us based Sp500

 

[a3yan]

@thankfull4grace They are subject to 41% exit tax with deemed disposal

 

[thankfull4grace]

@a3yan Thanks, what about the exemption on € 1270 , is this applicable on exit tax?

 

[timmay_95]

@thankfull4grace Nope. Thats CGT only.

 

[devastatednate]

@thesartist Nope, ETFs are not subject to CGT and you get no allowance. You are taxed on all your profits no matter when you see.

 

[huynhtanan]

@thesartist 18% ON AVERAGE

You'll have good years and bad years. Better leave it be and keep adding what you can.

Seen some investors suggesting it's ok to withdraw 2.6 up to 4% annually

Edit: yea actually true average, adjusted for inflation, over 50 years should be your guide.

 

[torm3nted_soul]

@thesartist https://www.reddit.com/r/irishpersonalfinance/s/KlbYlKubOs here’s a good summary of your odds of winning/losing over various periods

 

[spinuscyn]

@thesartist Ya few issues

Biggest one is that the Vanguard S&P 500ETf doesn’t go up by 18 every year. Past performance nit an indicator of future performance and all that

Sure it might go up 18% some years, and on avaerage you should get a good return but there will abolsuteky also be years that you lose money..

Other issues are the deemed disposal/CGT issue mentioned earlier but if you did find something where you were guaranteed 18% return I wouldn’t be worrying about any tax rate!

 

[daddysgirljas]

@thesartist Which etf is this? Where can you get it from?

 

[rosyy57]

@thesartist If you think it’s 18% per year you need to study a bit more 10% on average, 12% for the last 10 years. Dont see any reason not to take profits. But would hesitate on taking losses as you can’t balance the loss off against other investments.

 

[elladig46]

@thesartist Profits on ETF's are not taxed under CGT, the €1,270 annual exemption isn't relevant

The profits are taxed under income tax at 40%

 

[xemketqualode]

@elladig46 No, they have their own exit tax, which is 41%.

https://www.revenue.ie/en/companies...ces/collective-investment-vehicles/funds.aspx
(Click on Offshore Funds Manual to see the tax rate).