Spread betting as an Alternative to ETFs in Ireland

I wrote a post about spread betting as an investment yesterday and thought I would follow it up with it being an alternative to ETFs in Ireland.

ETFs in Ireland outside a pension are awful investments. They charge something called exit tax which is 41%. If that wasn't bad enough, they have something called “deemed disposal” which means you have to pay tax on your investment even if you don't sell. This hampers the ability to compound as you have to pay 41% of your gains even if you don't realise these gains.

Despite this, people still invest in them due to low fees and diversification. I take ETFs here to mean low-cost index-tracking ones, like FTSE All-World UCITS ETF (VWRL). There are other ETFs but I think most people when talking about ETFs mean a low cost diversified index tracker.

The theory is that the market is very efficient and that very few people can beat the market after fees, so for most people, a tracker is the best things. I can agree with that to an extent, there is a strong argument that passive investment is a bubble too. The problem is this 41% exit tax. Once you introduce that, it becomes unattractive. So in a pension where the returns are tax-free, ETFs are fine. A good way to have broad exposure to the market. Outside a pension taxed at 41% with deemed disposal, they are horrendous.

If you do insist on buying them though, you can get round exit tax and deemed disposal by spread betting. I got the idea from reddit Paraphrasing a bit.

I live in Ireland and have access to spread betting (CFDs), the advantage of this is there are no taxes on gains. Most people will use these to day trade however I was looking at using them to long term invest in an index like for example the Dow Jones Industrial Average. Is this possible?

Provided OP doesn't use margin there's very little difference to actually investing in the underlying asset. The position roles over free of charge each day, it could drop 90% in the morning and they'd still have that position open. You're not betting on a value at a particular point in time or anything like that.

Once you drift into using margin though your risk spirals and then you become part of the statistic they are required to plaster on their site “79.1% of retail investor accounts lose money when trading CFDs and spread bets with this provider.”.

So as long as you only bet “long” and the market rises as you expect, then it's identical. You get the same exposure but without the exit tax.

On IG they have hundreds of ETFs you can bet on

You can also trade Cathie Woods Ark funds. Personally, I would be shorting them but if you think her thesis is correct, then you could go long on those.

Outside a pension, its something worth looking at.

Big disclaimer here, I am not a financial advisor, please do your own research before committing anything. 71% of retail investors lose money.

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