Money Makeover: Balancing investment diversification and Mortgage repayment

J

jumpingpanda

New Member
Messages
3
Personal details
Age: 39
Spouse’s age:38

Age of children: 3 and 8 year old

Income and expenditure
Annual gross income from employment or profession: €100k and €60k stocks
Annual gross income of spouse: € 90k

Monthly take-home pay : € 8700. Out of this on an average we invest about €1k-1.5k per month in stocks
Type of employment: Private jobs

In general are you:Invest some money, save a small part and spend rest.

Summary of Assets and Liabilities
Family home worth €800k with a €475k mortgage
Cash: €35k
Pension fund: €40k.Recently started to max out contribution. Wife has 10k and contributes 5%.
Company shares : €130k
Other stocks: €80k

Family home mortgage information
Interest rate: Fixed 2.4% for next two years

Other borrowings – car loans/personal loans etc
Do you pay off your full credit card balance each month? Yes
No other loans

Other information which might be relevant
We do have mortgage protection, income protection and 4x life insurance.

What specific question do you have or what issues are of concern to you?
Our risk appetite is decent but still we believe we have too much exposure to company stocks and stocks in general. We definitely would like to reduce ownership of company stocks and increase our pension contributions. We are wondering how could we diversify our investments and how to balance it out with mortgage overpayments?
 
jumpingpanda said:
What specific question do you have or what issues are of concern to you?
Our risk appetite is decent but still we believe we have too much exposure to company stocks and stocks in general. We definitely would like to reduce ownership of company stocks and increase our pension contributions. We are wondering how could we diversify our investments and how to balance it out with mortgage overpayments?
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Max out your pension into a global equity fund. Cash in your stocks when they vest and put it into your mortgage.


Steven
www.bluewaterfp.ie
 
If "company shares" mean shares in your employer then there's a strong argument to liquidate them at the earliest and most cost/tax effective opportunity and reinvest elsewhere in order to reduce the concentration of risk inherent in having your salary and investment dependent on a single company.
 
If "company shares" mean shares in your employer then there's a strong argument to liquidate them at the earliest and most cost/tax effective opportunity
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Yes these are fully vested my employer stocks which are growing at a good rate. Because of my lack of clarity on where to invest for high return, low mortgage rate for fix period and stock growth I have been lazy to liquidate them. But the risk does worry me.
Btw what do you mean by "most cost/tax effective opportunity"? Since these are US stocks I believe I have to pay 33% tax, barring for first 1270 gain. So spreading it over multiple years is the only thing I think I can do manage tax but it will increase the exposure duration.

Majority of investment into other stocks(80k) has also came from selling the employer stocks and these are growing at a slower rate. But I do understand that it may not hold true for future.

Cash in your stocks when they vest and put it into your mortgage.
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These are fully vested. Thanks to older threads I have learned I could contribute to pension for the last year as well. I am thinking to make AVC contribution for both of us for last year before putting it in mortgage. What do you think about this approach?
 
I presume most tax effective means - wait until the minimum holding period.
But after that, you should sell them and take the tax hit. The €1270 is not material and should not be factored into your planning.

As Steven said
1) Max your pension contributions
2) Cash your shares as soon as they vest
3) pay down your mortgage

If you do not pay off your mortgage, you are borrowing at 2.4% to invest in the stockmarket which is not a good idea. You get no tax relief on the interest and the shares may fall. By clearing your mortgage, you are getting a guaranteed 2.4%, tax-free, risk-free return. (And the return will probably rise when your fixed rate period is up.)

Brendan
 
jumpingpanda said:
we invest about €1k-1.5k per month in stocks
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jumpingpanda said:
Other stocks: €80k
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I think a lot of people enjoy stock-picking and via online platforms it's much easier for Irish residents than ever before.

But in your position I wouldn't have any exposure to equities outside a pension fund and would immediately liquidate employer shares when possible.

You are too young, your pension funds are too small, and you are carrying a lot of mortgage debt.

With equities there is lots of downside and while there is lots of upside too, the upside is heavily taxed.
 
Brendan Burgess said:
I presume most tax effective means - wait until the minimum holding period.
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Thanks Brendan. Pardon my ignorance but I am not aware of any minimum holding period. I am allowed to sell them as they vest. From the comments I am guessing that some companies might have holding period restriction but I believe there is nothing from revenue perspective. Both short term and long term holdings are taxed equally. Am I right in my understanding or am missing something. Apologies if it is too naive.
 
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