New college grad, no idea what to do with money long term.

[Dr Strangelove]

Compound growth applies to directly held equities as well as property.

Property doesn’t compound fully because part of the return from a property is living in a property which you can not reinvest.

Equities with dividends reinvested actually compounds.

Otherwise if you have literally decades as a horizon I can see no better expected return than equities.

 

[Brendan Burgess]

Property doesn’t compound fully because part of the return from a property is living in a property which you can not reinvest.

Good point.

But over the long term in Ireland, it has been much cheaper to rent money than to rent property.

So even if it were a purely financial decision, I am guessing that buying a home before contributing to a pension works out better.

Brendan

 

[DannyBoyD]

not want to buy a house as it would tie you down at too young an age.

Can't agree with this, everyone has to live somewhere & whilst property is not quite as quickly sold as equities, it can still be sold in the future should needs change.

Having said that its unlikely the OP will be able to get a mortgage until they have 3 years of accounts; so putting together a deposit will be a good aim at this stage.

 

[Fortune]

Good point.

But over the long term in Ireland, it has been much cheaper to rent money than to rent property.

So even if it were a purely financial decision, I am guessing that buying a home before contributing to a pension works out better.

Brendan

That's a bit too important a decision to be guessing.

 

[time to plan]

Good point.

But over the long term in Ireland, it has been much cheaper to rent money than to rent property.

So even if it were a purely financial decision, I am guessing that buying a home before contributing to a pension works out better.

That's a bit too important a decision to be guessing.

Funnily enough, I was trying to work out which is a better basis for financial decision-making, clichés or guesswork.

 

[Brendan Burgess]

That's a bit too important a decision to be guessing.

Hi Fortune

You could do a spreadsheet. You would have to make a lot of assumptions. So they would be guesses.

But my point is that my informed guess is that you would be financially better off buying a house and delaying starting your pension than starting a pension and delaying buying a house.

But the non-financial aspects of owning your own home and the security it provides would hugely outweigh any financial disadvantage, in the unlikely event that my guess turns out to be wrong.

Brendan

 

[moneymakeover]

Clichés are no substitute for actually thinking an issue through.

Brendan

Bank of Ireland website:
"
When is the best time to start a pension?
As early as possible. It is estimated that the cost to achieve the fund you that will need for a comfortable retirement almost doubles every eight years. So the sooner you start saving for your retirement the better.
"

 

[time to plan]

Hi Fortune

You could do a spreadsheet. You would have to make a lot of assumptions. So they would be guesses.

But my point is that my informed guess is that you would be financially better off buying a house and delaying starting your pension than starting a pension and delaying buying a house.

But the non-financial aspects of owning your own home and the security it provides would hugely outweigh any financial disadvantage, in the unlikely event that my guess turns out to be wrong.

Brendan

There are a couple of points that are probably correct from a purely financial perspective.

One of these is that buying a house is a better move financially than renting, in normal market conditions all other things being equal etc. etc.

What is less clear is whether it is better to out down a minimum deposit and pay off mortgage as slowly as possible while starting a pension, or pay off the mortgage as quickly as possible and delay the pension. Either way you are out of the rental market horror and benefit from likely house price increases.

So on that basis , and assuming the OP needs 3 years of accounts to get a mortgage then I reckon that over the next 3 years the OP should regularly save, in a savings account with interest, about 40k - 10% deposit on a 400k property.

I would then be inclined to put additional savings into a pension up to the maximum allowable contribution 15% of 115k.

Beyond that, there's a choice to be made for any additional savings - cash which could be used to pay off property more quickly, equities or potentially additional pension contributions if the OP has or gets a Ltd Co.

Personally I spent my 20s having a ball and not saving any of my meagre income and I have no regrets. If I was the OP, I would be spending a chunk on having a good time with lokeminded friends to last a lifetime. But before that, I would get an accountant.

 

[Brendan Burgess]

Bank of Ireland website:
"
When is the best time to start a pension?
As early as possible. It is estimated that the cost to achieve the fund you that will need for a comfortable retirement almost doubles every eight years. So the sooner you start saving for your retirement the better.

I presume you do understand what nonsense that is from a seller of pensions and that is why you are posting it?

Brendan

 

[Brendan Burgess]

What is less clear is whether it is better to out down a minimum deposit and pay off mortgage as slowly as possible while starting a pension, or pay off the mortgage as quickly as possible and delay the pension. Either way you are out of the rental market horror and benefit from likely house price increases.

So on that basis , and assuming the OP needs 3 years of accounts to get a mortgage then I reckon that over the next 3 years the OP should regularly save, in a savings account with interest, about 40k - 10% deposit on a 400k property.

We are getting there.

The first priority is to be ready to buy a house - you and I seem to agree with that.

I would say that he should save outside a pension until he has bought a house.

If he happens to have a 20% deposit, that is even better as <80% mortgages are cheaper than <90% mortgages and it's probably easier to get a mortgage.

When the house is bought, then he should review the situation. If he were a civil servant, I would say maximise the pension, as the job and income is 100% safe. As a self-employed person, I would probably get the mortgage down to a more comfortable level.

But I wouldn't fall out over it. It's a close decision. But waiting until the house is bought before starting a pension is clearly the right decision - not even close despite the pensions industry propaganda.

Brendan

 

[moneymakeover]

I presume you do understand what nonsense that is from a seller of pensions and that is why you are posting it?

Brendan

Doesn't matter who said something
It's veracity is based on its own merits
It just so happens to be bank of Ireland
I could find a thousand such references
Best to start a pension early as possible

Do you disagree Brendan?

 

[moneymakeover]

I don't want to buy a house

Keeping in mind the OP clearly said the above

 

[DannyBoyD]

Keeping in mind the OP clearly said the above

And almost everyone here has recommended they think again.

 

[RichInSpirit]

Consider giving a portion to charity.

 

[moneymakeover]

What should I do regarding tax,

Are you saving a percentage, 30%
For when your tax bill arrives?
Remember in year two you have double whammy:
Preliminarily tax (October) plus normal tax (November)

You should probably have a company set up, allowing every expense to be deductible eg travel, car, technology, phones etc
Goes without saying get an accountant
Fellow colleagues should be able to advise

 

[Fortune]

And almost everyone here has recommended they think again.

OP is earning large sums working remotely for a foreign company. Does a recent graduate really want to tie themselves down to a pile of bricks at a time of high prices at an age when the normal urge is to save up slowly to afford a trip to Australia. In this case, the above average earnings would have that small amount saved in no time, and the remote nature of the job would mean the same level of earnings is possible regardless of location (subject to internet access I presume).

 

[Steven Barrett]

You need to get your structures in place. I presume as you are contracting, you either have a limited company or use an umbrella company.

1. Get an accountant to do your taxes
2. Start a pension
3. Start income protection for part of your income. You don't need life cover but you do need to protect your ability to earn an income.
4. Start building up a cash reserve. You don't want to buy a house at 22 (I don't blame you) but you will in the future.
5. Invest in either a global stock index or the S&P 500 on a monthly basis. Don't get FOMO from seeing the returns of crypto or individual stocks. Keep it simple and look at long term growth.

At your income level at such a young age, it is very easy to lose the run of yourself and spend massive amounts of money on stuff. You are on an income that is not normal for people your age, it takes most people decades to get to that level. It is easy to have an expensive lifestyle. You can have a normal one and have a very comfortable life and build real wealth over time that will give you you lots of options. Likewise, you are contracting, it can end and everything can go back to normal levels very quickly too. Make the most of this opportunity to give yourself a head start.


Steven
www.bluewaterfp.ie

 

[Brendan Burgess]

Best to start a pension early as possible

Do you disagree Brendan?

Of course, I disagree, because it's wrong in every way.

It is comparing contributing to a pension to taking out salary as cash and burning that cash.

It is best to start saving as early as possible.

But the saving should be outside a pension fund so that you are in a position to buy a home when you want to do so.

Brendan

 

[time to plan]

Keeping in mind the OP clearly said the above

Their self employment arrangement means that are unlikely to get a mortgage until they have 3 years of accounts. It makes sense that they save for a deposit in that period so they are in a position to buy a house if they want to in 3 years' time.

 

[Steven Barrett]

If you contribute to a pension for 40 years at 6% return, you need to contribute €1,004 a month to get €2 million. That is a total of €481,920 contribute.

If the OP waits until they are 30 and have 32 years contributions, they need to contribute €1,727 or €663,168.

I don't see how this can be the wrong thing to do? Especially seeing as the OP has so much disposal income and they can easily contribute to a pension and save for the future outside of pension funding.