Savings/investment after windfall

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Hmm5673

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Personal details
Age: 37
Spouse’s/Partner's age: None

Number and age of children: None


Income and expenditure
Annual gross income from employment or profession: 135k + 15-20% bonus (not guaranteed)
Annual gross income of spouse: N/A
Monthly take-home pay: ~5400

Type of employment: Private sector

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving - on average around 2k/month currently.

Summary of Assets and Liabilities
PPR: worth ~€500k with €300k left on the mortgage
Cash of €550k
Defined Contribution pension fund: €100k
Company shares : Employer is a private company - not counting my chickens here


Family home mortgage information
Lender AIB
Interest rate 3.5%
If fixed, what is the term remaining of the fixed rate? Variable

(No need to tell us the monthly repayments or what term is left)

Other borrowings – car loans/personal loans etc

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?
No loans besides mortgage.

Other savings and investments:
Do you have a pension scheme? Yes - defined contribution, ~100k. Started fairly late, but making maximum AVC for the last few years.

Do you own any investment or other property? No

Other information which might be relevant
Life insurance: Mortgage protection only.


What specific question do you have or what issues are of concern to you?
My employer (private company) recently allowed employees to participate in a share buyback; most of the cash above is the post-tax product of that (some is savings). I was lucky enough to have started relatively early and had RSUs granted at a much lower valuation, so did well out of it. I also have some other RSUs and vested shares in my employer, but given it's a private company there are no guarantees there, so not going to worry about those for now.

This is money I'd never really particularly expected to get (it was always a possibility, but definitely far from a certainty), so I'd never really thought about it much.

I'm planning to pay off the mortgage; can't think of any reason why I wouldn't. Beyond that, though, any money I have left over I normally used to max pension contributions and overpay the mortgage (or just saved); I've never invested in anything outside that.

So, I'm trying to figure out what to do with the cash left over after paying off the mortgage (~250k) and the surplus monthly income. I'm aware of EFTs, but my impression is that the tax gets quite complicated with deemed disposal (I may be overthinking that, though). I think that there are other investment products which handle the deemed disposal for you; I don't really know anything about them, though.

What are the options, investment-wise? Also, what's a sensible amount to keep as an emergency fund? Is there anything else I should be thinking about?
 
Yes, paying off your mortgage is the first thing you should do. Max out your pension then (you can go up to €115,000 of earned income).

Redirect additional income into a regular saver plan investing in a global index or the S&P 500. Life companies will look after the tax for you. Taxation on gain in investments is 41%, which takes the fun out of it, but you will still make money.

As for emergency/ cashflow fund, it depends on how stable your employment is and what short term expenditures you have coming up. Being single on €135,000, your annual costs can be met from your salary, so we are looking at replacing your car or any unforeseen large expenditure. It shouldn't be that high an amount.

You didn't say if you have any income protection, which I would say is important for someone who is single.

Having your mortgage paid off at 37 puts you in a great position financially. You have to take advantage of it by investing that mortgage repayment and building your wealth for future use. You will then have choices of doing other things in the future as your won't be reliant on earning €135,000 a year as you will be financially independnt.


Steven
www.bluewaterfp.ie
 
some suggestions …spend some of it on your health ( eg gym personal trainer or massages )
Spend some on experiences or holidays
Consider philanthropic donation
 
I am not a financial advisor but what I learn from this excellent site is that there are no silver bullets. I have seen people before who come in for windfalls and think there must be something that the rich guys do which makes them richer.
But you seem to have it well taped. Pay off mortgage. Max pension contributions. Keep rainy day fund. With the rest? That is where there are no silver bullets and I think you know the posi - a well diversified collective investment such as an ETF or in a life policy wrapper. The latter is generally the more expensive (1% levy and typical management charges of say 1% p.a.) but yes takes all the hassle out of the tax. But as you say, you may be overthinking that - is it really such a hassle to calculate your unrealised gain every 8 years and pay over the exit tax?

Of course there are DIY approaches - such as buying a rental property or buying your own portfolio of shares directly. But as I say there are no silver bullets to either approach.
 
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Duke of Marmalade said:
The latter is generally the more expensive (1% levy and typical management charges of say 1% p.a.) but yes take all the hassle out of the tax. But as you say, you may be overthinking that - is it really such a hassle to calculate your unrealised gain every 8 years and pay over the exit tax?
Click to expand...
Dealing the the tax issues invoved in direct shareholdings (income tax on dividends and CGT on gains) is not really as much hassle as some might think. It used to put me off until I had to do it and then realised that it wasn't such a big deal.
A bit more administrative burden for a possibly significantly lower tax burden (e.g. 41% tax every 8 years/on exit versus 33% on disposal at a gain plus exemptions/allowances).
And you could just buy an already diversified conglomerate share like Berkshire Hathaway or similar and you can largely forget about rebalancing a basket of shares periodically or dealing with dividends (most such shares don't pay any).
 
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Hmm5673 said:
I think that there are other investment products which handle the deemed disposal for you; I don't really know anything about them, though.
Click to expand...

The best information on collective investments is usually hidden away in the Broker/Advisor corners of product providers websites.

I don't know why they continue to do that. Maybe they think that everyone needs advice/guidance on buying a product or maybe they think some of it is too technical.

If you click here and then go to Documents Library -> Product Literature and/or Marketing & Technical Supports -> Savings & Investments , you should be able to find all you need for general research. Yes, they are a bit more expensive than buying ETFs but some folk still like the convenience of the wrapped product and there's a price for that. If you need advice on those products you may pay the rates quoted by DoM above but you could buy them at better rates if you execute the transaction on a DIY basis also.

Gerard.
 
Thanks all, and sorry for the late reply; it’s been a busy few weeks. I‘ve now paid off the mortgage. So I’m left with figuring out what to do with the money.

I’ve looked into ETFs a bit, and the tax complexity for UCITS compliant ETFs doesn’t seem to be as bad as I thought (most of the complexity I was dimly aware of seems to be around non-European ETF); I think I should be able to operate it with a spreadsheet.

Here’s how I’m thinking about my options:
  • ETFs
  • Life company investment product - significantly more expensive than an ETF, but tax done as part of the deal. I’ve had trouble finding really firm pricing on these, actually
  • Investment trust - I’d be a bit cautious of these; it’s not clear to me _why_ they’re not taxed like ETFs, and I’d wonder if they’d be treated differently in future. They also seem to often have a market cap significantly different to price of underlying assets. All in all feels like there’s more to go wrong here and I’m not seriously considering it.
  • Berkshire Hathaway - A bit cautious of this approach as well, what happens when Buffet retires?
  • Individual stocks - I don’t think I have the necessary skills here. Not seriously considering it.
  • Individual property - not considering
  • Exotica (precious metals, crypto etc) - not considering
  • State savings - currently seems more or less guaranteed to lose money in real terms
  • Pay a financial advisor to tell me what to do - I’ve definitely considered this, but I don’t think my situation is really complex/large enough to justify it.
Based on the above, I’m leaning towards ETFs; is anything in the above obviously wrong/missing?

I’ve bought 1k euro worth of IWDA with DEGIRO to dip my toe in the water; I’m planning to wait a couple of weeks, see how I feel about it, and make a decision.

Is DEGIRO a reasonable choice for investing six figures? Anything to be concerned about? It seems like the obvious default broker choice.

I’m also conscious that a huge amount of MCSI World, the S&P500 and most other major indexes is made up of shares of tech companies. I work in tech, and I still have significant shares and RSUs in my employer, a tech company, so I’m already very exposed to tech. Should I be considering trying to invest in non-tech ETFs to offset risk in case the whole industry takes a serious tumble, or is that trying to be too clever? Unfortunately, there doesn’t seem to be an “MCSI World, only without all the tech companies” index or anything like that, so it might involve piecing things together a bit.

I’m also still kind of undecided about how much to keep as an emergency fund. With the mortgage paid off, I really have pretty low obligatory costs, and if something did come up (nothing seems likely to; I don’t have a car, so the main things would be some big house problem or family thing, I suppose) I could sell ETFs if the worst came to the worst. But I’m probably irrationally worried about not having a fairly large emergency fund. I do want to get some work done on the house (insulation, new boiler or heat pump if practical) so will keep back money for that (I still need to figure out what all that’s going to cost…)

Minor, but with the mortgage gone, I now have mortgage protection insurance not attached to anything. I assume there’s no good reason not to just cancel this?

Finally, anyone got any tips about how to _think_ about this change of circumstances? I started my first proper job just before the financial crisis kicked off, and ever since I’ve been a bit paranoid about money, the possibility of losing my job, etc. With this I’m in a position of relative financial security, I think, but I’m still paranoid, more so if anything.

This went a bit long, sorry about that. Thanks for any input; this site is a great resource!
 
If the MPP life cover is good value, then no reason to cancel it.

Of course, that depends on any other life cover you might have.
 
ClubMan said:
It seems to be mortgage protection life insurance not mortgage payment preparation.
Click to expand...
Yup, normal mortgage protection life insurance. It’s not very expensive, but I think unless I’m planning on a new mortgage anytime soon (I’m not) probably no point keeping it.
 
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