# Net Saver - What next?



## Rocker (3 Mar 2011)

Age: 32
Spouse’s/Partner's age: 35

Annual gross income from employment or profession: 58,000
Annual gross income of spouse: 18,000

Type of employment: Private Sector. 

In general are you:
(b) saver. definitely.

Rough estimate of value of home: 
Have no bought house or investment property.
Currently renting (770 per month including electricity)

Other borrowings – No loans

Do you pay off your full credit card balance each month? Yes

Savings and investments:
Rabo saving ac: 100,000
BOI Dual saver:  8,000
Overseas savings ac: 20,000
128,000 total savings 

Do you have a pension scheme? Yes. I pay 1000 per month. Employer 110 per month. Estimated current total of Pension Fund = 55,000

Do you own any investment or other property? No

Ages of children: None

Life insurance: None

Right. Luckily I did not get involved with the housing boom. Generally speaking for myself, I don't believe now is a good time to buy a house. However I would like in the future to own a house. But not at the cost of negative equity etc. In terms of timelines I don't thing I be going into the market for 5 year. I will want to see both the economy and house prices stabilise at affordable levels. So what to do...

I would like to keep up my saving habits. However I do sometimes feel that I'm not getting the most out of them and occasionally worry of their safety despite the bank guarantee. Should I invest a portion of my savings? I would like to use my savings eventually to help pay for a house and make the mortgage life and/or mortgage amount as low as possible. I'm kind of risk adverse with long term loans/mortgages. So what do you think I should do?

BTW I enjoy life to the full and don't take life too serious. I'm passionate about life outside of work and enjoy playing sport. I spend money but not frivolously I guess.

Thanks Guys


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## gearoid (3 Mar 2011)

*what to do with savings?*

Hi,
You're doing very well at 32! I am ten years older but am in a similar situation... though I have higher savings through longer time working.

I moved from Rabo  a few months ago to Nationwide UK  bank at 3% p.a. or 2.96% on monthly interest compounding to 3%. That should give you another 600-700 euros per year.

Other than that max out your pension this year.

If you have a 5-10 year horizon before buying property then consider reading up on AVC investment funds and/or mutual funds; there's a lot of threads here. And ensure you diversify by sector and geographically. Read up on the area thoroughly first. Buy a few good investment books and educate yourself.

Well done so far!


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## goingforgold (3 Mar 2011)

I think you should make sure you are getting a good return on your savings obviously. Bank safety etc is a grey area but as previous poster said Rabo offer good rates and are considered a "safe" bank.

Other than that you could just buy a house for cash! Does your savings total include your partners savings? Maybe you are in a position to negotiate a good deal on a house...a lot of people willing to sell at rock bottom prices, even now...


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## foxyboxer (4 Mar 2011)

Excellent work on the savings front.
Definitely create a written plan. Helps to have things written down I find instead of planning things in my head.

e.g. 
I will 
save 10% of earned income per month in my Rabo account.
monitor the PTSB House price index each quarter to track house prices.

etc

Also important to write down any financial goals you might have as a couple.

Given a 5 year timeframe and a saver mentality, then the 5.5 year Savings Certificate from An Post might be a good option for a portion of your capital. Return is 21% if held for the full term. 

Have you thought about investing in shares? If so, then there is a simple money management system which certainly takes the guesswork and FEAR out of investing in them. Protect your capital after all!


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## Black Rock (4 Mar 2011)

The NTMA State Savings products net after tax rates are as follows

*NTMA State Savings …………………......AER........RETURN *
3 year Savings Bonds ………………....…..3.23% ....10.00%
4 year National Solidarity Bonds ……..3.31% ....13.92%
5 ½ year Savings Certificates……………3.53% ....21.00%
10 year National Solidarity Bonds…….3.95% ....47.30%

Your money is *not* locked away as you can have it all back (and any interest due) on demand at any time - repayment takes a maximum of 7 days. Divide these figures by 73 and multiply by 100 (grossing up for 27% DIRT) to provide the grossed up rates for comparison with other savings products which are subject to DIRT at 27%. 
Full details in *NTMA Brochure 2 – NTMA State Savings ™ Summary of Products available on the StateSavings ie website*


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## Rocker (4 Mar 2011)

Thanks guys for the advice. Some interesting ideas on possible directions.

There was one question relating to whether the above includes wifes savings. The answer is no, but the amount is quite small (5,000) which she likes having accessible in a variable rate savings account.

Regarding pension contributions, I'm pretty happy with what I enter now. I'm not envisaging any changes here.

I like the ideas of maximising interest saving rates with the NTMA State Savings options above. I could work out a portion of my savings to put in here (and keeping other savings in Rabo and overseas). One question here is if it is covered by the Government Guarantee? i.e. how save (or risky) is it in relation to a Deposit Account in the state?

I also like the idea of investing. For example, I could put 15,000 euro to start off with from my savings and then invest regularly out of wage each month. I'm green here so would definitely need to know what I'm at. I'll need to educate myself. Any book, website recommendations? ETF Fund sound appealing. I don't want to get ripped off with charges also. Any ideas here?

Thanks guys. I appreciate all the advice so far.


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## Black Rock (4 Mar 2011)

When you place your money in any of the NTMA State Savings products you are placing your money directly with the Irish Government under the management of National Treasury Management Agency (NTMA). 

The repayment of all NTMA State Savings money is a direct unconditional obligation of the Irish Government. NTMA State Savings form part of the National Debt of Ireland which is managed by the NTMA.

Therefore, there is *no upper limit* on the amount protected (the €100,000 limit which exists under the bank deposit guarantee scheme does not apply) and there is *no expiry date* to the protection which is being given directly by the Irish Government. 

Full details in *NTMA Brochure 1 – A Guide to NTMA State Savings ™ is available on the www StateSavings ie website*


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## tvman (4 Mar 2011)

Black Rock said:


> The repayment of all NTMA State Savings money is a direct unconditional obligation of the Irish Government. NTMA State Savings form part of the National Debt of Ireland which is managed by the NTMA.
> 
> Therefore, there is *no upper limit* on the amount protected (the €100,000 limit which exists under the bank deposit guarantee scheme does not apply) and there is *no expiry date* to the protection which is being given directly by the Irish Government.
> 
> Full details in *NTMA Brochure 1 – A Guide to NTMA State Savings ™ is available on the www StateSavings ie website*



Obviously though, should the state default in the coming years - these funds would be in play. They are 100% guaranteed only if you think the Irish State has a 0% likelihood of defaulting during the term of your investment. 

Bond investor's are currently demanding a yield of 9.4% (http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND) to compensate them for the risk in lending money to Ireland for 10 years. I'd query whether a rate of around half of this, as offered by the NTMA's National Solidarity Bonds, represents value.

If you want to take a punt on the creditworthiness of the Irish state why not buy Irish Gov't bonds directly - these would give you a gross yield far in excess of the National Solidarity Bond. As far as I know individual investors can buy Gov't bonds through a stockbroker. 

tvman


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## Black Rock (4 Mar 2011)

In the case of “wholesale Irish Government Bonds” there are significant differences in tax treatment and stock broker fees which will affect the net return on investment. 

While the yield is significantly higher that that paid on the retail NTMA State Savings products the "wholesale bonds" are currently taxed at the purchasers marginal income tax rate (20% or 41%), are subject to the universal social charge and may also be subject to PRSI. 

These wholesale Irish Government Bonds are available through Irish stockbrokers - see full list on the NTMA website - search for "Where to buy Bonds"

By comparison the retail products known as “NTMA State Savings products” provide personal savers with very favourable tax rates and there are no fees, charges or sales commissions. 

There is also a difference in the provision for *early encashment* of each bond type. 

With the retail “NTMA State Savings product” the saver may request their money back from the NTMA at any time and the full principal amount plus any interest due will be repaid without penalty or deduction. The amount repaid will never be less than the original amount deposited. 

In respect of the “wholesale / institutional Government bonds” there is no provision for early repayment by the NTMA. Accordingly, a holder of such bonds who wishes to liquidate their investment, so as to obtain their funds before the redemption date, can only do so by selling the bonds on the secondary market. 

The amount they will obtain in the secondary market depends on the prevailing market price of the bond on the day of the sale – wholesale bond prices fluctuate daily. 

If the bond holder sells the bond on a day that the sale price is less than the price at which he originally purchased the bond he will receive back less money than he originally paid for the bond. Of course if prices have increased since he purchased the bond he will be able to sell the bond for more money than he had originally paid.


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## tvman (4 Mar 2011)

You don't work for the NTMA do you by any chance?


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## Rocker (4 Mar 2011)

lol tvman

I'm still looking for ideas, leaning towards inventing, but have been doing my own research on NTMA savings and not liking what I'm seeing. If it's tied to the Goverments ability to pay back (and not defaulting) I'd be worried about this product! Too much risk for not enough upside!

But it is good to know the options though. More to mull over the weekend. No decisions yet!


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## Rocker (7 Mar 2011)

Over the weekend I have been given my finances more thought. 

Out of my saving of 128,000. I'm going to move 75000 to an overseas savings account. I'll keep 35000 in Rabo. This 110000 is my nest-egg money that I want to keep as 'risk-free' as possible. 

This leaves 18000 to invent. I'm going to do a little research before investing as I really don't have any experience. I like the idea of a ETF fund to hold long passively.

Any further savings will be split between Rabo saving and investing.

What do you think?


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## foxyboxer (7 Mar 2011)

If you are interested in ETF's then they work the same as buying a single stock. The following money management tool is applicable as well.


Think of it in terms of:
Good Plan + Good Outcome = Deserved Success
Good Plan + Poor Outcome = Bad Luck
Bad Plan + Good Outcome = Dumb Luck
Bad Plan + Poor Outcome = Poetic Justice

The key to cutting losses and running profits in Shares/ETF's is the trailing stop loss.
For example, you have €128,000 capital.
You want to only risk 1% of your capital on a trade = €1,280.
i.e. If you buy the shares today and your stop loss is hit, then you only lose 1% of your capital.
This is opposed to simply saying "I'm putting 15k in Paddy Power"
An Example.
You would like to buy Paddy Power shares trading at €29.48 on Friday 4th March 2011.
You will use a 25% stop loss = sell at €22.11 (don't even think about it, just have the discipline to get out)
The price needs to drop 25% before you admit defeat and sell at a loss.
Using the following calculation, You can determine how many shares to buy


Google 'Position sizing calculator'

So You will buy 174 PP shares at 29.48 = €5,129 investment.
Should the price fall and go to €22.11, You will sell
22.11 * 174 = €3,847
You will only lose 1% of your capital. You still have €126,720 overall. 
Now with the trailing stop loss, should the price of Paddy Power rise, You will adjust the stop loss UPWARDS each time the price increases (reaches a new high).
E.G. On Friday 18th March, the price is €30.30
Your 25% stop loss is now €22.73
Should the price now fall (you would make less of a loss), You leave the stop loss as it is. Only ever increasing the stop with an overall increase in price.
This is a long term strategy where shares are held and any dividends are re-invested.
Before you get in, know when you'll get out!


Hope this gives you an idea of money management.


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