# Advice on investment growth strategies



## sector_000 (3 Nov 2010)

*Basics*

Age: mid-40s
   Spouse’s/Partner's age: mid-40s

   Annual gross income from employment or profession: 115K + some bonuses (private sector)
   Annual gross income of spouse: 10K (private sector, part-time)

We're savers. Annual spend is approx 52K (inclusive of mortgage, but excl of income taxes)

   Rough estimate of value of home: 350K (maybe less, who knows!)
   Amount outstanding on your mortgage: 130K
What interest rate    are you paying? 1.65% (tracker)

   Other borrowings – zero

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

   Savings and investments:


        350K cash.
    50K BES fund
    100K of US tech shares (shares all the in one company, employer)
 Do you have a pension scheme? 


       Yeah. I contribute at max rate (i.e. 25%)
   Defined contribution - current balance 450K
   Spouse zero pension (income too low).
 
   Do you own any investment or other property? No

   Ages of children: 10, 14

   Life insurance: Yes

*What specific question do you have or what issues are of concern to you?
*
I am cautious about the future. Financial security is a big thing for me/family. My career future is not secure - very competitive/pushy. Hence we save while I have a good income. I want to make my money work really hard for me.

I would like to hear recommendations on:

*a. Is putting max contributions into pension good idea?*
     Return has been mixed over years. I spread across a range of funds. Obviously 2008 was bad year - pension funds returned ~38%. I do it mainly as euro-cost avergaing way into funds that can grow (? presumably)... and 'cos the 41% tax relief cushions most market falls. If the tax relief drops to 20%... that may change the risk/reward profile. But using pension calculators, I reckon I need to get to a pension pot of 1.5M~1.7M in today's terms just to have a modest income in retirement. I am doubtlful about counting on any state old age pension when I/spouse retire. I would also like the freedom to retire early.

*b. My 350K cash.... can you suggest long-term growth strategies?
*    Half this cash is in Post Office, half in Irish Banks. The risk of Irish state bankrupcty or arrival of IMF and removal of Post Office / Bank deposit guarantees concerns me.... and I wonder if I should take the money out of such institutions (but put it where?).

    In general I can take some volatility. However I did incur large CGT losses from bad investments around the dot-com bubble - CGT losses of 370K. So it would be nice to go for capital gain orientated investments, as these would be essentially tax free for me until I offset the huge losses. I am not hugely attracted to managed funds... as I understand you pay tax on any winners, but get no offset against loosing funds. And knowing my luck, I'd pick dog funds.

    I think China is a long-term growth, India too... and so too several South American economies. But I always feel that growth prospect is already priced into their stocks... so why buy a potential bubble story.

*c. Comment/advice on single stock share holding?
*    I know it's not diversified! I could sell the lot. Regrettably no gains here... more net losses. (Dot com bubble, and dollar/euro woes). I do get some dividends (but taxed at marginal rate). I reckon growth prospects of this stock are so-so. Maybe I should sell a certain percentage of my holding every year.... like dollar cost average in reverse?


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## goingforgold (3 Nov 2010)

First of all can I just say (Oh how the other half live!!)

Congratulations on accumulating such wealth at a relatively young age. Your net worth (including own house, pension, savings and investments and less mortgage) is 1.17Million.

You have done extremely well to accumulate such an amount of money, especially considering some of the huge CGT and share losses you have made.

I assume your wife earned a lot more money at some stage?

I think that stating you will need 1.7 million in a pension fund just to have a modest income is a very relative statement. 90% of the population will be lucky to have a sixth of that accumulated (excluding public service people of course) and will have to survive. 

I understand your worries in relation to bank guarantees etc. I would have thought that the Post Office was a safe bet though. I too am concerned about the banks at this stage, especially as IMF intervention now seems inevitable. Latest bond interest rates somewhere in the region of 7.8% sugests private investors no longer believe in this country.

I would definitely move some of the 100k out of the shares they are in at present. No share can be that safe!

Maybe buying property with cash would be a good idea for you given that your money would be in a tangible asset and one that would hopefully grow and return a decent yield over the next 20 years.

Other than that all I can say is that you have a very good problem on your hands.

Best of luck


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## tiger (3 Nov 2010)

Yes, you're in a good position.  Probably worth paying for professional advice.
My thinking is that very few of us DC folks will be able to retire at 60-65.
I think retirement will need to be more gradual, with a "down shifting" rather than a hard stop.  It might be worth while to think what kind of work will you want to be doing in 10-20 years time, and start laying foundations.


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## Firefly (3 Nov 2010)

tiger said:


> Yes, you're in a good position.  Probably worth paying for professional advice.



+1...very first thing I thought of with figures like that.


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## Evelina (3 Nov 2010)

I would:

- pay off the mortgage and live mortgage free. Why would you want to pay the interest?

- get rid of 100k of shares in one company. That's extremely risky. If you wanna stick to shares, you should diversify.

- I would leave 100k in post office / banks. Nice to have some cash for emergencies.

- The remaining amount I would invest in some house to let. Yes, the value of the house might drop. But at least you will have some asset, which you could always rent, and which will always have some value. Or your children could live there. Shares are too risky, if their value drops you are just left with a bunch of worthless papers. I personally don't believe in virtual shares, that's too risky, a house is at least a tangible asset.


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## sector_000 (3 Nov 2010)

goingforgold said:


> I think that stating you will need 1.7 million in a pension fund just to have a modest income is a very relative statement. 90% of the population will be lucky to have a sixth of that accumulated (excluding public service people of course) and will have to survive.
> 
> I understand your worries in relation to bank guarantees etc. I would have thought that the Post Office was a safe bet though. I too am concerned about the banks at this stage, especially as IMF intervention now seems inevitable. Latest bond interest rates somewhere in the region of 7.8% sugests private investors no longer believe in this country.
> 
> ...



G4G,
Thanks for the suggestions. And I am appreciative to be in the situation I am knowing the hardship faced by so many people out there.

Regarding the pension fund target... I based that on trying to get a ~50K income (with 50% for spouse if I die 1st).... and retiring somewhere in 62~63. Pension are extremely expensive. I agree many DC folks will be extremely poor. 

Why do you think the Post Office would be any safer for deposits than BOI/AIB/Anglo...? It's all only guaranteed by the state coffers. I have no idea what impact the IMF could have to such guarantees. Do you?

Individual share - diversify - yeah, I agree. I lean towards averaging out over time.

As for property, that's exactly what my bank manager advised 3~4 years ago. Glad I ignored that. However, IMHO we have not seen the bottom of the property market here. Also I thought an investment property only works if you fund most of it with a mortgage (which would be hard to get nowadays at a good rate) so you can offset loan interest against rental income. Am I missing something?


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## sector_000 (3 Nov 2010)

tiger said:


> Yes, you're in a good position.  Probably worth paying for professional advice.
> My thinking is that very few of us DC folks will be able to retire at 60-65.
> I think retirement will need to be more gradual, with a "down shifting" rather than a hard stop.  It might be worth while to think what kind of work will you want to be doing in 10-20 years time, and start laying foundations.



Tiger

Where could I find good sources of professional advice?

I have limited faith in bank staff - they only sell a limted (& commissioned) range of products.

As for downshifting later on... that's tough. I am in a niche career where part-time is not feasible. Hence to start something brand new would mean competing againsts people in their 20s (& I know they'll have more  energy than I will have in 50s/60s!).


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## sector_000 (3 Nov 2010)

Evelina said:


> I would:
> 
> - pay off the mortgage and live mortgage free. Why would you want to pay the interest?
> 
> ...



Mortgage - hmmm... I don't see the sense of paying off a 1.6% loan when I can get 3+% from deposits and the flexibility that comes with it.

Big lump of single shares - agree.... but what to buy instead?

100K cash fund, yep, I'd tend to want to keep some kind of safe liquid fund.

As I think I kind of said in a prior reply, I feel uneasy with Irish property.
Why buy an Irish house for say 200K... when it could drop to 150K in next 2 years. Not saying it will, but it has IMHO a higher chance of dropping 25% than increasing 10% in 2 yrs.


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## tyoung (4 Nov 2010)

Your biggest risk working un the private sector is unemployment/underemployment so a large cash cushion makes sense given your cautious nature. Paying off your mortgage may not be a bad idea as it represents a 100% guaranteed risk free return. Divide the rest of the cash between Irish banks in high yield deposit accounts. I do not think that Irish bank deposits will fail(just my opinion). Whether you should move money outside Ireland to guard against Ireland leaving the euro is something I don't have an opinion on. Only you can decide your own level of risk.
You should regard this part of your portfolio as tail risk insurance against bad things happening and not beat yourself up if bad things don't happen and you miss out on higher returns in the stockmarket/property. After all you don't beat yourself up that you bought life insurance and didn't die!.
 The rest of your portfolio should largely be in stocks. FWIW I think large cap stocks of developed market(US, Europe and maybe Japan) are at reasonable value. Emerging markets look like they are at early bubble stage. if you want to play that use some ETF but don't forget to sell!
Sell the single stock holding and buy a low cost ETF tracker.
 Bonds are very poor value and (I think) should be avoided.
At some point property will be interesting but unless you are interested in  managing your properties directly you would be better off investing in REITs.
All the above is just personal opinion but you are clearly not a novice. Professional advice would be useful but also would be just another opinion!
Solicit a wide range of opinions.
Best wishes!
PS on second thoughts EM are at least middle stage of a bubble.


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## Evelina (4 Nov 2010)

I agree that prices of Irish properties may fall, but so can the value of your shares... So if I were to chose between shares and property I would definitively invest in property... I personally don't believe in shares... If you buy in good location, you will get a stable rental income. I believe you are not in any rush to make decisions now, so maybe you could wait a year or so and see how the situation develops. 


While having cash on bank account might seem quite safe, you should also take into account inflation, hyperinflation, etc. many countries experienced economical turmoils in the past, and people lost savings of their entire lives.


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## sector_000 (4 Nov 2010)

tyoung said:


> Your biggest risk working un the private sector is unemployment/underemployment so a large cash cushion makes sense given your cautious nature.


That real (or perceived) risk is exactly what has prompted me to hoard cash. My dilemna is how much to keep as a cash cushion, and then what productivily to do with the balance. I lean towards equities for the balance... particularly if it can product Capital Gains (for tax efficiency for me).



tyoung said:


> Paying off your mortgage may not be a bad idea as  it represents a 100% guaranteed risk free return.


I hear you... but I just don't see the logic. Why pay off a loan at 1.65% when I can earn 3.53% tax-free in Post Office 5.5 yrs bond?? (Unless I believe it is a real possibility that the state could default).



tyoung said:


> Whether you should  move money outside Ireland to guard against Ireland leaving the euro is  something I don't have an opinion on. Only you can decide your own  level of risk.
> ....
> The rest of your portfolio should largely be in stocks. FWIW I think  large cap stocks of developed market(US, Europe and maybe Japan) are at  reasonable value. Emerging markets look like they are at early bubble  stage. if you want to play that use some ETF but don't forget to sell!
> Sell the single stock holding and buy a low cost ETF tracker.
> Bonds are very poor value and (I think) should be avoided.


Ideally I think I should have a balance of assest classes that are dependant on several economies & several currencies. While I intend to live in Ireland/Euroland long-term, I feel long-term economic growth is clearly in the Emerging markets (I'm thinking specifically China, India.... don't know much about other regions... but South America has got to grow faster that USA/Euro).
I have no professional-level investor knowledge  - wish I had those skills/training. I just believe that the next 20~30 years belongs to China and India. But... with Chinese funds having grown so much in the last 10 yrs, I am concerned about a bubble bursting there in the next few years.  If only there was 40% crash in China... then I'd buy in like a shot! 

As Japan has been flat for the last 20yrs, an ageing poplulation profile, high-cost basis and expensive currency.... I don't see why you think they will be able to compete against China/India.... never mind neighbours like Korea. I think they'll hold their own... but won't grow.  That's my amateur opinion.  I'd genuinely appreciate any insights you have as to why you feel Japan could be a good long-term investment.

I see the US market has grown nicely over the last 18months... but I am concerned about the long-term prospects and the weaker dollar. Granted what I feel is positive about the US is it's entrepreneurial / venture capital culture. It's where all the big name companies have come from. 

So you can see where all this concern has led me... to sit on the fence!



tyoung said:


> At some point property will be interesting but unless you are interested  in  managing your properties directly you would be better off investing  in REITs.
> All the above is just personal opinion but you are clearly not a novice.  Professional advice would be useful but also would be just another  opinion!
> Solicit a wide range of opinions.
> Best wishes!
> PS on second thoughts EM are at least middle stage of a bubble.



Hmmm... I must read up about REITs... don't know how they work. Is it just like a managed fund you buy into?

How are ETFs, REITs, Irish-based managed funds, foreign-based managed funds taxed in Ireland?  
Are there any that are taxed as capital gain... thereby offsettable against CGT losses? Or are they all hit by this 28% tax when you sell or at the end of 8 years if you don't see, and with no offset of gains againts losses??

Thx for your post.


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## sector_000 (4 Nov 2010)

Evelina said:


> I agree that prices of Irish properties may fall, but so can the value of your shares... So if I were to chose between shares and property I would definitively invest in property... I personally don't believe in shares... If you buy in good location, you will get a stable rental income. I believe you are not in any rush to make decisions now, so maybe you could wait a year or so and see how the situation develops.
> 
> While having cash on bank account might seem quite safe, you should also take into account inflation, hyperinflation, etc. many countries experienced economical turmoils in the past, and people lost savings of their entire lives.


Hi Evelina
Property... I'd rather wait 1~2 years. I also don't know if I'm cut out to be a landlord, so maybe TYOUNG's suggestion of REITs might be a good one for me. Although... if I were to directly buy an investment property, would any future capital gain in that be offsettable against my accumulated capital losses from my share fiascoes??

Do you see risks of significant for inflation in Ireland over next few years? I'd appreciate your thoughts... as this may help me think thru the risks of inaction (i.e. staying in cash).

As for hyper/inflation, I remember last year there was talk that maybe this world crisis might lead to hyper inflation. I haven't heard that been talked about this year. IMHO it doesn't feel like we could have domestically driven inflation over the next few years - obviously externally driven is not a given. I assume domestic goods & services will stay priced flat with some declines as internal demand drops with the expected austere budgets over the next 2~3 years.


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## Greta (5 Nov 2010)

Sector_000, have you thought about investing in gold at all? There is a view that 5-10% of assets (or liquid assets at least) ought to be invested in gold as a hedge against government stupidity

I see your point in not paying off the mortgage if you can get a higher return on your cash than the rate you pay on your mortgage. However, to remain cautious you need to continue keeping enough money in cash to pay off the mortgage, and not be tempted to invest some of it in riskier assets. Otherwise you'd be in fact speculating with your house. 

As to capital gains on investment properties - these *would be* allowable against your past capital losses. So this might make you more interested in buying an investment property at some stage

Another point - especially if you don't live in Dublin - you might consider buying an investment property there for your children to live in for when they go to the university. In the meantime you could rent it out, and then rent it out again after your children finish university.


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## sector_000 (5 Nov 2010)

Yep Greta, I get your points. 
House in Dublin would prob be best option for rental.


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## NorfBank (5 Nov 2010)

Greta said:


> Sector_000, have you thought about investing in gold at all? There is a view that 5-10% of assets (or liquid assets at least) ought to be invested in gold as a hedge against government stupidity



Is gold a hedge anymore or is it the ultimate bubble as George Soros has said? 

_"I called gold the ultimate  bubble, which means it may go higher. But it's certainly not safe and  it's not going to last forever,"_

Interesting recent piece on gold


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## Evelina (5 Nov 2010)

@Greta - are you sure that he will be able to offset future capital gains from property with losses from shares? I'm sure he could offset property gains and property losses, but these two are two different "baskets".

@sector_000 -
re: Hyperinflation - My thoughts on that are that high inflation is inevitable and will come sooner or later. US and some European countries have pumped loads of money into their economomies during the last two years. A few days ago US decided to print $600bn, check what happened with the USD after that. They are probably sitting now somewhere on banks' B/Ss but will have to show up in "real" economy. That's only my small opinion. The fact is that you will always know too late to react, if you know what I mean. I wouldn't expose myself to any currency risk at the moment, either. It's too volatile, check the charts, up and down, the changes are drastic. You may gain a lot, but you may also loose a lot. I think that your main concern at the moment should be how to preserve the wealth that you've accumulated so far, how to protect its value rather than how to multiply it. China, Latin America etc is just a pure speculation. Again, you may gain but you also may loose. You've worked so hard and you accomplished a lot.

re Gold - I believe we have a nice bubble now. Same with Copper.

What I also just thought is that you already have lots of money invested in funds (pension), I suppose equity, so maybe that's enough of shares?

Also, my opinion is that "financial advisors" are worthless and most of them are not qualified at all. I could be your advisor, anyone could be your advisor.. just do what you think is the best and don't take their words for granted.

Good luck, keep an eye on what's happening, monitor the property market, spread your savings into various banks...


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## Greta (5 Nov 2010)

Evelina said:


> @Greta - are you sure that he will be able to offset future capital gains from property with losses from shares? I'm sure he could offset property gains and property losses, but these two are two different "baskets".



Evelina, I can't be sure, of course, of what changes the government might make in the future to tax rules but at the moment CAPITAL gains and losses on different asset classes can be offset against each other. It's different with annual profits and losses. For example, if you make an annual (INCOME) loss on a property (i.e. expenses exceed income), you can only offset that against other annual profit on another PROPERTY or carry it forward to be offset against future annual profit on property letting. But the CAPITAL gains can be offset against CAPITAL losses on a different asset class.


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## Greta (6 Nov 2010)

Evelina said:


> re Gold - I believe we have a nice bubble now. Same with Copper.
> 
> What I also just thought is that you already have lots of money invested in funds (pension), I suppose equity, so maybe that's enough of shares?
> 
> ...



Gold may be in a bubble, but then again it might not. It might make sense to put a small percentage of wealth into gold as part of diversification, buying on market dips, that sort of thing.

I would tend to agree about financial advisers being rather useless Or at least you need to learn as much as possible yourself, then a good financial adviser might be able to give you a couple of useful points, or then again, maybe you won't need financial advisers
I'd say if your financial affairs are very complex, like setting up trusts etc, then you probably need a financial adviser (or maybe just a solicitor), but for relatively straighforward affairs financial advisers are not need and can actually do more harm than good.


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## Evelina (7 Nov 2010)

Greta said:


> Evelina, I can't be sure, of course, of what changes the government might make in the future to tax rules but at the moment CAPITAL gains and losses on different asset classes can be offset against each other. It's different with annual profits and losses. For example, if you make an annual (INCOME) loss on a property (i.e. expenses exceed income), you can only offset that against other annual profit on another PROPERTY or carry it forward to be offset against future annual profit on property letting. But the CAPITAL gains can be offset against CAPITAL losses on a different asset class.





Thank for this clarification, Greta.


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## niceoneted (8 Nov 2010)

I thought of a cash buy on a property too in a good area possible near industry or university. Lots of value out there now even if the market hasn't bottomed out yet. Foreign property in the right location either?

I don't agree that you should pay off your mortgage even though I would be a fan of being mortgage free but in your situation I would not. 

What about finding an entrepreneur or two that have very solid business plans with viable businesses who are unable to get finance for a start up and invest with them taking a portion of the business. It's a bit of thinking outside the box (I think) but might be what you'd like. Maybe it would interest your wife either to work with some of these companies.


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## sector_000 (9 Nov 2010)

niceoneted said:


> What about finding an entrepreneur or two that have very solid business plans with viable businesses who are unable to get finance for a start up and invest with them taking a portion of the business. It's a bit of thinking outside the box (I think) but might be what you'd like. Maybe it would interest your wife either to work with some of these companies.



I don't have a business background  and so wouldn't have the formal skills to assess the viability of a particular business. I'd also feel exposed if I put a large chunk of my money into just one company (ignoring my single tech stock foray!). Better to have diversification of investments.

*What do you think about BES fund investments?*
Tax advantageous. Spread over several companies. Assuming a competent fund manager who presumbaly would have the relevant business analysis & accounting skills. A 5~6 year fixed timeframe. Probably lots of good companies other there with viable businesses that just can't get support from their banks nowadays.


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