# 39, Liquid but confused



## victor (19 May 2017)

*Age:*
39
*Spouse’s/Partner's age:*
39

*Annual gross income from employment or profession:*
90K
*Annual gross income spouse:*
160K

*Type of employment:*
Both private sector employees

*Expenditure pattern:*
We are both generally 'savers'

*Rough estimate of value of home*
850K
*Mortgage on home*
400K
*Type of mortgage: Tracker, interest only, fixed rate*
Variable
*Interest rate*
~3%

*Other borrowings – car loans/personal loans etc*
None

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

*Savings and investments:*
280K

*Do you have a pension scheme?*
I pay 13% (+ company 7%)
Partner pays 7% (+ Company 13%)

*Do you own any investment or other property?*
No.

*Ages of children:*
None.

*Life insurance:*
Yes.

*What specific question do you have or what issues are of concern to you?*
Our savings are pretty much all over the place.

My partner has ~80K in deposit savings.
I have the rest which is broken out into:

90K Current a/c
50K savings
20K 7 day notice
9K PEP (Ark life)
58K PIP-SSIA (Ark-Life)


Looking at my ArkLife statements recently it appears they are a good way to lose money.
Fees are ~1.5%

The current account balance is so high due to selling off a previous property and being unsure of what to do with the cash!

So what advice would you give us to make better use of our money.
We are potentially going to be buying a new house in the next 2-3 years, so my thoughts are to simply pay off the mortgage early...but are there better options?

In any case I am thinking that I should be moving money out of riskier funds (same for my pension) since it looks like any current gains will be eroded if the market drops from its current "high".

Cheers.


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## Brendan Burgess (19 May 2017)

You are borrowing money at 3% to put it back on deposit at close to zero per cent. 
This makes no sense. 

You are borrowing money at 3% to invest in an equity fund which is extremely unlikely to get you 3% a year after tax.

Cash out all your funds and pay it off your mortgage. 

Come back again when you have paid down your mortgage to zero.

Brendan


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## Sarenco (19 May 2017)

My 2 cents -

20k as a liquid cash "float" would be plenty for most couples.
You have plenty of room to increase your pension contributions - I suggest you maximise your tax-deferred pension space before investing elsewhere.  At your ages, you should probably retain a high equity content in your pension investments for the time being.
After that, as Brendan says, throw any excess cash at your mortgage.


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## victor (19 May 2017)

Thanks guys.

I'm a little worried about keeping the pensions funds in higher risk equities since the market seems like its as recovered as its going to get. Though is that just me trying to time the market?
Pension is 281K at the moment (up ~60K)
Made up of Indexed World Equity Fund (40%), Dynamic Global Value Fund (40%), Passive Long Bond Fund (10%) & Dynamic Diversified Growth Fund (10%) from AON.


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## Sarenco (19 May 2017)

victor said:


> Though is that just me trying to time the market?


Yes, that's exactly what it is!

Given your age and circumstances, I would actually invest as much as 100% of your pension in the Indexed World Equity Fund. 

You could argue that it doesn't make much sense to invest in fixed-income investments yielding ~1% while carrying a mortgage at ~3%. 

It's important to look at your overall financial position across all accounts.


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## victor (19 May 2017)

Sarenco said:


> Yes, that's exactly what it is!
> 
> Given your age and circumstances, I would actually invest as much as 100% of your pension in the Indexed World Equity Fund.
> 
> ...


But if I switch now, am I not buying 60% of my portfolio at the "top" of the market at very high unit values?

I'm not risk adverse, but would probably rather drip the money in rather than a lump sum....am I wrong?

So basically I should cash in my Ark Life stuff ASAP and use it to pay off the mortgage?


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## Sarenco (19 May 2017)

If you "know" we are at the top of the market then you should short equities and make a fortune!

The problem, of course, is that you don't know whether we are at the top of the market - nobody does.

Don't get me wrong, equity valuations (particularly US equities) are currently elevated.  That just means that expected future returns are muted - it doesn't necessarily mean that we are at the top of the market.

Drip feeding money into the market (sometimes known as "dollar cost averaging") is really just another form of market timing.

Bear in mind that your pension fund will remain invested for a long time - there will be plenty of booms and crashes before you start drawing it down.  I certainly think it makes sense to incrementally start to de-risk your financial position once you are within ~15 years of retirement.



victor said:


> So basically I should cash in my Ark Life stuff ASAP and use it to pay off the mortgage?



That's what I would do if I was in your shoes.  

On a risk adjusted basis, it's a much better use of your capital - particularly when you take investment costs and taxes into account.


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## Gordon Gekko (20 May 2017)

Sarenco said:


> 20k as a liquid cash "float" would be plenty for most couples



I think that circa €50k is probably more appropriate for couples such as yourselves. Six months of expenditure is the general rule, so €50k for a couple earning around €10k net a month is probably about right.

You should be maximising your AVCs and your pensions should be invested 100% in equities. 

If you are planning to move home, rather than paying off the mortgage, I would recommend speaking with a mortgage broker and ascertaining what gives you the best result.


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## Brendan Burgess (21 May 2017)

Gordon Gekko said:


> I think that circa €50k is probably more appropriate for couples such as yourselves. Six months of expenditure is the general rule, so €50k for a couple earning around €10k net a month is probably about right.





victor said:


> *Annual gross income from employment or profession:*
> 90K
> *Annual gross income spouse:*
> 160K



I would almost go so far as you say you need a zero float.

You are both employees and you both have high salaries.

It is extremely unlikely that one of you will lose your job without notice and without any redundancy payment.  It is practically impossible for that to happen to both of you at the same time. Unless perhaps you are colluding together to defraud your employers.

Pay down your mortgage. That will be one major expense gone anyway if you both lose your jobs at the same timewithout notice and without compensation.

A six month float _might _be appropriate for a self-employed person with a volatile income with a large mortgage who is the sole earner supporting a spouse and children. It is entirely inappropriate for a couple such as yourselves. 

Brendan


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## Brendan Burgess (21 May 2017)

I am not so sure about contributing even more to pension schemes. You are both 39. You are contributing a lot already. You probably have built up big funds. The future treatment of pensions funds is too uncertain. When you retire it's likely that you will both be taxed at the marginal rate.

You need a good pension fund but not a huge one that might become a target for future finance ministers.

Brendan


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## victor (22 May 2017)

Sarenco said:


> If you "know" we are at the top of the market then you should short equities and make a fortune!
> 
> The problem, of course, is that you don't know whether we are at the top of the market - nobody does.
> 
> ...



I'm not overly concerned that we are at the top, I don't mind that I might miss out on a little more growth, I'm just concerned about eroding any current growth...if that makes sense?

At nearly 40, I'm hoping that retirement is not a million miles away, 55-60 would be what I'm hoping for, my partner would be the same.



Brendan Burgess said:


> I would almost go so far as you say you need a zero float.
> 
> You are both employees and you both have high salaries.
> 
> ...


I'm not going to be comfortable with zero in the back, my car could explode tomorrow (unlikely) but any number of things could "go wrong".
Neither of us are very comfortable with not having a healthy bank balance.



Brendan Burgess said:


> I am not so sure about contributing even more to pension schemes. You are both 39. You are contributing a lot already. You probably have built up big funds. The future treatment of pensions funds is too uncertain. When you retire it's likely that you will both be taxed at the marginal rate.
> 
> You need a good pension fund but not a huge one that might become a target for future finance ministers.
> 
> Brendan



Is 20% really "a lot" though?
Continuing as I am today, my fund isn't exactly huge at 67...

Also, if there is no negative future treatment of pensions funds in the future but I have limited my pension then I have kinda missed the boat, whereas even if I keep pumping money into the pension and it is subject to negative treatment in the future, it would have to be fairly negative to counteract the benefit of tax free investing....right?


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## thedaddyman (22 May 2017)

Are there any events planned over the next few years that will have an impact on your income. Kids are the obvious ones but if they are not on the horizon do cars need changing, are you likely to have to contribute to the care of an elderly parent, does the house need anything doing?

Personally, and given the amount you are paying into your pension, I'd prioritise paying off the mortgage whilst interest rates are so low. Once that is paid you have a fair amount of flexibility if you ever needed to move for work for example. You've 240k in cash which is probably losing you money v inflation. You don't need that much of a nest egg. you could pay half of it against your mortgage and up what you are paying monthly as well and knock the stuffing out of it.

and make sure you have your will sorted as well, just in case


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## Sarenco (22 May 2017)

Hi Victor

If increasing your allocation to cash/fixed income in your pension fund helps you to "sleep at night", then that's a perfectly reasonable approach.  However, I would suggest you don't overdo it at this stage - you still have a long way to go to retirement/drawdown. 

Also, bear in mind that paying down your mortgage ahead of schedule is much the same thing financially as buying a bond - it similarly de-risks your overall financial position.

I strongly disagree with Brendan's views on the wisdom of maintaining a reasonable cash reserve.  As you correctly point out, you don't have to lose your job to have short term liquidity "squeeze".  However, again, don't overdo it - there is an opportunity cost to maintaining cash in a low interest deposit account.

I also happen to disagree with Brendan's views on prioritising paying down a mortgage ahead of maximising all available tax-deferred pension space (although I do understand where Brendan is coming from here). 

Ultimately, of course, these are all fairly fine judgments.  The bigger picture is that you are in a fantastic financial position for your age and you shouldn't waste too much energy trying to plot the "perfect" course.


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