# Wealth Management - How to Invest €6M - Where to Get Advice



## Always Learning (12 Jan 2022)

Hi All,
I'm completely new here so I'm not familiar with the forums but I think I'm in the right section for this post.
I have recently sold a business, from this sale I will end up with €5 - €6M net to invest after setting aside a little pot for immediate purchases / gifts. I want to make an annual yield of 10% on this. I intend to draw down around €200K per annum from the investment as a wage and allow the rest to build up for further investment. I have borthers who are not involved but who I would like to pay some kind of dividend / wage to over the years also. 

I have a few questions

- Has anybody used wealth management services before, do you have any company you would recommend, can you elaborate on the process. 
- Is there any reason not to invest all this is commercial & residential property to let out and simply live off the return. Seems to me like this is the obvious choice to achieve a gross yield of 10%.
- Are there any large scale / professional landlords here that I could speak with privately who may be able to save me making the same mistakes they did when they were starting out.
- Has any body else here experience in dealing with a fund like this? Again, I'd love to pick your brain and would appreciate the benefit of your experience to avoid making obvious mistakes. 
- Are there other obvious investments with a good return I'm ignoring aside from property that could provide the return I'm looking for. 

I understand this seems like a naïve question for someone who has such a large fund available, surely I know by now how to make money with money you say, so I will give you a small bit of background. I'm early 30's, I am not new to business but still have a lot to learn. However, my expertise over the years has been concentrated 100% on the industry I was in. As part of the sale, I can no longer operate in that industry. So I can no longer use my expertise to earn. Therefore, I'm left researching alternative avenues on how to use this money in order to set myself and my immediate family up. The reason I'm thinking property is the way forward is because I already 3 properties which I let out and the gross return on these is above 10%, it's not too much hassle to look after and so it seems like expanding in that sector could be the way forward, especially considering I won't have to borrow for any property I purchase. 

I know it's a long post, thanks for reading and I appreciate anyone taking the time to give some advice.


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## Brendan Burgess (12 Jan 2022)

Generally speaking if you go to a wealth management company they will sell you their products and charge you 1% a year for offering very little value. 

You should only go to an advisor who charges a fee and doesn't try to sell you products.  
There are two Certified Financial Planners who contribute regularly to Askaboutmoney and you can assess the quality of their contributions by reading some of their posts. 

@Marc 

@Steven Barrett 

Brendan


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> I have borthers who are not involved but who I would like to pay some kind of dividend / wage to over the years also.



Any kind of dividend or wage would be subject to Income Tax.  You can give them gifts which would be subject to Capital Acquisitions Tax which would be taxed at 33%. 

Did you take tax advice on how to structure the sale of the business?  It might have been more efficient to address this issue before the sale.


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> I want to make an annual yield of 10% on this



This should not be your objective. 

With a fund of €6m, your objective should be to preserve your wealth and _not _to maximise it. 

You should diversify your portfolio and have shares and property.  

In fact, I would say that you should have the majority of your money in shares as they are easy to turn into cash.

You have already set up one successful business. When the non-compete term is finished, you may well want to start a new business. If you need capital, having 12 properties worth €500k each won't be much good to you. 

If you have a portfolio of shares, you can cash all or part of them as you need funds.  That way you will own your new business and won't need outside investors. 

Brendan


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> I already 3 properties which I let out



Another reason for not buying more property. 
If you have mortgages on these, the first thing to do is to clear these mortgages. 
If the mortgages are cheap trackers, you might choose not to pay them off. 

But your objective should be the long-term preservation of your wealth, and risk-management is a key part of that, so clearing any borrowing, even cheap borrowing, is the first step.

Brendan


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## noproblem (12 Jan 2022)

Always Learning said:


> I want to make an annual yield of 10% on this.


A Gross yield of 10%?


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## Marc (12 Jan 2022)

Brendan Burgess said:


> Did you take tax advice on how to structure the sale of the business?  It might have been more efficient to address this issue before the sale.


@brendan thank you for the recommendation.

Just one observation on your comment. I’ve been a financial planner for the last 3 decades and I can count on the fingers of one hand the number of times someone in this position has been referred to me by their accountant or solicitor as part of the process of selling their business.

99/100 a client will contact us like this and my first thought, with my head in my hands, is didn’t anyone think to suggest taking some advice prior to signing on the dotted line.

I’d say of the last 10 liquidity events like this that we have consulted upon, not one had been structured with the needs of the investor/their family in mind.

Fair enough if it’s a tag along as part of a trade sale but if it’s your own business one should really expect a higher standard of care. Just my tuppence-worth on an all too familiar situation.

 @alwayslearning  Happy to have a chat

My last firm in the U.K. was on the panel of advisers to lottery winners. You are in many respects like someone who has won the lottery. You have a life changing amount of money and you are looking for things to do with it.
What you need to do is take a step back and ask yourself what you want to do in life and bend your money to that rather than focus in investing for the sake of making money.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie


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## Always Learning (12 Jan 2022)

Thanks for the responses. 

@ Brendan - why would I simply want to preserve my wealth and not maximise it? I suppose I should let you know of my goals so you have an idea of where I want to get to. That will obviously impact the advice being given. I have no interest in setting up another business, I had around 200 employees in the business that has been sold. While that can be enjoyable, it brings a lot of headaches. My goal now is to use the money I have in order to create a revenue stream that will set up my self and my family for the rest of our lives... without having to dedicate all the hours under the sun to running it. I intend to draw down a wage, but also to keep some aside to allow build and make further future investments. 

I will look into investing in shares, but I thought that was more of a medium to long term game to allow your wealth accumulate over a longer stretch of time. I want to achieve a relatively quick return although I'm not in a mad rush, I have set aside €2M to allow me and family live and enjoy some celebrations etc. etc. and I will study my various options and do the research. But once I do invest, I want to start to use the return on investment almost immediately as a wage for myself and I will give a small wage to my brothers also. I'm aware of the tax implications on this and I'm getting advice on splitting the investments between buying personally and using a ltd company. 

I have one of the better known large consultancies dealing with my tax affairs, I have done very well on that front so I'm well looked after there. 

The reason I'm on this board is that I'm hoping to meet people who have been in a similar position from whose experience I could benefit. To get your opinions on whether there is a better option out there other than property and to see if what I'm expecting from this is realistic. Also, as I mentioned, to get advice on who to speak to regarding wealth management. I only just now learned that there was a difference between a financial planner and wealth management advisors, so I've already benefitted a bit! Of course, I am going to continue to engage my tax experts and get advice from other professionals also. I'm not relying on an internet forum to base such big decisions! But I find soaking up the knowledge from as many avenues as possible is always a good thing.


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> why would I simply want to preserve my wealth and not maximise it?



A very good question.

€6m + your home and three properties makes you very wealthy.   So you do not need to take risks.  A diversified portfolio will grow over time.   A concentrated property portfolio could easily crash due to an economic crash or political changes.

To illustrate. If you want to maximise your income, then borrow another €6m and buy €12m worth of property. That is the best way to maximise your wealth . But a 50% fall in property prices would wipe you out. 

Don't laugh.  A lot of very wealthy people did this during the boom and became bankrupt.  If you go to a wealth manager attached to one of the banks, they will probably propose lending you money to leverage up your investments. 



Always Learning said:


> I have no interest in setting up another business,



But your interests might change. You might not want to set up your own business with all the heartache that comes with it. But you might want to invest in someone else's business.  Even if you decide to invest in property, you should keep at least €2m in liquid investments in case you need it.

Brendan


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> My goal now is to use the money I have in order to create a revenue stream



I think you are looking at this wrong.  

If you have plenty of wealth, the distinction between income and capital growth is not very relevant. 

It won't matter too much if your €6m turns into €7m after a year with no income or €6.5m with .5m of income. (Except that income is taxed at a higher rate.) 

Lots of people think "I will live off the interest" or "I will live off the rent". That is the wrong approach to take. 

Brendan


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> I'm aware of the tax implications on this and I'm getting advice on splitting the investments between buying personally and using a ltd company.



In the extremely unlikely event that your tax advisors come back with a proposal to invest via a company, please post that here.  You will find plenty of threads on askaboutmoney "How do I get property out of a limited company into my own name?" 

It's not the way to go for investments although it is usually right for a trading business. 

But some accountants say "Corporation Tax is lower than Income Tax so set up a company."


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## Brendan Burgess (12 Jan 2022)

Always Learning said:


> The reason I'm on this board is that I'm hoping to meet people who have been in a similar position from whose experience I could benefit.



I think it's unlikely that someone will contact you to say that they sold a business or inherited €5m and tell you how they got on.  In fact, if someone contacts you privately to say that they did, I would be very wary that it's not someone trying to scam you or sell you their services or sell a friend's services. 

But you should get plenty of ideas and different opinions on askaboutmoney which is where you will get the most benefit. 

Brendan


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## Bluefin (12 Jan 2022)

Brendan Burgess said:


> I think you are looking at this wrong.
> 
> If you have plenty of wealth, the distinction between income and capital growth is not very relevant.
> 
> ...


It might be beneficial to people if you or other contributors could expand on why this is the wrong approach and what is the right way to see things.


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## Marc (12 Jan 2022)

IS IT POSSIBLE TO LIVE OFF NATURAL YIELD?

In the 1989 Oscar nominated movie Field of Dreams, Kevin Costner’s character reconnects with the spirit of his baseball fan father by building a baseball diamond in his Iowa cornfield. However, while heeding the voice in his head saying: “If you build it, he will come”, worked out for Costner’s character, investors might well wonder if a happy ending awaits if they build a portfolio for yield.

The challenges for those trying to live off the bond coupons, share dividends and interest from their portfolio are a mixture of the obvious, and the fiendishly subtle.

On the one hand, yields are currently very low, which makes generating a decent income from an investment portfolio very hard. Call it a fastball of a problem thrown at your average investor: straightforward, but nonetheless very difficult  to deal with.

On the other hand, there are also the curve-balls of the natural yield investing world. These are the problems that are difficult to see upfront and only become completely obvious after the fact. It turns out that dividend and interest income isn’t nearly as reliable as most assume. Moreover, increasing the income of a portfolio tends to increase its risk.

So, what to do about this predicament? Well, it turns out that focusing solely on income is like going out to face a pitch with only half a bat.

Being cognisant of the capital growth available in many assets, as well as their income potential, gives investors more of a fighting chance. This total return mindset doesn’t eliminate the challenges of the market and can’t guarantee a home run, but in terms of meeting longterm financial objectives it does greatly increase investors’ chances of making it successfully back to home plate.

investment portfolios generally have two forms of return: a capital return that comes from growth of the assets over time and a natural yield which is received from those assets in the form of coupons, dividends and interest.

Natural yield investing, sometimes also referred to as income investing or an income-only approach, is a popular approach used by many retirees, trusts and charities that rely on investments to meet their cash-flow needs. In this approach, a portfolio is constructed to target a specific yield and only the
income physically produced by the portfolio is withdrawn on a regular basis.

The alternative to natural yield investing is usually referred to as total return investing. Here a broadly diversified portfolio is constructed to achieve the
highest possible combination of both natural yield and capital growth. Where regular withdrawals are made, these consist of a combination of the income physically produced by the portfolio and
some capital growth, realised through asset sales.

Unfortunately, portfolios are not like Hollywood surrealist baseball movies. Building them for natural yield doesn’t necessarily lead to a happy ending.

The challenges of low current yields, income being unstable over the life of a portfolio and the risk introduced by chasing higher yielding assets are just too great for natural yield investing to give the best chance of achieving good outcomes for investors.

Investors need to resist using a natural yield approach just because that’s what used to be prescribed by custom, or regulation/legislation that has been
subsequently updated.

It is in the face of these challenges a total return framework can help in building portfolios that are better diversified, more tax efficient and which
are likely to result in higher and more predictable income for investors over the course of a long-term investment period.


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## DublinHead54 (13 Jan 2022)

Brendan Burgess said:


> This should not be your objective.
> 
> With a fund of €6m, your objective should be to preserve your wealth and _not _to maximise it.
> 
> ...



Brendan, in my opinion investing in shares is not aligned to your first sentence of preserving your wealth. Equities as an asset class is risky and more aligned to those wanting to maximise their wealth rather than preserve it. 

@Always Learning you should discuss with financial planners as well as some wealth managers in the local market. I think the challenge that you will run into is that no Bank / Wealth Manager wants to hold large cash deposits at the minute as it costs them and doesn't make them money so you may be pushed more to investment products. Or if you simply just want to park your cash you may find you are charged for it.


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## Brendan Burgess (13 Jan 2022)

Dublinbay12 said:


> Brendan, in my opinion investing in shares is not aligned to your first sentence of preserving your wealth. Equities as an asset class is risky and more aligned to those wanting to maximise their wealth rather than preserve it.



What? 

There is no risk-free asset class.  Deposits are riskier in the long-term due to the chances of default or the real value being eroded by inflation. 

Investing the full portfolio in property is risky as, even with €6m , that is about 18 properties. 

It's actually a subjective call, but a diversified investment in the stockmarket is probably the least risky option and one most likely to lead to wealth preservation. As it happens, it's also the one which is most likely to lead to wealth maximisation.


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## Marc (13 Jan 2022)

Dublinbay12 said:


> Brendan, *in my opinion investing in shares is not aligned to your first sentence of preserving your wealth. Equities as an asset class is risky *and more aligned to those wanting to maximise their wealth rather than preserve it.



This is a classic mistake made by well meaning people trying to give guidance from their own perspective. The investor is in their 30s with a very significant amount of cash and a very long time horizon of some 6 or maybe even 7 decades. They need to formulate an investment strategy similar to that of an institutional investor ( like a Charity or an University) with a lot of money and a long time horizon.

Looked at over a one year time period, yes there is a lot of uncertaintly in the market but over decades investors are much more likely to earn the average return

*Data from the USA from 1926 to 2019*





The response to which is often, yes but if you had invested in say 2000 just before the tech wreck how would you have done? To which the answer is always, let's have a look shall we?


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## DublinHead54 (13 Jan 2022)

Brendan Burgess said:


> What?
> 
> There is no risk-free asset class.  Deposits are riskier in the long-term due to the chances of default or the real value being eroded by inflation.
> 
> ...



There is no risk-free asset class, true, but cash deposits are not riskier than equities. The chances of default of a Bank is generally less than that of other Industries. 




Marc said:


> This is a classic mistake made by well meaning people trying to give guidance from their own perspective. The investor is in their 30s with a very significant amount of cash and a very long time horizon of some 6 or maybe even 7 decades. They need to formulate an investment strategy similar to that of an institutional investor ( like a Charity or an University) with a lot of money and a long time horizon.
> 
> Looked at over a one year time period, yes there is a lot of uncertaintly in the market but over decades investors are much more likely to earn the average return
> 
> ...



Marc, I agree with this approach given the investors own variables (age etc). My comment simply was meant to highlight that preserving wealth does not always equate to investing in Equities, and posting one size fits all portfolio theory can be misleading. I have always stated on this forum that when it comes to investing an individuals own circumstances (age, risk tolerance, goals, current wealth etc) must always be considered and that there is no one fits all solution. 

That was the objective of my comment, rather than meaning to preserve wealth you should never invest in Equities. For example, I think Brendans comments should have been rooted in the age, as I am sure he would not be giving the same advice if the poster was in their 60s.


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## Brendan Burgess (13 Jan 2022)

Dublinbay12 said:


> cash deposits are not riskier than equities. The chances of default of a Bank is generally less than that of other Industries.



Hi Dublin Bay

They most certainly are riskier that equities over the longer term.   Default chances may be low but they are not zero. But the big one is that there is a much greater risk that deposits will lose their real value than equities. 

And, by the way, I would give the same advice to a 60 year old.   

Brendan


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## Marc (13 Jan 2022)

Here is another way of looking at @Brendan Burgess point

You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.

How did you do over the last 20 years?

In equities a little over €9m whereas Irish Property and cash are barely able to keep up with inflation


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## Always Learning (13 Jan 2022)

Brendan Burgess said:


> Don't laugh. A lot of very wealthy people did this during the boom and became bankrupt. If you go to a wealth manager attached to one of the banks, they will probably propose lending you money to leverage up your investments.


That's nothing to laugh about, during the boom we made a similar amount from a sale. We were encouraged to borrow to make more, as opposed to paying off debts. Foolishly we listened to the "advice" from the bank and used the money borrowed to invest in bank shares and property and then lost it all in the crash. That was my father, I've learned a lesson from that and don't intend to borrow a penny. I am debt free at the moment and I intend to remain that way. 



Brendan Burgess said:


> It won't matter too much if your €6m turns into €7m after a year with no income or €6.5m with .5m of income. (Except that income is taxed at a higher rate.)
> 
> Lots of people think "I will live off the interest" or "I will live off the rent". That is the wrong approach to take.


That's exactly what I'm thinking, I'll live off the rent. Why is that the wrong approach to take? 

@ Brendan / Marc - Thanks for your taking time to reply. The way I look at it, in a very simplified version, is that I have €6M at my disposal and I have two main goals.

To provide a generous annual salary for myself / dependents of circa €200K. and a small salary for brothers / friend say maybe €15K x 3 to top up their other income.
To grow the value of the assets over the years to provide for future generations.
When it boils down to it, that's it. So what I'm trying to figure out is, 


Is €6M enough to do that?
What are the best investments to make in order to achieve those goals. 
What is the best structure to use (personal / ltd / both)
Because I have a good return on the properties I currently let out, (They cost me €250K and I have a rental income of €33K) I am enticed to continue down that road. Even if the market crashes again (it will eventually) I will have no borrowings, so I will have no need to liquidize my assets and therefore I can simply ride out the storm with the knowledge that the market will pick up again. In the long run, property values will continue to increase despite a crash every now and then. And I will have a nice sized rental income during that crash, even though the rents may go down somewhat, it will still be sizeable.

After giving it a little consideration though, it's hard to really argue against diversifying. I'm going to explore that a little further once I sit down with a financial planner, I just find it hard to identify any other investment that can give me the kind of returns I'm looking for and if you don't have to borrow to buy property, I see it as pretty much a slam dunk. Perhaps the way to do it is invest in property for the annual salary I want to generate and then look at other options for the longer term and growing the money over time. 

@ Brendan / Marc - if you had €6M to invest and had similar goals to mine, what would you do?


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## Marc (13 Jan 2022)

@Always Learning one simply bit of advice is get some objective professional financial planning advice BEFORE you make any decisions.

I'm a financial planner but I don't believe any one of us has financial goals. We have lifestyle goals that have financial implications. We need objective professional guidance because when making decisions we all suffer from predicable psychological blockages 

 see https://www.amazon.com/Predictably-Irrational-Revised-Expanded-Decisions/dp/0061353248
or 


			Amazon.com : thinking fast and slow by daniel kahneman
		


On property here is my 50 year study of residential and commercial property on both sides of the Irish Sea









						Investing in Property Investing in Property  in the UK and Ireland
					

Investing in Property is a topic that is frequently under consideration in Ireland and the UK and the intention with this guide is to conduct an objective, empirical comparative study to assess the relative risk, return and correlations across these investments with a view to informing Portfolio...




					viewer.joomag.com
				




and some thoughts on how to choose an adviser









						Choosing an adviser How to choose an adviser
					

One of the most important financial decisions an individual investor can undertake is in selecting the right adviser. The following checklist may help guide you in making the right choices




					viewer.joomag.com
				




all the best


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## DublinHead54 (13 Jan 2022)

Hi Brendan,

I was answering based on your initial point that deposits are riskier than equities because of the default chances and the real value erosion. I didn't say the chance of Default was 0, I said the probability of default is generally higher for corporates than banks, which can be observed in the data. 

You seem to have agreed with that based on the next comment in which you state the biggest issue is the value erosion and not a risk of default? 

I agree that at this point in time with low interest rates and inflation your real value of your deposit will depreciate over time. Investing in stocks it may go up or it may go down, and a broad market indices may be a good hedge against inflation. However, that does not mean that cash is a riskier asset class than equities. Should we take all our cash and invest in Tesla?

I would be extremely surprised if you could find any professional investor, economist, academic that would say that cash is a riskier asset class than Equities. 

I think what you are meaning is that the real world value will decrease if held in deposit, whilst investing in the sock market may lead to growth of the actual value (based on historical data). Risk is separate consideration, if you want to take close to no risk you put your money on deposit in a bank or under the mattress....your reward for that is that it depreciates in value and your bank may even charge you to do it. 




Brendan Burgess said:


> What?
> 
> There is no risk-free asset class.  Deposits are riskier in the long-term *due to the chances of default or the real value being eroded by inflation.*





Brendan Burgess said:


> Hi Dublin Bay
> 
> They most certainly are riskier that equities over the longer term.   Default chances may be low but they are not zero. *But the big one is that there is a much greater risk that deposits will lose their real value than equities.*


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## DublinHead54 (13 Jan 2022)

Brendan Burgess said:


> Don't laugh.  A lot of very wealthy people did this during the boom and became bankrupt.  If you go to a wealth manager attached to one of the banks, they will probably propose lending you money to leverage up your investments.



Brendan,

That is anecdotal and certainly not what happens in a Wealth Management operation in 2022. I suggest you review the MIFID II regulation that was implemented a number of years ago and strictly governs what products, advice can be offered and to what type of clients (Professional / Retail). For example the poster would have to evidence his experience in markets before he could be treated as a professional investor and offered more advanced products.

To my knowledge there are not leveraged products available, generally the product offered is Securities back lending in which the client may have an immediate cash need an illiquid portfolio. The client can receive cash and post their assets as collateral. This is obviously done against approved models and you wouldn;t have situations in which you borrow more cash than the collateral is worth. In generall collateral is always discounted to account for its risk.

The banking world has moved on a lot from the wild west days of before the financial crisis, and I think you still make some comments based on the old days.


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## DublinHead54 (13 Jan 2022)

Marc said:


> Here is another way of looking at @Brendan Burgess point
> 
> You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.
> 
> ...



Marc, Equities remain a riskier asset class than cash, that is evident on your chart by the volatility, no? If you Started your chart from Sept 88 to 08, it would tell a different story correct? 

I am not disagreeing with you that the longer time horizon and investor has the better chance they have to whether the economic cycles and nullify the volatility of the stock market. 

However, nobody can say Cash is a riskier asset class than equities. This is supported in your chart and will be evident in the same chart over any timeline, and that is the volatility.


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## Always Learning (13 Jan 2022)

Marc said:


> Here is another way of looking at @Brendan Burgess point
> 
> You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.
> 
> ...


I didn't see this before responding to the last post. Wow, that's interesting. Very interesting. The daunting aspect of that is I have absolutely no expertise in the area. I don't know how investing in stocks or shares works. I don't know how I can draw the money down, how it works from a tax perspective etc. But looking at that graph, I'm eager to learn a bit more. Once everything is signed, sealed and delivered on my deal, I will be seeking out an expert in the field and definitely explore these options. What kind of annual return could you reasonably expect from investing in equities at the moment?

One problem I see straight away with equities is that if it goes wrong, you loose everything and have nothing to show for it. In property, when the market crashes again, once I have no loans I just ride out the storm and take my rental income and eventually the market will rise again and my assets have value again.


Brendan Burgess said:


> Investing the full portfolio in property is risky as, even with €6m , that is about 18 properties.


18 properties? In Dublin maybe. I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum. 

Something strange going on with the posts, I only see Dublin Bays posts appearing now after responding to you all. I couldn't see them a couple of minutes ago though?


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## Gordon Gekko (13 Jan 2022)

Dublinbay12 said:


> Marc, Equities remain a riskier asset class than cash, that is evident on your chart by the volatility, no? If you Started your chart from Sept 88 to 08, it would tell a different story correct?
> 
> I am not disagreeing with you that the longer time horizon and investor has the better chance they have to whether the economic cycles and nullify the volatility of the stock market.
> 
> However, nobody can say Cash is a riskier asset class than equities. This is supported in your chart and will be evident in the same chart over any timeline, and that is the volatility.


Hi Dublinbay12,

The more relevant question is “What is Risk?”.

For an individual, risk is not volatility. That’s just the investment world’s concept of risk.

Risk for me is permanent loss of my money and not being able to do what I want when I want.

I’m young enough. If I keep my money in cash, I’m guaranteed to lose money in real terms.

If I invest in equities, and I’m diversifed, I won’t.

We must all be careful not to overlearn the mistakes of the past. For example, never borrowing is silly.

Gordon


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## Always Learning (13 Jan 2022)

Gordon Gekko said:


> For example, never borrowing is silly.
> 
> Gordon


That's interesting, why? Would you borrow in my position?


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## Sarenco (13 Jan 2022)

Marc said:


> You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.


There's a big difference between drawing down a fixed euro amount of €200k per annum and drawing down 4% of the portfolio balance every year. 

So, I don't think that chart does actually support Brendan's all equity approach, unless the OP is willing to accept a wildly variable income from the portfolio.


Always Learning said:


> 18 properties? In Dublin maybe. I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum.


I've a pal that manages a portfolio of rental properties of a comparable scale and it's very much a full time job.

Do you want to spend your time chasing tenants and fixing problems?  It wouldn't be my idea of fun.


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## Brendan Burgess (13 Jan 2022)

Always Learning said:


> I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum.





Sarenco said:


> I've a pal that manages a portfolio of rental properties of a comparable scale and it's very much a full time job.
> 
> Do you want to spend your time chasing tenants and fixing problems? It wouldn't be my idea of fun.



Hi Always Learning

If you thought you had hassle with 200 employees, you will have far more hassle with 50 apartments and 50 separate sets  of tenants. 

And look at the changing attitudes to landlords. 

I agree with Sarenco and would seek my fun elsewhere. 

Brendan


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## Purple (13 Jan 2022)

Dublinbay12 said:


> I was answering based on your initial point that deposits are riskier than equities


"Risk" is the erosion of the real value of your wealth. Given that it is true to say that in the last 50 years cash has been  riskier than equities as a medium to longer term investment.


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## Steven Barrett (13 Jan 2022)

When people want to plan for the future, they like to think in fixed amounts. I would like €200k and I want to invest in the assets that will produce that amount each year. 

In reality, the amount you need each year will vary and so will the return that your investments will make. 

You may buy a new car, need to get a new kitchen. As we have just seen, living our lives and spending could be stopped by a pandemic. You wouldn't have needed €200k in 2020. Likewise, the dividend paid from shares or rental income may vary too. 

You have an idea of the cost of your lifestyle, which is great. You probably have enough money for the rest of your life. You haven't told us how much money you want to pay your brothers. Also, is it a good idea to pay them a salary? Will you pay them enough so they give up their own jobs?

You came on here looking for people in a similar position to you. You are in the 1% and well done for doing that. But there isn't a lot of people who have done what you have done, especially at your age. It usually takes decades to do that and at that point. 


Steven
www.bluewaterfp.ie


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## Always Learning (13 Jan 2022)

@Sarenco @Brendan Burgess - I don't intend to manage the property portfolio myself. Isn't that what a management company does, pay them a fee (10%?) and have them deal with the hassle of finding tenants, collecting rent etc? 

@Steven Barrett - my brothers aren't actively involved in the business but I'd like to make them comfortable nonetheless. Pay off their mortgages and give them a wage / dividend (have to talk to my tax man to see what works best) of around €15K each to top up their existing income. I have 3 brothers. I prefer to deal in a fixed amount rather than variables, and I will tailor my needs around that. If I want a new car, kitchen etc. I would tailor that around when I have the money to do that rather than let the fact I want a new car determine how much of a wage I take that year, I will let how much money I have that year determine whether I can buy a new car / kitchen. 

"You are in the 1% and well done for doing that." I don't really deserve any credit here, I'm very lucky and this fell into my lap. I don't want to portray the false image that I'm some kind of young business guru. That's far from true.


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## Sarenco (13 Jan 2022)

Always Learning said:


> I don't intend to manage the property portfolio myself. Isn't that what a management company does, pay them a fee (10%?) and have them deal with the hassle of finding tenants, collecting rent etc?


Fair enough but bear in mind that you will be putting your rental business in someone else’s hands.  

You won't find a property manager who cares about your rental business as much as you do.


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## DublinHead54 (13 Jan 2022)

Purple said:


> "Risk" is the erosion of the real value of your wealth. Given that it is true to say that in the last 50 years cash has been  riskier than equities as a medium to longer term investment.



That is not what Risk is.....


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## DublinHead54 (13 Jan 2022)

Gordon Gekko said:


> Hi Dublinbay12,
> 
> The more relevant question is “What is Risk?”.
> 
> ...



Volatility is not only for the investment world, anyone investing in equities should understand the concept of volatility. You are right though I am broaching this subject of risk based on how it is viewed and managed in financial institutions and regulated for by our local and international regulators. 

The actual loss and gain are dependent on market and economic factors.

The way I consider your below points are that in the first sentence you are taking a low risk approach which results in an actual loss due to current market conditions of low interest rates + inflation. The second point you are taking a riskier approach which should result (not guaranteed due to market and timing factors) in no loss.



Gordon Gekko said:


> I’m young enough. If I keep my money in cash, I’m guaranteed to lose money in real terms.
> 
> If I invest in equities, and I’m diversifed, I won’t.



This is why every pension funds advertises the risk profile of their funds on a scale 1 to 5, or why Greek Government Debt yields more than US Treasuries etc etc. 

There are obviously riskier aspects to each asset class, for example a broad based market indice is the least risky wheras punting your money on a company drilling for oil in Africa is probably the riskiest.


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## Always Learning (13 Jan 2022)

Sarenco said:


> Fair enough but bear in mind that you will be putting your rental business in someone else’s hands.
> 
> You won't find a property manager who cares about your rental business as much as you do.


No, that's very true. Then again, no matter what industry you are in, no body cares about your business as much as you do. Staff, advisors, property managers. Unless they have their own money on the table, no on ever works like you do for your money.


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## Brendan Burgess (13 Jan 2022)

Dublinbay12 said:


> This is why every pension funds advertises the risk profile of their funds on a scale 1 to 5



That doesn't matter. They are wrong. 

Volatility is short term risk.

It is of very little meaning to a long-term investor.

The industry likes volatility because they can measure it.

It's a very poor substitute for risk.

A deposit which has reduced in real value consistently over the last 20 years would be regarded as zero risk. Whereas an asset with an average return of 5% but yo yoing about would have very high volatility. 

Brendan


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## flyingfolly (13 Jan 2022)

At the end of the day, with 6 million, if you want to keep your money "safe" while also growing it, the only way to do that will be to ensure you are diversified in your investments.  With inflation ramping up now, your money will reduce at 5% a year by doing nothing (who knows when inflation will slow down)

There's so many different options, but if I was in your position, I would first of all get a *very *good understanding of how investing in equities / ETFs works. Read some books, get some training and invest 1,000 of real cash into a platform like Degiro to see what happens over the course of a few weeks. 

Then I would split the money 50/50 - half in property and half in equities. The stock market and the property market are both at all time highs right now, but at least by diversifying you are reducing your risk by being allocated to one area. Being in equities helps further diversify you throughout different world markets and industries. 

You could look at buying into an ETF like this one which is a dividend paying ETF that pays around 4% per annum: https://www.marketwatch.com/investing/fund/spyd

3 million would give around 120k per year return in dividends (ignoring the natural growth - that fund grew at 8% in the past 5 years, while paying a dividend). Then 3 million of property would get you say 12 properties at 250k each. Say they're all 3 beds and pay 1200 a month that's 172,800 per year - 10% management fee makes it 150k per year. 

That would give you close to your 200k per year to live on, while potentially increasing the principal (growth of property value and shares) diversified across multiple sectors. But that's *pre-tax*.

If you wanted to throw some extra risk in there, put 10k into bitcoin and leave it for 20 years I guess!


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## Marc (13 Jan 2022)

Always Learning said:


> I didn't see this before responding to the last post. Wow, that's interesting. Very interesting. The daunting aspect of that is I have absolutely no expertise in the area. I don't know how investing in stocks or shares works. I don't know how I can draw the money down, how it works from a tax perspective etc. But looking at that graph, I'm eager to learn a bit more. Once everything is signed, sealed and delivered on my deal, I will be seeking out an expert in the field and definitely explore these options. What kind of annual return could you reasonably expect from investing in equities at the moment?
> 
> One problem I see straight away with equities is that if it goes wrong, you loose everything and have nothing to show for it. In property, when the market crashes again, once I have no loans I just ride out the storm and take my rental income and eventually the market will rise again and my assets have value again.



Again this is a classic familiarity bias. You have little experience of investing in global capital markets so that "appears" to be more risky. Whereas you do have experience of a few rental properties in Cork and (so far) you haven't had a bad experience so that "appears" to be less risky.

Take a step back and think about what could go wrong with putting it all into property





The reality is if you want to run a business be a landlord if you want a passive income invest in a portfolio and leave it alone. We generally ask prospective clients to have a chat with an existing client who has been down this road before and will give you their experience of all the mistakes they made.


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## DublinHead54 (13 Jan 2022)

Brendan Burgess said:


> That doesn't matter. They are wrong.
> 
> Volatility is short term risk.
> 
> ...



Brendan, volatility is not a short term measure, it can be measured against any length of historical data. What you are quoting likely is the VIX index / futures products and option models that generally use 3 month maturity for pricing. Volatility is not short term risk nor is it a substitute for risk, it is a component of risk. 

Anyway we are off topic, happy to discuss risk management via Private message.

Again for the poster I suggest they talk to some financial planners and wealth managers. I would also disregard some comments here about Wealth Managers just trying to sell you products to make commission. The industry is highly regulated now (MIFID II) and you should be able to act in confidence that they aren't trying to rip you off.


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## Purple (13 Jan 2022)

Dublinbay12 said:


> That is not what Risk is.....


 Risk is any uncertainty with respect to your investments that has the potential to negatively affect your financial welfare. In that context keeping your wealth in cash is high risk, based on the experience of the last 50 years. The uncertainty here being that returns on cash will devalue relative to inflation... actually it's more of a certainty than a risk so maybe you're right.


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## RetirementPlan (13 Jan 2022)

Always Learning said:


> and a small salary for brothers / friend say maybe €15K x 3 to top up their other income.


You can give €3k each year to anyone as a gift with no tax impact. If you gave €3k each year to each of de brudder, de brudder's partner, maybe to a child or two, that family will end up with more than they get from your €15k employment, and you'll have none of the hassles and indeed liabilities of an employer.

That's my plan for sharing the loot after Saturday night anyway.


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## flyingfolly (13 Jan 2022)

Dublinbay12 said:


> ...Wealth Managers just trying to sell you products to make commission. The industry is highly regulated now (MIFID II) and you should be able to act in confidence that they aren't trying to rip you off.



Have recently had an interaction with a wealth manager who was trying to sell me a product that is completely wrong for my risk tolerance level and age. I would advise that just because the industry is "highly regulated" doesn't mean there aren't plenty of bad apples out there trying to just flog whatever will make them money


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## DublinHead54 (13 Jan 2022)

Yes Purple, I agree risk is uncertainty, but that differs to your first point. I was going to quote the same definition, holding cash right now it is known that your money will lose value, there is no uncertainty correct? I can say that my interest rate tomorrow is 0.1% and inflation is 5%, there is no uncertainty.

When I invest in Equities I can't say what the price will be tomorrow with certainty. That is the risk. 



Purple said:


> "Risk" is the *erosion* of the real value of your wealth. Given that it is true to say that in the last 50 years cash has been  riskier than equities as a medium to longer term investment.





Purple said:


> Risk is *any uncertainty* with respect to your investments that has the potential to negatively affect your financial welfare. In that context keeping your wealth in cash is high risk, based on the experience of the last 50 years. The uncertainty here being that returns on cash will devalue relative to inflation... actually it's more of a certainty than a risk so maybe you're right.


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## DublinHead54 (13 Jan 2022)

flyingfolly said:


> Have recently had an interaction with a wealth manager who was trying to sell me a product that is completely wrong for my risk tolerance level and age. I would advise that just because the industry is "highly regulated" doesn't mean there aren't plenty of bad apples out there trying to just flog whatever will make them money



I suggest you report that to the CBI. There is a defined set of products that can be offered to Retail Investors, and there is a bar to hurdle to be treated as a professional investor, and if treated as a professional investor you should be able to understand the products sold to you. 

Also generally you have to already be onboarded as a client before a wealth manager can try and sell you anything.


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## Always Learning (13 Jan 2022)

flyingfolly said:


> At the end of the day, with 6 million, if you want to keep your money "safe" while also growing it, the only way to do that will be to ensure you are diversified in your investments.  With inflation ramping up now, your money will reduce at 5% a year by doing nothing (who knows when inflation will slow down)
> 
> There's so many different options, but if I was in your position, I would first of all get a *very *good understanding of how investing in equities / ETFs works. Read some books, get some training and invest 1,000 of real cash into a platform like Degiro to see what happens over the course of a few weeks.
> 
> ...


Thanks for taking the time to respond. Yes what you have posted there is probably the direction I will end up going in. Although I intend to spend around €125K per property with a return of €12-14K per annum. At the moment, I'm a complete beginner in the field of EFT's (I had to Google what that meant). 

I have a specific field of expertise and I'm quite good at making money in that particular field. Now that I'm out of that industry and I can't return for the foreseeable future, I have a new challenge. I have to learn how to make money with money, as opposed to making money with the service I used to offer. Don't get me wrong, it's a fortunate position to be in but it does represent a challenge and I have a lot of learning to do. 

Of course in addition to getting opinion's here I'll be getting a lot of professional advice. It's good to get information from multiple sources and this forum has been quite interesting to hear the different opinions so far.


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## Purple (13 Jan 2022)

Dublinbay12 said:


> When I invest in Equities I can't say what the price will be tomorrow with certainty. That is the risk.


And in the medium to long tern you cannot say what the interest or inflation rates will be with certainty. This is a risk.


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## Always Learning (13 Jan 2022)

RetirementPlan said:


> You can give €3k each year to anyone as a gift with no tax impact. If you gave €3k each year to each of de brudder, de brudder's partner, maybe to a child or two, that family will end up with more than they get from your €15k employment, and you'll have none of the hassles and indeed liabilities of an employer.
> 
> That's my plan for sharing the loot after Saturday night anyway.


Yes thanks for sharing that. Good luck on Saturday - although I'm planning on winning that myself, so perhaps not!


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## RetirementPlan (13 Jan 2022)

Always Learning said:


> although I'm planning on winning that myself, so perhaps not!


Greedy guts.


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## DublinHead54 (13 Jan 2022)

Purple said:


> And in the medium to long tern you cannot say what the interest or inflation rates will be with certainty. This is a risk.



True, but you can say with more certainty what the interest rates will be in 12 months time than you can the level of the equity market  As the European Central Bank has said they will be ready to raise rates in early 2023. That is why the Equity market is riskier, greater uncertainty.


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## Always Learning (13 Jan 2022)

Marc said:


> @Always Learning one simply bit of advice is get some objective professional financial planning advice BEFORE you make any decisions.
> 
> I'm a financial planner but I don't believe any one of us has financial goals. We have lifestyle goals that have financial implications. We need objective professional guidance because when making decisions we all suffer from predicable psychological blockages
> 
> ...



@Marc - Thanks for those links. I'm going to take a read through these the next time I get some time.


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## Purple (14 Jan 2022)

Dublinbay12 said:


> True, but you can say with more certainty what the interest rates will be in 12 months time than you can the level of the equity market  As the European Central Bank has said they will be ready to raise rates in early 2023. That is why the Equity market is riskier, greater uncertainty.


Over the longer term Equities have consistently out performed savings so in the context of which offers the best chance of the greater return equities are a better bet. If the question is framed as "which offers the greater risk of a real devaluation in your wealth", then holding that wealth on deposit is riskier.


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## fonduster (14 Jan 2022)

I would agree with most people here that given the amount of money you are dealing with, i would diversify and not invest all your money in property in one region. I think i would split the money as follows if i was in your situation:

Property: 2.5m
-I know you said you didnt want to use leverage however debt is one of the greatest tools to grow your wealth. If used correctly and in your case, you could easily have a low LTV, it shouldnt become a worry yet still grow your net worth over time. 
-I would take out debt of 20pc of your overall net worth of 1.2m @5pc interest rate(even though you can currently get 4pc rates) > At current costs, this would equate to a mortgage payment of 74kpa (interest only portion @50pc for simplicity is 37k). 20pc leverage across your entire portfolio puts you in a very low risk profile to me at least and you would also be growing your net worth by 37k pa through capital payments in your mortgage.
-I would allocate 2.5m of your existing money along with the 1.2 to property giving you property exposure of 3.7m.
-At a 10pc gross yield rate this would give you cashflow of 370k pa.
-I think you didnt account for costs when doing your calculations. I would estimate 12pc for maintenance(45k), 12pc for vacancy(45k), 10pc for management (37k). Some years costs might be lower, some years higher so better to include these.
-So total gross - costs is: 370k - (45+45+37+37)=206k or around 100k net.

Pension: 500k
-Ok so given you are no longer working and a pension is one of the greatest tools to grow your wealth, would you consider setting up your own pension and buy property worth circa 500k with it. All extra income generated in the pension would then be sent to an etf within the pension and in 35 years time, it should have grown to a nice amount.
-Private pension schemes have changed in recent years where costs and legislation may not make it feasible any longer so more research in this would be needed. 

EIIS Scheme: 250k
-The EIIS scheme invests in small SME in ireland and is inherently risky however it acts as another form of diversification to spread your assets into various areas. 
-you get 40pc back as a tax relief in the year after you invest and you need to hold the money in these funds for a min of 4-5years.If your lucky you might get an extra 5-10pc in gains but i would just be hoping to get my original amount back along with the tax relief. You may not get all your money back and you cant offset it as a loss.
-I would put 50k in every year for 5 years and let the cycle continue after the 5 year mark ends when you start to receive your original investments back and reinvest it in EIIS schemes.
-To limit your risk, i would spread the 50k equally between BDO,BEP and Goodbody.
-This scheme would equate to you getting an extra 20k in tax relief off your rental and dividend income.

Stocks: 2.5m
-So about 3/4 years ago, i was in a similar situation to you where i didnt understand stocks and was nervous of getting into them. I had a thread at the time where i had 2m in property and i was nervous of allocating 10k to stocks. The best way to overcome this at least for me was to google how to read balance sheets and how best to invest in them. Im by no means a stocks guru but to me it was about confidence in understanding it so i can invest in it. Im of a similar age to you and i personally used youtube to understand stocks. You will get all types on youtube so take some of them with a pinch of salt but it can be useful to get several different opinions on how to rate stocks and then build your own opinion on what strategy will work best for you.
-Unlike property where you have direct control of the asset and you can do your own value add etc,you have less control over what a company does however if you invest in good companies, they should flourish over the long term and i would target a mix of stocks with good capital appreciation to limit your tax exposure and some dividend stocks. 
-I would not buy ETF or stock funds. With ETF's even if you dont sell them, ireland have an awful tax called deemed disposal where you need to pay tax on the etf @41pc every 8 years. Its awful for net worth growth if your intending to hold these long term. Funds are even worse again.
-If you do your own research and you put between 50-100k in 25-50 companies, you will have your own mini etf and most importantly you will only pay tax or offset a loss when you decide to sell.
-In terms of dividend stocks, dont focus on getting the largest yield as the payout ratio might be unsustainable and the yield might decrease over time. Just focus on solid healthy companies that are boring and well known. Google dividend kings and dividend aristocrats
-I know it might be nerve racking picking companies but just go for big well known companies that you know of such as facebook, mcdonalds, coca cola, johnson and johnson etc. Some might be a little expensive relative to others but large cap stocks are well known and strong companies over the long run although might not produce the returns of some small cap companies but will be safer and will keep your mind sane.
-Do not lump sum invest in stocks. The last thing you want to do is to put 2.5m into stocks in one go. You might invest at the worst possible time so please dollar cost average in. Likewise one of the hardest things to adjust to in stocks is looking at the value of them change daily. Unlike property where its usually slow gains/decreases where you can estimate but never truly know the exact amount until you sell, you can see the exact amount all your stock portfolio is worth if you sold it right now. For a portfolio size of 2.5m. You could see portfolio fluctuations of between 1-3pc on a daily basis and if you see your stocks going up by 75k in one day, thats great but if it drops 75k, its hard to stomach. At least if you start small and continue to dollar cost average in until you get to 2.5m, its easier on the emotions.
-if you have a diversified stock portfolio you might have dividends of circa 1.5pc pa which would equate to another 37k stream or circa 18k net > this is highly dependant on what stocks you invest in and i would recommend not going too heavy on dividend stocks as you are still young but its healthy to have a broad mix of a few of them.

Cash: 250k
-i prefer to live off future money earned vs this lump sum that you just got but its always nice to have some cash on standby just in case. 

Total cashflow:
Property:206k
EIS: 20k tax relief
Dividends: 37k
Net:140k

I hope the above helps and wish you good fortune on the next chapter of your life.


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## _OkGo_ (14 Jan 2022)

Firstly, its a massive accomplishment to be in your position so well done.


Marc said:


> What you need to do is take a step back and ask yourself what you want to do in life and bend your money to that rather than focus in investing for the sake of making money.



I think Marc has summed it up well here. What do you actually want to do now that you have sold your company. You are probably not one to go from running a business to doing nothing. You'll probably take time out but then want to return to some type of work. Why not invest in yourself and take a chunk of the money to study something new and apply your skillset somewhere else? Those non compete agreements are usually no longer than 18-24 months so at some point you might be able to consult in that industry




Always Learning said:


> To provide a generous annual salary for myself / dependents of circa €200K. and a small salary for brothers / friend say maybe €15K x 3 to top up their other income.
> To grow the value of the assets over the years to provide for future generations.


Why €200k? Most high earners on that kind of income are funding a pension, paying down a mortgage and probably paying for other expensive things like childcare or education at different points through their career. You don't need to do any of this so the amount of money you need to live a very comfortable life is probably much lower. Holidays and cars are likely to be your only big spends. And you haven't mentioned one yet but if you have a spouse, 2 x €100k salaries are better than 1 x €200k

As for your brothers/friend, I don't think you can pay anyone a salary if they don't actually work for you. You might be able to do it but I don't think it is a legitimate thing to do. As others have said, using the annual gift exemption is the easiest way of helping them out if you are feeling generous. And if you (or they) have spouses, it is easy to transfer quiet a bit of money tax free each year

And also, as Marc suggested, I think you have familiarity bias with the idea of running a rental business. If you want your wealth to be intergenerational as suggested, you need to look at this with several decades in mind. The type of property that you are suggesting to buy will not last. They are generally old, cold and on the edge of needing major renovations. I don't think much will change in the short term but it is a realistic assumption that housing needs, supply and standards will improve over the next 10-20 years. Do you really want to be left holding 50 units of the worst possible stock? This type of property could suffer the most in terms of rental yield and asset value. 

Even the assumption that a management company will do this for a set percentage needs to be questioned. There is a lot of work in 50 low value units for 60k (10%). They would naturally prefer to manage higher value properties. So it is very possible that they will have a set minimum fee per unit and not a percentage. This would be your burden if gross rental dropped in the future.

With all that said, you should probably take a few months to relax, enjoy it and then research all your possibilities. You may end up going down the property route to some level but don't just jump into it straight away because you have been lucky with 3 properties already


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## DublinHead54 (14 Jan 2022)

Purple said:


> Over the longer term Equities have consistently out performed savings so in the context of which offers the best chance of the greater return equities are a better bet. If the question is framed as "which offers the greater risk of a real devaluation in your wealth", then holding that wealth on deposit is riskier.



Sorry, but the question is not framed that way, this is a question of Risk and Equities are a riskier asset class than cash. You included the definition of risk that stated it was the uncertainty, and Equities carry more uncertainty than the value of cash. The time horizon is a variable that generally holds true that if you hold equities longer you have a better chance of generating a return and negating the volatility. However this is timing the market to an extent. If I bought a market index ETF on 31st December 2019 to sell on 20th March 2020, I would have lost money. 









						Which Asset Classes Are the Most Risky?
					

Understand why equities and real estate are the two riskiest asset classes – even though they also provide the greatest potential for investment returns.




					www.investopedia.com
				




That is all I have to say on the matter.


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## Brendan Burgess (14 Jan 2022)

Hi Dublin Bay

Risk is not uncertainty, although uncertainty is a part of risk.

If I toss a coin and heads will give me +€100 and tails will give me +€200 , there is no risk, although it is uncertain.

Risk is the chances of a loss in real terms over the term of your investment. 

If I am buying a house next month, then putting my money on deposit is almost zero risk.  Putting it in shares is extremely risky.

If I am investing for the next 20 years, then it is very risky. There is a real chance, probably an expectation,  that inflation will exceed the after-tax deposit interest.    If I invest in a balanced portfolio of shares over 20 years, there is a chance that inflation will exceed the after-tax return on those shares.  So there is some risk, but it's a smaller risk than having money on deposit for 20 years. 

The problem for most people is that they don't  notice the value of their deposit falling as it's so gradual. However, they will see the value of their shares going up and down which is why they and the industry describe it as risky.

Brendan


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## Purple (14 Jan 2022)

Dublinbay12 said:


> Sorry, but the question is not framed that way, this is a question of Risk and Equities are a riskier asset class than cash. You included the definition of risk that stated it was the uncertainty, and Equities carry more uncertainty than the value of cash. The time horizon is a variable that generally holds true that if you hold equities longer you have a better chance of generating a return and negating the volatility. However this is timing the market to an extent.


Over a long period, as I have made clear in my posts, the risk of losing wealth is lower in equities than it is in cash.  Therefore, in the longer term, holding wealth in equities is lower risk than holding wealth in cash. 



Dublinbay12 said:


> If I bought a market index ETF on 31st December 2019 to sell on 20th March 2020, I would have lost money.


Nobody is suggesting otherwise. 


Dublinbay12 said:


> That is all I have to say on the matter.


Good, that'll save me the hassle of having to keep correcting you.


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## DublinHead54 (14 Jan 2022)

Brendan Burgess said:


> Hi Dublin Bay
> 
> Risk is not uncertainty, although uncertainty is a part of risk.
> 
> ...



Hi Brendan,

I think you meant to address @Purple as it was they who defined risk as uncertainty (see below). Although I do agree and so does consensus.

_*Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.*_









						Risk: What It Means in Investing, How to Measure and Manage It
					

Risk takes on many forms but is broadly categorized as the chance an outcome or investment's actual return will differ from the expected outcome or return.




					www.investopedia.com
				





I disagree with how you view risk, and how I view risk is aligned to how academia and financial markets assess and discuss risk. Not to be patronizing but I hold professional qualifications in Risk Management and have worked in the area in Financial Institutions for over 2020 years. I do understand the angle that you and others are approaching it from, the perspective of the change in value of your funds over a long period without considering the risk However, your definitions are dependent on the factor of time  and you evidence the riskiness of equities over a short period in your example.

A good comparison example is that on another thread you were against investing in Equities if you carry a mortgage because you can pay off a mortgage saving the interest rate for risk free. This is the same concept as what I discuss here with the exception instead of a positive risk free return (of the mortgage rate) you are receiving a negative rate. If your cash held on deposit was earning a positive return above inflation, would your stance remain the same to invest in equities instead of holding cash? The levels of reward vary overtime, in the current low rate environment positive yields are in riskier assets, at other points in times yields have been different.

This is the very concept of the risk premium, as defined before. So yes I agree that over a longer period of time Equities should return more than cash held on deposit at current rates, but I am taking on the risk that it won't at the time of market exit.

_"A risk premium is the investment return an asset is expected to yield in excess of the risk-free rate of return. An asset's risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a risk-free asset."_









						Risk Premiums: Like Hazard Pay for Your Investments
					

A risk premium is the return in excess of the risk-free rate of return that an investment is expected to yield.




					www.investopedia.com
				







Purple said:


> Risk is *any uncertainty* with respect to your investments that has the potential to negatively affect your financial welfare.




It is extremely misleading the terminology being used to describe Risk. Nobody reading this forum should think that Equities are a less risky asset class than cash. If you do, then you really need to use the services of a qualified Financial Advisor.


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## Brendan Burgess (14 Jan 2022)

I am speaking about the risk of loss.

You are speaking about something else entirely. And if that is the academic definition, it's still nonsense.

_*Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return.*_

If I play poker with you, and if I am a far better poker player I will expect to win €500 per session. 
Well if I win only €300 you are telling me that I took a risk because it's less than I expected to win. 

If I play poker with Purple and we are equally skilled, I am taking a real risk of loss. 

What most investors should care about is the risk of real loss.  That is their money losing real purchasing power.

Brendan


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## DK123 (14 Jan 2022)

What if?.Protect the downside[lower the risk] on shares by having  for example an automatic selling point or stop loss system in place  for  when they start falling, but this would apply only for short term equity investment and not for long term equity investment because with long term you would only be turning a temporary loss into a permanent loss and you would likely miss the inevitable upturn by useing this method.P.S.No financial qualifications,but learned a bit from common sense and university of life.


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## Bank Manager (14 Jan 2022)

Dublinbay12 said:


> and have worked in the area in Financial Institutions for over 2020 years.



makes my 40 years look very meagre...


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## Purple (14 Jan 2022)

Dublinbay12 said:


> It is extremely misleading the terminology being used to describe Risk. Nobody reading this forum should think that Equities are a less risky asset class than cash. If you do, then you really need to use the services of a qualified Financial Advisor.


Over the medium to long term holding wealth in cash (deposits) is more likely to lead to an erosion of the real value of that wealth than holding it in equities. 
Therefore if you want to minimise the risk of a real loss in the value of your wealth you are better off holding it in equities instead of holding it in cash. 

It is extremely misleading to suggest otherwise.


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## Brendan Burgess (14 Jan 2022)

Dublin Bay

I wonder if we are all agreed in reality but that you have some technical definition of risk which means something else? 
So let's forget the word "risk" for the moment. 

I have €100k to invest for 20 years. 

1) I think we are all agreed that if I invest that in equities, it is likely to be higher than if I leave it on deposit.  (But this has nothing to do with risk) 

2) There is a chance that if I invest in equities that it will lose real value. I presume we are all agreed on this? 
3) There is a chance that if I leave it on deposit that it will lose real value.  I presume we are all agreed on this? 

In my opinion, the chance of an investment in equities losing real value is lower than the chance of a deposit losing real value. 

Do you agree or disagree with that?


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## DublinHead54 (14 Jan 2022)

Brendan Burgess said:


> Dublin Bay
> 
> I wonder if we are all agreed in reality but that you have some technical definition of risk which means something else?
> So let's forget the word "risk" for the moment.
> ...



Brendan,

The fundamental concept that is misaligned is that risk can be viewed without needing to root it in time. Time is an additional variable that can help you decide *how* risky an investment it, in the same way the specific equity (individual stock vs market indice) is another variable.

In your example above I agree that over 20 years the chance of investment in Equities losing real value is lower than the chance of a deposit losing real value based on todays market conditions.

If I make one change to your above example and ask the same question, how do you answer?


Brendan Burgess said:


> I have €100k to invest for 20 *days*
> 
> 1) I think we are all agreed that if I invest that in equities, it is likely to be higher than if I leave it on deposit.  (But this has nothing to do with risk)
> 
> ...



In my opinion you and other posters are hung up on the future real world value of deposits decreasing given the current market conditions, and consider this as risk. However, the value change is the reward (risk premium) for taking risk. The least risky and thus lowest reward is holding money on deposit, unfortunately at the minute that premium is 0% which is not good with inflation rising. The risk premiums increase as you go through different types of assets, e.g. after cash it would be treasuries then fixed income, to equities etc.

This isn't some abstract academic concept that isn't applicable in the real world. These concepts are in place day to day, and if what I was saying wasn't true, I would be extremely worried about the capital position of our banks.


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## DublinHead54 (14 Jan 2022)

Bank Manager said:


> makes my 40 years look very meagre...



It feels like 2020 years at times!


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## DublinHead54 (14 Jan 2022)

Purple said:


> Over the medium to long term holding wealth in cash (deposits) is more likely to lead to an erosion of the real value of that wealth than holding it in equities.
> Therefore if you want to minimise the risk of a real loss in the value of your wealth you are better off holding it in equities instead of holding it in cash.
> 
> It is extremely misleading to suggest otherwise.



Hi Purple,

I can suggest some good resources for you to read. I get what you are saying, but that is not risk, and we will continue to go around in circles. 

Your point really only works over medium to long term based on historical data of a market index. You can't say the same points for short time horizons or for individual stocks. I've explained how risk is viewed in the market in my response to Brendan.


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## ClubMan (14 Jan 2022)

Dublinbay12 said:


> Brendan,
> 
> The fundamental concept that is misaligned is that risk can be viewed without needing to root it in time. Time is an additional variable that can help you decide *how* risky an investment it, in the same way the specific equity (individual stock vs market indice) is another variable.


Brendan asked some simple yes/no questions and you're responding with jargon.


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## Purple (14 Jan 2022)

Dublinbay12 said:


> Your point really only works over medium to long term based on historical data of a market index. You can't say the same points for short time horizons or for individual stocks. I've explained how risk is viewed in the market in my response to Brendan.


I've been clear that I'm talking about the medium to long term and I'm clearly not talking about individual stocks.


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## DublinHead54 (14 Jan 2022)

Brendan Burgess said:


> _*Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return.*_



If I put 100k on deposit today knowing it earns 0%, the expected return is 0%, so where is the risk per your definition above? 

The additional variable is inflation, but the uncertainty of inflation also impacts your return on in Equities.


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## Purple (14 Jan 2022)

Dublinbay12 said:


> The fundamental concept that is misaligned is that risk can be viewed without needing to root it in time. Time is an additional variable that can help you decide *how* risky an investment it, in the same way the specific equity (individual stock vs market indice) is another variable.


Given that investments are made over time it is correct to say that time is always a variable.


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## DublinHead54 (14 Jan 2022)

Hi Clubman, 

I suggest you reread Brendans post, as the 'jargon' you refer to was in response to Brendans question of whether I have a technical defintion. The only other question he asked, I answered with a Yes. I've asked him the same question, so hopefully he responds. 


ClubMan said:


> Brendan asked some simple yes/no questions and you're responding with jargon.





Brendan Burgess said:


> I wonder if we are all agreed in reality but that you have some technical definition of risk which means something else?






Dublinbay12 said:


> your example above I agree that over 20 years the chance of investment in Equities losing real value is lower than the chance of a deposit losing real value based on todays market conditions.


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## DublinHead54 (14 Jan 2022)

Purple said:


> Given that investments are made over time it is correct to say that time is always a variable.



What are your thoughts then on what is riskier over a 20 day period Equities or Cash Deposit?

P.s I assumed it was obvious that the time variable is always a consideration.


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## Brendan Burgess (14 Jan 2022)

I think we are all agreed. 

If I have €100k to invest for 20 days, there is a big chance that I may lose some of it by investing in equities and a negligible chance that I will lose any of it on deposit.

You seem to agree that if it's over 20 years, it is more likely to lose value on deposit than in the stock market.

Brendan


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## Brendan Burgess (14 Jan 2022)

The industry says "deposits are safe and the stock market is risky" and lots of people have lost a lot of money and missed out on making a real return because of that.

Brendan


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## DublinHead54 (14 Jan 2022)

Brendan Burgess said:


> The industry says "deposits are safe and the stock market is risky" and lots of people have lost a lot of money and missed out on making a real return because of that.
> 
> Brendan



Lots of people also invested in the stock market and lost lots of money, lets not forget that.


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## Marc (14 Jan 2022)

A good place to start is this book






						Amazon.com: Against the Gods: The Remarkable Story of Risk: 8601401203407: Bernstein, Peter L.: Books
					

Amazon.com: Against the Gods: The Remarkable Story of Risk: 8601401203407: Bernstein, Peter L.: Books



					www.amazon.com


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## NoRegretsCoyote (14 Jan 2022)

Dublinbay12 said:


> why Greek Government Debt yields more than US Treasuries etc etc


Not lately! You might need to rebalance your portfolio


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## DublinHead54 (14 Jan 2022)

NoRegretsCoyote said:


> Not lately! You might need to rebalance your portfolio



I leave my portfolio to the professionals with the meaningless qualifications and who don't understand risk!


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## Brendan Burgess (14 Jan 2022)

Dublinbay12 said:


> I leave my portfolio to the professionals with the meaningless qualifications and who don't understand risk!



That is very dangerous.  You should keep an eye on it yourself.

Brendan


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## Marc (15 Jan 2022)

since this discussion has descended into a debate about what risk means to investors this is a relevant piece in the FT



			https://www.ftadviser.com/your-industry/2021/12/23/clients-concerned-about-advisers-understanding-of-risk-tolerance/


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## Gordon Gekko (15 Jan 2022)

OP, with the amounts involved, I’d be wary of dealing with smaller providers or people touting for business online.

I would organise a beauty parade and go and speak to 4/5 of the biggest wealth managers in the country.

I would listen to what they have to say and ask tough questions. There is no such thing as a silly question. If they can’t answer your question, they’re spoofing.


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## Gordon Gekko (15 Jan 2022)

One further tip, when you want to engage with them, don’t under any circumstances cold call. You’re at the mercy of the eejit who picks up the call as he/she will claim you as a prospect. The best people tend to be busy. Pop emails to the CEOs and they’ll stick their best teams on it. Simon Howley, Keith Ryan, Eddie Clarke, Brian Weber, Pat Cooney.


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## SPC100 (15 Jan 2022)

That sounds like great practical advice and a useful list. Would you expect much variation in fees among that group, or vs this board's well known commentators.


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## Gordon Gekko (15 Jan 2022)

SPC100 said:


> That sounds like great practical advice and a useful list. Would you expect much variation in fees among that group, or vs this board's well known commentators.


I wouldn’t, no.


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## Horatio (15 Jan 2022)

@Always Learning Learning , first, hat's off to you. You have your financial stability house in order in your thirties. You've been humble in your posts but I doubt it's all down to pure luck. Acknowledge your inputs & resulting outcomes.

I would strongly echo what Brendan & other wrote here about diversification & also dollar cost averaging & getting professionally trained on markets & investing. You can afford the time & the cost now. Maybe it could be a new career that you come to love rather than a means to a 200k end?

One thing that I didn't read in this thread is considering where you will live. In your shoes I would be looking at my options for living internationally incl. Ireland for some of the time. There are potential lifestyle & wealth preservation benefits of being resident in different territories.

Spread your investments:

Equities & ETF / trackers.
Diversify within your Equities & ETF's across geography, sectors & risk profiles.

Property in Ireland (consider REIT's - you get the exposure without the headache of managing properties & tenants) 
Property overseas (*strong *Market due diligence is warranted here).
Marc alluded to the fire & flood risk associated with physical properties. Again diversify your physical across domestic & perhaps international geographies. Imagine you buy the block of 20 & it burns down one night or the whole block has a materials or structural problem. 

Physical gold or other precious metals. Gold is VAT free afaik.
Cryptocurrencies (get educated on this topic)
DEFI (decentralized finance - as a lender)
Take a look at NTMA's offerings for pig iron.
You mentioned that you are precluded from competing in your industry. Like the others wrote I'd be surprised if this is perpetual. Figure that one out. If it is perpetual don't think that all is lost, your skill can almost certainly be pivoted to a tangential / parallel aspect of that industry or be applied in a different manner that would not mean falling foul of the agreement.

A mattress expert may for example turn his skills to couches or office chairs or fitting out trains. You get the idea. Think laterally here.

Best of luck to you!


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## Brendan Burgess (15 Jan 2022)

Horatio said:


> I would strongly echo what Brendan & other wrote here about diversification & also dollar cost averaging



Just to be absolutely clear : I said nothing about dollar cost averaging. It  is a fiction. 

Brendan


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## Horatio (15 Jan 2022)

Brendan Burgess said:


> Just to be absolutely clear : I said nothing about dollar cost averaging. It  is a fiction.
> 
> Brendan


Fair enough. 
I was attributing that to another contributor.


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## Marc (17 Jan 2022)

SPC100 said:


> That sounds like great practical advice and a useful list. Would you expect much variation in fees among that group, or vs this board's well known commentators.



I suppose you could conduct some sort of ex ante cost comparison


Typical Life Assurance contract based on Zurich LifeSave Investment Bond fund specific informational booklet Dimensional World Equity Fund.
Typical Irish Stockbroker based on MiFID II ex-post cost disclosure document.

Or maybe some sort of ex post analysis after costs over a decade









						In Search of the Perfect Investment Portfolio - Everlake
					

Many investors find it difficult to achieve returns offered by the markets due to a misunderstanding of investment risk, costs and taxes.




					globalwealth.ie
				




You know, to avoid the risk of being overly prejudiced


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## Gordon Gekko (17 Jan 2022)

I have a number of questions and observations regarding the above post:

- Note the use of the term “Irish Stockbroker” in the chart; nobody mentioned stockbrokers or stockbroking services

- Also note the use of the term “life assurance company”; nobody mentioned life assurance; what’s the thinking behind the use of either term?

- These are then compared with a “Global Wealth Investment Portfolio”; what is that and who manages it? What research resources do they have? Are there any performance figures available (independently vetted of course)?

- Who put the chart together? Someone unbiased I hope

- Where are those costs and charges numbers coming from? I have never seen a MiFID disclosure with 3% on it or a life company charge of 2.5%, particularly for a sum in the millions

I am entitled to my personal view, and it’s that I’m very wary of people marketing their services via internet forums.


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## Marc (17 Jan 2022)

Please feel free to like this post if you think Professional advisers should give some of their time pro-bono to assist people to make better financial decisions

*5A Guidelines for Professional Advisors e.g. mortgage brokers, accountants, architects, etc.*

Askaboutmoney welcomes professional advisors to post in their own name on topics relating to their area of expertise. You are welcome to put in your website as part of your signature. If you do not have a website, you can put in your email address instead. Many professional contributors have got useful business through askaboutmoney and, of course, many users have found good professional advisors through askaboutmoney. It is very easy for a user to assess the quality of a professional advisor from reading their posts on askaboutmoney.It is also educational for other users. For these reasons, you must post the replies publicly, rather than by Private Message. The main principle is "No advertising". Do not send Private Messages to users, except in reply to their PM to you. Do not invite the poster to contact you. Do not invite posters to send you a Private Message. Do not include your contact details on any post not relating directly to your area of professional advice. Do not use a slogan in your signature "e.g. Ireland's best advisor". It may be better to contribute to other discussions through a separate account. Send a Private Message to me and I will set up a separate user name for you. Example: Liam Ferguson

Marc Westlake CFP*®*, TEP, APFS, EFP ,QFA
CHARTERED, CERTIFIED & EUROPEAN FINANCIAL PLANNER™ professional
AND REGISTERED TRUST & ESTATE PRACTITIONER


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## Jim Stafford (17 Jan 2022)

Given your recent success in in running a business and then selling it, you should consider investing in a business that is exiting Receivership or Examinership. You could focus on companies that have sales of at least, say, €5 million, and that have a good balanced management team in place so that you could restrict your role to that of an Non Executive Director ("NED").

I have seen savvy businesspeople make serious money from making such investments.

Many companies exiting Examinership have an existing working capital cash flow cycle (i.e. stock into debtors into cash) so that in some cases the only investment required is to make a dividend payment to creditors.

Given that you have recently sold a business, you will have first hand experience of Due Diligence. Due Diligence costs are much less when purchasing a business from a Receiver or an Examiner.

Jim Stafford


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## Always Learning (17 Jan 2022)

fonduster said:


> I would agree with most people here that given the amount of money you are dealing with, i would diversify and not invest all your money in property in one region. I think i would split the money as follows if i was in your situation:


@fonduster - thanks for that post. I was away for a few days over the weekend so I'm only catching up on posts now. That's very interesting and gives me some genuine food for thought. I appreciate you taking the time from your day to send it. I don't know what an EIIS scheme is, but I will bring this up with my financial advisors (when I pick one) and learn about them.

A return of 1.5% on stocks for a 2.5M investment is not getting me very excited. I need start reading a little more on that front and figure out why I would go that route or is the only answer to that in order to diversify and not have everything tied up in property? The thing about property for me is that provided I spread it out a bit and maybe split it commercial and retail, I see it as an investment that I literally can't lose on. If I don't have any borrowings, it doesn't really matter to me if the market crashed or not, the rent will still be coming in (for the most part) and I'll just ride out the crash. Eventually it will come around again.

That being said, I've been pretty much sold on the idea from the responses here that diversification is the way to go, suppose common sense should really have told me that from the start. The lingering question is to what degree I'm going to split it.

@_OkGo_  - thanks for that.


_OkGo_ said:


> I don't think much will change in the short term but it is a realistic assumption that housing needs, supply and standards will improve over the next 10-20 years. Do you really want to be left holding 50 units of the worst possible stock? This type of property could suffer the most in terms of rental yield and asset value.


This is a good point and one I had not considered. I'm definitely guilty of thinking a little too short term. It's a flaw I've noticed about myself and need to correct if I'm going to make the best of this money. Thanks for highlighting that.

@Gordon Gekko 


> Pop emails to the CEOs and they’ll stick their best teams on it. Simon Howley, Keith Ryan, Eddie Clarke, Brian Weber, Pat Cooney.


Thanks for the suggestion, I'll do that.


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## Always Learning (17 Jan 2022)

Jim Stafford said:


> Given your recent success in in running a business and then selling it, you should consider investing in a business that is exiting Receivership or Examinership. You could focus on companies that have sales of at least, say, €5 million, and that have a good balanced management team in place so that you could restrict your role to that of an Non Executive Director ("NED").
> 
> I have seen savvy businesspeople make serious money from making such investments.
> 
> ...


Thanks Jim, but I have zero interest in that. I'm very risk averse at this point after being burned in the crash. Not me personally, but my father suffered pretty bad during the crash. He had a lot, he lost everything after taking poor borrowing advice from banks and poor investment advice from others. I and he both swore if we ever made it back, we would play it safe, not borrow and only invest in safe ventures (I know nothing is completely safe). 

So now that I'm fortunate enough to be back in a good position again, I just want to find a nice portfolio that I can invest our money in to create a passive income with a low risk. I'm done with managing employees and all the stress that brings with.


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## Marc (17 Jan 2022)

Always Learning said:


> A return of 1.5% on stocks for a 2.5M investment is not getting me very excited.



I’m curious where you are getting the 1.5% figure from

In this post I showed that the average return of the US market has been over 10%pa since 1926

Post in thread 'Wealth Management - How to Invest €6M - Where to Get Advice'
https://www.askaboutmoney.com/threads/wealth-management-how-to-invest-€6m-where-to-get-advice.226060/post-1754715


And in this post that investors should focus on a total return approach rather than trying to get by on a natural yield


Post in thread 'Wealth Management - How to Invest €6M - Where to Get Advice'
https://www.askaboutmoney.com/threads/wealth-management-how-to-invest-€6m-where-to-get-advice.226060/post-1754715


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## Always Learning (18 Jan 2022)

Marc said:


> I’m curious where you are getting the 1.5% figure from
> 
> In this post I showed that the average return of the US market has been over 10%pa since 1926
> 
> ...


A guy called Fonduster posted quite a lengthy response which was quite informative. It seems to have been removed now.
@Brendan Burgess - was that post removed for some reason? I wanted to look back on it to read over again as I found it helpful. 
@Marc - in the post from Fonduster he explained how he has split his portfolio and said he was getting a 1.5% return on stocks. At least that's how I read it anyway. 

Your regarding the returns of 10% had me very intrigued and I intend to follow up on that and talk to a financial planner regarding that as a possible option, it almost seems too good to be true? Are you saying that if ten years ago I'd have invested €6M in the S&P 500 market across a general base of blue chip companies, I would be earning around 10% per year on that? Without the need for having to pay property management companies and deal with shitty tenants not paying rent and spend money upgrading buildings etc?


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## Marc (18 Jan 2022)

Always Learning said:


> A guy called Fonduster posted quite a lengthy response which was quite informative. It seems to have been removed now.
> @Brendan Burgess - was that post removed for some reason? I wanted to look back on it to read over again as I found it helpful.
> @Marc - in the post from Fonduster he explained how he has split his portfolio and said he was getting a 1.5% return on stocks. At least that's how I read it anyway.
> 
> Your regarding the returns of 10% had me very intrigued and I intend to follow up on that and talk to a financial planner regarding that as a possible option, it almost seems too good to be true? Are you saying that if ten years ago I'd have invested €6M in the S&P 500 market across a general base of blue chip companies, I would be earning around 10% per year on that? Without the need for having to pay property management companies and deal with shitty tenants not paying rent and spend money upgrading buildings etc?


The last 10 years have been a particularly good time to invest in the USA and in tech stocks in particular (not a good idea to think you should do this NOW but over the last 10 years



The US Large cap market is up 388.32% and the tech heavy Nasdaq is up 713.68%

€6m invested 10 years ago would be worth  €23,299,200 on the S&P 500 and €42,820,800 on the Nasdaq - NOT what you should expect over the next 10 years but certainly what you would have made over the last 10.

This excercise is all about managing your expectations

That 10% number is the average annual return of the US Market since the 1920s with dividends reinvested. This period included the Great Depression, World War 2, Vietnam, Korea, the Cold War, The Gulf War, the 1987 crash, the tech collapse in 2000, the financial crisis in 2008 etc.

We can never know what the average will be in the future but the past gives some indication of what we might expect and also how the markets generally shrug off whatever news story is scaring investors this week.





Global capital markets reward people for putting their capital to work and from that they deduct their fees and taxes. That's it. Nothing complicated. The hard part is getting to understand that that is the answer and everything else you read or are told about "wealth management" is really just marketing.

I have written a detailed guide which sets out what you really need to know about this









						Investment Philosophy
					

At Global Wealth, we don’t manage investments, we manage investors




					viewer.joomag.com
				





This table shows that for more risky parts of the market (think small businesses) the average annual return has been even higher on average



This is the logical explanation as to why you were able to sell your own business for so much


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## ClubMan (18 Jan 2022)

Marc said:


> The last 10 years have been a particularly good time to invest in the USA and in tech stocks in particular (not a good idea to think you should do this NOW but over the last 10 years


Wow! Do some professional advisors have access to a time machine for clients to use?


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## Marc (18 Jan 2022)

lol


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## Sarenco (18 Jan 2022)

Always Learning said:


> Your regarding the returns of 10% had me very intrigued and I intend to follow up on that and talk to a financial planner regarding that as a possible option, it almost seems too good to be true? Are you saying that if ten years ago I'd have invested €6M in the S&P 500 market across a general base of blue chip companies, I would be earning around 10% per year on that?


Average returns are not the only relevant consideration when you are drawing from a portfolio – the sequence of returns is also important.

This short note from BlackRock explains the concept -


			Menlo Security


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## Always Learning (18 Jan 2022)

Sarenco said:


> Average returns are not the only relevant consideration when you are drawing from a portfolio – the sequence of returns is also important.
> 
> This short note from BlackRock explains the concept -
> 
> ...


The link is not working, have you got an alternative one?


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## Sarenco (18 Jan 2022)

Hopefully this link will work -


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## SPC100 (18 Jan 2022)

I think the 1.5% was probably an estimate of the dividend yield from an index of shares. I.e. the income it would create. You can obviously sell down some shares also to have a capital gains (if they rose).

IF you got 10p.c. total return, and 1.5 came from dividend then the other 8.5 came from capital gain.


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## fonduster (19 Jan 2022)

Hi Always Learning,

No problem at all. its all about giving you ideas and then for you to do your own due diligence and research to see what clicks with you. 

EIIS is by no means a perfect scheme and it would be the last thing out of everything i mentioned that you should go into. It merely acts as another avenue to put a small portion of your funds into. 

As SPC100 mentioned, the 1.5pc was a dividend yield. I know from your own experience with property similar to my own, your focus might be on rental income or in the stocks case dividend yield. The dividend yield might appear low but its because your stocks should primarily be more focused on total returns and capital appreciate vs cashflow and dividend yield. You can live on the rental income from property with a small dividend from stocks to top it up but your stocks should be more focused on capital growth. If you were 50/60 years of age, then dividends might be more important but right now given your age, you should just let companies grow through capital appreciation 

Why you might ask? The reason for this is because its more tax efficient and history has proven that total returns on companies with small dividends or no dividends at all have provided better returns. If you have high dividend paying companies with little to no capital growth. You will be taxed at potentially 52pc on the dividend you receive while instead if you had a company that paid no dividend but the company did stock buybacks and reinvested back into the company and either grew the same amount as what the dividend paid out or more often that not more. You would net more money.

To give a real world example. Lets say you buy 100k worth of stock A . lets say the dividend yield is 5pc or 5k pa. You will net circa 2.5k @50pc tax. Lets say you bought Stock B for 100k where 1 year later the stock was worth 105k and no dividend. You would net 3,350 from the profits with a cgt tax of 33pc. Both of them from a gross pov are 105k but for stock B if you sold that today, you would be liable for capital gains tax of 33pc on the 5k profit vs paye and usc tax of circa 50pc on the dividend. This doesnt account for compounding in stocks that are not dividend payers. If the figures are much higher than 5k profit, you can see why dividend stocks are not ideal for your setup. Im not saying dont go for dividend stocks either, go for a mix of the two with more focus on capital appreciation stocks. 

If you were more dividend focused, you could buy a bunch of stocks with a 5-7pc dividend yield but as per my example above, it may not be the most efficient use of your resources from a net pov. Do some research on historic total returns(dividend + capital appreciation) on primarily dividend stocks vs mid/large growth stocks(nb not small cap risky growth stocks)

Let me know if you have any questions.


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## fonduster (19 Jan 2022)

Also to further highlight the difference in property vs a non paying dividend. Please bear in mind hindsight is 20/20 and not all stocks have risen like this but just use it for illustration purposes. 

Lets say you bought a property during the recession for 100k in circa 2015. you also availed of the cgt relief where you can hold for the next 7 years and pay 0 tax. You have a rental yield of 10pc and lets assume you have absolutely no costs in 7 years. Lets assume your property rose by 150pc to 250k.

You would gross 70k in rent or 35 net.
You sell the property for 250k or 150k profit. This profit is. tax free.
Your total return incl original capital is 285k.


If you bought google(alphabet) and put 100k back in 2015. The stock per share was 533. Today it sells for 2700.To simplify, im not accounting for currency fluctuation etc.100k would buy you 187shares in 2015.

At todays price of circa 2700, those same shares are now worth 504k.
You have a profit of 404k. plus the original 100k.
You need to pay cgt tax of 33pc on the 404k.
Your net is 100k+(404*.67)=370k.

The above is a very simple example and even when you had a cgt exemption vs the stock paying cgt tax. This stock came out on top in this very specific example.


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## Steven Barrett (19 Jan 2022)

Gordon Gekko said:


> One further tip, when you want to engage with them, don’t under any circumstances cold call. You’re at the mercy of the eejit who picks up the call as he/she will claim you as a prospect. The best people tend to be busy. Pop emails to the CEOs and they’ll stick their best teams on it. Simon Howley, Keith Ryan, Eddie Clarke, Brian Weber, Pat Cooney.


In researching these, I would caution against using a wealth manager who produces their own products. I've had more than one instance where I've had to question the appropriateness of an investment and then discover they have produced it themselves or are a promoter of it. A firm such as Quilter (Brian Weber on the list) do not produce their own products or receive any commission from promoters placing investments (I had a case where they were paid a commission and they credited it to the clients account). 

Their job is to invest your money in the investments that they offer so do not expect advice on purchasing properties etc. 

Steven
www.bluewaterfp.ie


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## ClubMan (19 Jan 2022)

Steven Barrett said:


> I've had more than one instance where I've had to question the appropriateness of an investment and then discover they have produced it themselves or are a promoter of it.


I thought that they had to prepare some sort of "suitability" report stating that the product is the most appropriate for the customer's needs and why so? Is that just a box ticking exercise imposed by the regulators or something?


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## Steven Barrett (19 Jan 2022)

ClubMan said:


> I thought that they had to prepare some sort of "suitability" report stating that the product is the most appropriate for the customer's needs and why so? Is that just a box ticking exercise imposed by the regulators or something?


You're thinking of a financial advisor's requirements. Which, in my opinion is more of box ticking exercise. Unless putting an 85 year old into a 10 year structured bond, once you have that document signed, you're fine. 

The companies that Gordon recommended are all discretionary fund managers. You give them your money and they manage it for you. You sign a form giving them the discretion to make the investment decisions and buy sell assets. You are able to say you don't want to invest in certain areas or you want them to give you a call before doing something. But if you are going to give a DFM your money to invest, you need to trust them and not need to double check their work all the time. That's why I use Quilter as my DFM. I like the way they operate, they don't sell their own products, take commission or get caught up in fads. 


Steven
www.bluewaterfp.ie


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## Always Learning (19 Jan 2022)

@fonduster - thanks for taking the time to give such a detailed response. The replies here have really opened up my eyes to what else is possible to do with this money. I've already changed my mind regarding my original plan of investing solely in property and perhaps about borrowing (a small amount) also. 

My overall strategy is starting to look little more as follows:


Leverage the €6M to €7M for a larger sum to invest with (I already set aside an additional €2M for legal fees, gifts to family / celebrations and to live off for awhile. That may be excessive in hindsight and could potentially use more of this to invest)
Diversify investments across property and stocks and maybe something into a pension. I'm not sure what kind of split between stocks and property yet. Maybe €3M in each 
Use property portfolio as the main basis for generating my income / salary. €100K net should be feasible to achieve from this? More than I need if this is solely for spending money as I have no debts and will plan to grow wealth in stocks, so won't be saving each week. However, lets say 100K anyway because there is someone else involved will need money too. 
Use the stock portfolio as the main basis for capital growth. Do this through by concentrating mainly on non-dividend stocks, but with a small mix of dividend paying ones to top up my income. 
That leaves 1M to investigate pension investments and other possibilities
I already feel more comfortable that that is a smarter, more rounded approach which is likely to see capital growth as opposed to just a wage. Also, considering my ultimate goal is to create a passive income, without having to get too involved, I think having less property to manage will help in the pursuit of that goal.

What I still don't understand is.... everything to do with stocks!  


I don't really understand the difference between ETF stocks and the other non-dividend stocks that Fonduster has advised are a good bet. 
@fonduster or @Marc - are the non-dividend producing stocks in well known reliable companies and the S&P 500 stocks both the same types of stock that both of you have recommended? 
Can I buy and sell my stocks at anytime or am I tied in to a certain minimum period?
I'm still not totally clear on the difference between wealth managers and financial planners. I don't want to deal with someone who has a vested interest in selling me particular stocks or shares. I want to find an expert that I can pay for financial advice on how to best achieve the goals I've stated above, and maybe even to make some investments for me, but who are not affiliated in any way to the advice they are giving. I'm happy to pay a healthy fee once I know that it is my fee that they are depending on and not some company paying them commission. 
Of course I intend to get plenty of professional advice before making any moves, but your replies have certainly helped me form a better picture in my head of what I want and the kind of questions I need to be asking once I do decide on who to engage with for that professional advice. The replies so far have been really helpful so thanks again for taking the time to help me out on this.


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## Marc (19 Jan 2022)

@Always Learning a good financial planner will assist you with all these questions.

Think of it like hiring an architect to design your dream house.

We take care of the best way for you to define and achieve your objectives.

Nobody with the amount of cash you have should be just left to try and figure this out for themselves - see my very first post on this thread. Your lawyer or accountant should have referred you to us to work through these issues prior to you signing the sale agreement.

Have you read any of the guides I posted on this thread?

The how to choose an adviser guide has had over 12,000 views.

Our investment philosophy guide sets out in detail how markets work with almost 100 years of data.

I taught the investment and capital markets course in Dublin business school for 4 years so if you want I can give you a 12 week lecture course but I think you’d benefit more from a chat through these issues with a certified financial planner.

I was a founder of this organisation

Www.Sfpi.ie


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## Always Learning (19 Jan 2022)

Marc said:


> Nobody with the amount of cash you have should be just left to try and figure this out for themselves - see my very first post on this thread. Your lawyer or accountant should have referred you to us to work through these issues prior to you signing the sale agreement.


The deal isn't actually signed, sealed delivered just let. The final version of the SPA has been sent now. I'd hope to have it signed in the next fortnight. So perhaps that advice is on the way from our legal team. They have been very good throughout and are very well known and high end so I'm not worried about that side of things. 



Marc said:


> Have you read any of the guides I posted on this thread?


Yes I'm halfway through "Our Investment Philosophy" and your guide to property investment is next on my list. I have gotten quite a bit of information to absorb over the last few days in addition to still working at the day job so it's a slow process! But I appreciate the articles and fully intend to read and understand them. 



Marc said:


> I taught the investment and capital markets course in Dublin business school for 4 years so if you want I can give you a 12 week lecture course but I think you’d benefit more from a chat through these issues with a certified financial planner.


Yes, once it's been signed I intend to sit down with one or two financial planners and wealth managers and determine what's best for me. You will most likely hear from me at that point.


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## fonduster (19 Jan 2022)

So an ETF is an index of several stocks put into a singular fund. The s&p500 is an index of 502-505 of the largest stocks in America. Some stocks within the s&p are weighted so for example for every euro you put into the s&p500 etf, google is worth 5pc of it while a smaller company might only be worth .05pc. You can also have other etf's that are more dedicated to certain industries like travel, energy, health etc. s&p500 is the most general and most diverse. All of the biggest name stocks you can think of are in the s&p500 such as apple, amazon, google, coke cola etc. You can take a look at the list here:





						List of S&P 500 companies - Wikipedia
					






					en.wikipedia.org
				




If we didnt have the deemed disposal tax rule in Ireland, i would be telling you to just go for the s&p500 as then you can forget it, its as safe as it can be for equities and you can just forget about it but for some reason, ireland doesnt like etf's.

So if you are looking at the american market, most of the dividend stocks and capital appreciation stocks are in the s&p500. You also have Uk stocks and EU stocks along with the hong kong market if thats what you are after. I am mainly in the american market but each to their own.

Here are some dividend specific stocks that you could look at:








						List of Dividend Aristocrats: S&P 500 Stocks Included | The Motley Fool
					

Get the most recent list of Dividend Aristocrats. Also learn to pick the best of the best and leverage these strong companies in your portfolio.




					www.fool.com
				











						Dividend Kings: List and Definition | The Motley Fool
					

Get a list of current -- and potential future -- Dividend Kings and also learn how to leverage these strong companies to build wealth.




					www.fool.com
				




You can use yahoo to look at more info around companies that you might like:








						Yahoo Finance – stock market live, quotes, business & finance news
					

At Yahoo Finance, you get free stock quotes, the latest news, portfolio management resources, international market data, social interaction and mortgage rates to help you manage your financial life.




					uk.finance.yahoo.com
				




If you go down the stock route, do not buy in lump sums. just slowly get into it slowly so you get more comfortable with it. What i did at the start was put 1k into a brokerage. I then bought and sold some sample stocks to get used to how it works. I then started moving larger amounts in as time went on and i became more comfortable with the interface

There is no holding period for stocks. You could buy 2.5m worth of a stock today. One hour later as long as there is enough buyers, you could sell it all again. Larger companies have more sellers and buyers(liquidity and volume) so you can sell and buy quicker. For all the companies that you should be going into, you should have no liquidity issues of selling same day. its really only the small cap riskier stocks that can have volume issues if selling a large amount. Selling is also dependant on how much you want for it. Similar to a house. lets say the house is worth 100k but you want 105k, no one will buy it until you sell it for market rate so in the same vane, if a stock is selling for 50e today per share and if you sell it for 50 or under, your more likely to close the sale quicker than putting it up 55e. Normally you can only sell during business hours in that stock exchange. EG if its usa, they start at 2.30pm GMT. Some brokers in ireland may offer after market trading where you could sell when they are closed but for simplicity just assume you can buy and sell during business hours. This is one of the best things about stocks in my opinion. Buying and selling a property can take 3-6months minimum while stocks can be sold within seconds of you wanting to sell it. 

Let me know if you have any more questions.


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## ClubMan (19 Jan 2022)

It's not just deemed disposal on ETFs.
It's also the fact that they don't benefit from CGT tax treatment.


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## Always Learning (20 Jan 2022)

fonduster said:


> So an ETF is an index of several stocks put into a singular fund. The s&p500 is an index of 502-505 of the largest stocks in America. Some stocks within the s&p are weighted so for example for every euro you put into the s&p500 etf, google is worth 5pc of it while a smaller company might only be worth .05pc. You can also have other etf's that are more dedicated to certain industries like travel, energy, health etc. s&p500 is the most general and most diverse. All of the biggest name stocks you can think of are in the s&p500 such as apple, amazon, google, coke cola etc. You can take a look at the list here:



Ah now I'm with you, I done a little reading on it last night and listened to a good podcast also. The comment in your previous post also makes more sense now, regarding picking some proven performers myself and going that route. So just to expand on that a bit, if I were to invest 2.5M in the S&P 500, that is an ETF and while it's known to perform very well and would be considered as safe a bet as you can for a long-term stock investment, it's not good for net worth growth due to the tax implications. Specifically, a 41% "deemed disposal" tax which will hit me on any gains made during the previous 8 years unless I dispose of them before the 8 year period is up.

However, if I were to take a look at the S&P 500 myself and pick 50 companies, invest 50,000 into each of them and let that play out, I would essentially have my own version of an ETF, I could hold on to these for as long as I want and pay 33% CGT on them when I sell? Is that correct? 
Why doesn't everyone just do that? 
If I go that route, do I have to manage the portfolio myself or could I still have a wealth manager or someone of a similar title look after that portfolio for me? Like just sit down with him at the start of the process, pick out the companies from the S&P 500 I want to invest in and how much, and then leave him to look after things? 



ClubMan said:


> It's also the fact that they don't benefit from CGT tax treatment.



Could you elaborate on that? Is it not one and the same issue. They are a deemed disposal, so you are taxed at 41%, therefore not availing of the CGT rate of 33%. What am I missing?


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## ClubMan (20 Jan 2022)

Yes, ETF growth is subject to income tax (not sure about USC/PRSI?) 41% tax on deemed disposal/actual disposal. This is much worse than shares subject to CGT on actual disposal only.

Edit: corrected mistake about tax treatment.


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## bankrupt (20 Jan 2022)

Always Learning said:


> However, if I were to take a look at the S&P 500 myself and pick 50 companies, invest 50,000 into each of them and let that play out, I would essentially have my own version of an ETF, I could hold on to these for as long as I want and pay 33% CGT on them when I sell? Is that correct?
> Why doesn't everyone just do that?
> If I go that route, do I have to manage the portfolio myself or could I still have a wealth manager or someone of a similar title look after that portfolio for me? Like just sit down with him at the start of the process, pick out the companies from the S&P 500 I want to invest in and how much, and then leave him to look after things?


You could try and do that manually yourself but managing even a small representation of the S&P 500 (50 stocks as you suggest - which stocks would you even pick out of 500?) would be a lot of effort.  You would put a lot of work into ending up with an inferior product to the Vanguard ETF  (VOO) that follows the entire SP500 for you at a tiny cost.   Consider also that there are lots of other ETFs available (1000s of them) that allow you to easily follow the entire US stock market or major European indexes or Asia etc etc.   Outside of Ireland it's so easy to manage a few ETFs that give you great diversification and a way to invest regularly at very low cost.  In Ireland at the moment with deemed disposal, punitive and unclear tax rules it just doesn't make much sense, a real shame as it's a great way to save/invest, even for novices.


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## ClubMan (20 Jan 2022)

I agree.
It's a shame that investing in ETFs from Ireland (EU?) is basically pointless due to the tax treatment.
My fallback was to buy Berkshire Hathaway but I'd much prefer to be able to buy something like an S&P ETF.


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## Sarenco (20 Jan 2022)

Maybe consider investing some of your assets alongside the Rothchild family-





						About us | RIT Capital Partners plc
					

Free from the constraints of a formal benchmark, RIT has a remit to invest globally in any asset class. Our corporate objective is to deliver long-term capital growth, while preserving shareholders’ capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders...




					www.ritcap.com


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## North Star (20 Jan 2022)

Hi Always Learning, I hope you are finding some of the comments and advice helpful and its always good to see someone who is prepared to do a proper review and due diligence on their options. If I may add a couple of comments.


Financial Planning where you pay a clear and fixed fee is the recommended first step. It will allow  you to project your financial reality right through your lifetime and model both positive and adverse scenarios. This will also help you to focus on the non financial aspects of your third act ... what really  matters to you and your family for the rest of your lives. This can be daunting and make the financial aspects actually seem easier to deal with. I would suggest you avoid focusing too much on potential investments at this stage and just prioritise the planning aspect
With a prospective amount such the one you are dealing with, you will probably want to have a substantial legacy for next/future generations as well as providing for all your financial requirements. Therefore at you also need to consider tax efficient inheritance planning strategies which may be incorporated into or in addition to whatever investment strategy you decide upon
I agree with 'Sarenco'  re his comments on Sequence of Returns risk in that despite your age, you are actually in the same position as a Retiree i.e in a decumulation phase where you draw down on assets already built up to provide you with income and therefore the sequence of returns can have a significant impact. Bear this in mind whenever you come to investment strategies and asset allocation decisions
I fully endorse the comments/views to have several meetings with various firms to find the firm/people who best suit your needs/preferences. "Gordon" suggested talking to senior people in some of the larger firms and that can be a good idea. Our firm have done lots of client reviews with these type of wealth mangers and to date our view is that what you are offered tends to be the similar to what they offer other clients i.e you are in a standardised process rather than anything individually constructed for you
At these meetings leave no question unasked, and if a clear and compelling rationale is missing then move to the next meeting. At the end of the process it is perfectly fine to use you gut instinct  to decide who you think is the best fit for you to work with , just as long as their proposition is backed by evidence. TBH everyone will say they are the best and try to ignore the marketing spin
   In some of the data and graphs provided by others, you have been provided with historic market returns. Our firm has analysed the relative performance of most of the wealth managers, and life companies. We do our best to create accurate apples with apples comparisons. We start with the low cost passive investment approach and then compare against the alternatives. The passive approach has significantly outperformed the vast majority of active managers. This has been due to a combination of active mangers a) underperforming/not meeting their benchmark and b) higher costs with active managers. No one knows if the underperformance will continue, worsen or revert. However you can be certain that the higher charges will be a drag each and every year. With this passive approach you will get the market returns less fees this is as close as you can get to no regrets investing. Our view is that then the onus is on the active managers to convince you as to how they will beat the market over the long term and provide evidence of doing so.
Time is your friend but also your enemy. Your investment time horizon could be 60+ years which means that you have the luxury of being able to ride out any market fluctuations/crashes and over the long term you can be almost guaranteed to make positive returns. However we all underestimate the effect of  underperformance/higher fees compounded over a very long time frame. If the market return was 6% per annum and one portfolio underperformed by 1% per annum  - assuming you invested €4mio and drown down 4% each year as income; over 30 years that 1% drag will cumulatively cost you approx €2.47mio in total
In some of our recent reviews some of the well know firms here underperformed the passive alternative by multiples of the above 1%
When you have done some initial research if you wish, we can on a fixed fee basis provide you with a passive option to compare against what you have been recommended before you make your final decision. 
I  hope you find the above helpful and very best wishes on your third act as well as congratulations on your success to date.

All the best Vincent


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## ryaner (20 Jan 2022)

ClubMan said:


> Yes, ETF growth is subject to income tax (not sure about USC/PRSI?) on deemed disposal/actual disposal. This is much worse than shares subject to CGT on actual disposal only.


ETFs are subject to a separate 41% rate.


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## ClubMan (20 Jan 2022)

ryaner said:


> ETFs are subject to a separate 41% rate.


Sorry, my mistake saying income tax.


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## Horatio (20 Jan 2022)

ClubMan said:


> Yes, ETF growth is subject to income tax (not sure about USC/PRSI?) on deemed disposal/actual disposal. This is much worse than shares subject to CGT on actual disposal only.


I hadn't understood that to be the case. 

So if I'm unemployed or on the lowest income tax band at the time I sell then my ETF growth is taxable at that same rate?


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## ClubMan (20 Jan 2022)

Not income tax as per the correction above but 41%.
My mistake.
If you're unemployed the 41% will still apply.


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## Marc (20 Jan 2022)

ClubMan said:


> Not income tax as per the correction above but 41%.
> My mistake.
> If you're unemployed the 41% will still apply.


Unless you hold ETFs which are subject to general tax principles in which case your income would be tax free and your gains subject to capital gains tax at 33%


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## ryaner (20 Jan 2022)

Marc said:


> Unless you hold ETFs which are subject to general tax principles in which case your income would be tax free and your gains subject to capital gains tax at 33%


ETFs go via deemed disposal, and the offshore fund rules. That includes their dividends too.

There is much confusion about if US ETFs still get CGT treatment after the update last too. I suspect we'll find out more later in the year or possibly next year as Revenue wouldn't single them out without some kind of plan.


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## ClubMan (20 Jan 2022)

Marc said:


> Unless you hold ETFs which are subject to general tax principles in which case your income would be tax free and your gains subject to capital gains tax at 33%


Sorry, I was referring to US ETFs.
E*Trade won't even let me buy them as an EU citizen.


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## Sarenco (21 Jan 2022)

ryaner said:


> There is much confusion about if US ETFs still get CGT treatment after the update last too. I suspect we'll find out more later in the year or possibly next year as Revenue wouldn't single them out without some kind of plan.


From the start of this year, there is no longer any assurance from Revenue that US ETFs are subject to general taxation principles.

Anybody that tells you otherwise is spoofing.


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## ClubMan (21 Jan 2022)

Sarenco said:


> From the start of this year, there is no longer any assurance from Revenue that US ETFs are subject to general taxation principles.
> 
> Anybody that tells you otherwise is spoofing.


So how are they taxed now?


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## Sarenco (21 Jan 2022)

ClubMan said:


> So how are they taxed now?


Your guess is as good as mine.


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## ClubMan (21 Jan 2022)

Ok, thanks.


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## Marc (21 Jan 2022)

ryaner said:


> ETFs go via deemed disposal, and the offshore fund rules. That includes their dividends too.
> 
> There is much confusion about if US ETFs still get CGT treatment after the update last too. I suspect we'll find out more later in the year or possibly next year as Revenue wouldn't single them out without some kind of plan.


Some ETFs are subject to gross roll up and deemed distributions some are subject to general tax principles. All that changed in September of last year is that revenue removed it’s guidance that all non EU ETFs are general tax principles.

We are simply now back to the position which applied previously which is that each fund has to be assessed to determine the correct tax treatment. You simply can’t make generalisations.









						Global Wealth Tax Guide 2022 v1.0
					

Tax Guide  Incorporating Budget 2022  and Revenue E-Brief 164/21 ETFs




					joom.ag


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## Always Learning (21 Jan 2022)

Marc said:


> Some ETFs are subject to gross roll up and deemed distributions some are subject to general tax principles. All that changed in September of last year is that revenue removed it’s guidance that all non EU ETFs are general tax principles.
> 
> We are simply now back to the position which applied previously which is that each fund has to be assessed to determine the correct tax treatment. You simply can’t make generalisations.
> 
> ...


So what's the situation with the S&P500, are there ETF's in that which you could get away with not paying 41% on?
Edited to Say: Okay, I've read that link you posted which pretty much sums it up. It's up to the individual, you could chance your arm on it and probably be fine... but you might not be! That's great leadership from the government. Leave us to decide then potentially screw us for our interpretation of it down the line.

Actually could someone clarify, is the S&P500 one large ETF or is it a group of companies from which certain company stocks are chosen to form a ETF?


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## Marc (21 Jan 2022)

The S&P 500 is an index of the 500 largest companies in the USA created by Standard & Poors (S&p) so it’s not the “Stockmarket” it’s not even the US Stockmarket - there are about 5000 companies listed on the New York Stock exchange.

An exchange traded fund or ETF is just a product designed to track the movements of an index.

Your portfolio should be comprised of global index funds covering all markets both developed and emerging and real estate - cover all your bases so that you never miss out on the return!


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## ClubMan (21 Jan 2022)

Always Learning said:


> Actually could someone clarify, is the S&P500 one large ETF or is it a group of companies from which certain company stocks are chosen to form a ETF?


S&P 500 is a market index.








						S&P 500 - Wikipedia
					






					en.wikipedia.org
				



There are different ETFs that track it.








						Top S&P 500 ETF
					

iShares Core S&P 500, Vanguard S&P 500, and SPDR Portfolio S&P 500 are tied for lowest fees, while SPDR S&P 500 is the most liquid.




					www.investopedia.com
				



It's not really difficult to Google this stuff.


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## Always Learning (21 Jan 2022)

ClubMan said:


> It's not really difficult to Google this stuff.


I have, apologies if the questions seemed stupid but I'm a complete beginner and I'm probably using the wrong terminology in places. It would be more stupid not to ask at all!

I realise the S&P500 is the top 500 US companies and that an ETF tracks the performance. If I decide to invest in the S&P500 and give my fund manager or whatever the term is 1M to do so. Does that money get invested across all those 500 companies, or does he pick and chose say 100 companies within the S&P to invest in? 

I realise I should be asking a professional these questions and I will when I sit down with one, but it's good to have a basic understanding developed before that also. I'm listening to some good podcasts to educate myself on the topic also and getting some really helpful posts from readers here. 



Marc said:


> Your portfolio should be comprised of global index funds covering all markets both developed and emerging and real estate - cover all your bases so that you never miss out on the return!



What is considered a diversified portfolio, just say I put in a few million, would a diversified portfolio see me ending up with interests in 50 companies, 250? 1000?


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## ClubMan (21 Jan 2022)

Always Learning said:


> I have, apologies if the questions seemed stupid but I'm a complete beginner and I'm probably using the wrong terminology in places. It would be more stupid not to ask at all!
> 
> I realise the S&P500 is the top 500 US companies and that an ETF tracks the performance. If I decide to invest in the S&P500 and give my fund manager or whatever the term is 1M to do so. Does that money get invested across all those 500 companies, or does he pick and chose say 100 companies within the S&P to invest in?


Probably the latter or even fewer than 100. But it depends on how a specific individual decides to try to roll their own index tracking basket of shares.


Always Learning said:


> What is considered a diversified portfolio, just say I put in a few million, would a diversified portfolio see me ending up with interests in 50 companies, 250? 1000?


Again, it depends. But there's probably a law of diminishing returns that limits the number of companies in the index tracking basket of shares.

You should probably look in more detail at existing S&P index tracking ETFs and how they do it. Note that the basket of shares will probably need to be adjusted periodically to track the index composition.


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## Marc (21 Jan 2022)

Always Learning said:


> What is considered a diversified portfolio, just say I put in a few million, would a diversified portfolio see me ending up with interests in 50 companies, 250? 1000?


Our clients typically hold 4 equity ETFs which give you around 10,000 companies in every country in the world. 

Plus a few bond ETFS (we haven’t even got onto the fixed interest funds you need yet)


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## ClubMan (21 Jan 2022)

Marc said:


> Our clients typically hold 4 equity ETFs which give you around 10,000 companies in every country in the world.


You mean each ETF, on average, holds shares in 2,500 companies? Isn't that a bit excessive and likely to lead to a lot of trading costs and other overheads when rebalancing the mix?


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## Marc (21 Jan 2022)

The US market ETF we use holds over 4000 securities but has a turnover of just 2.8%. So no, trading costs are a problem for retail investors but not so much for institutions managing trillions of bucks.


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## fonduster (21 Jan 2022)

Correct on the ETF route.

From a documentation side of things since you should be dollar cost averaging in rather than lump summing in, it is a pain as you have to sell it from a tax pov every 8 years.
From a taxation pov it is poor as tax is 41pc every 8 years instead of 33pc for individual stocks.
From a cgt pov it is poor as lets say in 8 years time, it is actually worth less than it is today, then you cant offset the loss against other gains.
it is by far the safest,most streamlined and the easiest one to just invest and forget but you do pay a hefty price for this luxury.

For the mini etf, yes thats what i meant as well. I know its not ideal and having the s&p is better however you live in ireland and you have to live with what our government have given us. One point to note is that you pay cgt on the profits you make from selling. When you pick 50 stocks, there is no guarantee these stocks will be worth more in x years time. If you make a loss on one or some of your stocks, you offset that loss again the stocks you made a gain on. 

EG. lets say you buy 10 stocks. each stock is 10k.
You hold all 10 stocks for 30 years.
5 of the stocks are now worth 20k.
1 stock worth 30k
1 stock worth 0
1 stock worth 10k.
2 stocks worth 5k.
You sell all of them in one year and im not accounting for transaction fees, currency fluctuations and cgt relief.
Total gross amount 150k
You will pay cgt @33pc on the 50k profit(150-100). In this example you would net 33.5 and have a total of 133.5k incl original capital.

So the reason i suspect people dont do this as individual stock picks are more risky than the s&p500. If you hold the s&p500 for 30 years. your odds are that it will be worth more than it is today. When you pick individual stocks, its completely based on what stocks you pick. EG, Apple, far out performed the s&p500 however if you look at IBM or vodafone, its a different story. The s&p500 is more convenient and you need to put in less overall work to just throw your money into the s&p500 vs individual stock picks. If you pick your stocks, you more than likely need to review it periodically at a minimum to assess the fundamentals of a company and if you like them for the future. Both have their pros and cons, so its up to you to make a call on it. You could always split it where you do some in s&p500 and some individual as well. 
I suppose for me, i like the fact that i have control on when i pay taxes.

 I enjoy personal finance myself and if i mess up, ownership is on me so I have always managed everything myself so i cant comment on wealth managers etc myself. I did try and one or two financial consultants or advisers(the term might be incorrect here) and i found all of them were the same where they were trying to sell me a product with clear bias along with putting me into one of the investment firms which have high costs, high exit fees and high taxes so i never went any further with them. Im sure Marc or Steven or a few others in the group might be more familiar with this process on what you are trying to achieve in this front.


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## ClubMan (21 Jan 2022)

fonduster said:


> From a documentation side of things since you should be dollar cost averaging in rather than lump summing in


Why? Isn't DCA considered somewhere between pointless and detrimental?


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## Horatio (21 Jan 2022)

Marc said:


> ETFs which are subject to general tax principles in which case your income would be tax free and your gains subject to capital gains tax at 33%


What are these ETF'S you speak of? 
Do you have some examples please?


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## fonduster (21 Jan 2022)

Clubman, 

I have never heard anyone say dca is a bad move for a lay investor. By DCA, you are keeping your investing strategy consistent. You will buy some of a stock when it is cheap and when it is expensive so hopefully over time, it will limit the perceived risk of buying an item. If you lump sum into a single stock and it was at the bottom, great, good job, you maximised your return but no one truly knows the absolute bottom and there is no point trying to time the market.If you lump sum in when it peaked, well you just lost a fortune so thats why i prefer the dca strategy.. Similar to eating health, working out, and doing everything else in your life, do it in moderation and keep everything stable and consistent.

From a documentation POV. Since i stay away from ETF, how will you document all your purchases and keep on top of the documentation if you are DCA in every month. To me that seems like a headache to keep track of. 

Please tell me how dca is pointless and detrimental.


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## ClubMan (21 Jan 2022)

fonduster said:


> Please tell me how dca is pointless and detrimental.








						Dollar cost averaging - Wikipedia
					






					en.wikipedia.org
				





> However, there is also evidence against DCA. Finance journalist Dan Kadlec of Time summarized the relevant research in 2012, writing: "The superior long-term returns of lump sum investing [over DCA] have been acknowledged for more than 30 years." Similarly, *decades of empirical research on DCA have found that it generally does not function as promoted and is usually a sub-optimal investment strategy.*
> 
> Some investment advisors who acknowledge the sub-optimality of DCA nevertheless advocate it as a behavioral tool that makes it easier for some investors to start investing a lump sum. They contrast the relative benefits of DCA versus never investing the lump sum.








						The Pros and Cons of Dollar-Cost Averaging | FINRA.org
					

When thinking about investing, one consideration is whether to invest funds all at once or over a period of time. If you choose the latter route, you might be opting for an investment strategy called dollar-cost averaging, in which you invest your money in equal portions, at regular intervals...




					www.finra.org
				





> A 2012 study by Vanguard found that historically investing your money in a lump sum vs. dollar-cost averaging produced better results 66 percent of the time. The longer the time frame, the greater the chance that investing all at once beat dollar-cost averaging, the study found.











						Here's why lump-sum investing is a better option than dollar-cost averaging
					

If you're debating between investing a large sum immediately or at set intervals, be aware that one strategy tends to outperform the other.




					www.cnbc.com


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## Sarenco (21 Jan 2022)

Always Learning said:


> Okay, I've read that link you posted which pretty much sums it up. It's up to the individual, you could chance your arm on it and probably be fine... but you might not be!


From the start of this year, the default position will be to treat a US-domiciled ETF as being subject to offshore tax treatment (with income and gains realised on disposals being taxed at 41%, with no offset for losses incurred on the disposal of any other investments). 

_If_ it can shown that a particular US ETF does not have a comparable legal structure to an Irish-domiciled fund and is generally not subject to comparable regulatory oversight (which will be difficult to demonstrate IMO), then it can be treated as being outside the offshore fund regime. However, the onus will be on the taxpayer to demonstrate why the US ETF should be subject to the mainstream income tax/CGT regime.

Even if you can find a tax adviser that will give you a positive opinion that a particular US ETF falls outside the offshore tax regime, there is no assurance that Revenue (or the Courts) will agree with that opinion.

Also, shares in a US-domiciled ETF fall within the scope of US estate tax, regardless of your residence for tax purposes.

Finally, US ETFs cannot be marketed to retail investors in Ireland without a specific regulatory document (which to my knowledge no US ETFs produce).  That effectively means that you would have to engage a discretionary investment manager to acquire US-domiciled ETFs and that obviously comes at a cost.


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## SPC100 (21 Jan 2022)

I didn't realize the wealth managers Gordon listed would be active investors. I misunderstood. I thought they would be independent and advising people on on going passive.


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## Marc (21 Jan 2022)

To quote Woody Allen “ a stockbroker is someone who invests other peoples money until it’s all gone”


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## ClubMan (21 Jan 2022)

Marc said:


> To quote Woody Allen “ a stockbroker is someone who invests other peoples money until it’s all gone”


Surely a stockbroker just does what an investor tells them to do?


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## Marc (22 Jan 2022)

ClubMan said:


> Surely a stockbroker just does what an investor tells them to do?


You are thinking of an execution only stockbroking service which is not the same as a discretionary portfolio service provided by a traditional stockbroking firm exactly like the ones listed earlier by someone who then subsequently goes on to claim that nobody mentioned Stockbroking firms exactly like the ones that they themselves listed.

In practice many wealth managers have 3 or 5 model portfolios which they put their clients into and then manage on a discretionary basis. This point may have been made already.

These are generally selected on the basis of a risk assessment (low medium high) and then the client is given the investments that are in that model.

If a clients circumstances are even slightly unusual then the manager has to decide if the portfolio is unsuitable or inappropriate.

We spoke to a U.K. manager who was “managing” a portfolio for a client who had moved to Ireland and asked if any changes needed to be made to the portfolio.

No, they said we are the experts sort of reply.

To which I pointed out that Ireland uses the Euro.

Oh yes well we think that Sterling is going to go up so blather blather answer

I said but you have low risk bond funds hedged to Sterling and the client is in Ireland - surely a Euro hedge is more appropriate.

Ah, yes well you see, we only have Sterling models they finally admitted.

Wealth manager was then replaced with one more suitable


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## Gordon Gekko (22 Jan 2022)

UK based providers can’t service clients in this country anymore because of Brexit.

Plus nobody mentioned giving the money to a stockbroker. That’s a different service, so the Woody Allen quote isn’t really relevant.


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## Gordon Gekko (12 Oct 2022)

Always Learning said:


> Hi All,
> I'm completely new here so I'm not familiar with the forums but I think I'm in the right section for this post.
> I have recently sold a business, from this sale I will end up with €5 - €6M net to invest after setting aside a little pot for immediate purchases / gifts. I want to make an annual yield of 10% on this. I intend to draw down around €200K per annum from the investment as a wage and allow the rest to build up for further investment. I have borthers who are not involved but who I would like to pay some kind of dividend / wage to over the years also.
> 
> ...


Hi Always Learning,

What did you do in the end?

Regards,

G


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