# Feedback on my investment plan ..



## bogler (14 Jan 2018)

Hi,


I am in my early 30's and returning to Ireland after living abroad for a number of years.

I am hoping to invest for the long term and hopefully live off the investment, if possible.

I have a large lump sum of after tax cash and don't have any investments/debts.

I don't have a pension or any PAYE contributions built up.


Below is a investment plan I was hoping might work .. any suggestions/advice would be great:
_( I will eventually be approaching a financial adviser but would like to try and figure out a financial plan by myself and with your help first, if possible )_

1) Invest 1.5m lump sum into in into Vanguard US World Index ETF 
    - invest after the next contraction/recession 
    - invest and hold for ever (40 + years)
    - expect average return of 5% yearly
    - average dividends of 1.5% per year = ~ 23k per year before tax 
    - average dividends could vary +/- 50% with forex and index fluctuations
    - dividends taxed at ~20% I will be in the lowest tax bracket
    - can sell 1,270 eur of ETF every year tax free (cap gain exemption)
    - buy through Degiro (.1% exchange fee and and .02% transaction fee)
    - Degiro account will be based in the Netherlands, so will not have to pay US Estate Tax
    - long term 50+ years US World ETF investing appears to be the most tax efficient _(based on current taxes)_ especially since I will be living off the dividends in the lowest tax bracket (compared to EU World ETF Accumulating investing)
     - negatives : forex fluctuations on dividends


2) Invest 500k in rental property
    - expect average return of 5% after fees/expenses
    - provides ~ 25k a year fixed income 
    - provides more stable euro income then World ETF dividends in USD
    - purchase new mixed use or commercial unit
    - property acts as hedge against inflation
    - negatives : active management and time


3) Invest 150k in Euro Denominated World Bond EFT Accumulated (EU Domiciled)
    - expect roughly ~2% yield yearly accumulated
    - should keep up with inflation over 40+ years
    - acts as emergency fund
    - acts as hedge against stock declines
    - can be used for re-balancing portfolio if needed
    - purchase EU Denominated accumulating, so there is reduced forex risk if needed in emergency
    -  EU tax regime with accumulation and 8 year disposal works out better then US Bond ETF (less forex risk)


4) Purchase small personal property
    - a house for life (hopefully)
    - avail of some of the 14k a year rent a room



I am hoping to live off the investment plan above :
    - roughly ~50k a year before tax (43k after tax - income splitting between spouse) 
    - income should increase with inflation over 40+ years .. hopefully
    - will work part time + avail of rent a room scheme for additional funds 



A long post .. sorry .. but would love to hear feedback from experienced investors.

- Is this a good asset allocation?
- Is there a more tax efficient way to invest?


Thanks.


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## Steven Barrett (17 Jan 2018)

You are in a position where you are set for life, so be in that position in your early 30's is amazing. 

A few things I notes: 

When is the next recession going to be? You are not going to invest in the market until after there is a recession but will dive straight into the Irish property market? Why the different market timing approaches? 

Are you going to have cash holdings? If your goal is 2% return from bonds, you can probably get that from cash over the long term. Easier to access and manage than bonds. 

Being in a position where you have over €2m in cash and being able to buy a home straight out, will you really want to be renting out a room?


And what do you want to spend it on?!! No point in restricting yourself to just living off the returns and leaving the rest to the Revenue when you die.  


Steven
www.bluewaterfp.ie


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## Duke of Marmalade (17 Jan 2018)

I am presuming that US ETF is a taxed fund.  If so I agree with you from the tax angle, since you intend to live the life of the idle standard rate payer

I won't opine on whether that is a good investment, though I think you agree with me that prices look a bit frothy at present.  However, timing the market is just a matter of luck IMHO.

You can of course encash much more than €1,270 CGT free.  Say for example the fund grows 5% then you can encash 20 times €1,270 as only 5% of it will be capital gains.

I agree with SBarrett that I wouldn't be interested in the bond fund.  I think everyone agrees that bonds are on an artificial high.  It's not a bubble because Central Banks manage the market but there can be no upside and only downside.  It is definitely not a hedge against inflation.  If you need an emergency fund, I would probably go for Prize Bonds but the fact is that any cash like instrument is paying buttons these days.


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## cremeegg (17 Jan 2018)

A projected return on a single property investment is a lot less meaningful than a projected return on an ETF.

You are projecting a 6.5% return on the ETF, that seems high/stroke reasonable. As the ETF should be a large basket of shares the actual return depends on the future performance of equities.

Any projected return on a single property investment depends largely on the purchase price. With an ETF you pay the market price, with a property, it is easy to overpay, and even possible to underpay.


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## bogler (17 Jan 2018)

SBarrett said:


> You are in a position where you are set for life, so be in that position in your early 30's is amazing.
> 
> A few things I notes:
> 
> When is the next recession going to be? You are not going to invest in the market until after there is a recession but will dive straight into the Irish property market? Why the different market timing approaches?



- My feeling on it was the Irish property market doesn't seem too overvalued at the moment (with most property still returning ~5% yield)

- Being able to lock in a good low maintenance (residential or commercial) property with 5% yield after fees in the current market would provide a somewhat more stable revenue stream especially if I could get a commercial lease with a good company (compared to relying on ETF dividends, at least until ETF portfolio grows substantially enough that a 50% drop in dividends would still be able to sustain our current level of spending). 

- My feeling was the stock market looks quite overvalued at the moment. Too maximize the chances of better long term yield I thought it might be best to hold out until there is better value available. Some great research on value investing : starcapital .de/en/research/research-in-charts/

- What I might do is split the 1.5m into 1/3's and invest 500k in international etf (ex US) now as it seems to be slightly better value and the remainder when there is a correction.



SBarrett said:


> Are you going to have cash holdings? If your goal is 2% return from bonds, you can probably get that from cash over the long term. Easier to access and manage than bonds.



- Great advice. I might just keep this in high interest savings accounts instead of bonds. It would act as an emergency fund if dividend income drops and offers quick access if needed.

- The only disadvantage of this seems to be I won't be able to re-balance the portfolio and there will be no bonds to smooth out the dips of the stock market recessions

- Is there a reason bonds make sense in balanced risk portfolio for an investor in the US and not for an Irish investor?




SBarrett said:


> Being in a position where you have over €2m in cash and being able to buy a home straight out, will you really want to be renting out a room?



- I would be willing to do this to ensure we had enough income from investments to meet expenses and at least until the ETF portfolio grew large enough that a 2-2.5% withdrawal rate would be sustainable even with a 50% drop in stock market/dividends.




SBarrett said:


> And what do you want to spend it on?!! No point in restricting yourself to just living off the returns and leaving the rest to the Revenue when you die.



- I wanted to increase the statistical success of the ETF portfolio - so was thinking of starting out with a 2% annual withdrawal rate and working our way up to 4% withdrawal rate when 60+(with withdrawal rate adjusted downwards in stock market declines)


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## galway_blow_in (17 Jan 2018)

if i had 1.5 million to spend , id buy a house for about a half a million in dublin and then spend the remaining million on five other properties costing 200 k each or else spend one million on a commercial property with a blue chip tenant somewhere close to the centre of dublin  , you can contribute to a pension what you need in order not to be taxed too highly

incredibly enviable position to be in , its almost impossible to go wrong

well done !


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## bogler (17 Jan 2018)

Duke of Marmalade said:


> You can of course encash much more than €1,270 CGT free.  Say for example the fund grows 5% then you can encash 20 times €1,270 as only 5% of it will be capital gains.



Hi Duke, thanks for your feedback. Yes the money would be invested in a taxed account.

I couldn't quite figure out how I would be able encash 20 times 1,270 tax free on 5% growth? 



Duke of Marmalade said:


> I agree with SBarrett that I wouldn't be interested in the bond fund.  I think everyone agrees that bonds are on an artificial high.  It's not a bubble because Central Banks manage the market but there can be no upside and only downside.



Does that mean that a balanced risk portfolio of 60/40 stock/bond asset allocation is not recommended anymore and a 100% US ETF portfolio with an emergency fund is more appropriate for an long term Irish investor


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## Duke of Marmalade (17 Jan 2018)

bogler said:


> Hi Duke, thanks for your feedback. Yes the money would be invested in a taxed account.
> 
> I couldn't quite figure out how I would be able encash 20 times 1,270 tax free on 5% growth?


Example:  you make 5% of 1.5m; fund now worth 1.575m
Cash in 25.4k;  that's 1.6% of your holding
Capital Gain = .016 x (1.575 - 1.5) = 1,200
The point is that you have only realised a small fraction of your capital gain


bogler said:


> Does that mean that a balanced risk portfolio of 60/40 stock/bond asset allocation is not recommended anymore and a 100% US ETF portfolio with an emergency fund is more appropriate for an long term Irish investor


I can't see the point in investing in bonds at these yields/prices.  I am not saying anything about the appropriateness of a US ETF for an Irish investor.  You describe the fund as a World Index fund so that would seem to suggest that the US aspect is only relevant to the extent that the US will be a major component of said index.  Same goes for currency exposure unless the fund is hedged into the dollar for US investors.


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## dazmck10 (17 Jan 2018)

bogler said:


> Degiro account will be based in the Netherlands, so will not have to pay US Estate Tax



I thought the location of the asset determines the estate tax and not the broker's location?


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## moneymakeover (22 Jan 2018)

@bogler 

will you let us know when you think the market is good value
Let's say it drops by 5% and 6 months go by we might be tempted to jump in 
And then it drops another 25%


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## Brendan Burgess (23 Jan 2018)

galway_blow_in said:


> its almost impossible to go wrong





galway_blow_in said:


> spend one million on a commercial property with a blue chip tenant somewhere close to the centre of dublin ,



That is a terribly funny post.  Not only is it easy to go wrong, but you have shown him the best way of doing it. Put all your eggs in one basket and there is a very good chance that you will go wrong. 

Brendan


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## moneymakeover (23 Jan 2018)

Regarding timing the market
Dow Jones is at all time high 26,000

expected to exceed 30,000

But volatility means expected to drop below 20,000

If/when that happens might be good time to jump in


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## moneymakeover (5 Feb 2018)

@bogler 

https://www.cnbc.com/2018/02/04/us-stocks-interest-rates-futures.html

Is it time to pile in?


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## moneymakeover (8 Feb 2018)

Now is it time?

Dow below 25,000


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## moneymakeover (16 Oct 2018)

Hello again @bogler

I see the djia much the same today as January last.

There was a dip last week

Maybe that we the time to buy?


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## Jim2007 (17 Oct 2018)

moneymakeover said:


> Hello again @bogler
> 
> I see the djia much the same today as January last.
> 
> ...



Wait until you hear the bell and see the green flag, then you can pile in!!!


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