# Tax-advantaged retirement accounts, or, a general 15-yr plan



## jabberwocky (12 Feb 2017)

Hi all,

I was directed here from another site, I hope I'm not running afoul of your forum etiquette in this post. I've done a few searches and gleaned some good information although there are a few things I'd like to run by you.

In essence: I am Irish, resident here, 31, single and no kids, no debt to my name. I am entertaining a plan of having a working retirement from age 45 or so, the idea being to purchase a property somewhere in the Mediterranean and run either a pub or a hostel. I've lived there before and I speak Spanish, and while it's a pipe-dream and liable to change it's a decent goal to work towards.

With that in mind, I have some thoughts questions you good folk might be able to comment on.

First, I earn €70k per year and my company offer a 5% pension match. I maintain around about €12k in an AIB current account for emergency expenses.
I have not yet started to pay into my pension, which is offered by IrishLife, and starting end of March I am going to contribute 5% of my salary to get the match. Of this contribution (€7k annually with the match), I am considering a spread of 10% bonds and 90% equities, those equities being split between their Indexed World Equity Fund(1) at 10% (which has 59% of its distribution in US companies) and 80% towards their Indexed 50/50 Equity Fund(2) which has 50% Eurozone and 33% US, amongst others.

Given my age and situation, I think this is a good balance, although I would appreciate any comments on it. I am also considering giving 10% to emerging markets(3). All these funds have around 0.65 - 0.75% management fees. Does that sound reasonable?

Second, and getting to the meat of my question; because I work remotely most of the time, I have some opportunities to save on the cost-of-living and avoid paying Dublin-area rents. I can, for example, return to Spain for the summer months and pay rent of approximately €400 per month, and spend a few months over the winter with my parents, who are getting on in life. This means, over the course of a year, my expenditure is very low and it allows me to consider having €2,500 a month free to invest. Let's say €2,000 for the purposes of this post.

Which is where I am at a loss. I don't know what to do with it. I would like to put €1k a month into an AIB 21-day notice saving account, which only offers 0.25% AER but would be very beneficial to me if I wanted to ask them for a mortgage (for a Dublin apartment to rent, not live in). But there may be other options I am unaware of; for example picking some ETFs and using a company like Davy. I don't think we have many tax-advantaged accounts in Ireland that I can utilise and withdraw from in my early 40s? Would you have any suggestions for me on how I can most efficiently put €2000 per month to use over the next ten years that would give me some options when I hit the big four-zero?

Many thanks, and apologies for the missive.

(1,2,3) PDF documents and Links I cannot post! But they are on ILIM's website.


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## Sarenco (13 Feb 2017)

Hi jabberwocky

First off welcome on board!

As regards your pension contributions; given your age, I would invest the whole lot in a global equity index fund.  You can certainly direct 10% to a bond fund and/or 10% to an EM fund if you want - truth is it won't make much difference.  A small % of a small amount is not going to make a meaningful difference.

An AMC of 0.65%-0.75% doesn't sound too bad for Ireland - you will struggle to do better.

The important point is to start investing.  As soon as possible.

As regards your after-tax savings;  I think you should direct the whole lot towards the best regular savings account you can find (check out the "Best Buys" section).

Keep it simple would be my advice. 

Hope that helps.


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## GerardPROactive (13 Feb 2017)

Sarenco said:


> As regards your after-tax savings;  I think you should direct the whole lot towards the best regular savings account you can find (check out the "Best Buys" section).



Solid advice, if you're not trying to avoid paying tax and you want to target a decent return then life company regular savers are the way to go.

Jabberwocky, regarding your pension fund choice, given current (and probable future) market volatility, it may be worth paying a slightly higher management fee and investing your pension into a fund with a degree of management involved eg. MAPS 5.

Gerard
www.proactivefinance.ie


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## elacsaplau (13 Feb 2017)

GerardPROactive said:


> .....regarding your pension fund choice, given current (and probable future) market volatility, it may be worth paying a slightly higher management fee and investing your pension into a fund with a degree of management involved eg. MAPS 5.



Hi Gerard,

Please take this question in the spirit of debate. I want to understand this for myself also.

Can you provide evidence to support this recommendation please? My understanding is that in general active managers fail to beat passive management. In other words, taking active management risk is generally not rewarded by higher expected return.


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## GerardPROactive (13 Feb 2017)

Hi Elacsaplau,

I agree, in recent years passive funds have quite often outperformed managed funds. But you must take into account that since 2009, the growth in equity markets generally has been unprecedented and therefore investing in a passive fund was almost guaranteed to deliver strong returns. However, with increased volatility, it's doubtful these growth levels in passive funds will continue and if it was my money (and while nothing is guaranteed) I'd rather have it watched that little bit closer at present.

I'm not familiar with the rules of the scheme but presumably Jabberwocky will be allowed switch funds on occasion free of charge so would not be confined to the original fund choice anyway.

Gerard
www.proactivefinance.ie


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## PGF2016 (13 Feb 2017)

GerardPROactive said:


> Hi Elacsaplau,
> 
> I agree, in recent years passive funds have quite often outperformed managed funds. But you must take into account that since 2009, the growth in equity markets generally has been unprecedented and therefore investing in a passive fund was almost guaranteed to deliver strong returns. However, with increased volatility, it's doubtful these growth levels in passive funds will continue and if it was my money (and while nothing is guaranteed) I'd rather have it watched that little bit closer at present.
> 
> ...



I don't think the passive funds have beaten active only over the last 8 years. I think historically they've beaten them for a lot longer. And it's not just quite often but I believe mroe than 80% of the time. You're paying extra for inferior performance.


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## GerardPROactive (13 Feb 2017)

So you don't believe that an actively managed fund would be a better option in a non-bull market?

Gerard
www.proactivefinance.ie


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## elacsaplau (13 Feb 2017)

Thanks Gerard,

I'm not only referring to relatively short-term performance (i.e. since 2009).



PGF2016 said:


> I don't think the passive funds have beaten active only over the last 8 years. I think historically they've beaten them for a lot longer. And it's not just quite often but I believe more than 80% of the time. You're paying extra for inferior performance.



Thanks PGF2016 - This is precisely my understanding also.

I find the implication that active managers (in general) somehow know how to effectively time the market as, frankly, scary and is inconsistent with the majority of the literature that I have read on the subject. 



elacsaplau said:


> Can you provide evidence to support this recommendation please?



Gerard - I've a massive data bias. The question remains the crucial for me!


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## Sarenco (13 Feb 2017)

GerardPROactive said:


> Solid advice, if you're not trying to avoid paying tax and you want to target a decent return then life company regular savers are the way to go.
> 
> Jabberwocky, regarding your pension fund choice, given current (and probable future) market volatility, it may be worth paying a slightly higher management fee and investing your pension into a fund with a degree of management involved eg. MAPS 5.




The Irish Life MAPs funds have a fairly significant allocation to (unidentified) alternative strategies and employ a mysterious market-timing algorithm.  Definitely not somewhere I would risk my hard earned savings.

Life company regular saver products are a pretty expensive way of gaining market exposure and the tax treatment is pretty awful.  Personally, I don't see the attraction.

In any event, I think it makes more sense for a 31-year old to keep long-term retirement savings invested in (volatile) equities and short/medium term savings in (stable) cash deposits.


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## cremeegg (13 Feb 2017)

GerardPROactive said:


> So you don't believe that an actively managed fund would be a better option in a non-bull market?
> 
> Gerard
> www.proactivefinance.ie



No I don't. And when I asked for some evidence that it might on a separate thread recently I got no response.

http://www.askaboutmoney.com/threads/arf-questions-to-ask-broker.202324/#post-1504266

Gerard, You are in the business of selling investments. You have suggested on more that one occasion that active investments out perform passive. Well they certainly pay more commission to brokers. If you have no evidence to support your point of view please stop repeating it.


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## PGF2016 (13 Feb 2017)

GerardPROactive said:


> So you don't believe that an actively managed fund would be a better option in a non-bull market?
> 
> Gerard
> www.proactivefinance.ie



Historically they've been far worse in all markets.


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## Sarenco (13 Feb 2017)

GerardPROactive said:


> So you don't believe that an actively managed fund would be a better option in a non-bull market?



I'm afraid it's a complete myth that active managers, on average, out-perform index funds during bear markets. 

But I suspect you already knew that...


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## GerardPROactive (13 Feb 2017)

cremeegg said:


> No I don't. And when I asked for some evidence that it might on a separate thread recently I got no response.
> 
> http://www.askaboutmoney.com/threads/arf-questions-to-ask-broker.202324/#post-1504266
> 
> Gerard, You are in the business of selling investments. You have suggested on more that one occasion that active investments out perform passive. Well they certainly pay more commission to brokers. If you have no evidence to support your point of view please stop repeating it.



Cremeegg...the commission for passive investments is the exact same as active. Please advise where you see otherwise as this is news to me.

Also provide evidence of where else I have suggested active outperforms passive. I'm an independent advisor who is entitled to give an opinion. I believe (and I've never stated this as fact) that in a volatile market, active management is a better place to be.

Gerard
www.proactivefinance.ie


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## Steven Barrett (13 Feb 2017)

The Irish Life MAPS portfolios have only been running since May 2013, so their record is only in a bear market. 

I would question your fund choices for your pension. The World Index fund is based on global market capitalisation and so is heavily invested in the US. The second fund you mentioned will have the exact same US and European stock as the World Index fund, just a different weighting. I'd agree with Sarenco in that I would invest in the global index fund. 

On your savings, it very much depends on what you want to do with your money. If it's to be used to purchase a property in a few years, there is no point in taking the risk of there being a market crash. It may set you back 4/5 years (but for your pension, you can't access the money anyway, so a crash will won't put back retirement). I would keep it in cash if you intend spending it within 5 years. EBS pay 3% fixed for their regular saver. Maximum monthly contribution is €1,000.

And congratulations on being so focused on what you want at a young age. Most people don't know what they want. 


Steven 
www.bluewaterfp.ie


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## cremeegg (13 Feb 2017)

GerardPROactive said:


> Cremeegg...the commission for passive investments is the exact same as active. Please advise where you see otherwise as this is news to me.
> 
> Also provide evidence of where else I have suggested active outperforms passive. I'm an independent advisor who is entitled to give an opinion. I believe (and I've never stated this as fact) that in a volatile market, active management is a better place to be.
> 
> ...



You believe ? Thats it ? Well thats my mind set at rest then.


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## GerardPROactive (13 Feb 2017)

SBarrett said:


> The Irish Life MAPS portfolios have only been running since May 2013, so their record is only in a bear market.



Hi Steven,

I did not suggest MAPS based on their historical return. I'm a firm believer in not using historical returns as a main basis for an investment recommendation as it can be very misleading. I'm aware that plenty of advisors do though.

Just wanted to clear that up.

Gerard
www.proactivefinance.ie


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## GerardPROactive (13 Feb 2017)

cremeegg said:


> You believe ? Thats it ? Well thats my mind set at rest then.



Well if I could predict the future with certainty I wouldn't be posting in here!

Also would you mind backing up your claims about what I said and about commission or else retract them please.

Gerard
www.proactivefinance.ie


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## cremeegg (13 Feb 2017)

GerardPROactive said:


> Well if I could predict the future with certainty I wouldn't be posting in here!
> 
> Also would you mind backing up your claims about what I said and about commission or else retract them please.
> 
> ...



Retract what, my suggestion that the idea that active managers out perform passive is incorrect and misleading. No I dont see why I should retract that. Here is one basis for that suggestion. 



Retract my suggestion that as a professional investment advisor that you can earn more commission from an active than a passive fund. I will if you can show some evidence that it is incorrect. After all it your turn to bring some evidence to this debate.


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## GerardPROactive (13 Feb 2017)

You should retract your claim that I have said that 'on more than one occasion' when in fact I have not said it once. All I said is where I would like my money to be in a volatile market. It's your entitlement to disagree with this but not to fabricate statements.



cremeegg said:


> Retract my suggestion that as a professional investment advisor that you can earn more commission from an active than a passive fund. I will if you can show some evidence that it is incorrect. After all it your turn to bring some evidence to this debate.



You made the claim, the onus of proof is on you. Anyone in the industry will tell you that commission to an intermediary is not directly based on whether a fund is actively or passively managed. I'd love to know where you got that from.

This 'debate' has become silly.

Gerard
www.proactivefinance.ie


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## cremeegg (13 Feb 2017)

I don't know that it has become silly. I think the points made regarding active vs passive and broker commissions are important. However it has perhaps become repetitive so I will leave it at this. Readers who are interested enough can make up their own minds.


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## GerardPROactive (13 Feb 2017)

cremeegg said:


> I think the points made regarding...broker commissions are important..



This is my last post on this thread but I think saying a point is important when it is untrue means it can be disregarded.

Gerard
www.proactivefinance.ie


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## Sarenco (13 Feb 2017)

For what it's worth, here's S&P's scorecard of the % of active funds in the US that were outperformed by their respective benchmarks across all major equity investing styles during the last two bear markets (2008; 2000-2002):-

All Large-Cap Funds 54.3; 53.5

All Mid-Cap Funds 74.7; 77.3

All Small-Cap Funds 83.8; 71.6

Large Growth 90.0; 49.4

Large Core 52.0; 53.4

Large Value 22.2; 36.5

Mid Growth 89.0; 82.4

Mid Core 62.3; 70.2

Mid Value 67.1; 82.8

Small Growth 95.5; 87.5

Small Core 82.5; 70.8

Small Value 72.6; 58.3

And here's a Vanguard paper that looks at a longer timeframe and includes European data:-


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## elacsaplau (13 Feb 2017)

Thanks Sarenco - this is consistent with what I have read elsewhere.

To be fair to Gerard, whilst we might disagree on the relative merits of active v. passive management, I believe that Gerard is not, in any way, motivated by a higher commission payment in arriving at his view.


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## Gordon Gekko (13 Feb 2017)

Whilst the active vs passive debate is interesting, my observation is that the OP should be maximising the pension contributions. Forget 5%; 20% of €70k (€14k) is allowable as an employee contribution on an annual basis. That's only €700 per month in after-tax income. Yes, it can't be accessed at 45, but it can be accessed at 50.


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## Steven Barrett (13 Feb 2017)

cremeegg said:


> No I don't. And when I asked for some evidence that it might on a separate thread recently I got no response.
> 
> http://www.askaboutmoney.com/threads/arf-questions-to-ask-broker.202324/#post-1504266
> 
> Gerard, You are in the business of selling investments. You have suggested on more that one occasion that active investments out perform passive. *Well they certainly pay more commission to brokers.* If you have no evidence to support your point of view please stop repeating it.



This is not correct. The investment fund chosen has absolutely no bearing on the level of commission that can be charged under a product. Products with high management charge effect the amount of commission that can be charged. Active funds managers can charge more because of the additional cost of running the fund but the advisor doesn't see any of it. 




GerardPROactive said:


> Hi Steven,
> 
> I did not suggest MAPS based on their historical return. I'm a firm believer in not using historical returns as a main basis for an investment recommendation as it can be very misleading. I'm aware that plenty of advisors do though.
> 
> ...



It gives us an indication of what can happen in different conditions, especially for active funds where the fund is being sold on a manager's expertise. Being able to see how a certain approach did in a downturn when compared to a passive benchmark is a useful insight into a fund. 


Steven 
www.bluewaterfp.ie


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## Sarenco (13 Feb 2017)

SBarrett said:


> Being able to see how a certain approach did in a downturn when compared to a passive benchmark is a useful insight into a fund.



Hi Steven 

I'm afraid I wouldn't agree with that conclusion.  

It's actually pretty clear from the available evidence that any outperformance by an active manager in one bear market is not predictive of continued success in any subsequent bear markets.

Past performance is not a reliable indicator of future results - regardless of market conditions.


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## Sarenco (13 Feb 2017)

Gordon Gekko said:


> my observation is that the OP should be maximising the pension contributions.



I certainly agree that all available tax-advantaged pension space should be maxed-out before making any long-term investments outside a pension wrapper but surely that has to be balanced with the flexibility and optionality provided by having a reasonable liquid cash fund? 

I would have thought that would be particularly important in the OP's circumstances.

As a matter of curiosity, do you have any insight into the tax treatment of drawdowns from an Irish pension fund by a Spanish resident?  I assume it's reasonably favourable but it would be interesting to know the details.


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## Gordon Gekko (13 Feb 2017)

Sarenco said:


> surely that has to be balanced with the flexibility and optionality provided by having a reasonable liquid cash fund? I would have thought that would be particularly important in the OP's circumstances.



The OP has €2,000 to €2,500 a month to invest. Maxing out the pension would only cost €700. Flexibility and optionality aren't really an issue; he/she can easily cover off both with the other €1,300 / €1,800.

I'm not really familiar with the Spanish rules; probably just Irish payroll tax on the ARF drawdowns with credit for same against the Spanish tax liability (which should be lower).


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## Sarenco (13 Feb 2017)

Well, that's certainly true as things stand.  But personal circumstances can change pretty radically when people are in their early 30's.  

I would be circumspect about recommending that anybody at that age goes "all in" with their pension contributions while their plans are still fluid/evolving.


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## jabberwocky (13 Feb 2017)

Thanks all for your comments. I was following with interest throughout the day, and got answers to some questions I hadn't even asked yet. Good job!

Anyway, whilst I agree maximising the pension contribution might be a good idea tax-wise, I don't want to lock so much of it away, at least not right now. Having some flexibility within the next couple of years is a priority, for now, I just want to take advantage of the 5% match and I might look at increasing my contributions in the future. Based on all your comments, it seems like putting the lot into the Indexed World Equity Fund is the way to go, at least for now.

Great discussion going on here though, keep it up.


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## Gordon Gekko (13 Feb 2017)

Sarenco said:


> Well, that's certainly true as things stand.  But personal circumstances can change pretty radically when people are in their early 30's.
> 
> I would be circumspect about recommending that anybody at that age goes "all in" with their pension contributions while their plans are still fluid/evolving.



Sarenco,

The OP has investable spare cash of €2,500 per month. He/she is already planning to set aside €175 a month into his/her pension fund.

I'm recommending that he/she commits an additional €525 to the pension (only circa 20% of the spare cash).

There are no grounds for being circumspect about making a recommendation. Eschewing pension in circumstances where there is so much free cashflow would be preposterous.

Gordon


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## Sarenco (13 Feb 2017)

Gordon

The OP currently has significant cash-flow to save/invest.  But things can change.  Particularly at the OP's age.

As always, it's a question of balancing short-term, medium-term and long-term financial goals.  When plans are fluid, maintaining an adequate degree of flexibility is entirely reasonable.


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## Sarenco (13 Feb 2017)

jabberwocky said:


> Thanks all for your comments. I was following with interest throughout the day, and got answers to some questions I hadn't even asked yet. Good job!



Thanks for coming back to us jabberwocky.  

As you have probably gathered, disagreements are not unknown around these parts but hopefully you can gain something from the discussion.


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## jabberwocky (14 Feb 2017)

Indeed, and I have. Sarenco has made the key point: I _currently_ have a decent situation but it won't be like this forever. Keeping options open and maintaining a degree of fluidity is important at this stage. My COL is low right now but it will go up again sometime.

It brings me to another question - and maybe I should open a new thread for this - but let's say I want to use this time to gain some experience and exposure to managing funds myself. As in, using a small amount to invest in ETFs. I have the time to read and learn more and devote a few hours a week to managing it. What would be a good approach to start? Maybe investing €50 a month over six months and using a platform like Davy? I mainly want to pick them and sit on them, so I don't expect to have too much in transaction fees, but keeping these low is obviously important. Longer-term, I think this would be good knowledge to have, considering the withdrawal tax on a pension fund is around 41% vs around 33% for certain ETFs, and, it's an interesting subject in its own right that I want to learn more about.

I don't know too much about the subject just yet but I'm interested to hear your thoughts. Most of the information I find is specific to the US and not entirely transferable to an Irish investment plan.

Thanks again and have a great day.


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## Gordon Gekko (14 Feb 2017)

Sarenco said:


> Gordon
> 
> The OP currently has significant cash-flow to save/invest.  But things can change.  Particularly at the OP's age.
> 
> As always, it's a question of balancing short-term, medium-term and long-term financial goals.  When plans are fluid, maintaining an adequate degree of flexibility is entirely reasonable.



Sarenco,

Instead of posting vague generalisations, it is more helpful to assess the facts and address the OP's specific circumstances. Your advice is suboptimal. Is it any wonder that we have a pensions crisis in this country when a 31 year old with €2,500 of investable cash per month is in any way discouraged from setting €700 a month aside into a pension? €175 of which, I might add, will be matched by his/her employer.

The OP also wants to retire early; tax-free compounding within a pension can be the cornerstone of this strategy.

OP, max out your AVCs. Any advice to the contrary is utterly ridiculous in the context of your circumstances. The other spare €1,800 you have every month can provide all the flexibility you need. You also have the flexibility to stop contributing to your pension at any time.

Gordon


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## Sarenco (14 Feb 2017)

Gordon

I'm sorry but I don't think it's fair to accuse me of posting vague generalisations.  My advice was quite specific and actionable and it certainly took the OP's specific circumstances into account.  You are obviously free to disagree with the advice but to dismiss it as utterly ridiculous is hardly reasonable.

Again, the OP is 31-years old, has a good income, currently has a low cost of living but has minimal savings.  He has the outline of a long-term plan but recognises that plan may well change over time.

I would suggest that given the age of the OP there is every possibility that his plans may in fact change quite dramatically over the coming years.  He might decide to buy a place of his own, travel the world, get married, start a family - who knows?  Building a reasonable liquid cash fund will give the OP flexibility and optionality.

If the OP had already built a reasonable cash fund - of, say, €50k - then I would absolutely agree with you that he would be well advised to maximise his pension contributions before investing elsewhere.  However, he doesn't currently have any meaningful savings so I think it's reasonable for the time being to contribute enough to his pension to secure the employer match and to build a reasonable cash fund with after-tax money.

Again, it's simply a question of balancing short-term, medium-term and long-term financial goals and allowing for the reality that those goals may change over time.


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## Gordon Gekko (14 Feb 2017)

I fundamentally disagree with your analysis.

The OP has €2,500 of spare investable cash per month. It makes absolute sense to contribute €700 of that to his pension, thus maximising the tax benefit. There is more than enough in the other €1,800 to build up a cash fund or do other things. And if circumstances change, the AVCs can of course be stopped.

The thread was hijacked by an active vs passive debate, when in fact the salient issue is HOW the OP invests; pension makes absolute sense in this case.

Gordon


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## Sarenco (14 Feb 2017)

Gordon Gekko said:


> I fundamentally disagree with your analysis.



I appreciate that Gordon but that doesn't necessarily mean another viewpoint is "utterly ridiculous" or "preposterous".  I'm sure you are not arrogant enough to think you have any monopoly on wisdom.

Obviously AVCs can be reduced or stopped entirely at any point in the future - nobody suggested otherwise.  However, say the OP decided in a years' time that he wanted to buy a house or to start a business.  Well, he wouldn't be able to drawdown the AVCs that have already been made so that would certainly limit his options.  Hence maxing out AVCs at this stage of the OP's financial life would reduce his flexibility to do other things in the short to medium term. 

The OP himself has told us that he doesn't want to max out his AVCs as keeping his options open is important to him over the next couple of years.  That seems entirely reasonable to me given his age and circumstances.

Again, we are in violent agreement that any available tax-advantaged pension space should be maximised before any long-term investments are made elsewhere.  That is not in dispute.



Gordon Gekko said:


> The thread was hijacked by an active vs passive debate, when in fact the salient issue is HOW the OP invests; pension makes absolute sense in this case.



Well, the OP specifically asked for opinions on his investment choices for his pension and appears to have welcomed the points raised in the discussion that followed.  Not sure it's up to you (or me for that matter) to decide what is of interest to the OP.


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## Gordon Gekko (14 Feb 2017)

- A 31 year old with €2,500 to spare every month, an existing emergency fund of €12k, and a desire to retire early.

- €700 (i.e. only 28%) of his spare monthly cash would leverage the tax advantages of a pension to the max, leaving him with €1,800 a month to add to his existing €12,000.

- He would have €34,000 in cash after 12 months, all whilst maxing out his pension and building towards an early retirement in the most tax efficient manner possible.

I find it incredible that anyone could question the wisdom of the above approach.

I have nothing further to add to this thread.


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## Sarenco (14 Feb 2017)

Gordon

Nobody is questioning any of that.  But the OP has told us he doesn't want to follow this approach.  He has given his reasons and I think they are entirely reasonable given his age and circumstances.  You don't agree - fine, we get it - but there's no need to be rude about it.


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## Rory T Gillen (17 Feb 2017)

This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts. It is a fact - well researched, well documented - that passive investing ensures market performance (less the fees, which are lower); active management does not (and they have, typically, higher costs). I am a big fan of index trackers, but not to the exclusion of all else. Personally, I get quickly bored with passive investing (ETFs, for example) and find actively-managed funds more interesting. I may not be entirely rational in that regard, but a key point is we are all different. As a concrete example, I find the JP Morgan Global Growth & Income Trust - quoted on the LSE - to be very interesting. The fund follows a strict approach to stock selection which I find convincing and the Board is committed to paying out 4% of its net asset value each year, backed up with decent revenue reserves and substantial capital reserves (which means the dividend can be sustained through weaker periods in markets). Adds an element of attraction to it for an investor who needs an income - now - from his/her investments - think of the ARF investor, perhaps. It adds something to the choice, I feel.

Rory Gillen


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## Sarenco (17 Feb 2017)

To be fair Rory the JP Morgan Global Growth & Income Trust is not offered by Irish Life so I'm not sure what relevance the merits or otherwise of that trust has to the OP's request for opinions on the choice of funds in his pension fund.

FWIW, I am personally a fan of investment trusts in certain scenarios - I'm certainly not a passive investing purist by any means.  However, I think it's perfectly reasonable for posters to query or challenge a recommendation based on a suggestion that actively managed funds outperform passively managed funds during times of market distress.

I do agree that the tone of some of the contributions was unfortunate but I certainly hope that doesn't put you off from participating in future discussions.


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## Gordon Gekko (17 Feb 2017)

My issue was with the poo-pooing of an AVC of €700 a month for a 31 year old with €2,500 of spare cash every month and a desire to retire early.

I'm still of the view that neglecting the AVC piece in such circumstances is genuine hospital for the criminally insane stuff.

It's only 28% of the spare cash and the AVCs can be suspended at any time.

I am not normally as strident in my views, but in this case I do genuinely find the counterarguments utterly ridiculous.


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## cremeegg (17 Feb 2017)

Rory T Gillen said:


> This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts.



As Sartre said "hell is other people". While certainly things can get a little hot around here, this is a more constructive place than many other fora. It is also an unfortunate reality that in order to get a reaction you have to be a little provocative. 

Most people here including myself post anonymously that allows the freedom to say things that I wouldn't say under my real name. I freely discuss my financial affairs which I would not do were it not for the anonymity. I can also express views in a more robust fashion, readers are free to take those views with a pinch of salt they are after all anonymous.

I hope you persevere with the struggle to participate.


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## elacsaplau (17 Feb 2017)

Rory T Gillen said:


> This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts.



Others can speak for themselves but as "everyone" includes me, I absolutely reject this as a fair characterisation of my posts to this thread - see posts numbered 4, 8 and 23.


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## jabberwocky (17 Feb 2017)

Hi all,

Thanks for your comments and the spirited debate! I've definitely gleaned some good information from this. Gordon makes a good point about maximising the contribution - €700 a month is quite doable. Could anyone just confirm for me quickly - I am limited to contributing 20% of my gross salary, but is this 20% (14k) inclusive of an employer's 5% match? As in, would I be paying €10,500 per year myself, with employer paying €3,500 to bring it to €14k, or would I have €17,500 in the fund at the end of a year?

Also, if I were to go and put the full 20% in, would putting the lot into a passive world market index fund still be wise, or at that amount would it make more sense to balance it out a little bit?

Thanks again!


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## Gordon Gekko (17 Feb 2017)

If the pension scheme is a company pension / occupational scheme, then you can put in 20% and your employer can put in 5% (or more). If it's (say) a PRSA, then the total shouldn't exceed 20% (so you'd be putting in 15%).


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## Gordon Gekko (17 Feb 2017)

Worth noting that if you commit €700 of your €2,500 every month, €1,459 will be invested...

You sacrifice €700, and €1,459 is invested to provide for your retirement...and invested in a structure where all income and capital gains under its bonnet are themselves tax-free.


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## jabberwocky (17 Feb 2017)

Thanks Gordon. It's an occupational pension plan so I suppose I can get up to an effective rate of 25%. I don't know if I'll live long enough to enjoy it! But it's a sensible approach. Do you have any comments on how/where to put it? I think in the first post in the thread I listed out some of the options.

I definitely do not want an actively managed fund - this goes against every bit of advice I have read, both here and elsewhere - but would something like a 33/33/33 split between world, Europe and bonds be reasonable? Or more like 40/40/20? Any thoughts?

This is a fund I can (hopefully) afford to live without for 20-odd years, so while I can handle some volatility I obviously don't want to take unnecessary risks with it, given its nature.


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## Gordon Gekko (17 Feb 2017)

There are other contributors more qualified than I am to advise you on the investment piece.

For what it's worth, I'm also in my 30s, I max out my AVCs (and have done for years), I take the generous employer pension contribution and invest all of it in two 100% equity actively managed strategies. The annual charges are 0.5%. I will never dial down that level of risk, even when I ARF it down the line. It's a succession planning play for my kids.


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## jabberwocky (17 Feb 2017)

Nice. I'll take that onboard. I do like the idea of investing in an equity fund over very long time period, even if it's not me who'll ultimately benefit from it. 0.5% management fee sounds great though. Most managed funds I've looked at were more like 1.5% - 1.9%.

I might spend a couple of years putting it all into world market equities, I don't know at this point. Still researching a bit. Maybe someone else will chime in, or I'll start a new thread when I have more info to build on. Cheers, best of luck.


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## Dan Murray (18 Feb 2017)

jabberwocky said:


> I definitely do not want an actively managed fund - this goes against every bit of advice I have read, both here and elsewhere - but would something like a 33/33/33 split between world, Europe and bonds be reasonable? Or more like 40/40/20? Any thoughts?



Fair play jabberwocky - you got a bit of debate going - possibly because you are asking relevant and smart questions like the one above.

In relation to investment returns, the primary determinant is asset allocation. The active versus passive debate is secondary. For what it's worth, passive is generally better for two reasons. Firstly, it provides superior returns for most investors in most markets than the equivalent active manager and secondly, rather than literally wasting time in trying to find that illusive beast (an active manager that will out-perform its passive equivalent in the long term), it helps one to focus one's time on the substantially more significant asset allocation question.

Gordon made an interesting comment about his 100% equities approach. There are two points to note here:

1. Gordon may well have such _liatróidí _but a lot of people would not - especially at a certain age and when the shizzle really starts hitting fans. This gets into the really important area of behavioural finance which is a greatly under-represented topic on this forum; and

2. If we accept that in the long-haul that equities are going to be the best performing asset allocation class (acknowledging that this is not certain in one's investment lifetime), my understanding is that Gordon's approach is, counter-intuitively, sub-optimal in both the accumulation and decumulation phases and that better absolute returns and substantially better risk-adjusted returns are available via other strategies! The reason this will come as a surprise to some people is because discussions regarding asset allocation strategies are, again, too infrequent in these parts.

I would encourage you to start a new thread on the optimum asset allocation strategy in your circumstances. I think this thread has been helpful to you - I'd be surprised if a second thread did not come up with additional useful pointers.

Just my $0.02


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## Gordon Gekko (18 Feb 2017)

Hi Dan,

Maybe the OP or you could start a new thread?

You raise interesting points.

Gordon


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## jabberwocky (18 Feb 2017)

I will start one now.


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## Gordon Gekko (19 Feb 2017)

Sarenco said:


> Gordon
> 
> Nobody is questioning any of that.  But the OP has told us he doesn't want to follow this approach.  He has given his reasons and I think they are entirely reasonable given his age and circumstances.  You don't agree - fine, we get it - but there's no need to be rude about it.



Sarenco,

I find it interesting that the OP has decided to follow my proposed approach.

Care to backtrack?

Gordon


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## Sarenco (19 Feb 2017)

Gordon 

You are clearly trolling at this point but, no, I don't "care to backtrack".

I said repeatedly that, in my opinion, the OP should make maximum use of any available tax-deferred pension space before making any other long-term investments elsewhere.  However, this has to be balanced with addressing any short or medium-term financial needs.

Where anybody decides to strike the appropriate balance in this regard is a matter of judgment.  However, it seemed entirely reasonable to me that a 31-year old with minimal savings would choose not to make AVCs for a couple of years with a view to building up a larger accessible cash fund to address medium-term needs (possible house deposit, etc.).

If the OP has now decided that he is prepared to forgo a degree of medium-term flexibility in order to maximise his pension contributions that's obviously fine too - it's his call.

I hope you will agree that this discussion has now run its course.


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## Gordon Gekko (19 Feb 2017)

Sarenco,

I am not trolling and I resent that allegation.

I am simply calling you out for giving bad financial advice.

Gordon


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## Sarenco (19 Feb 2017)

Gordon Gekko said:


> Sarenco,
> 
> I am not trolling and I resent that allegation.
> 
> ...



I disagree that I have given anybody bad financial advice and you are now most definitely trolling.

Good luck.


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## jabberwocky (19 Feb 2017)

This thread can probably be locked now... thanks all for sharing your experiences and knowledge on the subject. I will consider them all when I stop playing with numbers and take a decision.


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## Fella (19 Feb 2017)

Gordon Gekko said:


> Sarenco,
> 
> I am not trolling and I resent that allegation.
> 
> ...



I think your been unfair it reads like any advice that doesn't match with yours is wrong , I don't agree with maxing out pension either , I can see at 31 things changing quickly over next few years and it would be better to have quick access to cash. 

The absolute correct thing to financially is not always the best thing to do in reality , life gets in the way.


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## Gordon Gekko (19 Feb 2017)

Fella said:


> I think your been unfair it reads like any advice that doesn't match with yours is wrong , I don't agree with maxing out pension either , I can see at 31 things changing quickly over next few years and it would be better to have quick access to cash.
> 
> The absolute correct thing to financially is not always the best thing to do in reality , life gets in the way.



What about circumstances where it is wrong?

The 31 year old in question has cash reserves and is throwing off a lot of spare cash.

Advising him not to make AVCs is appalling advice...deliquent stuff. No wonder there's a pensions crisis when people in the OP's circumstances are being steered away from AVCs.

I have never heard such rubbish.

But I agree; the thread should be locked. I have no interest in Sarenco's continuing vendetta against me.


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## Sarenco (19 Feb 2017)

Gordon

I am not pursuing a vendetta against you and I have absolutely no idea what gave you that idea.

I didn't advise the OP not to make AVCs - please try to avoid misrepresenting my posts.

I actually said that it seemed entirely reasonable to me that a 31-year old with minimal savings would choose not to make AVCs for a couple of years with a view to building up a larger accessible cash fund to address medium-term needs.

I really don't understand why you insist on denigrating the perfectly reasonable views of other posters in such colourful terms.


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## Gordon Gekko (19 Feb 2017)

Sarenco said:


> I really don't understand why you insist on denigrating the perfectly reasonable views of other posters in such colourful terms.



Sarenco,

I do not want to fall out with you and I have always found your contributions to be positive.

But in this instance, I firmly believe that the tack you're taking is off the wall.

However, I suggest we move on and have a proverbial beer.

Gordon


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## Rory T Gillen (19 Feb 2017)

I've seen enough and heard enough and cannot see any great value in further contributing to a site where people handle themselves in this manner. There is little doubt that there are many knowledgeable contributors, but there's still a significant case of the uninformed arguing with the uninformed. It has been suggested to Brendan before that he distinguish between the qualified and non-qualified in responses. Unless some amendment is made I'm away i.e. I'm not posting again.
*
Rory Gillen
Founder, GillenMarkets*


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## mtk (19 Feb 2017)

Someone need a hug ?


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## Fella (19 Feb 2017)

Gordon Gekko said:


> What about circumstances where it is wrong?
> 
> The 31 year old in question has cash reserves and is throwing off a lot of spare cash.
> 
> ...



It's a discussion forum just give your opinion and move on let the OP decide what's the best , criticising others that post opposing views is counter productive . 

You have posted an optimum strategy for his cash but it may turn out incorrect in the future we don't know , maybe he saves up this cash - a housing crash comes and he can buy cheap , maybe he saves this cash and needs medical expenses in a foreign country etc . , maybe he just doesn't want to put that much in an AVC till retirement age . 

I know people who don't care much for retirement they spend all there money now and enjoy it , they have no interest in what will happen at retirement age , they are probably right , maxing out AVC's is not for everyone. 

It is good to get opposing views here otherwise the site would have a section that says max out AVC's with free cash and that's it nobody should even ask a question or else they be shot down.

If your maxing out your AVC's now at such a young age aren't you negating the tax relief as your going to pay tax at high rate when you draw it down ? I'm in 30's and don't max out AVC's you can tell me I'm wrong but I'm happy to have cash in reserves so I can take opportunities that come up like a housing crash etc. It's hard to put a value on oppurtunity cost imo. 

I think Sarenco's advice was very sound, it's not like he's advising something controversial like sticking it all on one blue chip company stock, your been grossly unfair to him.


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## Gordon Gekko (19 Feb 2017)

Just to recap, the OP already has €12k in cash in an emergency fund. He's throwing off spare cash of €2,500 a month. He's 31 and he'd like to retire early. Following my plan, he'll have €34,000 in cash after 12 months and by contributing €700 a month to the pension, almost €1,500 will end up invested in the pension to provide for his retirement.


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