# Recommend an investment



## leonmahon (13 Feb 2015)

I'm looking for concrete, workable solutions to my needs. TIA for any responses. 

I want to invest a four figure lump sum, and follow up with regular, monthly three figure cost averaging investments for the foreseeable future (this figure will hopefully grow with my salary). My focus is medium-long term (10+ years). I want to absolutely minimize fund charges, tax liabilities and obligations. I want to automatically re-invest any dividends gained.

From reading here and elsewhere, index trackers and ETFs are a minefield in this country. If I lived in the states I would just buy some Vanguard funds and be done with it. What is the best option remaining? 

I already overpay my mortgage and max out my employer matched pension contributions.


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## Brendan Burgess (14 Feb 2015)

Hi Leon

You would need to set out your full details to get a proper answer. 

If you have an SVR mortgage, it's probably best to pay the capital against it, unless you are planning to trade up in the near future.  You may be able to switch to another lender for a much lower interest rate.  This would be a very high risk free and tax-free return. 

Brendan


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## leonmahon (14 Feb 2015)

Thanks Brendan - I am already paying around double my standard monthly mortgage payment. I will consider adding more, but I'm interested in options to make my money grow over the medium to long term. What details should I post?


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## Sarenco (14 Feb 2015)

To get a fuller answer, I think you probably should give some indication of your goals for your savings.  For example, do you simply want to fund a replacement income in retirement?  Do you have any dependants that you need to provide for? Is your current position secure?

Specifically on the financial side, it would be useful to know your gross income, your age, whether you have any debts other than your mortgage, the amount outstanding on your mortgage and your mortgage rate and whether you currently have any investments beyond your pension and your lump sum (which I assume is currently on deposit).

When you say you max out your employer matched pension contributions do you mean you contribute the maximum amount required to get the employer match or something else?  In other words, do you have any room to make AVCs to your scheme?  Do you know the AMC applicable to your scheme or where it is invested?


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## leonmahon (15 Feb 2015)

Thanks for your reply. 

Goal: Financial independence before the traditional retirement age. I want to have options and want to be able to work less if I can. 

Age: 34

Gross income: 31k. This is an entry level position in a "new" career & there's a good chance that this figure will rise sharply in the coming years.

OH gross income: 37k. Much less scope for salary growth in her career.

Dependents: One child

Debts: None

Mortgage outstanding: 135k

House Value: c. 300k

Mortgage rate: 4.05%

Current monthly payment: €1500

Savings: 20k

Other investments: None

Pension: I have just started contributing to my pension. I contribute the maximum amount that my employer will match on a monthly basis. There is scope for additional contributions (not matched by my employer). I can't access the exact details of my pension right now but I choose two passive funds with low management fees (<.2%). 

Our lifestyle and spending habits are quite prudent and frugal, and our childcare costs are low.

Thanks again.


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## Sarenco (15 Feb 2015)

Thanks for coming back to us.

You are obviously in very good shape financially for your age and income level.

I would agree with Brendan's initial view that over-paying your mortgage will probably give you the best return on your capital.  Each over-payment will give you the equivalent of a guaranteed, tax free and commission free return of 4.05% per annum - you won't get that kind of guaranteed return anywhere else.

Generally speaking pension contributions are less attractive from a tax perspective if you are not paying income tax at the higher rate.  Having said that, the AMC on your scheme is exceptionally low by Irish standards and maximising your tax advantaged space makes sense before investing elsewhere.  In your circumstances, I would suggest that your pension contributions should be invested primarily in equity funds.

Finally, you should keep a reasonable sum in an accessible deposit account for emergency purposes.  I would suggest setting aside at least 6 months of household expenses for this purpose.


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## leonmahon (15 Feb 2015)

Thanks again for the response. 

I'm on board with the mortgage overpayments, and in theory I could add a little more. But 3 years into what was originally a 30 year term and I only have 8.5 years to go - I'll definitely be looking for some investment vehicles then, so I figure why not start now, on a smaller scale.

Likewise I could invest a bit more in my pension. But I will only be able to access that income stream at age 59.5 - what if I decide I want to "retire" ten years before that? 

I want to start getting some of my cash working for me & compound all my gains over the next 10-20 years. I would love to invest in passive equity funds outside the scope of my pension plan. Is there any way to facilitate this in Ireland without incurring unsustainable management fees or onerous tax liabilities? Or if not, what else - performing funds with higher charges, bonds, REITs, Linked Finance?


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## Sarenco (16 Feb 2015)

Most occupational pension schemes allow for early retirement with the employers' or trustees' consent from age 50 - the inability to draw down before 59.5 years of age is a US specific issue.  I would suggest that both you and your OH should maximise your pension contributions before investing elsewhere.

Don't forget that over-paying your mortgage has a compounding effect that is equivalent to receiving compound interest at a similar rate to your mortgage.  I would suggest that paying off the principal outstanding on your mortgage should be your priority after maximising your pension contributions.

Unfortunately accessing low-cost index funds without tax complications (outside of a pension fund) is practically impossible for Irish residents.  There is no equivalent to ISAs in the UK or Roth IRAs in the US for after-tax investments.  This may change in the future but that is the current position as I see it.

However, it's not all bad.  Short term deposit rates are actually pretty good here compared to the UK or the US.  One option might be to invest the vast majority of your pension contributions in equity funds and your after-tax savings in fixed-income investments (State savings products, term deposits and savings accounts).  Make sure you always stay below the amount guaranteed by the government of the jurisdiction where the deposit taking bank is authorised.


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## leonmahon (16 Feb 2015)

Thanks again Sarenco. I'll be back to you when my mortgage is paid off .


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## trasneoir (17 Feb 2015)

leonmahon said:


> Thanks again Sarenco. I'll be back to you when my mortgage is paid off .


About three years, I reckon.


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## Bronte (17 Feb 2015)

I don't think he should pay off his mortgage at all.  You never know what's around the corner and someone with it paid off could have great difficulty in getting access to money if it were required, far easier if you have an existing mortgage to get a top up.


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## Sarenco (17 Feb 2015)

Bronte said:


> I don't think he should pay off his mortgage at all.  You never know what's around the corner and someone with it paid off could have great difficulty in getting access to money if it were required, far easier if you have an existing mortgage to get a top up.


 
Well, I did suggest that the OP should maintain a cash reserve equal to at least 6 months of household expenses for emergency purposes.  A mortgage top-up - how very 2006 of you!


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## Frebel79 (27 Feb 2015)

The points above are all on the ball and I am very much a novice in this area but would it make more sense to extend mortgage repayment by another few years if it meant some long term investing had time to mature? 

I understand both sides of argument of whether to pay off mortgage or invest but surely it's better to have a bit of both. 

Paying off the mortgage obviously reduces the huge interest repayments over time (I'm only into my 2nd year of house ownership but have put in 2 lump sums so far) but any potentially rewarding investment takes 5 years plus so if the OP wants to invest (or even trade up or buy rental property) when the house is paid off, he would be starting from scratch again waiting for another 5 years to get his money working for him. 

At the moment, does it make more sense to put away 1k per month at 4% with nationwide or 4.5 with KBC which would be the same as 80% ltv mortgage rate. It allows you to save cautiously and pay off the mortgage as a lump sum rather than monthly. As brilliant as it is to pay off the mortage early, once money goes into the mortgage it ain't coming back out

really interested in any feedback


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## leonmahon (27 Feb 2015)

Frebel79 said:


> At the moment, does it make more sense to put away 1k per month at 4% with nationwide or 4.5 with KBC which would be the same as 80% ltv mortgage rate. It allows you to save cautiously and pay off the mortgage as a lump sum rather than monthly. As brilliant as it is to pay off the mortage early, once money goes into the mortgage it ain't coming back out



DIRT will take 41% of any gains from these accounts and thus neither will come close to matching the savings I make from overpaying my mortgage monthly. 

But if you can suggest a better investment vehicle, I'm all ears.


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## Frebel79 (28 Feb 2015)

leonmahon said:


> DIRT will take 41% of any gains from these accounts and thus neither will come close to matching the savings I make from overpaying my mortgage monthly.
> 
> But if you can suggest a better investment vehicle, I'm all ears.



I can't suggest a better investment - that's what I'm looking for as well really. You're far more on the ball than I am - really impressive savings and repayments especially with a young child. 

I'm saving 2k a month into 2 regular saver accounts because I seem to get overloaded with various options on where to invest the money and then just go for the simplest. 

At the moment I want to save up enough money in a savings account to cover a house expense around 5k (hat would add 10k + to the value of the house). I would then pay 1k every 6 months or so into the mortgage. 

But I suppose like yourself I would also like another way for my money to work for me. Initially a 5k lump sum investment, and then even if it was 250 a month, it would be a nice sum over 10 years in something like an index tracker which like you say would be a Vanguard option in the States. I could still make a decent dent into my mortgage

Is paying off the mortgage early the best investment for me then? I have 165k at 4.05% to pay off. I'm 36 and have 27 years left on it (which I aim to reduce to 15 years approx). I could potentially trade up in the future possibly holding onto to my existing house as a rental so I'm a little reluctant to majorly increase my repayments 

I have read into this a lot but seem to just go around in circles. 


http://www.independent.ie/business/...stment-use-your-lump-sum-wisely-29907780.html

[broken link removed]
http://www.theguardian.com/money/2013/feb/12/paying-off-mortgage-saving-cash


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## whytis (6 Mar 2015)

Leon, thanks for starting this discussion. I've exposed myself to a fair bit of American investment advice along the lines of financial independence, so it's frustrating to then realise unit funds like ETFs outside of pensions are taxed at 41%.



Frebel79 said:


> As brilliant as it is to pay off the mortage early, once money goes into the mortgage it ain't coming back out



I've been mulling over this point. My only counter-response is that once it's paid off early, your income is freed up to be invested. By not paying off your mortgage, I do see it as effectively taking borrowed money (your mortgage) to purchse investments.

To be clear, I invest 15% of gross income into a pension, as well as paying off my mortgage faster than originally planned. That doesn't seem to lie in with my argument above. Perhaps it's mostly psychological, knowing that at least I'm building up some type of pension fund years before the mortgage itself is paid off.


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## frebel (6 Mar 2015)

whytis said:


> I've been mulling over this point. My only counter-response is that once it's paid off early, your income is freed up to be invested. By not paying off your mortgage, I do see it as effectively taking borrowed money (your mortgage) to purchse investments.
> 
> To be clear, I invest 15% of gross income into a pension, as well as paying off my mortgage faster than originally planned. That doesn't seem to lie in with my argument above. Perhaps it's mostly psychological, knowing that at least I'm building up some type of pension fund years before the mortgage itself is paid off.



I've had a bit of a turnaround in my thinking on this one - I've just gone around in circles for so long on what to invest in that I'm going to just to push to pay off the mortgage under the next 10 years...

I might be able to get down to 60% LTV by the end of the year if I switch and the savings that I would make (with certainty) would outweigh the potential risk and returns of investment for me.

At the same, I would still love to be able to put in 100-200 a month over the next 10 years into a passive investment that could perform regular savers accounts


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## leonmahon (13 Mar 2015)

@frebel I think you're making the right choice. 

I'm going to throw a few of my extra quids into linked finance - what do you think of that option?


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## Geoff (28 Mar 2015)

Be very careful of BES investments!There are too many companies like  "operating" in Ireland ....


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