# Investment advice for retirees with excess cash.



## Rebels123 (7 Feb 2021)

Age:  *65*
Spouse’s/Partner's age: *61*

Annual gross income from employment or profession: *48k Euro*
Annual gross income of spouse: *32k Euro (spouse retired in last 12 months)*

Monthly take-home pay *5k Euro*

Type of employment: e.g. Civil Servant, self-employed *Both retired*

In general are you:
(a) spending more than you earn, or
(b) saving? * Saving approx. 1.5k Euro a month (in normal times ignoring COVID)*

Rough estimate of value of home *400k Euro*
Amount outstanding on your mortgage: *0
What interest rate are you paying?  N/A*

Other borrowings – car loans/personal loans etc *N/A, see investment property details below*

Do you pay off your full credit card balance each month? *Yes*
If not, what is the balance on your credit card? *N/A*

Savings and investments: *Cash – 200k. Bonds 195k (An Post – 70k and prize bonds – 125k). EIIS 100k (invested 2017-2020). Shares – 70k in 7 Irish/UK companies (purchased for 85k).*

Do you have a pension scheme?* Yes see above – Defined benefit with spouse getting 50% on my death. Spouse defined benefit also but with no benefit on her death. *

Do you own any investment or other property? *Investment 2 bed apartment – 30 year tracker mortgage of approx. 55k. Interest rate is 1.6%. Value of property is 155k. Very little capital gain was bought for 130k 12 years ago. Covers itself with long term tenant paying 820 per month. Management fees expensive so no profit after tax etc. Thinking of selling this in next number of years.*

Ages of children: *3 – mid 20’s. All finished college and self-sufficient (but working from home at the moment)*

Life insurance: *I have none. Wife – 300k. Term is until aged 65. 


What specific question do you have or what issues are of concern to you?

As you can see above we are well able to live quite comfortable off salaries. 

1. Since the financial crises we have accumulated capital losses on shares of 100k (recorded with Revenue). Would you have any recommendations of diversified equity instruments that we could invest in to start recouping some of these losses over the next 10/15 years? I believe the likes of Zurich and Irish Life have products that are liable to exit tax at 41% (not CGT @ 33%) so trying to avoid these companies. We are looking to invest about 200k.
2.  Plans for future: considering purchasing a small property by the coast for approx. 100k and eventually help children with deposits for first house (within next 5 years).

Appreciate any help or guidance you could provide. Thanks*


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## Marc (7 Feb 2021)

If your time horizon is only 5 years until you want to make gifts to the children then equities probably not the way to go even with the substantial CGT loses. You could end up just adding to the losses. You need to separate out your individual objectives. After all gifts offer a guaranteed return of 33% CAT saving whereas in order to benefit from the CGT losses you NEED an investment to appreciate. The U.K. stock market in the OPEC era for example went nowhere for 13 years. 

Certainly sell the investment property and the small share portfolio and consolidate your position. But avoid well intentioned recommendations to pile into extremely concentrated investments which have performed very well recently due to large positions in one or two stocks.

Work out how much the gifts will deplete the liquid savings and keep that amount in state savings and invest the balance in equities.

You are correct almost any retail investment product in Ireland is unsuitable as you are subject to exit tax rather than capital gains tax.

we can provide a portfolio of 12,500 shares via non-eu ETFs which will allow you to reap the benefits of the capital gains tax losses with low costs


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## Sarenco (7 Feb 2021)

A broadly diversified investment trust, something like F&C Investment Trust plc, might fit the bill for the portion of your savings that you are confident that you will not need to liquidate for 10+ years.

That vehicle is subject to income tax on dividends and CGT on realised gains.


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## Brendan Burgess (7 Feb 2021)

You have €565k in cash and €100k in equity in the apartment. 

First of all, you and your wife, should gift each of your children €3k each every year as there is no Capital Acquisitions Tax on such gifts.

Secondly, would any of your children be interested in living in the investment apartment? If so, it might be worth keeping. 

Agree with Sarenco's recommendation of an investment trust.

But don't agree that you must only use cash which you don't need for ten years. 

The entry and exit costs are low.  So they should not impact the return significantly. 

Let's say you invest the full €565k in it now and you need €200k in three years. 

Over every investment horizon, you have a positive expectation of a return. That means that most years, the expected return outweighs the expected loss. Sure you might lose. The longer you hold, it the less likely you are to lose.  But that does not mean that it's not suitable over a three year horizon, or as in your case, an uncertain horizon. 

Discuss the purchase of homes with your children. Tell them that the €6k you are giving them each year is to go into a property deposit bank account and is not to be touched.  When they are ready to buy, tell them that there is more where that came from.  This should give them an incentive to save. 

Brendan


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## Younginvestor93 (7 Feb 2021)

Sarenco said:


> A broadly diversified investment trust, something like F&C Investment Trust plc, might fit the bill for the portion of your savings that you are confident that you will not need to liquidate for 10+ years.
> 
> That vehicle is subject to income tax on dividends and CGT on realised gains.


F&C, I think has fared poorly in comparison to an All World Index over the past while.
There are some better more aggressive investment trusts, like Scottish Mortgage for example which look good but I don't think F&C has good returns.


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## Younginvestor93 (7 Feb 2021)

Brendan Burgess said:


> Agree with Sarenco's recommendation of an investment trust.


Do you suggest an investment trust because they have significant capital losses?

If they had no losses would you still recommend an investment trust or would you recommend something else?


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## RedOnion (7 Feb 2021)

Younginvestor93 said:


> F&C, I think has fared poorly in comparison to an All World Index over the past while.
> There are some better more aggressive investment trusts, like Scottish Mortgage for example which look good but I don't think F&C has good returns.


With respect, do you understand what well diversified means? Of course SMT has performed well - Tesla makes up over 10% of their holdings! 
Their top 10 holdings make up over 50%. It's not diversified.


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## Sarenco (7 Feb 2021)

Younginvestor93 said:


> Do you suggest an investment trust because they have significant capital losses?


Yes.


Younginvestor93 said:


> If they had no losses would you still recommend an investment trust


Not necessarily.


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## Younginvestor93 (7 Feb 2021)

RedOnion said:


> With respect, do you understand what well diversified means? Of course SMT has performed well - Tesla makes up over 10% of their holdings!
> Their top 10 holdings make up over 50%. It's not diversified.


Monks is a more diversified investment trust then that is doing very well also.

If you want really well diversified, you may as well just go with an ETF and buy a world index. If you are taking on the added risks of an investment trust (foreign exchange currency considerations and an active manager) you surely don't want something that will underperform or hug the index.

Witan investment trust is another well diversified trust. It's a massive loser, how do you know you can pick the right trust manager?


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## RedOnion (7 Feb 2021)

Younginvestor93 said:


> you may as well just go with an ETF and buy a world index


Except the tax treatment isn't much help in the circumstances is it?



Younginvestor93 said:


> foreign exchange currency considerations


How is that increased with an unhedged investment trust?


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## Sarenco (7 Feb 2021)

Younginvestor93 said:


> Monks is a more diversified investment trust then that is doing very well also.


Monks is not more diversified than FCIT.  

The problem with an ETF is that the OP won’t be able to utilise his capital losses (unless he is prepared to pay an adviser to access US-domiciled ETFs).


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## Rebels123 (7 Feb 2021)

Marc said:


> If your time horizon is only 5 years until you want to make gifts to the children then equities probably not the way to go even with the substantial CGT loses. You could end up just adding to the losses. You need to separate out your individual objectives. After all gifts offer a guaranteed return of 33% CAT saving whereas in order to benefit from the CGT losses you NEED an investment to appreciate. The U.K. stock market in the OPEC era for example went nowhere for 13 years.
> 
> Certainly sell the investment property and the small share portfolio and consolidate your position. But avoid well intentioned recommendations to pile into extremely concentrated investments which have performed very well recently due to large positions in one or two stocks.
> 
> ...



*Thanks a lot for your detailed response.

Yes the time horizon for the equities will be 10 years. We will keep the 195k in the post office/prize bonds for kids deposits.

We intend to sell the investment property in the next year or two as it is located abroad but will pose difficulties during COVID.

In relation to the non-EU ETF’s, how does this work? Are these US domiciled investments and what costs are involved?*


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## Younginvestor93 (7 Feb 2021)

RedOnion said:


> Except the tax treatment isn't much help in the circumstances is it?
> 
> 
> How is that increased with an unhedged investment trust?


You know what you will get with an ETF. An investment fund might outperform or it might not then you have fees on top aswell. The fees are also murkier with Investment Trusts. Is there not a currency risk investing in the pound?


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## Rebels123 (7 Feb 2021)

Sarenco said:


> A broadly diversified investment trust, something like F&C Investment Trust plc, might fit the bill for the portion of your savings that you are confident that you will not need to liquidate for 10+ years.
> 
> That vehicle is subject to income tax on dividends and CGT on realised gains.



*Thanks Sarenco for your response.

How would I go about investing in this? Would this have to be through a stockbroking firm? 

Are investment trusts likely to remain liable to CGT instead of exit tax in Ireland for the forseeable future do you think?*


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## RedOnion (7 Feb 2021)

Younginvestor93 said:


> Is there not a currency risk investing in the pound?


Only to the extent that underlying assets are GBP, and even then a lot of those companies are international and therefore not really GBP exposure.


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## Marc (7 Feb 2021)

Rebels123 said:


> *Thanks a lot for your detailed response.
> 
> Yes the time horizon for the equities will be 10 years. We will keep the 195k in the post office/prize bonds for kids deposits.
> 
> ...


No, risk of US Estate taxes too great for US ETFs we use Canadian ETFs to achieve the same effects. Much cheaper than U.K. investment trusts.

you can ignore currency in an equity portfolio, it’s a red herring


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## Rebels123 (7 Feb 2021)

Brendan Burgess said:


> You have €565k in cash and €100k in equity in the apartment.
> 
> First of all, you and your wife, should gift each of your children €3k each every year as there is no Capital Acquisitions Tax on such gifts.
> 
> ...




*Thanks Brendan much appreciated.

Yes we thought about the €6k annual gift in the past but never got around to doing it – good idea thanks for the reminder.

Apartment is located abroad and wouldn’t be suitable for any of our children. It is our intention to sell in the next few years.

Yes I will look into these investment trusts as potential options.

In terms of the full €565k, I would not be considering a 100% equity portfolio at our age. From a practical point of view some of this is in EIIS investments and not readily available at present. I will also consider leaving a certain amount in bonds in case one of our children decides to buy a property. *


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## Sarenco (7 Feb 2021)

Rebels123 said:


> *How would I go about investing in this? Would this have to be through a stockbroking firm?*


Yes, you would have to go through a stockbroker.


Rebels123 said:


> *Are investment trusts likely to remain liable to CGT instead of exit tax in Ireland for the forseeable future do you think?*


Yes, I think that’s highly likely.


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## Sarenco (7 Feb 2021)

Marc said:


> Much cheaper than U.K. investment trusts.


Why don’t you tell us the full costs of your proposed solution (including your own fees) so the OP can judge for himself?


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## Younginvestor93 (7 Feb 2021)

Sarenco said:


> Why don’t you tell us the full costs of your proposed solution (including your own fees) so the OP can judge for himself?


How does one know which investment trusts are the best?
I have retired parents are in a similar situation and are considering an investment with excess cash. They are happy with a VWCE ETF to hold for 8-15 years but if there is something better out there for them, I don't want to send them down the wrong road.

You mentioned FCIT as a globally diversified option. What about City of London? That's popular but the returns on it are very low so I can't understand why it is popular?
How can you compare a trust that gives dividends with a trust that is predominatly growth focused, a retired couple like in the OP's post would want high dividends right because of the tax lower than CGT?

ETF's are a lot easier to understand as an investment product than investments trusts imo.


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## Sarenco (7 Feb 2021)

Younginvestor93 said:


> How does one know which investment trusts are the best?


Any chance you could stop trying to de-rail this thread?

Thanks.


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## Rebels123 (7 Feb 2021)

Marc said:


> No, risk of US Estate taxes too great for US ETFs we use Canadian ETFs to achieve the same effects. Much cheaper than U.K. investment trusts.
> 
> you can ignore currency in an equity portfolio, it’s a red herring



*Hi Marc okay that is good to know. Can you give me your firms contact/cost details? From a quick google check on F&C it seems their costs are less than 1% annually. Are the Canadian ETF's considerably cheaper?  *


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## Younginvestor93 (7 Feb 2021)

Sarenco said:


> Any chance you could stop trying to de-rail this thread?
> 
> Thanks.


Apologies if it appears that way, not my intention. The OP is looking for investment vehicles for retirees, (F&C thanks to your contribution and potential non-EU ETF route thanks to marc). I can associate with the post as my parents are in a similar position and I think it's reasonable to ask questions of a poster that seems to have a lot of knowledge on the subject. That's why I asked you to further my knowledge and I think it might also benefit the OP to get more information around various IT's. 

Anyway if you have any response on my question @Sarenco  I'd be curious to get your thoughts. Thanks


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## Marc (8 Feb 2021)

Rebels123 said:


> *Hi Marc okay that is good to know. Can you give me your firms contact/cost details? From a quick google check on F&C it seems their costs are less than 1% annually. Are the Canadian ETF's considerably cheaper?  *


Sent you a message with contact details


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## Sarenco (8 Feb 2021)

Rebels123 said:


> Are the Canadian ETF's considerably cheaper?


A global equity portfolio could be constructed using Canadian ETFs with a total expense ratio (TER) of 0.25% (or lower).

However, bear in mind that you will also have to pay a discretionary fund manager's fees (plus VAT) to access those ETFs and a custodian to hold the investments.

Make sure you are taking all costs into account when deciding how to proceed.


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