# How to invest 200k in Ireland and make the money last?



## Nomoneynohoney (23 Jan 2018)

I recently inherited 200k. I know I'm lucky to have this money even available. However, it appears the options for actually growing it and making it last are quite limited. 

To take an example, an AIB "wealth advisor" pitched an Irish Life MAPS fund to me. But the annual charge appears to be quite high, and I get taxed at 41 percent anyway on any gain, meaning 200k for ten years on their band 3 fund (averaging 5.7 p.a. return for its first 5 years) would leave me with:

200,000*((1.057)^10)) = €148,160 profit before tax. 

Subtract the 41 percent tax, my profit is now = €87,414.

Expected loss from fund management charges (calculated at CandidMoney) = €36,077

Total profit on 10 year investment = €51,337

Do these calculations look accurate? And is that an acceptable return? I'm not very financially savvy so just trying to work out the best way to maximize my investment. Furthermore, the returns above aren't guaranteed, and I could just as easily lose money over ten years, couldn't I?


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## Sarenco (23 Jan 2018)

Do you have a mortgage?  A pension? 

We really need to know something about your overall financial position to offer any meaningful advice.


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## Nomoneynohoney (23 Jan 2018)

Sorry, should have provided background. No mortgage and no pension. I have been out of work for 20 years due to invalidity, and I've pretty much been surviving on the invalidity pension (a payment provided by the department of social protection) in addition to social housing and medical card. Getting this much money while obviously a  blessing is also overwhelming.


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## Sarenco (23 Jan 2018)

Thanks.  

Would you consider using the money to buy your own place?  

I think you need to be careful not to do anything that would disqualify you from any relevant means tested benefits.


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## noproblem (23 Jan 2018)

Nomoneynohoney said:


> Sorry, should have provided background. No mortgage and no pension. I have been out of work for 20 years due to invalidity, and I've pretty much been surviving on the invalidity pension (a payment provided by the department of social protection) in addition to social housing and medical card. Getting this much money while obviously a  blessing is also overwhelming.



Don't know what part of the country you live in but €200k would get a property in a lot of places outside of major urban areas. Not too many people I know have that stash in the bank and getting social housing and a medical card. Br careful you don't lose your benefits altogether.


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## Nomoneynohoney (23 Jan 2018)

Sarenco said:


> Thanks.
> 
> Would you consider using the money to buy your own place?
> 
> I think you need to be careful not to do anything that would disqualify you from any relevant means tested benefits.




That might be a plan. 


noproblem said:


> Don't know what part of the country you live in but €200k would get a property in a lot of places outside of major urban areas. Not too many people I know have that stash in the bank and getting social housing and a medical card. Br careful you don't lose your benefits altogether.




Invalidity pensions are not means tested, so I don't lose that benefit. Furthermore, the money hasn't actually been paid to me yet. I will of course need to surrender my medical card. Not sure about social housing, they're hardly going to evict me from a house ive lived in for 20 years because I inherited some money...the rent will probably increase though.


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## Sarenco (23 Jan 2018)

Nomoneynohoney said:


> I will of course need to surrender my medical card


Bear in mind that the value of your home is not taken into account for the purposes assessing your entitlement to a medical card.


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## delfio (23 Jan 2018)

Nomoneynohoney said:


> sure about social housing, they're hardly going to evict me from a house ive lived in for 20 years because I inherited some money...the rent will probably increase though.



How old are you? If you are 55 plus I wouldn't be moving from a council house especially when  you have been living there for twenty odd years, you have neighbours, friends, social contacts etc in the area. Speak to an independent financial advisor don't go near the banks, they will only try to rob you with their own investment products. Enjoy the money, treat yourself like you never did before. Good luck


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## noproblem (23 Jan 2018)

Ok, I wish you good luck with it. As for the fund  AIB pitched to you? Hope they told you it's not guaranteed and you could also lose your money unless the capital is guaranteed?


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## DublinD (23 Jan 2018)

Maybe someone better can clarify  for me; doesn't the management fee come directly from the fund pre-profit each year so technically you won't be gaining as much as you calculated? (Not sure it'll be a huge difference but it will be a difference as compounded profit each year)


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## Monbretia (23 Jan 2018)

Not too sure I would be buying a property at all, you will have extra costs such as insurance/maintenance/property tax etc and still only the same income.    If you are in a property you like and are happy there I 'd be inclined to stay put, depending of course on what the increase in rent is.  You'd have to weigh up the long term implications.


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## Sarenco (23 Jan 2018)

Here's the pro's of using the inheritance to buy a home as I see it:-

Keep medical card.  The value of your home is not taken into account when assessing your entitlement to a medical card, which becomes increasingly valuable as you age.  I would think long and hard before giving up your medical card - it's a very valuable benefit;
No more rent.  That should materially reduce your day-to-day expenses - although Monbretia is absolutely right that there are ongoing costs associated with home ownership; and
You have an asset that you can leave to family members, friends or your favourite charity as you see fit.  There are also softer psychological benefits to calling a place your own.
I certainly agree with Delfio that any move has to be balanced against the possible disruption to the social network (neighbours, etc.) that you have presumably built up over 20 years in your current location.

Hope that helps.


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## delfio (23 Jan 2018)

How valuable is a medical card when you may have to wait two plus years for elective surgery?  The OP with his invalidity pension plus his 200,000 will be well financed to pay 1000 a year towards a decent health insurance policy. I am sure he deserves that luxury along with the sense of security associated with having a private health insurance policy.


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## Sarenco (23 Jan 2018)

delfio said:


> How valuable is a medical card...?


Very!

The benefits of having a medical card are extensive - free GP services, prescriptions, dental, optical, etc.

Private health insurance is hugely overrated IMO.


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## noproblem (23 Jan 2018)

Sarenco said:


> Very!
> 
> The benefits of having a medical card are extensive - free GP services, prescriptions, dental, optical, etc.
> 
> Private health insurance is hugely overrated IMO.




Overrated? Hope you don't need a procedure done in double quick time.


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## Nomoneynohoney (23 Jan 2018)

Thanks for your replies so far everyone. Still in a real dilemma about what to do. I don't think I want to leave the area I live in now, I'm 57 this year and not getting younger, and with my health condition, it might be a bit much to make that move. Plus as was alluded to, I know people here and enjoy living here. I wouldn't be able to afford to buy my current house from the council as it's worth roughly 400k, and I don't think I'd get a mortgage with an invalididty pension. 

Tough to know how much the rent increase will be but I guess that's something I should be enquiring about myself pretty soon. I asked the wealth advisor in AIB whether I would be given the same advice if I went to an independent financial advisor and she said yes, just for different products. It seems like buying into one of those Irish Life MAPS funds is my only real option, particularly because it's hassle-free and I don't have the financial knowledge to invest 200k by myself and get a better return. Just seems like such a waste to piss all that cash away on 1.5 per cent AMCs.


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## Sarenco (23 Jan 2018)

noproblem said:


> Overrated?


Yes, hugely.  

I carry private health insurance as it happens but I do appreciate your concern.


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## Gordon Gekko (23 Jan 2018)

Avoid advisers from the pillar banks like the plague.


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## Sarenco (23 Jan 2018)

Nomoneynohoney said:


> Still in a real dilemma about what to do. I don't think I want to leave the area I live in now, I'm 57 this year and not getting younger, and with my health condition, it might be a bit much to make that move.


Grand, no point moving if you really don't want to.

In that case, if I was in your shoes, I would inclined to divide your money as follows:-

Keep ~€25k on deposit;
Buy ~€100 worth of 5-Year State Savings Certs from your local post office;
Open an account with a stock broker (DeGiro are cheap) and buy ~€75k worth of shares in Foreign & Colonial Investment Trust plc.
I wouldn't touch an investment product offered by any Irish life assurance company - they're a rip-off IMO.


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## Nomoneynohoney (24 Jan 2018)

Thanks. That seems to offer a reasonable balance for my age.  With regards to DeGiro, this is the only part that confuses me. Should I be buying an ETF on there? I read a recent thread on here that says I can't buy U.S. ETFs so I'm assuming a European one would be a good idea?


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## Sarenco (24 Jan 2018)

Foreign & Colonial Investment Trust plc (FRCL) isn't actually an ETF - it's an investment trust (and the oldest collective in the world). 

In contrast to an ETF, an investment trust issues a fixed number of shares which are then traded on exchange at their market price (which may differ somewhat from the aggregate value of their underlying holdings).  

Shares in a UK-domiciled investment trust are subject to the same tax treatment as shares in any other publicly traded company - income tax on dividends, CGT on capital gains.  In practice, you would probably pay little or no tax on your dividends (which are paid quarterly) given your modest income.

I should add that my suggested asset split is designed to allow you to spend down your inheritance at a rate of around €500 per month, adjusted for inflation over time, with a high degree of certainty that you won't completely exhaust your savings over your lifetime.


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## Nomoneynohoney (24 Jan 2018)

Sarenco said:


> Foreign & Colonial Investment Trust plc (FRCL) isn't actually an ETF - it's an investment trust (and the oldest collective in the world).
> 
> In contrast to an ETF, an investment trust issues a fixed number of shares which are then traded on exchange at their market price (which may differ somewhat from the aggregate value of their underlying holdings).
> 
> ...




Thank you so much for your help. With regards to choosing this investment trust over an ETF, is the benefit that it is taxed at the CGT rate while with an ETF I'd need to pay 41 percent exit tax?


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## Nomoneynohoney (24 Jan 2018)

Also, the Irish life fund splits bond investments over different countries as opposed to just buying lots of irish bonds...is there much benefit to that strategy? Actually, looking at it, there are no irish bonds at all in Irish life's MAPS product.


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## Sarenco (24 Jan 2018)

Nomoneynohoney said:


> Thank you so much for your help. With regards to choosing this investment trust over an ETF, is the benefit that it is taxed at the CGT rate while with an ETF I'd need to pay 41 percent exit tax?


There are a few reasons why I think an investment trust (IT) would be a good option for somebody in your circumstances - but, yes, tax is certainly one of the main reasons.

With an EU-domiciled fund, ETF or insurance-based savings product, you would have to pay "exit tax" at a flat rate of 41% on encashment (with a "deemed" disposal after 8 years). With an investment trust, you pay income tax at your marginal rate (which probably will be close to zero given your low income) on dividends and CGT (current rate is 33%) on any realised gains (when you sell your shares).

However, bear in mind that the first €1,270 of your realised gain in any calendar year (after deducting any realised losses, which can be carried forward) will be exempt from CGT.  In other words, if you gradually sell off your shareholding over an extended time period you might end up paying little or no CGT.

The other main reason why I think an IT would be a good option for you is more structural.  ITs are allowed to borrow money and are not required to distribute all income that they generate from their underlying holdings.  Most ITs therefore keep a cash reserve that allows them to "smooth" out their dividend payments (ie. keep up their dividend payment rates in challenging economic times).

Foreign & Colonial Investment Trust plc (FRCL) has actually increased its annual dividend rate for 46 consecutive years!  So you can expect to receive a fairly predictable dividend payment every three months, which I think is important in your circumstances.

FRCL is very widely diversified - it holds stakes in more than 500 companies, accross 35 countries.  It has a reasonable AMC (0.365%), modest borrowings and doesn't aim to "shoot the lights out" - it's conservatively managed and aims to grow investors' income and capital over the long-term.

I'm conscious that investing in an IT is a bit of hassle, that might be outside your comfort zone.  You will have to open a brokerage account and file an annual tax return.  However, I do think it's worth the effort if you think you would be up for it.

Hopefully that all makes sense but come back to me if you need clarification on any point.


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## Sarenco (24 Jan 2018)

Nomoneynohoney said:


> Also, the Irish life fund splits bond investments over different countries as opposed to just buying lots of irish bonds...is there much benefit to that strategy? Actually, looking at it, there are no irish bonds at all in Irish life's MAPS product.


I think you could happily treat State Savings Certificates as the "bond" (technically, the fixed-income) portion of your portfolio.

Irish 5-Year Government bonds are currently trading at yields of around 0.1%.  Meanwhile, 5-Year State Savings Certificates (with precisely the same risk profile) are currently paying a coupon of 0.98% - tax free, with no investment costs.

It is, of course, possible that the Irish State will default on its obligations to holders of its Savings Certificates but, frankly, the possibility is so remote that it borders on theoretical.


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## settlement (25 Jan 2018)

This FRCL idea is interesting. How did you hear about them Sarenco? The tax benefits over UCITS ETFs are interesting, especially for those with low marginal tax rates


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## boomshine (25 Jan 2018)

Sarenco, do you believe putting that much money in DeGiro is safe? I am not clear as to whether only 20k is insured or the risks involved. It does look like a good choice after the US ETFs disappearance.


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## Dan Murray (25 Jan 2018)

How much money/assets can someone have before his entitlement to social housing is curtailed/eliminated?


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## Sarenco (25 Jan 2018)

@settlement
FRCL has been in existence for 150 years and has over £4 billion in gross assets - it's pretty hard to miss!

@boomshine
I'm not particularly recommending DeGiro over any other broker - I just noted that they were cheap.


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## settlement (28 Jan 2018)

Sarenco said:


> @settlement
> FRCL has been in existence for 150 years and has over £4 billion in gross assets - it's pretty hard to miss!



News to me but that's not surprising. I just copied and pasted Bogleheads philosophy and it's working out well despite how clueless I am!


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## john luc (5 Feb 2018)

if you used a broker like for example Degiro to buy shares in this fund,how safe is your ownership of these shares if the broker closed down


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## Sarenco (5 Feb 2018)

john luc said:


> if you used a broker like for example Degiro to buy shares in this fund,how safe is your ownership of these shares if the broker closed down


That is really a question for your broker but this is what DeGiro has to say on the subject:-
https://www.degiro.ie/about-degiro/safe-and-reliable.html


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## Hiragii (6 Feb 2018)

Hi Sarenco, I'm really interested in FRCL as a diversified asset and alternative to EUR ETFs due to simpler and theoretically more favorable tax treatment (although I guess the tax for dividends will include PRSI + USC, as opposed to UCITS ETFs).

I've had a US Ameritrade account for years with simplest portfolio (ie: VTI/VXUS) but due to the USD fluctuation and other commissions when depositing I was thinking to start investing directly in EUR using DeGiro or similar. However, if I choose FRCL - a GBP fund -wouldn't it be exposed to the same issues and benefits as my USD assets, or is it somehow more hedged to any currency devaluation?

If you were in my position, would you keep adding into the diversified USD assets, start investing in FRCL or similar GBP investment trust, or just in EUR assets?

For context, I already have a deposit account where I'm adding a few hundred monthly (KBC) and I'm just trying to decide what to do with the occasional 3-5K surplus that I get due to bonus, RSU/ESPP shares, etc.

EDIT: No house either, but not keen into buying one at the moment for a variety of reasons.


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