Where should older people invest proceeds of sale?

[trajan]

This is a common enough situation in towns around Ireland.
Person/couple want to offload a business or rental properties that are increasingly too much effort to self-maintain.
(Property management firms generally have a bad name as regards their smaller clients, especially concerning maintenance costs.)

Question is, where do you put the cash after the sale ?
Deposit rates in banks are a joke. Credit union rates not much better.
Gold/silver/platinum is solid investment but you have to factor in the secure storage costs.
Crypto-currencies have provable security as funds transfer systems but may find their speculative value slashed when better systems are devised.
Because of older age, the usual attractions of a selected plc portfolio may not offer either enough security or time for capital growth.

Right off, all I can think of is government bonds. I'm not sure how good the rates are but they are generally 100% sure and CGT free in Ireland.
Can anyone suggest other suitable places for older persons' cash ?

 

[Brendan Burgess]

Because of older age, the usual attractions of a selected plc portfolio may not offer either enough security or time for capital growth.

What is the time horizon? It is usually the horizon of their children who will be getting the money.

The attraction of a direct investment in equities is that on death, the Capital Gains disappear.

Unfortunately, most older people find it difficult to handle the volatility of the stock market, so they leave their money in cash.

They live longer than they expect, and face the real risk of loss due to inflation.

Brendan

 

[Brendan Burgess]

Key Post - "I am 65 – where should I invest my life savings? "

I am often asked this question, so I have put together a Key Post on the topic and look forward to the counter arguments. My wife and I are both 67 and in good health. We own our house outright – we have no mortgage or other borrowings. It’s probably worth around €300,000. We get the...

www.askaboutmoney.com

 

[Marc]

Just picking up on a few specific points in the original question


"Deposit rates in banks are a joke. Credit union rates not much better."

State Savings offer a small positive return

How Do I Get The Best Return On My Savings? - Everlake

We strongly advocate that longer-term investments should be arranged via pensions and stock-market linked investment accounts.

globalwealth.ie

"Gold/silver/platinum is solid investment but you have to factor in the secure storage costs".

This is simply not true. Gold is as volatile as global equities and pays no income. Silver is as volatile as an index of Emerging Market equities

Is there a role for gold in a portfolio? Gold Presentation for CFA Institute Ireland

This is a presentation I gave for the CFA institute in Dublin in the summer of 2011. My conclusions are that adding almost anything negatively correlated with equities to a portfolio should improve efficiency. BUT for gold to work you need two things 1) Luck - you need to buy when prices are...

view.joomag.com

"Crypto-currencies have provable security as funds transfer systems but may find their speculative value slashed when better systems are devised."

Not at all suitable


"Because of older age, the usual attractions of a selected plc portfolio may not offer either enough security or time for capital growth."

A globally diversified portfolio of 12,000 stocks is less of an investment risk than either a small business or a rental property.

In Numerous studies[1], retirees have been shown to underestimate their life expectancy and this should be taken into account when considering your options.

In one such study, although some retirees did correctly identify average life expectancy at age 65 as around 17 years for men and 20 years for women, far too few appreciate that this means that half of them will live beyond these projections.

Life expectancy is also on average higher for those retired with benefits from an employer-sponsored pension plan.

Where you live can also influence your life expectancy. For example, if you take the tube from Westminster in London towards the East End of London, life expectancy declines on average by a year each station[2].

​

A 65-Year-old today	Man​	Woman​
75% chance of living to age	79​	82​
50% chance of living to age	87​	90​
25% chance of living to age	94​	96​
Women have a 14% chance of living to age 100 and men a 9% chance	100​	100​

---

[1] For example: 2005 Risks and Process of Retirement Survey SOA UP 1994
[2] Source: UK Office of National Statistics



"Right off, all I can think of is government bonds. I'm not sure how good the rates are but they are generally 100% sure and CGT free in Ireland."

The Ireland 10 Years Government Bond has a 0.056% yield (last update 19 Mar 2021 19:15 GMT+0). The Ireland 10 Years Government Bond reached a maximum yield of 1.216% (6 February 2017) and a minimum yield of -0.333% (4 January 2021)*.

"Can anyone suggest other suitable places for older persons' cash ?"

This is a classic example of when it is entirely appropriate to take professional advice

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

 

[trajan]

This is a classic example of when it is entirely appropriate to take professional advice

Thanks for the clarifications on precious metals v diversified porfolios.
The person concerned has only sought "professional" advice from banks and was not impressed by that.

A globally diversified portfolio of 12,000 stocks is less of an investment risk than either a small business or a rental property.

This is very interesting. But does it apply in the 5-10 year term as much as in the 10-20 year ?


I suggested that he go to one of the advisers locally who deal more with more well-off clients as they would have more experience in dealing with this sort of matter.
Can you provide a ballpark figure for the cost of assessment and proposals by a competent firm in this area ?
Extreme care has to be taken with the selection of adviser here, you will appreciate - some of these have disreputable associations.

What is the time horizon? It is usually the horizon of their children who will be getting the money.

Around retirement age.

 

[EmmDee]

Thanks for the clarifications on precious metals v diversified porfolios.
The person concerned has only sought "professional" advice from banks and was not impressed by that.
I suggested that he go to one of the advisers locally who deal more with more well-off clients as they would have more experience in dealing with this sort of matter.
Can you provide a ballpark figure for the cost of assessment and proposals by a competent firm in this area ?
Extreme care has to be taken with the selection of adviser here, you will appreciate - some of these have disreputable associations.



Around retirement age.

Your initial post implies that the time span is reasonably short (not enough time to take the capital risk on equities) and it is sort of implied that they don't want to take on much capital risk.

There isn't a lot of options. Crypto and commodities all carry a reasonable capital risk - more so than equities (or at least higher volatility). Cash pays zero pretty much.

Given that, is state savings not the best option? But if they are expecting reasonable returns without risk I don't think they are being realistic

 

[trajan]

A globally diversified portfolio of 12,000 stocks is less of an investment risk than either a small business or a renal properties.

I am wondering if the income return is going to be much good though with this. Dividends from plcs are low always so you are depending on capital growth. I'd like to see how this kind of fund performs in terms of capital growth over a 20 year span.

 

[jpd]

$ 100 invested in a S&P 500 ETF in 2002 would now be worth, with dividends re-invested, would now be worth $ 430

This is an annual return of around 7.5%

Is that ok?

 

[Marc]

Absolutely correct its the total return that is most important

Graph of MSCI Developed and Emerging Markets over the last 20 years

Even if you were unlucky enough to buy at a really bad time say the end of 2007 you still did really well overall

We set out data from 1926 in our Investment Philosophy

Investment Philosophy

At Global Wealth, we don’t manage investments, we manage investors

view.joomag.com

 

[trajan]

$ 100 invested in a S&P 500 ETF in 2002 would now be worth, with dividends re-invested, would now be worth $ 430

This is an annual return of around 7.5%

Is that ok?

7.5 % compounded over 10 years is 206 % - say 200 % after management charges.

Now, while is is safe enough, it might be nice to split an investment pile between ETFs and actively managed funds say 75 : 25.
I have been reading a bit on ETFs and have come across these "small beta" funds that allow a measure of investment in smaller but high growth potential companies, though this demands more management time and hence higher charges.
Any thoughts on this for a 70 y.o. couple ?

 

[PMU]

$ 100 invested in a S&P 500 ETF in 2002 would now be worth, with dividends re-invested, would now be worth $ 430

This is an annual return of around 7.5%

Is that ok?

Yeah, and 100 EUR invested in the Eurostoxx50 at its max in 2000 is today worth 72.45 at end of last year.

 

[MugsGame]

Yeah, and 100 EUR invested in the Eurostoxx50 at its max in 2000 is today worth 72.45 at end of last year.

Ouch. I assume that excludes dividends/dividend reinvestment?

 

[trajan]

Yeah, and 100 EUR invested in the Eurostoxx50 at its max in 2000 is today worth 72.45 at end of last year.

Well, let's look into this one.

Euro Stoxx 50 is made up of just 50 (just 2 "Irish" ones, CRH and Linde) of Europe's largest and most liquid stocks. The small scale of its ambit would itself make it more vulnerable than an equal investment in 500 or 1200 companies. Moreover in 2000 old German behemoths like Mannesmann Demag were being broken up and this must have caused a lot of reallocations (=> revaluations) of stock within the German banking system which owned good chunks of them.
That said, I suppose that the focus on market capitalization in such indices makes for modest returns. Most of the growth has been in the tech sector and growing tech company stocks really need active management.

 

[Marc]

7.5 % compounded over 10 years is 206 % - say 200 % after management charges.

Now, while is is safe enough, it might be nice to split an investment pile between ETFs and actively managed funds say 75 : 25.
I have been reading a bit on ETFs and have come across these "small beta" funds that allow a measure of investment in smaller but high growth potential companies, though this demands more management time and hence higher charges.
Any thoughts on this for a 70 y.o. couple ?

There is data on "smart beta" going back to the 1920s in the link to the investment philosophy guide.
We were the first firm in Ireland to introduce Dimensional Fund Advisers to Irish investors.

 

[SPC100]

I think the interesting question is will these (e.g. small, value) premiums continue to exist over next 40 years, or now that it is 'well known', will it disappear?

 

[Marc]

I think the interesting question is will these (e.g. small, value) premiums continue to exist over next 40 years, or now that it is 'well known', will it disappear?

Its a very good question. They didn't seem to disappear over the last 12 months

When the Cheapest Option Isn't Always the Best - Everlake

We're advocates of low-cost investing. However, an obsession with the lowest cost option isn't always in investors' best interests.

globalwealth.ie

 

[galway_blow_in]

depends on the age of the " older " person/ persons

my mother was in the stock market with 50 k invested from 2014 to september 2019 , she made gains and got dividends so it worked out for her , she got out right before her seventy first birthday , she is a widow , she moved house not so long ago so needed to spend a bit of her savings along with the sale of her old house

she put the rest of her money in the post office so is out of risk assets now entirely

 

[SPC100]

Its a very good question. They didn't seem to disappear over the last 12 months

View attachment 5462

When the Cheapest Option Isn't Always the Best - Everlake

We're advocates of low-cost investing. However, an obsession with the lowest cost option isn't always in investors' best interests.

globalwealth.ie

Thanks for the interesting data and docs.

The Disappearing Small Cap Value Premium

The Premium The small cap value premium is a Nobel Prize-winning discovery about the stock market by Eugene Fama and Kenneth French. (Only Fama was awarded the Nobel Prize in 2013.) The original pa…

investment-fiduciary.com

That article reflects my rough understanding (which dates from many years ago) that it was unclear if this premium will persist due to (correct pricing of) the underlying risk, or if it will disappear/reduce as people recognize the mispricing.

It seems like you are recommending tilting towards this for clients who need larger returns.

 

[SPC100]

From that article (written in 2020):

In four out of the last five years, small value stocks underperformed large cap growth stocks. The urgent question is whether the small cap value premium will persist or reverse

 

[SPC100]

Sorry op, the premium for small and value probably deserves its own thread!

I think lots of 'old' people, especially those without a lifetime of stock market investments experience, can't see beyond irish property and cash/deposit/state savings.

Based on what I have read, and contrary to what I have heard many saying, I will plan to stay heavily invested in equities while old.