Am I crazy for considering ten year NTMA bonds?

T

theObserver

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I am 47 in a few months; single with no kids; paid off my mortgage during the lock downs and built back up 120k in my current account. After paying the mortgage I increased my pension AVC to the maximum 25% and started invested 2k a month in EFTs funds.

In the medium term (5-10 years) I will likely be leaving my job to become a full time carer for my parents. I work in IT and realistically I might never work again because this industry do not have many 50 yr olds outside of senior management.

So I want to setup myself up as well as possible.

My thoughts are to take out a 50k 10-year NTMA bond and invest the remaining 50k in a year long saving account via Raisen. In two/three years I will take out a 55k 10-year NTMA bond and another 2/3 years I will cash out my ETFs for a final 10 year NTMA bond of 60k.

My thinking is I cant afford to lose this money and this method creates a decade long income stream for when I am 57-65 with bonds maturing every three years. At 65 I will draw my company pension.

The current interest rate of 2.1% AER tax free for the 10 year bond is not terrible and works out equivalent of just over 3% AER when tax is considered. In truth I like the idea of "locking" the money down. I considered the Trading212 etc deposit rate but I'm already investing with them for my ETFs and don't want to risk putting all my eggs in the basket.

Does anyone have any thoughts?
 
If you are unwilling to risk the money, then yes government bonds and savings accounts are probably you're best option.
2.1% is not a particularly good rate for bonds right now. You could consider other EU country government bonds. On Trade Republic you can invest in many different government bonds. There are a few youtube videos showing how.
 
Paying for elderly care is one of the few things tax deductible at the 40% rate. You seem to be a high earner. Would you be better off continuing to work and paying for care?
 
Nothing crazy about putting money in 10 year National Solidarity bonds. The money is not locked in and even at the height of the financial crisis with people wailing about sovereign defaults and the euro collapsing, it was far from crazy.

A much bigger issue for you and your parents that jumps out of your post, is succession planning, planning for their care and thinking about the impact that will have on their and your lives and finances. This would include everything from them divesting themselves of financial assets at least 5 years before they might need nursing home care under the Fair Deal to the CAT Dwellling House exemption which would allow you to inherit their house tax free if you live it for 3 years and don't own any other residential property at the time of inheritance. No idea of your circumstances other than what you've posted but it might be a good one for a Money Makeover thread?
 
Trade Republic reject my application last year and refused to tell me why. I didn't have any issues joined any other neo-broker so im still pretty bitter over being refused.

There's isn't a huge difference in the "safe" AA+ bonds that I can see esp when I consider the tax. But you are right; I should look more closely into it before making a final decision.
 
I began looking into this last week. I have been putting it off because its a pretty unpleasant subject to consider.
 
I spent the last week mulling this over and I will proceed with my plan of placing just under 40% of my cash savings into a ten year national solitiary bond.

1) My biggest nightmare is having the various neo-broker platforms I use (Trade Republic, Trading212, Lightyear) collapse so I view State Savings as a further diversification.

2) 2.1% AER tax free is not a shocking interest rate for a low risk investment. Inflation fell last month to 2.2% and the ECB are making rumblings about starting rate cutting in June.

3) Unlike a lot of fixed rate accounts, the money can be withdrawn with seven days notice.

4) I will however consider short term gov bonds with the remainder of my cash savings.
 
Gordon Gekko said:
Paying for elderly care is one of the few things tax deductible at the 40% rate. You seem to be a high earner. Would you be better off continuing to work and paying for care?
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Is there a max figure on this care at which 40% can be claimed ?
 
An update of sorts: I decided to proceed with placing 40% of my cash into the ten year NTMA national bond and I feel fairly comfortable with this decision.

I am however considering investing the remaining cash into ETFs instead of government bonds/fixed term savings. The ROI on my current investments are too good to ignore: the s&p fund alone is up nearly 20% (but this also makes me nervous as this would be a lump sum investment at a time of historic high). Another factor is I hopefully won't need this cash for another 10-15 years so holding it in bonds/fix term savings is beginning to feel too conservative.
 
Likely the last post on this thread but I am leaning heavily towards a lump sum investment into the SPDR MSCI World UCITS ETF (SWRD) via Diageo. I don't like the Diageo interface but my understanding is each broker comes with a reimbursement guarantee under EU law so opening a third account will help to spread the risk.
 
I think a money makeover post would be a good idea. To give an overview of your total financial position.

You are talking about 10 to 20 years investment timelines. I think vast vast majority of your wealth should be in equity over that period of time.

You have 120k cash and you are adding 2k per month. In five years assuming no growth (in income or investment) when you may retire that is approx 240k. In ten years it's 360k. That's a lot of money to be holding in cash and not exposing to the better long term return from equity. If you have predicted wealth in ten years of 1.5 million then it's only about thirty percent.

Money makeover type questions that may change advice:

What is your total wealth today?

Will you receive an inheritance?

You may also wish to investigate if you can get earlier access to your pension.

Is your pension fully invested in equity?

Will you have other large expenses?

Can you live happily on 25k a year?
 
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yes , 2.1% is way too low for locking money away for 10 years you are basically giving money away to the irish government, sure i got 4% per year with raisin for 6 months and I thought bad about locking that away for 6 months rather than investing it
 
sorry i only saw this afterwards, good decision except regarding taxation of ETFs in Ireland, its crazy, there is an investment trust that does a similar job but without the crazy irish ETF taxation, its discussed in another thread

Regarding IT its a very ageist profession, not too many IT people working into their 70s except maybe on legacy stuff, in other professions like legal everything is legacy, thats why you still have the oul codgers in the courts around the country
 
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joe sod said:
yes , 2.1% is way too low for locking money away for 10 years you are basically giving money away to the irish government, sure i got 4% per year with raisin for 6 months and I thought bad about locking that away for 6 months rather than investing it
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Just to mention, the money isn't locked away for 10 years and can be withdrawn at any time by giving seven days notice via the NTMA website or in writing. Most the deals on Raisin do lock away your money for the agreed term.

I guess you had to pay tax at on that 4% interest gain while the NTMA is tax free which to my mind means the 2.01% is equivalent to a taxable interest rate of close to 3% (around 2.8%./2.9%)

It was also on my mind that we will likely see rate cuts this year meaning those 4-5% fixed term saving accounts may not be around for much longer. I checked Raisin there now and the best rate on offer has already fallen to 3.5%.

But I will be honest: I did not want to do that face to face verify-your-identity call needed to open an account with Raisin
 
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