Best way to put savings to work?

What is the best way we could put our savings to use? Property, ETFs etc?
We do not have to save for kids education as this is already secured.
For retirement, we assume we will have a property abroad left to us by family, so we are not too concerned about saving for retirement. We would like to concentrate on multiplying the savings in the next 10 years.
Is there anything else we should be thinking about?

Age:45
Spouse’s/Partner's age:43

Annual gross income from employment or profession:65K
Annual gross income of spouse: 14K

Monthly take-home pay: 4,700

Type of employment: e.g. Site Engineer
Spouse: Bookkeeper

In general are you:
(a) spending more than you earn, or
(b) saving?

Answer: b.SAVING

Rough estimate of value of home: 320K
Amount outstanding on your mortgage: 309
What interest rate are you paying? 1.1%

Other borrowings – car loans/personal loans etc : None

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

Savings and investments: 150K savings

We will appreciate any advise. Thank you

Do you have a pension scheme? No

Do you own any investment or other property? No

Ages of children: 13 and 16

Life insurance: Yes

We will appreciate any advise. Thank you

Obviously, using a pension vehicle is the best option to grow your wealth. And then it's down to what asset class to invest in, within the pension. But it'd be crazy to start thinking about investments outside a pension.

Is your mortgage €309,000?

If so that’s almost 4x your gross income which would leave you extremely vulnerable to rising interest rates.

In terms of professional advice, you lack what is known as capacity for loss. This is much more relevant than your personal willingness to take a risk or your risk tolerance.

Your borrowings are high and therefore you should prioritize debt repayment over other forms of investment including pension planning even if someone else might obtain more potential benefit from pension contributions.

Take as much as you feel comfortable (€100k+) and reduce your mortgage keeping the payment the same this will reduce the term giving you a guaranteed return on your investment equal to the average interest rate on your mortgage in the future.

You pay your mortgage from post tax income so every euro of mortgage payment is costing you nearly twice what you pay.

a taxable investment would need to earn almost 3% to match the current mortgage rate after tax and before costs so you’d need to be making an average of 4 or 5%pa just to match the guaranteed return on the mortgage.

finally redirect some of your savings into AVCs to pick up the tax relief and don’t stress about investment risk just invest in an equity fund you have time on your side at this point


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

Marc said:

Is your mortgage €309,000?

If so that’s almost 4x your gross income which would leave you extremely vulnerable to rising interest rates.

Take as much as you feel comfortable (€100k+) and reduce your mortgage keeping the payment the same this will reduce the term giving you a guaranteed return on your investment equal to the average interest rate on your mortgage in the future.

You pay your mortgage from post tax income so every euro of mortgage payment is costing you nearly twice what you pay.

a taxable investment would need to earn almost 3% to match the current mortgage rate after tax and before costs so you’d need to be making an average of 4 or 5%pa just to match the guaranteed return on the mortgage.

finally redirect some of your savings into AVCs to pick up the tax relict and don’t stress about investment risk just invest in an equity fund you have time on your side at this point

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Thank you Mark for your comment.
I am on a tracker mortgage and was advised that with such low (1.1%) rate it would not make sense to pay it off to quickly and rather invest it somewhere else and they pay off early.
Its good to hear an opinion to the contrary.
I have no knowledge about AVCs so will read up more on the forum to find out more.

Blanca said:

I am on a tracker mortgage and was advised that with such low (1.1%) rate it would not make sense to pay it off to quickly and rather invest it somewhere else and they pay off early.

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I would agree with your original advice.

No one knows if you would get a better return by investing the €150k than the 1.1% after tax you would save by reducing your mortgage, but if you were to invest in a pension it is very likely that you would.

How secure is your employment, is it possible/likely that you might have trouble in future meeting your mortgage repayments.

Safety vs maximising your wealth, it comes down to priorities.You can strike a balance somewhere in between, keep 6 months income in cash so that if you lost your job you would have time to find another.

Considering tracker offers stopped in 2008
You must have been in arrears for a while? Or interest only? Mortgage rearranged?

If by now you should be further ahead with your repayments, per original schedule, you could catch up now using savings.

Always good to be say 50% to 60% LTV
Provides some safety in the event of interest rate rises

Makes sense to use some of the savings to pay down the mortgage. It's affordable at the moment but paying down maybe €50k-€75k would reduce your vulnerability to interest rates increasing.


Use the rest of savings to maximise tax-relieved pension contributions every year. It is more or less free money that you are leaving on the table otherwise.

Investing outside pension makes no sense due to how heavily it's taxed compared to pension.