Business sold, €4m to invest?

rcnt_acqtion

New Member
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5
Age: 41
Spouse’s/Partner's age: 43

Annual gross income from employment or profession: 225,000 (+ 50% guaranteed yearly bonus for next 3 years)
Annual gross income of spouse: 65,000

Monthly take-home pay: €13,000 combined (excluding bonuses). Mortgage payments of €2,065/month lions share of monthly spend.
Type of employment: e.g. Civil Servant, self-employed: Both company employees

Savings: Currently saving approximately €8k-8.5k/month into demand savings a/c (7 days notice).

Rough estimate of value of home: €450,000 (down significantly from original purchase price in 2007)
Amount outstanding on your mortgage: €363,000
What interest rate are you paying? 0.5% tracker

Other borrowings – car loans/personal loans etc: No loans or borrowings.

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


No credit card(s).

Savings and investments:

From company sale: €4,200,000 currently in low interest demand deposit a/c. Amount reflects after CGT paid on Dec 15 recently.
Further lump sums are due in 12 and 18 months of a little over €1,000,000 in total (before CGT) as part of phased acquisition payments.

Do you have a pension scheme?
Yes, contribute €1,000/month + spouse contributes €500/month (after tax relief)

Do you own any investment or other property? No. And not a fan of owning more property directly; although okay via a wider investment plan.

Ages of children: No children.

Life insurance: Only what mortgage requires + death in service plans from employers


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

Had recent (last 6 months) change in circumstances (sold company, staying on with new combined entity with much increased pay) and want to start putting lump sum to work + setup some sensible use of available cash from monthly income.

I have gifted (legally and tax paid) some lump sum payments to family to help them out and the lump sum amount above reflects this.

Job is demanding and I also don’t want to be a martyr to the cause in the sense of locking every penny up for decades in the future.

Over the hard years of growing the company, I promised myself an expensive sports car on company sale and have now ordered that. This was not an impulse purchase. Lump sum above reflects post purchase of car and my current spreadsheet estimates of monthly running costs (tax, fuel, specialised insurance, extended warranty cover (eventually) and servicing) will consume €900/month when annualised over the year.

I don’t plan on moving/selling home (I like where I live) and have been comfortable with repayments over the last 15 years – not really looking to pay it off early.

I don’t plan on massively increasing my monthly minimum commitments from a lifestyle perspective – no fancy watches or bags for us – I value staying grounded – but also when going on trips (plan on taking new car on long road trips), I also want to “enjoy” nice hotels and the like along the way.

I consider myself lucky to be in this position – I spent the last decade while building up the business – in near poverty after bills were paid – but would like to be able to generate extra income (before retirement) from the lump sum and cash that current job is throwing off.

I am starting the process of seeking independent financial advice and am interested in what this communities thought process would be w.r.t. what I should be looking out for when I receive said advice.
 

Brendan Burgess

Founder
Messages
40,536
OK, with a lump sum of €4m aged 41, your salary of €365k a year is not that relevant.

So the first thing you should both do is to decide what sort of work you want to do. You should choose a job which gives you satisfaction, rather than one which maxes your income.

I think you should tidy up matters by clearing your mortgage even though it's a cheap tracker. I am a great believer in simplicity when it comes to finances. You are not getting a return of 0.5% at the moment, so it makes financial sense to pay off mortgage.

You can then decide whether you need mortgage protection any more. Wealth is its own life insurance. If you die early, your wife will be financially fine. If the life cover is good value because one of you has developed health problems since you took it out, then maybe hold onto it.

You should maximise your pension contributions. There is a debate about whether you should risk it being more than €2m when you retire. But I assume that is not an issue for you yet. Given that you might well stop paid work, I think you should probably max the pensions until you get to a fund of around €1.5m.

Your objective now as you have enough to live on is to preserve your wealth rather than to maximise it.

Cash is risky - it can be wiped out by inflation or by a bank collapse. Both seem unlikely, but no need to take the risk.

The best long-term least risk objective is a diversified portfolio of equities.

So both your directly owned wealth and your pension fund should be in equities.

My own preference is for a diversified portfolio of about 20 directly held shares in very large companies.

Others will recommend an ETF. I just don't like the tax consequences of great wealth being held in ETFs.

Brendan
 

Brendan Burgess

Founder
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40,536
When you have a plan set out, then you should sit down with a Chartered Financial Planner and pay a fee for advice.

You should not seek advice from a wealth manager in one of the banks or the stockbrokers. They will just want to sell you stuff.

There are not that many CFPs around, but a few have contributed to Askaboutmoney and would be a good starting point

Steven Barrett

Marc Westlake

Eamon Porter www.aspire-wealth.com
 

lledlledlled

Frequent Poster
Messages
319
OK, with a lump sum of €4m aged 41, your salary of €365k a year is not that relevant.

So the first thing you should both do is to decide what sort of work you want to do. You should choose a job which gives you satisfaction, rather than one which maxes your income.

I think you should tidy up matters by clearing your mortgage even though it's a cheap tracker. I am a great believer in simplicity when it comes to finances. You are not getting a return of 0.5% at the moment, so it makes financial sense to pay off mortgage.

You can then decide whether you need mortgage protection any more. Wealth is its own life insurance. If you die early, your wife will be financially fine. If the life cover is good value because one of you has developed health problems since you took it out, then maybe hold onto it.

You should maximise your pension contributions. There is a debate about whether you should risk it being more than €2m when you retire. But I assume that is not an issue for you yet. Given that you might well stop paid work, I think you should probably max the pensions until you get to a fund of around €1.5m.

Your objective now as you have enough to live on is to preserve your wealth rather than to maximise it.

Cash is risky - it can be wiped out by inflation or by a bank collapse. Both seem unlikely, but no need to take the risk.

The best long-term least risk objective is a diversified portfolio of equities.

So both your directly owned wealth and your pension fund should be in equities.

My own preference is for a diversified portfolio of about 20 directly held shares in very large companies.

Others will recommend an ETF. I just don't like the tax consequences of great wealth being held in ETFs.

Brendan
Would a couple of Investment Trusts be an option? Taxed like equities, but gives the diversification of ETFs?

In the unlikely event of me having 4m to invest, given the high values of equities at present, I think I'd buy a mill of stocks per year for 4yrs. You'll probably lose out on some market gains by Cost Averaging in this fashion but I think that is a price worth paying to reduce the impact of a potential stock market collapse in that period.
 

Andrew365

Registered User
Messages
279
I would not rule out speaking with a Private Wealth manager at a stockbroker or bank. You essentially have enough to live a comfortable life without having to worry about working. As Brendan pointed out, spend sometime to figure out what you would like to do. In the industry you are in is it possible to operate as an independent consultant? You have also built a successful business, which is a skill in high demand.
 

rcnt_acqtion

New Member
Messages
5
fwiw, love my job and planning on sticking with it for foreseeable. There are also some incentive's to do so financially – i.e. I now own a % of the acquiring company and want to execute on its growth plan for now. Plus, we were acquired by our main international competitor – so that is a lot of fun :)

I agree that right now, getting big into equities with a pending stock market "correction" is scary. But trying to double-guess the market is also so tricky.

Thanks all for the suggestions - it will be useful to benchmark with what various advisors say and also lets me research and ask more probing questions. I feel very grateful (especially at this time of year) to have this "problem".
 

Palerider

Frequent Poster
Messages
1,495
Congratulations, whatever you do remember the quiz show ' the weakest link'...contestants could get all questions right but unless somebody shouted BANK they made no money.

You shout BANK now by putting a sum away, a large sum in cash, and don't go near it, that will give you confidence if or when stocks dive, having cash is also a strategy, one that is often overlooked.

Ring fence the capital, make a prisoner of a chunk of it....and then go get advice, have fun with it as well..enjoy it, you earned it....live long and prosper.

The harder you work the luckier you get, nah not really, good for you and your family, congratulations, we need more entrepreneurs like you.
 

Brendan Burgess

Founder
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40,536
I thought about this a bit more as someone told me about the programme about Garech de Brun losing all his money and having to sell Luggala.

It's probably worth doing the following exercise now. Identify all the mistakes people with sudden wealth make and take steps to avoid them.

1) People get carried away by their own brilliance. So they invest a good part of their money in a new business to give them something to do. The business fails and they lose all their money.

1 B) The new business idea is so good that they borrow lots of money to invest in it and lose all their money and end up with a huge debt which they can't pay.

1C) They buy a big property which costs more than €4m so they borrow the balance. It all goes horribly wrong.

2) They take a huge punt on oil or gold or a particular share because someone charismatic recommended it strongly.

3) They put it all in cash because they think that cash is risk-free. Cash is not risk-free. The bank could go bust and inflation could wipe out the value of cash.

4) They fall victim to scammers who get them to invest in some great scheme and they lose a big chunk of their money.

5) They gamble it away. I suspect that you are not the gambling type, but worth noting it here for completeness.

6) Drink and drugs.
 
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noproblem

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Messages
2,141
Enjoy a sun break/cruise, safari every 6/8 weeks for ever more. Have a chat with 3 fellas who have just set up their own new wealth company, they featured in The Sunday Indo a couple of weeks ago I think. Max out on the 10 year state savings in An Post, do the same with the 5 year ones. Pick yourself 10 good stocks and put €100k in each. Then HAVE A THINK ABOUT what the 3 wealth managers tell you to do with some of the remainder. A word of warning however:p, do enjoy your hard earned reward, tomorrow might never come. Oh, nearly forgot, well done Sir.
 

Brendan Burgess

Founder
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40,536
, I think I'd buy a mill of stocks per year for 4yrs. You'll probably lose out on some market gains by Cost Averaging
I really don't like this approach.

What if the stock market rises over the next three years. Do you invest the 4th million then or wait? If the market rises for the next three years, a crash will be even more likely.

It's best not to try to time the market unless you think that the market is so completely madly overvalued in which case, you should not invest anything in the stock market

Brendan
 

moneymakeover

Frequent Poster
Messages
585
Invest in pension
If you are company director you will have advantages in how much you can contribute

Then other pillars of wealth
  • Property
  • Stocks. Buy an index each month. Dollar cost average
  • Cash
  • Precious metals
  • Bonds

Continue to pay down the tracker mortgage. That's a good deal for you. Not a good deal for the bank.

If you don't want to own residential property directly, what about small shopping centre/office building and allow property management company to manage it. Why not gear it? Say borrow 50% or 60%?

That's my 2c
 

Brendan Burgess

Founder
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40,536
Dollar cost average
You'll probably lose out on some market gains by Cost Averaging in this fashion
This idea just cannot be killed off


Throughout my career, I have heard financial people talk about "dollar-cost averaging" as if it were a way to cut risk. It isn't. But, because the idea of dollar-cost averaging being somehow good is repeated over and over, people think it must be true. In fact, most financial consultants even believe this nonsensical idea, because frankly, they don't understand finance or math anywhere near the level that they should.

and
 
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Gordon Gekko

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4,273
Firstly, congratulations.

There are some important points:

- You are in a great position
- You have a very long investment time horizon
- It’s the wrong financial decision, but I’d clear the mortgage for the psychological benefit alone
- You have neglected your pensions; the contributions should be maximised at 25% of earnings / €115k for 2019 and subsequent years and they should go 100% into whatever global equity option the schemes allow
- I would put the maximum (€240k?) into State Savings
- I would keep a further €540k in cash; that would leave you with €780k in cash or near cash which would represent 5 years’ worth of net income (i.e. €13k per month x 60 months)
- I would invest €1m into a portfolio of European Real Estate Investment Trusts (REITs) rather than invest in direct property; I would include some iRes to get a little Irish exposure
- I would invest the balance, i.e. circa €3m, in a diversified global equity portfolio
- I would ensure that my investments are subject to CGT rather than fund exit tax

Based on the above, you would be debt-free, you would have large incomes in your own right, you would 5 years’ worth of net income in cash, and you would have €4m in real assets which should grow substantially over your investment time horizon.

The key, however, is educating yourself and your spouse around investment risk and your own behaviour. In particular, how you might react in the face of volatility. Your portfolios could fall by 10% almost immediately. Or 20%. Or even 40%. But the key is your time horizon. It is your friend and, together with your strong income and large cash buffer would allow you to ride out even a 2008/2009 style crash and harvest decent returns over time.

Anyways, that is what I would do for what it is worth.
 

Fella

Frequent Poster
Messages
525
Nothing much to add that hasn't been covered , if it was me I wouldn't rush into doing anything.
The second thing is remember your the guy that made 4 million , your going to be getting advice from financial experts , but I'd probably pay more to sit down with you for advice than I would to sit with a financial advisor . Your obviously a very capable individual , congrats on your success .

I have nothing against financial advisors but I'd be fearful with that amount on the line , I'd certainly educate myself as much as possible first and get at least 3 opinions , tiny percentage fees on that kinda money could really add up , so I'd rather pay for someones time per hour than give them a percentage.

All the best and congratulations ,nice to see hard work paying off .
 

Brendan Burgess

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40,536
The key, however, is educating yourself and your spouse around investment risk and your own behaviour.

That is a really good point.

There probably is an opening for a course in how to manage sudden wealth.

Or as most won't attend a course, a good book or website on the topic.

edit: I googled it and there are plenty of tips online. I have not read them yet, but for example:


Brendan
 

RedOnion

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4,426
This is so wrong.

Why take on extra risk?

His objective is to preserve his wealth and not to maximise it.
Sometimes you have to roll the dice! Taking a tax free 8k per month, the money will only last 40-odd years. You've got to leverage to have any chance of losing it all quickly!!
 
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