Good problem - stop savings?

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andyB20

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Hello - thanks to all the great contributors on this forum - it's excellent - informed and helpful. I'd appreciate your wisdom/analysis. Here are my details per the template:

Age: 43
Spouse’s/Partner's age: N/A
Annual gross income from employment or profession: €205,000
Annual gross income of spouse: N/A
Monthly take-home pay: €8700 approximately
Type of employment: PAYE Employee

In general are you: Saving - approx €6500 per month

Rough estimate of value of home: €350,000
Amount outstanding on your mortgage: €70,000
What interest rate are you paying? Tracker, < 1%

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

Savings and investments:
Approx €390,000 - cash, in various deposit a/c and govt savings bonds/things. Misc small (total <10K) direct shares

Do you have a pension scheme? Yes - 4%, employer contrib is 8%. Have been adding AVC (not max) for past few years. Overall pot is low though.

Do you own any investment or other property? No.

Other borrowings – car loans/personal loans etc: None

Ages of children: N/A

Life insurance: Yes

What specific question do you have or what issues are of concern to you?
I spent quite a number of years in precarious jobs (startups and contracts etc) where savings/pensions were a second-thought or sporadic. The past few years have been in more stable environments, so I think I've over-focused on cash-savings, emergency-mode based on previous instability.
I'd basically welcome some thoughts the right balance of what I am doing with my income from now on - reading articles about negative interest rates makes it clear that just accumulating cash/savings is really diminishing value overall.
I presume it is a no-brainer that I just maximize pension AVC from now on?
I presume it is a no-brainer that I don't pay-off mortgage (based on low tracker rate)?
I think I need to divert 75%+ of future savings to investment. I think direct shares - I've looked a bit at ETF but it seems far too complex/grey in tax terms. I guess that is getting into Investment Forum territory..
Is there something else obvious I am missing?

Thanks!
 
andyB20 said:
I'd basically welcome some thoughts the right balance of what I am doing with my income from now on
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What are your goals?
You post focuses on your salary and savings, but you've given no view about what you want to do. Retire early? Become an angel investor and encourage startups? Own a property abroad? Buy a yacht?
Or are you just asking how do you maximise your money? Over what time frame?

andyB20 said:
I presume it is a no-brainer that I don't pay-off mortgage (based on low tracker rate)?
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I wouldn't agree that this is a no brainer. You've enough cash to pay your mortgage off 5 times! How much of that cash is on zero rate, or less than 0.25% return? After tax? I think I'd be paying off the mortgage - simplifies things, and changes your view of risk.
 
Thank you @RedOnion.
Agree - goals are very ill-defined in that post..
I think main goal is to maximize value of current/incremental cash - which on reflection, is Investment Forum territory. But looking for silly day-to-day errors/missing-options before that.
It's a good point that just clearing mortgage would change mindset....
Thanks again
 
I would clear the mortgage. Yes it’s on a tracker but in the grand scheme of things it would be nice to be mortgage free.

I would maximise my AVCs for last year before 31 October and start maxing it for this year and subsequent years. 100% invested in the best all global equity option for your scheme.

Then I’d keep a decent amount in cash for emergencies; perhaps €50k, i.e. 6 months’ net income?

I’d take the rest (i.e. €270k) and create a diversified portfolio of global equities. Then I’d add my €6,500 a month to it.
 
Start contributing the max to your pension. You can backdate contributions for 2019 also. With your level of cash, the fact you have a relatively small existing pension it is the first thing you should do in your position.

In your shoes I would pay down the mortgage to simplify my finances.
 
First of all, well done in getting into such a good financial decision. Part of that is because you're expenditure hasn't increased in line with your earnings. It's good to keep it that way.

I'd echo what the others have said, clear the mortgage so you are debt free, max out pension (earnings cap of €115,000 for pensions, so you can't put in 25% of your full salary), keep some money for a rainy day and invest the rest.

That's the easy bit, the hard bit is you have to figure out what you want from life, both personally and professionally. You don't get to earn €205,000 a year without working for it, so can you see yourself working at the same level when you are 60? Would you like to be in a position to ease off before then? If so, what would you do with yourself and how much would that cost you?

It can be difficult to come up with the answers if you don't know the questions and maybe a life coach can let you know what they are.


Steven
www.bluewaterfp.ie
 
Gordon Gekko said:
I’d take the rest (i.e. €270k) and create a diversified portfolio of global equities. Then I’d add my €6,500 a month to it.
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At the moment stock markets are at a pretty much all time high. This week I needed to purchase some electrical items, laptop, mouse etc. Two of the laptops I wanted were not available. The selection of Mouse available were just a handful.

There has to be supply issues with China. There has to be a knock effect....eventually.....When companies start to issue profit warnings I think the markets will fall back.

I do believe in investing in the stock market is a good thing but I think you really need to time this right.
 
1) Absolutely agree that you max your pension fund

2) You do not need any cash in a rainy day fund
You will have a lot of investments in shares. If you lose your job or you have a sudden expense, then you can sell shares.
There is a good chance that if you lose your job, you will get notice and maybe even redundancy. You will be generating €6,000 in savings a month for a while between the time you get notice and find yourself without any income.

3) Would you consider trading up your home?
A family home is a great investment.
  1. Any gain is exempt from Capital Gains Tax.
  2. The "income" in terms of having a nicer home is tax-free
  3. If your income crashes in the future, you can always rent a room tax-free
  4. It is ignored in the means testing of any social welfare benefits.
If a wealth tax is introduced, I would imagine that it will be more favourably treated than an investment in the stock market.

If you buy an extra €300k worth of house, you will pay an extra €600 in Local Property Tax. You may have some additional maintenance costs.

4) If there is much of a chance that you will trade up, then you should hold onto your tracker as you will probably be able to move it to the new house with an increase in the margin of 1%,

5) If you have no intention of trading up, it's probably better to pay off your mortgage
It is certainly better to pay off your mortgage at 0.8% instead of keeping your mortgage and having the equivalent in cash at 0% interest and that 0% is subject to DIRT! :)

But a tracker of €70,000 is worth about €1,500 a year to you. It's only a minor detail in the total of your finances, so you are not going far wrong in paying off the mortgage.
 
SlugBreath said:
At the moment stock markets are at a pretty much all time high. This week I needed to purchase some electrical items, laptop, mouse etc. Two of the laptops I wanted were not available. The selection of Mouse available were just a handful.

There has to be supply issues with China. There has to be a knock effect....eventually.....When companies start to issue profit warnings I think the markets will fall back.

I do believe in investing in the stock market is a good thing but I think you really need to time this right.
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I have seen this mentioned a few times recently , and on and off over the last couple of years on this site . If anyone took this advice they would be losing out on all the gains over the last couple of years. Eventually there will be a crash but nobody knows when , you could wait till a crash but you might miss years of 20% gains 3 or 4 years in a row and then be happy you missed the 50% overnight drop .
If you invested in the stock market and your saying markets are high to someone else who wants to invest , do I take it that you have sold all your holdings ? because your going to lose also , but I very much doubt that everyone that says the stock market is high has sold up , there is no difference between been invested and advising someone else not to invest as to advising someone already invested to sell up .
 
andyB20 said:
I think I need to divert 75%+ of future savings to investment. I think direct shares - I've looked a bit at ETF but it seems far too complex/grey in tax terms.
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I would not agree with this. With direct shares, particuarly trying to get global diversity, you'll be dealing with stamp duty when buying/selling but only on certain markets, income tax on dividends but you need to manage withholding taxes which will vary depending on the country and declartions to avoid double taxation in certain markets, CGT on share sales, with a large basket you'll end up involved in some rights issues which again may have tax implications that can be complex if it's say a US company, DRIP/SCRIP schemes will leave you with loads of tranches of shares issued at different prices to when you bought, you'll get lots of interesting invites and requests to vote at AGMs etc etc. Taxation on ETFs is less complex and more transparent than direct shares, it's a single rate and due every 8 years, simple as that.

The main complaint with ETFs is that you are disadvantaged tax wise compared to direct shares which can grow tax free indefinitely. However again you have to ask yourself are you willing to deal with all the issues above related to direct shares adding in trying to build a portfolio that is truly diversified and constantly rebalance that as companies/countries fortunes change? All this dealt with internally in an ETF, you just keep throwing a few quid in each month and forget about it.

Personally I think it may be doing a disservice to smaller investors to make ETFs seems like such a bad deal. You MAY be able to do better, but the vast majority of people will not. In your case in particular, you'll be engaging an accountant to do your tax returns whether you go direct or ETFs, so even if ETFs were more complex tax wise (they certainly would not be with a large globally diverse portfolio) it won't be your problem.
 
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I would make sure i've got good health insurance, would also make a will and after that i'd enjoy my life and not take anything too serious. Unless you go off the beam entirely you're in great shape and are doing very well in the way you're managing everything by yourself at the moment. at the moment. At some stage ask yourself, what's enough and am I happy?
 
SlugBreath said:
At the moment stock markets are at a pretty much all time high. This week I needed to purchase some electrical items, laptop, mouse etc. Two of the laptops I wanted were not available. The selection of Mouse available were just a handful.

There has to be supply issues with China. There has to be a knock effect....eventually.....When companies start to issue profit warnings I think the markets will fall back.

I do believe in investing in the stock market is a good thing but I think you really need to time this right.
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My daughter wanted a mouse for her laptop in December. Very poor selection. This was before coronavirus. Consumer has moved away from using a mouse.

SlugBreath said:
I do believe in investing in the stock market is a good thing but I think you really need to time this right.
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Good luck with that. While timing the market will increase the amount of gains, trying to time it is a fools game. You might get lucky but that's all it is.

For the last few years people have been warning that there's going to be a crash. The end of 2018 wiped out all the gains for that year and they told us the crash was coming so they kept their money in cash, waiting to make massive profits from buying cheap. Guess what? They missed out on 30% growth in the market!! When the crash does happen, they'll pop up again and tell us how great they were for buying cheap ignoring all the growth they missed out on.


Steven
www.bluewaterfp.ie
 
The “markets are at all time highs” stuff is utter nonsense. The long-term trend of markets is upwards, so it’s natural for them to hit new highs pretty regularly! If you have a decent time-horizon, strong income, and the ability to add to the portfolio, just get on with it and stay invested. Trying to time the market is a mug’s game. There is an old adage that more money is lost waiting for corrections than in corrections themselves. The same people who spread fear and uncertainty today were doing it in January 2019! But they rarely talk about the 30-40% that’s been left behind since.
 
Markets and companies are priced on the basis of the expectation for the next (say) 80 quarters and even beyond. Coronavirus may impact on sales this quarter or this year or it may not. But do you really think that it will be relevant in (say) 5 to 10 years time? So if you have a time-horizon that’s greater than (say) 10 years should you be obsessing about Coronavirus, listening to what some markets shock-jock thinks about Coronavirus, or simply buying a diversified portfolio of good companies and getting on with your life?
 
Thanks @Gordon Gekko

I would not want to do a big, single investment/transfer into anything. That just seems like point-in-time gambling. I was more thinking of averaging-in future cash.
 
andyB20 said:
Thanks @Gordon Gekko

I would not want to do a big, single investment/transfer into anything. That just seems like point-in-time gambling. I was more thinking of averaging-in future cash.
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Why? That’s also trying to time the market (or “point-in-time gambling” to use your term). On the basis that the long-term trend of markets is upwards, then statistically it makes sense to invest earlier rather than later.

You are in an incredibly strong position. You have a very long time-horizon. You would have no debt. You would have €50,000 in cash. You would be maxing out your pension contributions. You earn more than €200,000 per year.

You should just get on with it and ignore the negative noise around markets. Do you realise that a person who invested in a globally diversified equity portfolio at the peak in 2007/2008 (i.e. the worst time) has more than doubled their money today? Not at the bottom...someone who invested at the top. Your current asset allocation (mainly cash) and the historic neglect of your pension are the current black marks; forget about phasing in and simply get on with it. And don’t bother with anything other than 100% equities.

If you max out your AVCs, invest the €270k now and add €6,500 to it monthly, you’ll be in superb financial shape at age 60 (for example).

Best of luck.
 
Gordon Gekko said:
The “markets are at all time highs” stuff is utter nonsense. The long-term trend of markets is upwards, so it’s natural for them to hit new highs pretty regularly! If you have a decent time-horizon, strong income, and the ability to add to the portfolio, just get on with it and stay invested. Trying to time the market is a mug’s game.
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I would have thought that the Corona virus would have had a knock on effect on the market eventually. So by holding back for the moment might seem a sensible thing to do, even a mug might get this one right. Today is only one day in the scheme of things but the markets are already off by 2% this morning. Was this not obvious?
 
An individual making medium to long term investment decisions on Coronavirus is foolish. Even making short term decisions unless you are trying to be some sort of day trader is ridiculous. Even if the virus has an impact on economic output and supply chains, it is not going to have a medium to long term impact. The markets have brushed aside bigger news stories than this in the past 12 months.
 
I'd be clearing my mortgage today and start working out a 12 year roadmap to retirement.
 
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