Investment Advice..

F

Feria50

Registered User
Messages
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Hi All,

New to the forum but I have had a good browse through the threads this morning. As with most first time posters I am looking for some advice (and maybe reassurance!).

I'm 31, married with no kids and earning €40k p.a. Bought a house with my wife 2 years ago, 35 year term, variable rate currently 3.4%. Cost new €186k, current value €235k and current mortgage balance €165k. With regard to kids, all going well we might begin a family in the next 2 years. My wife has a permanent job with no pension provision, paying just above minimum wage. I have a reasonable prospect of increased earnings into the future but my wife less so.

I have a generous pension plan with employer. Employer contributes 12%, I contribute 2% (max allowed) with a further 1% AVC. So a total of 15%. Pension is managed by Aon Hewitt with most of mine invested in equity.

At present I probably have about €600 a month to play with after all bills etc. €250 of this is going to a KBC deposit account paying AER 1% with a current balance of just over €5k.

The remaining €350 goes to PTSB deposit account paying AER 1.25% with a current balance of €4k. I also have a credit card with balance cleared monthly. Finally I have about €2k in a credit union account.

I have always been minded towards thinking to the future, the dream is being able to retire early but my main focus is to financially comfortable whenever I do retire whether that be early or not. Comfortable can obviously be defined differently for everyone but we would like to be able to travel abroad extensively in retirement.

So the question is, what do I do with my free cash. The €600 outlined above is after paying for everything, including holidays etc.

Questions:

Pension - total contribution is 15%, however only 3% of this is 'my'contribution. How much more could/should I contribute? Should I consider a separate PRSA instead of increased contributions?

Mortgage - I have been toying with overpaying my mortgage by €200 a month informally. All things being equal this would shave close to 13 years from my remaining 33 year term and save up to €40k in interest charges. Obviously its variable rate so calculations are very much subject to change. I'm with AIB so unfortunately this would require me to sign a form every single month stating that I want the over payments to come off the capital amount rather than reducing repayments over the term. This particularly bugs me and I would actually consider switching to another provider if I could direct that all over payments to be automatically taken off the capital sum.

Investment - I have an account with Degiro and have been considering an ETF, say €150 a month to start with. However I'm a bit confused/put-off with the tax considerations. Do I need to pay tax on dividends every year even though they will be nominal to begin with? I would like for dividends to be automatically reinvested, do I then need to allow for tax on any dividends to be met from the rest of my income? Presumably CGT only comes into play when I withdraw funds? This would be a long term investment of at least 25 years.

I'm conscious that in the grand scheme of things I don't have a huge amount of excess cash to play with. At the same time, I have time on my side for compounding to potentially help me out.

After re-reading the above I realise I'm rambling a bit but I hope you all can give me some words of advice!

Thanks in advance
 
IMO forget Degiro and entire ETF plan. Overpay mortgage rather than investing, due to ease and reward. You should also move mortgage to cheaper rate if possible.
Also consider starting savings account for future children and build up six months emergency fund.
 
username123 said:
IMO forget Degiro and entire ETF plan. Overpay mortgage rather than investing, due to ease and reward. You should also move mortgage to cheaper rate if possible.
Also consider starting savings account for future children and build up six months emergency fund.
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Thanks Username. I think the degiro side of things can wait, at least until if/when my salary is a fair bit higher. I suppose when you read investing books (normally american) the big thing is always stocks, the effect of compounding, then wait.

I guess I have it in my head that the longer I wait re: investing, the less I will gain in the long run...

Definitely agree on the mortgage front, I like the idea of variable so that I have the flexibility on over-payments.
 
But you're already investing via your pension. Investing outside pension wrapper in Ireland is much less attractive than in USA, which is where all the low cost index fund investment theory originates (predominantly). All the various books are great in theory, but become somewhat irrelevant IMO when you try to apply theory to real life Ireland e.g. nonsense ETF taxation is one example.
 
username123 said:
But you're already investing via your pension. Investing outside pension wrapper in Ireland is much less attractive than in USA, which is where all the low cost index fund investment theory originates (predominantly). All the various books are great in theory, but become somewhat irrelevant IMO when you try to apply theory to real life Ireland e.g. nonsense ETF taxation is one example.
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Very true. The only drawback being I suppose that retirement age is 65+... no access to pension savings before then. Of course I wouldn't want access until at least 50+ anyway
 
Feria50 said:
Very true. The only drawback being I suppose that retirement age is 65+... no access to pension savings before then. Of course I wouldn't want access until at least 50+ anyway
Click to expand...

Most occupational pension schemes actually allow access to retirement benefits from 50.

Agree with Username's advice - build up a cash reserve equivalent to around 6 months of household expenses and apply any remaining free cash against the mortgage.

Remember that paying down the outstanding mortgage balance also has a compounding effect and you should be able to refinance at a lower rate once you have a lower LTV.

You also have some room to increase your AVCs but I wouldn't be inclined to overdo it at this stage.
 
You have been advised above to overpay the mortgage, it is worth pointing out that that will give you a 3.4% return after tax, you will not do better.

A second point is that even with potential for increased earnings you will not have €600 a month left over if you become parents, and thats before any possible childcare costs.

As for early retirement, I can tell you now, that all going well you will be able to retire once your youngest child becomes financially independent. To retire before that requires real wealth.
 
Should point out that I wouldn't like to have access til at least 50+ anyway
Sarenco said:
Most occupational pension schemes actually allow access to retirement benefits from 50.

Agree with Username's advice - build up a cash reserve equivalent to around 6 months of household expenses and apply any remaining free cash against the mortgage.

Remember that paying down the outstanding mortgage balance also has a compounding effect and you should be able to refinance at a lower rate once you have a lower LTV.

You also have some room to increase your AVCs but I wouldn't be inclined to overdo it at this stage.
Click to expand...

Thanks, I did not realise that was the case with occupational pensions
 
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