Lump Sum

Hi Everyone

I am in the lucky position of recently inheriting 300k euro after tax.

I am asking for anybody's honest opinion on what they would do with it.
I have a morgtage of 220k but this is on a great tracker rate of ecb +.6%
and i dont think i will ever get that rate again so i am anxious to leave this as is.

I have looked at first active new tracker bond which is for 5 yrs 11 months and gives 10%aer on 30% of the amount invested for two years and capital secure .
I am a novice to this whole area but dont mind not getting access to say 200k for 5 years as long as the capital is safe.
Any comments would be appreciated

John

Hi Kilkennyman, you have a whole world of choices, which can make choosing difficult. Before you jump to choosing a product to purchase, can I suggest you take a step back and clarify your investment objectives, such as
1) What is your targetted rate of return?
2) What amount of your capital are you prepared to risk i.e your loss tolerance?
3) How long are you prepared to have the money invested for?

Once you have decided on this then you will be better placed to eliminate investmemnt options that dont meet your requirements.

I have not reviewed the exact tracker bond you mention, and I generally have been sceptical of the real benefits/value of tracker bonds. However as banks are paying a higher credit spread for the deposit and the fact that the equity market starting point is much lower, I now concede that these type of products are now offering retail investors better value. There are plenty of posts on AAM discussing the pros and cons of tracker bonds which you can search for and read.
If you do decide to go down the tracker route, I believe it can often be better to put a cap on your upside thereby improving your probability of getting a payout; i.e I would rather have an 80% chance of getting a 7% p.a return than a 50% chance of an 11% return. Trackers are a little more complicated than product providers prefer to outline in their marketing material, take your time to choose the product that you believe will give you the best chance of a payout. You might want to consider getting some independent advice on this.

Another option if you think that we will have a cyclical recovery in equities would be to purchase some low cost index tracker or ETFs and put the majority of the funds on deposit earning a reasonable rate of return.
If you tie up the investment for a long time check what the real value of your investment would be at maturity if we returned to 3% inflation.
Whatever you decide to do make sure your investment is as well diversified as possible, as diversification can reduce your risk.
There is plenty of thought provoking investment posts on AAM if you do some searches. Good luck with it. ps I agree with you fully on your tracker mortgage, the bank will currently pay you more on deposit than what they can charge you for your mortgage.

Hi Kilkennyman,

I’ve not much to add to Vincent's excellent post however:

Be aware that most brokers will offer you a product as a solution such as a tracker bond or some fund or other. In return for selling you the product they are paid a commission.


An adviser who has conflicts of interest is likely to give self-serving advice. The most common conflicts are the widespread practices of the adviser being compensated by commissions on products they sell to their clients. In such a situation, one shouldn’t be surprised that some financial advisers may recommend products which maximize their own commissions, rather than those which are in your best interests.

An alternative way of looking at financial advice is to find someone who will advise you on a suitable financial planning and investment strategy for a fee.



1) Financial Planning -

Financial Planning relates to areas such as tax management, life assurance, income protection and retirement planning. It is also about bigger personal planning issues associated with goal setting and questions around what makes each investor different. A good adviser should consider in detail each investors own particular risk capacity and their particular hopes and plans for the future. Only then should they consider devising a suitable investment strategy that will help you to achieve your financial aspirations.

2) Investment strategy –

In the past, this has traditionally meant attempting to find a specialist investment manager such as a stockbroker or fund manager, and hoping that they will be successful in identifying the next hot investment.

The conventional approach to investment often relies on spurious assumptions and false hopes.

It requires a forecast about the future. However, this thinking is flawed. Financial Advisers cannot predict the future, they can only speculate, and they do so with your money – speculation can cost you dearly.

A better approach relies not on forecasting but the principle of ‘asset class investing’. Countless studies have shown that the greatest contribution to investment returns is the decisions made around asset allocation – that is to say how much is invested in cash, property, bonds and equities.

The key to success when investing is to maintain a disciplined approach based around matching an appropriate mix of assets to your own particular risk capacity.

Most of the time there is no need for the expensive active management strategies of a traditional stockbroker or fund manager and the best results come from sensible diversification and risk management, at a reasonable cost.

All the best,



Marc

[broken link removed]

Hi Kilkennyman (wonderful choice of username if i do say so myself), at the risk of dumbing things down (no disrespect to anyone intended), if this is your first introduction to investment i suggest you draw up a wish list. Ask yourself exactly what is non-negotiable and what is a bonus. For example you may end up with something like the following:

Non-negotiable:
Capital security,
An element of guaranteed return,
Maximum duration of 5 yrs

Bonus:
Access to funds during the term
low/no fees or charges
cover under the government guarantee/depositor protection scheme

etc

One you have your wish list, shop around. Tell people exactly what you're looking for and compare the suitable options. Simplicity is often the key - if you don't fully understand it, don't invest in it.

Once you have the suitable options narrowed down, consider which one you believe will give the better potential and be mindfull that diversity is rarely if ever a bad thing.

Once you have the literature in front of you, don't be afraid to research it yourself - sometimes over analysing the world of investments can lead to information overload and put people off.

Return is important but so is peace of mind - financial security is a very comfortable pillow!

Kilkennyman, there was a good article in the Sunday Business post which looked at the value offered by tracker products. Here is a link to the web version.

[broken link removed]