Need to diversify and plan for the future

H

Hockeystick14

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Age: 42 (single)

Annual gross income from employment or profession:
  • Salary: €190K
  • Annual Bonus: €71K

Monthly take-home pay: ~€6,200 (salary)

Type of employment: Private Sector

In general are you:
(a) spending more than you earn, or
(b) saving? Saving about 1.5-2K per month

Rough estimate of value of home: €450K
Amount outstanding on your mortgage: €125K (Repayments of €1300 p/m). Expiry date Jan 2030
What interest rate are you paying? 2.75% (LTV Variable mortgage)

Other borrowings: None

Do you pay off your full credit card balance each month? Yes

Savings and investments:
  • Quick access cash/rainy day fund in bank account: €92K
  • Credit Union: €10K
  • Term deposit: €52K (State Savings, expires in Oct 2021)
  • Shares: ~€1.1M (Net i.e. approx calculation after CGT)

Do you have a pension scheme? Yes
  • Contributions: 7% monthly + 9% AVC (Me), 7% employer
  • Current Value: €330K (estimated to have ~€80K p/a on retirement)

Do you own any investment or other property?
  • Car: Fully own with no loan. No immediate need to change it for next 1-2 years.

Ages of children: None

Life insurance: Yes, through work. 4 X salary.


What specific question do you have or what issues are of concern to you?
  • Background:
    • I have my salary, shares and pension all linked to the company I work for and while I have been lucky that the company has and continues to perform well, I am conscious that I should diversify my portfolio.
    • I’m also considering purchasing a larger property to live in this year.
    • Finally, I would like to explore the options of changing industry (with significant reduction in salary and benefits or even potentially going self employed), reducing working days and early retirement as any of these could be options I decide to pursue in the coming years
  • Questions
    • Should I clear the mortgage on my existing house?
    • If I purchase a larger house, is extending myself to a 700-800K property sensible? Should I hold on to my existing property and rent it, or sell it? I’m not jumping at the idea of being a landlord, but I’d make it work if it was the right investment to make for the future.
    • The shares I own have performed exceptionally well over the last 10 years and have even higher target projections by analysts (FAANG stock). I have always played a long game with these shares, so I would like to hold on to as many of them as possible as they have outperformed any property or savings investment I have made. However, if I buy a larger house, I do not want to take on a crazy mortgage at this point in my life, so trying to work out a good balance between keeping shares and keeping mortgage payment manageable. What would you recommend?
    • If I wanted to lower my retirement age (e.g. to 55 or 60), reduce the number of days I work, or move to a job with a lower salary in the next 7 years, how can I better prepare for that financially?
    • What other advice would you give to improve my financial strategy?
 
Hockeystick14 said:
The shares I own have performed exceptionally well over the last 10 years and have even higher target projections by analysts (FAANG stock). I have always played a long game with these shares, so I would like to hold on to as many of them as possible as they have outperformed any property or savings investment I have made. However, if I buy a larger house, I do not want to take on a crazy mortgage at this point in my life, so trying to work out a good balance between keeping shares and keeping mortgage payment manageable. What would you recommend?
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The other issues are relatively unimportant and not easy to answer definitively, but this one is clear.

You should immediately sell all the shares in your employer. Assuming that there is no tax advantage in keeping some of them.

You have a salary of €260k and €1.1m all depending on the current health of your employer.

You must diversify.

There are plenty of former employees of the banks (and other companies) who scoffed at this advice - they lost their jobs and their wealth. Great companies can turn to dust very suddenly.

The company might continue to do well, but the stock market might just rerate it downwards.

Brendan
 
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What do you do with the funds released?

Absolutely clear your mortgage. There is no point in borrowing money at 2.75% to put it on deposit at 0% in case of a rainy day. Especially when you have other assets you can cash quickly.

Hockeystick14 said:
I’m also considering purchasing a larger property to live in this year.
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With your pension well stuffed, buying a big home to live in is very tax-efficient. The "income" which is your use of the home, is not taxed. The Capital Gain is not taxed. Go for it.

Hockeystick14 said:
Should I hold on to my existing property and rent it, or sell it? I’m not jumping at the idea of being a landlord, but I’d make it work if it was the right investment to make for the future.
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I don't think you should hold onto it. Being a landlord is no fun. And I would imagine that you are too busy at work to be dealing with the problems. As soon as you have exchanged contracts on the new house, put your old house on the market.
 
As you may be taking a cut in salary in the coming years, you should max your pension now. If you have a big pension fund, then it will make it much easier for you to set up as self-employed as it will remove a worry you would have.

When you have all that sorted, put whatever you have left in a diversified portfolio of directly held shares. Again, you should avoid buying shares in the industry in which you are employed.

Brendan
 
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