Tax-advantaged retirement accounts, or, a general 15-yr plan

This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts. It is a fact - well researched, well documented - that passive investing ensures market performance (less the fees, which are lower); active management does not (and they have, typically, higher costs). I am a big fan of index trackers, but not to the exclusion of all else. Personally, I get quickly bored with passive investing (ETFs, for example) and find actively-managed funds more interesting. I may not be entirely rational in that regard, but a key point is we are all different. As a concrete example, I find the JP Morgan Global Growth & Income Trust - quoted on the LSE - to be very interesting. The fund follows a strict approach to stock selection which I find convincing and the Board is committed to paying out 4% of its net asset value each year, backed up with decent revenue reserves and substantial capital reserves (which means the dividend can be sustained through weaker periods in markets). Adds an element of attraction to it for an investor who needs an income - now - from his/her investments - think of the ARF investor, perhaps. It adds something to the choice, I feel.

Rory Gillen

To be fair Rory the JP Morgan Global Growth & Income Trust is not offered by Irish Life so I'm not sure what relevance the merits or otherwise of that trust has to the OP's request for opinions on the choice of funds in his pension fund.

FWIW, I am personally a fan of investment trusts in certain scenarios - I'm certainly not a passive investing purist by any means. However, I think it's perfectly reasonable for posters to query or challenge a recommendation based on a suggestion that actively managed funds outperform passively managed funds during times of market distress.

I do agree that the tone of some of the contributions was unfortunate but I certainly hope that doesn't put you off from participating in future discussions.

My issue was with the poo-pooing of an AVC of €700 a month for a 31 year old with €2,500 of spare cash every month and a desire to retire early.

I'm still of the view that neglecting the AVC piece in such circumstances is genuine hospital for the criminally insane stuff.

It's only 28% of the spare cash and the AVCs can be suspended at any time.

I am not normally as strident in my views, but in this case I do genuinely find the counterarguments utterly ridiculous.

Rory T Gillen said:

This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts.

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As Sartre said "hell is other people". While certainly things can get a little hot around here, this is a more constructive place than many other fora. It is also an unfortunate reality that in order to get a reaction you have to be a little provocative.

Most people here including myself post anonymously that allows the freedom to say things that I wouldn't say under my real name. I freely discuss my financial affairs which I would not do were it not for the anonymity. I can also express views in a more robust fashion, readers are free to take those views with a pinch of salt they are after all anonymous.

I hope you persevere with the struggle to participate.

Rory T Gillen said:

This thread, apart from the initial post, is a decent example of why I find myself struggling to participate on this site. Everyone wants their view to be right, and then get argumentative, with little based on facts.

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Others can speak for themselves but as "everyone" includes me, I absolutely reject this as a fair characterisation of my posts to this thread - see posts numbered 4, 8 and 23.

Hi all,

Thanks for your comments and the spirited debate! I've definitely gleaned some good information from this. Gordon makes a good point about maximising the contribution - €700 a month is quite doable. Could anyone just confirm for me quickly - I am limited to contributing 20% of my gross salary, but is this 20% (14k) inclusive of an employer's 5% match? As in, would I be paying €10,500 per year myself, with employer paying €3,500 to bring it to €14k, or would I have €17,500 in the fund at the end of a year?

Also, if I were to go and put the full 20% in, would putting the lot into a passive world market index fund still be wise, or at that amount would it make more sense to balance it out a little bit?

Thanks again!

If the pension scheme is a company pension / occupational scheme, then you can put in 20% and your employer can put in 5% (or more). If it's (say) a PRSA, then the total shouldn't exceed 20% (so you'd be putting in 15%).

Worth noting that if you commit €700 of your €2,500 every month, €1,459 will be invested...

You sacrifice €700, and €1,459 is invested to provide for your retirement...and invested in a structure where all income and capital gains under its bonnet are themselves tax-free.

Thanks Gordon. It's an occupational pension plan so I suppose I can get up to an effective rate of 25%. I don't know if I'll live long enough to enjoy it! But it's a sensible approach. Do you have any comments on how/where to put it? I think in the first post in the thread I listed out some of the options.

I definitely do not want an actively managed fund - this goes against every bit of advice I have read, both here and elsewhere - but would something like a 33/33/33 split between world, Europe and bonds be reasonable? Or more like 40/40/20? Any thoughts?

This is a fund I can (hopefully) afford to live without for 20-odd years, so while I can handle some volatility I obviously don't want to take unnecessary risks with it, given its nature.

There are other contributors more qualified than I am to advise you on the investment piece.

For what it's worth, I'm also in my 30s, I max out my AVCs (and have done for years), I take the generous employer pension contribution and invest all of it in two 100% equity actively managed strategies. The annual charges are 0.5%. I will never dial down that level of risk, even when I ARF it down the line. It's a succession planning play for my kids.

Nice. I'll take that onboard. I do like the idea of investing in an equity fund over very long time period, even if it's not me who'll ultimately benefit from it. 0.5% management fee sounds great though. Most managed funds I've looked at were more like 1.5% - 1.9%.

I might spend a couple of years putting it all into world market equities, I don't know at this point. Still researching a bit. Maybe someone else will chime in, or I'll start a new thread when I have more info to build on. Cheers, best of luck.

jabberwocky said:

I definitely do not want an actively managed fund - this goes against every bit of advice I have read, both here and elsewhere - but would something like a 33/33/33 split between world, Europe and bonds be reasonable? Or more like 40/40/20? Any thoughts?

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Fair play jabberwocky - you got a bit of debate going - possibly because you are asking relevant and smart questions like the one above.

In relation to investment returns, the primary determinant is asset allocation. The active versus passive debate is secondary. For what it's worth, passive is generally better for two reasons. Firstly, it provides superior returns for most investors in most markets than the equivalent active manager and secondly, rather than literally wasting time in trying to find that illusive beast (an active manager that will out-perform its passive equivalent in the long term), it helps one to focus one's time on the substantially more significant asset allocation question.

Gordon made an interesting comment about his 100% equities approach. There are two points to note here:

1. Gordon may well have such liatróidí but a lot of people would not - especially at a certain age and when the shizzle really starts hitting fans. This gets into the really important area of behavioural finance which is a greatly under-represented topic on this forum; and

2. If we accept that in the long-haul that equities are going to be the best performing asset allocation class (acknowledging that this is not certain in one's investment lifetime), my understanding is that Gordon's approach is, counter-intuitively, sub-optimal in both the accumulation and decumulation phases and that better absolute returns and substantially better risk-adjusted returns are available via other strategies! The reason this will come as a surprise to some people is because discussions regarding asset allocation strategies are, again, too infrequent in these parts.

I would encourage you to start a new thread on the optimum asset allocation strategy in your circumstances. I think this thread has been helpful to you - I'd be surprised if a second thread did not come up with additional useful pointers.

Just my $0.02

Hi Dan,

Maybe the OP or you could start a new thread?

You raise interesting points.

Gordon

I will start one now.

Sarenco said:

Gordon

Nobody is questioning any of that. But the OP has told us he doesn't want to follow this approach. He has given his reasons and I think they are entirely reasonable given his age and circumstances. You don't agree - fine, we get it - but there's no need to be rude about it.

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Sarenco,

I find it interesting that the OP has decided to follow my proposed approach.

Care to backtrack?

Gordon

Gordon

You are clearly trolling at this point but, no, I don't "care to backtrack".

I said repeatedly that, in my opinion, the OP should make maximum use of any available tax-deferred pension space before making any other long-term investments elsewhere. However, this has to be balanced with addressing any short or medium-term financial needs.

Where anybody decides to strike the appropriate balance in this regard is a matter of judgment. However, it seemed entirely reasonable to me that a 31-year old with minimal savings would choose not to make AVCs for a couple of years with a view to building up a larger accessible cash fund to address medium-term needs (possible house deposit, etc.).

If the OP has now decided that he is prepared to forgo a degree of medium-term flexibility in order to maximise his pension contributions that's obviously fine too - it's his call.

I hope you will agree that this discussion has now run its course.

Sarenco,

I am not trolling and I resent that allegation.

I am simply calling you out for giving bad financial advice.

Gordon

Gordon Gekko said:

Sarenco,

I am not trolling and I resent that allegation.

I am simply calling you out for giving bad financial advice.

Gordon

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I disagree that I have given anybody bad financial advice and you are now most definitely trolling.

Good luck.

This thread can probably be locked now... thanks all for sharing your experiences and knowledge on the subject. I will consider them all when I stop playing with numbers and take a decision.

Gordon Gekko said:

Sarenco,

I am not trolling and I resent that allegation.

I am simply calling you out for giving bad financial advice.

Gordon

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I think your been unfair it reads like any advice that doesn't match with yours is wrong , I don't agree with maxing out pension either , I can see at 31 things changing quickly over next few years and it would be better to have quick access to cash.

The absolute correct thing to financially is not always the best thing to do in reality , life gets in the way.