Wealth Management - How to Invest €6M - Where to Get Advice

[Always Learning]

Don't laugh. A lot of very wealthy people did this during the boom and became bankrupt. If you go to a wealth manager attached to one of the banks, they will probably propose lending you money to leverage up your investments.

That's nothing to laugh about, during the boom we made a similar amount from a sale. We were encouraged to borrow to make more, as opposed to paying off debts. Foolishly we listened to the "advice" from the bank and used the money borrowed to invest in bank shares and property and then lost it all in the crash. That was my father, I've learned a lesson from that and don't intend to borrow a penny. I am debt free at the moment and I intend to remain that way.

It won't matter too much if your €6m turns into €7m after a year with no income or €6.5m with .5m of income. (Except that income is taxed at a higher rate.)

Lots of people think "I will live off the interest" or "I will live off the rent". That is the wrong approach to take.

That's exactly what I'm thinking, I'll live off the rent. Why is that the wrong approach to take?

@ Brendan / Marc - Thanks for your taking time to reply. The way I look at it, in a very simplified version, is that I have €6M at my disposal and I have two main goals.

1. To provide a generous annual salary for myself / dependents of circa €200K. and a small salary for brothers / friend say maybe €15K x 3 to top up their other income.
2. To grow the value of the assets over the years to provide for future generations.

When it boils down to it, that's it. So what I'm trying to figure out is,

1. Is €6M enough to do that?
2. What are the best investments to make in order to achieve those goals.
3. What is the best structure to use (personal / ltd / both)

Because I have a good return on the properties I currently let out, (They cost me €250K and I have a rental income of €33K) I am enticed to continue down that road. Even if the market crashes again (it will eventually) I will have no borrowings, so I will have no need to liquidize my assets and therefore I can simply ride out the storm with the knowledge that the market will pick up again. In the long run, property values will continue to increase despite a crash every now and then. And I will have a nice sized rental income during that crash, even though the rents may go down somewhat, it will still be sizeable.

After giving it a little consideration though, it's hard to really argue against diversifying. I'm going to explore that a little further once I sit down with a financial planner, I just find it hard to identify any other investment that can give me the kind of returns I'm looking for and if you don't have to borrow to buy property, I see it as pretty much a slam dunk. Perhaps the way to do it is invest in property for the annual salary I want to generate and then look at other options for the longer term and growing the money over time.

@ Brendan / Marc - if you had €6M to invest and had similar goals to mine, what would you do?

 

[Marc]

@Always Learning one simply bit of advice is get some objective professional financial planning advice BEFORE you make any decisions.

I'm a financial planner but I don't believe any one of us has financial goals. We have lifestyle goals that have financial implications. We need objective professional guidance because when making decisions we all suffer from predicable psychological blockages

see https://www.amazon.com/Predictably-Irrational-Revised-Expanded-Decisions/dp/0061353248
or
https://www.amazon.com/s?k=thinking+fast+and+slow+by+daniel+kahneman&i=stripbooks-intl-ship&sprefix=thinking+fast+%2Cstripbooks-intl-ship%2C151&ref=nb_sb_ss_ts-doa-p_2_14
On property here is my 50 year study of residential and commercial property on both sides of the Irish Sea

Investing in Property Investing in Property in the UK and Ireland

Investing in Property is a topic that is frequently under consideration in Ireland and the UK and the intention with this guide is to conduct an objective, empirical comparative study to assess the relative risk, return and correlations across these investments with a view to informing Portfolio...

viewer.joomag.com

and some thoughts on how to choose an adviser

Choosing an adviser How to choose an adviser

One of the most important financial decisions an individual investor can undertake is in selecting the right adviser. The following checklist may help guide you in making the right choices

viewer.joomag.com

all the best

 

[DublinHead54]

Hi Brendan,

I was answering based on your initial point that deposits are riskier than equities because of the default chances and the real value erosion. I didn't say the chance of Default was 0, I said the probability of default is generally higher for corporates than banks, which can be observed in the data.

You seem to have agreed with that based on the next comment in which you state the biggest issue is the value erosion and not a risk of default?

I agree that at this point in time with low interest rates and inflation your real value of your deposit will depreciate over time. Investing in stocks it may go up or it may go down, and a broad market indices may be a good hedge against inflation. However, that does not mean that cash is a riskier asset class than equities. Should we take all our cash and invest in Tesla?

I would be extremely surprised if you could find any professional investor, economist, academic that would say that cash is a riskier asset class than Equities.

I think what you are meaning is that the real world value will decrease if held in deposit, whilst investing in the sock market may lead to growth of the actual value (based on historical data). Risk is separate consideration, if you want to take close to no risk you put your money on deposit in a bank or under the mattress....your reward for that is that it depreciates in value and your bank may even charge you to do it.

What?

There is no risk-free asset class. Deposits are riskier in the long-term due to the chances of default or the real value being eroded by inflation.

Hi Dublin Bay

They most certainly are riskier that equities over the longer term. Default chances may be low but they are not zero. But the big one is that there is a much greater risk that deposits will lose their real value than equities.

 

[DublinHead54]

Don't laugh. A lot of very wealthy people did this during the boom and became bankrupt. If you go to a wealth manager attached to one of the banks, they will probably propose lending you money to leverage up your investments.

Brendan,

That is anecdotal and certainly not what happens in a Wealth Management operation in 2022. I suggest you review the MIFID II regulation that was implemented a number of years ago and strictly governs what products, advice can be offered and to what type of clients (Professional / Retail). For example the poster would have to evidence his experience in markets before he could be treated as a professional investor and offered more advanced products.

To my knowledge there are not leveraged products available, generally the product offered is Securities back lending in which the client may have an immediate cash need an illiquid portfolio. The client can receive cash and post their assets as collateral. This is obviously done against approved models and you wouldn;t have situations in which you borrow more cash than the collateral is worth. In generall collateral is always discounted to account for its risk.

The banking world has moved on a lot from the wild west days of before the financial crisis, and I think you still make some comments based on the old days.

 

[DublinHead54]

Here is another way of looking at @Brendan Burgess point

You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.

How did you do over the last 20 years?

In equities a little over €9m whereas Irish Property and cash are barely able to keep up with inflation

View attachment 6037

Marc, Equities remain a riskier asset class than cash, that is evident on your chart by the volatility, no? If you Started your chart from Sept 88 to 08, it would tell a different story correct?

I am not disagreeing with you that the longer time horizon and investor has the better chance they have to whether the economic cycles and nullify the volatility of the stock market.

However, nobody can say Cash is a riskier asset class than equities. This is supported in your chart and will be evident in the same chart over any timeline, and that is the volatility.

 

[Always Learning]

Here is another way of looking at @Brendan Burgess point

You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.

How did you do over the last 20 years?

In equities a little over €9m whereas Irish Property and cash are barely able to keep up with inflation

View attachment 6037

I didn't see this before responding to the last post. Wow, that's interesting. Very interesting. The daunting aspect of that is I have absolutely no expertise in the area. I don't know how investing in stocks or shares works. I don't know how I can draw the money down, how it works from a tax perspective etc. But looking at that graph, I'm eager to learn a bit more. Once everything is signed, sealed and delivered on my deal, I will be seeking out an expert in the field and definitely explore these options. What kind of annual return could you reasonably expect from investing in equities at the moment?

One problem I see straight away with equities is that if it goes wrong, you loose everything and have nothing to show for it. In property, when the market crashes again, once I have no loans I just ride out the storm and take my rental income and eventually the market will rise again and my assets have value again.

Investing the full portfolio in property is risky as, even with €6m , that is about 18 properties.

18 properties? In Dublin maybe. I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum.

Something strange going on with the posts, I only see Dublin Bays posts appearing now after responding to you all. I couldn't see them a couple of minutes ago though?

 

[Gordon Gekko]

Marc, Equities remain a riskier asset class than cash, that is evident on your chart by the volatility, no? If you Started your chart from Sept 88 to 08, it would tell a different story correct?

I am not disagreeing with you that the longer time horizon and investor has the better chance they have to whether the economic cycles and nullify the volatility of the stock market.

However, nobody can say Cash is a riskier asset class than equities. This is supported in your chart and will be evident in the same chart over any timeline, and that is the volatility.

Hi Dublinbay12,

The more relevant question is “What is Risk?”.

For an individual, risk is not volatility. That’s just the investment world’s concept of risk.

Risk for me is permanent loss of my money and not being able to do what I want when I want.

I’m young enough. If I keep my money in cash, I’m guaranteed to lose money in real terms.

If I invest in equities, and I’m diversifed, I won’t.

We must all be careful not to overlearn the mistakes of the past. For example, never borrowing is silly.

Gordon

 

[Always Learning]

For example, never borrowing is silly.

Gordon

That's interesting, why? Would you borrow in my position?

 

[Sarenco]

You invest €5m 20 years ago and take an annual income of 4%pa (€200,000) starting income and you invest in cash, Irish property, bonds or equities.

There's a big difference between drawing down a fixed euro amount of €200k per annum and drawing down 4% of the portfolio balance every year.

So, I don't think that chart does actually support Brendan's all equity approach, unless the OP is willing to accept a wildly variable income from the portfolio.

18 properties? In Dublin maybe. I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum.

I've a pal that manages a portfolio of rental properties of a comparable scale and it's very much a full time job.

Do you want to spend your time chasing tenants and fixing problems? It wouldn't be my idea of fun.

 

[Brendan Burgess]

I plan to spend an average of 120K on townhouses in and around my city which can be rented out for €12K per annum. Alternatively, there are one or two apartment blocks up for sale. One of them is 22 x 2 bed apartments for sale at €1.8M currently producing rent of €187,000 per annum.

I've a pal that manages a portfolio of rental properties of a comparable scale and it's very much a full time job.

Do you want to spend your time chasing tenants and fixing problems? It wouldn't be my idea of fun.

Hi Always Learning

If you thought you had hassle with 200 employees, you will have far more hassle with 50 apartments and 50 separate sets of tenants.

And look at the changing attitudes to landlords.

I agree with Sarenco and would seek my fun elsewhere.

Brendan

 

[Purple]

I was answering based on your initial point that deposits are riskier than equities

"Risk" is the erosion of the real value of your wealth. Given that it is true to say that in the last 50 years cash has been riskier than equities as a medium to longer term investment.

 

[Steven Barrett]

When people want to plan for the future, they like to think in fixed amounts. I would like €200k and I want to invest in the assets that will produce that amount each year.

In reality, the amount you need each year will vary and so will the return that your investments will make.

You may buy a new car, need to get a new kitchen. As we have just seen, living our lives and spending could be stopped by a pandemic. You wouldn't have needed €200k in 2020. Likewise, the dividend paid from shares or rental income may vary too.

You have an idea of the cost of your lifestyle, which is great. You probably have enough money for the rest of your life. You haven't told us how much money you want to pay your brothers. Also, is it a good idea to pay them a salary? Will you pay them enough so they give up their own jobs?

You came on here looking for people in a similar position to you. You are in the 1% and well done for doing that. But there isn't a lot of people who have done what you have done, especially at your age. It usually takes decades to do that and at that point.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Always Learning]

@Sarenco @Brendan Burgess - I don't intend to manage the property portfolio myself. Isn't that what a management company does, pay them a fee (10%?) and have them deal with the hassle of finding tenants, collecting rent etc?

@Steven Barrett - my brothers aren't actively involved in the business but I'd like to make them comfortable nonetheless. Pay off their mortgages and give them a wage / dividend (have to talk to my tax man to see what works best) of around €15K each to top up their existing income. I have 3 brothers. I prefer to deal in a fixed amount rather than variables, and I will tailor my needs around that. If I want a new car, kitchen etc. I would tailor that around when I have the money to do that rather than let the fact I want a new car determine how much of a wage I take that year, I will let how much money I have that year determine whether I can buy a new car / kitchen.

"You are in the 1% and well done for doing that." I don't really deserve any credit here, I'm very lucky and this fell into my lap. I don't want to portray the false image that I'm some kind of young business guru. That's far from true.

 

[Sarenco]

I don't intend to manage the property portfolio myself. Isn't that what a management company does, pay them a fee (10%?) and have them deal with the hassle of finding tenants, collecting rent etc?

Fair enough but bear in mind that you will be putting your rental business in someone else’s hands.

You won't find a property manager who cares about your rental business as much as you do.

 

[DublinHead54]

"Risk" is the erosion of the real value of your wealth. Given that it is true to say that in the last 50 years cash has been riskier than equities as a medium to longer term investment.

That is not what Risk is.....

 

[DublinHead54]

Hi Dublinbay12,

The more relevant question is “What is Risk?”.

For an individual, risk is not volatility. That’s just the investment world’s concept of risk.

Risk for me is permanent loss of my money and not being able to do what I want when I want.

I’m young enough. If I keep my money in cash, I’m guaranteed to lose money in real terms.

If I invest in equities, and I’m diversifed, I won’t.

We must all be careful not to overlearn the mistakes of the past. For example, never borrowing is silly.

Gordon

Volatility is not only for the investment world, anyone investing in equities should understand the concept of volatility. You are right though I am broaching this subject of risk based on how it is viewed and managed in financial institutions and regulated for by our local and international regulators.

The actual loss and gain are dependent on market and economic factors.

The way I consider your below points are that in the first sentence you are taking a low risk approach which results in an actual loss due to current market conditions of low interest rates + inflation. The second point you are taking a riskier approach which should result (not guaranteed due to market and timing factors) in no loss.

I’m young enough. If I keep my money in cash, I’m guaranteed to lose money in real terms.

If I invest in equities, and I’m diversifed, I won’t.

This is why every pension funds advertises the risk profile of their funds on a scale 1 to 5, or why Greek Government Debt yields more than US Treasuries etc etc.

There are obviously riskier aspects to each asset class, for example a broad based market indice is the least risky wheras punting your money on a company drilling for oil in Africa is probably the riskiest.

 

[Always Learning]

Fair enough but bear in mind that you will be putting your rental business in someone else’s hands.

You won't find a property manager who cares about your rental business as much as you do.

No, that's very true. Then again, no matter what industry you are in, no body cares about your business as much as you do. Staff, advisors, property managers. Unless they have their own money on the table, no on ever works like you do for your money.

 

[Brendan Burgess]

This is why every pension funds advertises the risk profile of their funds on a scale 1 to 5

That doesn't matter. They are wrong.

Volatility is short term risk.

It is of very little meaning to a long-term investor.

The industry likes volatility because they can measure it.

It's a very poor substitute for risk.

A deposit which has reduced in real value consistently over the last 20 years would be regarded as zero risk. Whereas an asset with an average return of 5% but yo yoing about would have very high volatility.

Brendan

 

[flyingfolly]

At the end of the day, with 6 million, if you want to keep your money "safe" while also growing it, the only way to do that will be to ensure you are diversified in your investments. With inflation ramping up now, your money will reduce at 5% a year by doing nothing (who knows when inflation will slow down)

There's so many different options, but if I was in your position, I would first of all get a very good understanding of how investing in equities / ETFs works. Read some books, get some training and invest 1,000 of real cash into a platform like Degiro to see what happens over the course of a few weeks.

Then I would split the money 50/50 - half in property and half in equities. The stock market and the property market are both at all time highs right now, but at least by diversifying you are reducing your risk by being allocated to one area. Being in equities helps further diversify you throughout different world markets and industries.

You could look at buying into an ETF like this one which is a dividend paying ETF that pays around 4% per annum: https://www.marketwatch.com/investing/fund/spyd

3 million would give around 120k per year return in dividends (ignoring the natural growth - that fund grew at 8% in the past 5 years, while paying a dividend). Then 3 million of property would get you say 12 properties at 250k each. Say they're all 3 beds and pay 1200 a month that's 172,800 per year - 10% management fee makes it 150k per year.

That would give you close to your 200k per year to live on, while potentially increasing the principal (growth of property value and shares) diversified across multiple sectors. But that's pre-tax.

If you wanted to throw some extra risk in there, put 10k into bitcoin and leave it for 20 years I guess!

 

[Marc]

I didn't see this before responding to the last post. Wow, that's interesting. Very interesting. The daunting aspect of that is I have absolutely no expertise in the area. I don't know how investing in stocks or shares works. I don't know how I can draw the money down, how it works from a tax perspective etc. But looking at that graph, I'm eager to learn a bit more. Once everything is signed, sealed and delivered on my deal, I will be seeking out an expert in the field and definitely explore these options. What kind of annual return could you reasonably expect from investing in equities at the moment?

One problem I see straight away with equities is that if it goes wrong, you loose everything and have nothing to show for it. In property, when the market crashes again, once I have no loans I just ride out the storm and take my rental income and eventually the market will rise again and my assets have value again.

Again this is a classic familiarity bias. You have little experience of investing in global capital markets so that "appears" to be more risky. Whereas you do have experience of a few rental properties in Cork and (so far) you haven't had a bad experience so that "appears" to be less risky.

Take a step back and think about what could go wrong with putting it all into property





The reality is if you want to run a business be a landlord if you want a passive income invest in a portfolio and leave it alone. We generally ask prospective clients to have a chat with an existing client who has been down this road before and will give you their experience of all the mistakes they made.