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

Sarenco said:

Average returns are not the only relevant consideration when you are drawing from a portfolio – the sequence of returns is also important.

This short note from BlackRock explains the concept -

Menlo Security

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The link is not working, have you got an alternative one?

Hopefully this link will work -

I think the 1.5% was probably an estimate of the dividend yield from an index of shares. I.e. the income it would create. You can obviously sell down some shares also to have a capital gains (if they rose).

IF you got 10p.c. total return, and 1.5 came from dividend then the other 8.5 came from capital gain.

Hi Always Learning,

No problem at all. its all about giving you ideas and then for you to do your own due diligence and research to see what clicks with you.

EIIS is by no means a perfect scheme and it would be the last thing out of everything i mentioned that you should go into. It merely acts as another avenue to put a small portion of your funds into.

As SPC100 mentioned, the 1.5pc was a dividend yield. I know from your own experience with property similar to my own, your focus might be on rental income or in the stocks case dividend yield. The dividend yield might appear low but its because your stocks should primarily be more focused on total returns and capital appreciate vs cashflow and dividend yield. You can live on the rental income from property with a small dividend from stocks to top it up but your stocks should be more focused on capital growth. If you were 50/60 years of age, then dividends might be more important but right now given your age, you should just let companies grow through capital appreciation

Why you might ask? The reason for this is because its more tax efficient and history has proven that total returns on companies with small dividends or no dividends at all have provided better returns. If you have high dividend paying companies with little to no capital growth. You will be taxed at potentially 52pc on the dividend you receive while instead if you had a company that paid no dividend but the company did stock buybacks and reinvested back into the company and either grew the same amount as what the dividend paid out or more often that not more. You would net more money.

To give a real world example. Lets say you buy 100k worth of stock A . lets say the dividend yield is 5pc or 5k pa. You will net circa 2.5k @50pc tax. Lets say you bought Stock B for 100k where 1 year later the stock was worth 105k and no dividend. You would net 3,350 from the profits with a cgt tax of 33pc. Both of them from a gross pov are 105k but for stock B if you sold that today, you would be liable for capital gains tax of 33pc on the 5k profit vs paye and usc tax of circa 50pc on the dividend. This doesnt account for compounding in stocks that are not dividend payers. If the figures are much higher than 5k profit, you can see why dividend stocks are not ideal for your setup. Im not saying dont go for dividend stocks either, go for a mix of the two with more focus on capital appreciation stocks.

If you were more dividend focused, you could buy a bunch of stocks with a 5-7pc dividend yield but as per my example above, it may not be the most efficient use of your resources from a net pov. Do some research on historic total returns(dividend + capital appreciation) on primarily dividend stocks vs mid/large growth stocks(nb not small cap risky growth stocks)

Let me know if you have any questions.

Also to further highlight the difference in property vs a non paying dividend. Please bear in mind hindsight is 20/20 and not all stocks have risen like this but just use it for illustration purposes.

Lets say you bought a property during the recession for 100k in circa 2015. you also availed of the cgt relief where you can hold for the next 7 years and pay 0 tax. You have a rental yield of 10pc and lets assume you have absolutely no costs in 7 years. Lets assume your property rose by 150pc to 250k.

You would gross 70k in rent or 35 net.
You sell the property for 250k or 150k profit. This profit is. tax free.
Your total return incl original capital is 285k.


If you bought google(alphabet) and put 100k back in 2015. The stock per share was 533. Today it sells for 2700.To simplify, im not accounting for currency fluctuation etc.100k would buy you 187shares in 2015.

At todays price of circa 2700, those same shares are now worth 504k.
You have a profit of 404k. plus the original 100k.
You need to pay cgt tax of 33pc on the 404k.
Your net is 100k+(404*.67)=370k.

The above is a very simple example and even when you had a cgt exemption vs the stock paying cgt tax. This stock came out on top in this very specific example.

Gordon Gekko said:

One further tip, when you want to engage with them, don’t under any circumstances cold call. You’re at the mercy of the eejit who picks up the call as he/she will claim you as a prospect. The best people tend to be busy. Pop emails to the CEOs and they’ll stick their best teams on it. Simon Howley, Keith Ryan, Eddie Clarke, Brian Weber, Pat Cooney.

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In researching these, I would caution against using a wealth manager who produces their own products. I've had more than one instance where I've had to question the appropriateness of an investment and then discover they have produced it themselves or are a promoter of it. A firm such as Quilter (Brian Weber on the list) do not produce their own products or receive any commission from promoters placing investments (I had a case where they were paid a commission and they credited it to the clients account).

Their job is to invest your money in the investments that they offer so do not expect advice on purchasing properties etc.

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

Steven Barrett said:

I've had more than one instance where I've had to question the appropriateness of an investment and then discover they have produced it themselves or are a promoter of it.

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I thought that they had to prepare some sort of "suitability" report stating that the product is the most appropriate for the customer's needs and why so? Is that just a box ticking exercise imposed by the regulators or something?

ClubMan said:

I thought that they had to prepare some sort of "suitability" report stating that the product is the most appropriate for the customer's needs and why so? Is that just a box ticking exercise imposed by the regulators or something?

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You're thinking of a financial advisor's requirements. Which, in my opinion is more of box ticking exercise. Unless putting an 85 year old into a 10 year structured bond, once you have that document signed, you're fine.

The companies that Gordon recommended are all discretionary fund managers. You give them your money and they manage it for you. You sign a form giving them the discretion to make the investment decisions and buy sell assets. You are able to say you don't want to invest in certain areas or you want them to give you a call before doing something. But if you are going to give a DFM your money to invest, you need to trust them and not need to double check their work all the time. That's why I use Quilter as my DFM. I like the way they operate, they don't sell their own products, take commission or get caught up in fads.


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

@fonduster - thanks for taking the time to give such a detailed response. The replies here have really opened up my eyes to what else is possible to do with this money. I've already changed my mind regarding my original plan of investing solely in property and perhaps about borrowing (a small amount) also.

My overall strategy is starting to look little more as follows:

• Leverage the €6M to €7M for a larger sum to invest with (I already set aside an additional €2M for legal fees, gifts to family / celebrations and to live off for awhile. That may be excessive in hindsight and could potentially use more of this to invest)
• Diversify investments across property and stocks and maybe something into a pension. I'm not sure what kind of split between stocks and property yet. Maybe €3M in each
• Use property portfolio as the main basis for generating my income / salary. €100K net should be feasible to achieve from this? More than I need if this is solely for spending money as I have no debts and will plan to grow wealth in stocks, so won't be saving each week. However, lets say 100K anyway because there is someone else involved will need money too.
• Use the stock portfolio as the main basis for capital growth. Do this through by concentrating mainly on non-dividend stocks, but with a small mix of dividend paying ones to top up my income.
• That leaves 1M to investigate pension investments and other possibilities

I already feel more comfortable that that is a smarter, more rounded approach which is likely to see capital growth as opposed to just a wage. Also, considering my ultimate goal is to create a passive income, without having to get too involved, I think having less property to manage will help in the pursuit of that goal.

What I still don't understand is.... everything to do with stocks!

• I don't really understand the difference between ETF stocks and the other non-dividend stocks that Fonduster has advised are a good bet.
• @fonduster or @Marc - are the non-dividend producing stocks in well known reliable companies and the S&P 500 stocks both the same types of stock that both of you have recommended?
• Can I buy and sell my stocks at anytime or am I tied in to a certain minimum period?
• I'm still not totally clear on the difference between wealth managers and financial planners. I don't want to deal with someone who has a vested interest in selling me particular stocks or shares. I want to find an expert that I can pay for financial advice on how to best achieve the goals I've stated above, and maybe even to make some investments for me, but who are not affiliated in any way to the advice they are giving. I'm happy to pay a healthy fee once I know that it is my fee that they are depending on and not some company paying them commission.

Of course I intend to get plenty of professional advice before making any moves, but your replies have certainly helped me form a better picture in my head of what I want and the kind of questions I need to be asking once I do decide on who to engage with for that professional advice. The replies so far have been really helpful so thanks again for taking the time to help me out on this.

@Always Learning a good financial planner will assist you with all these questions.

Think of it like hiring an architect to design your dream house.

We take care of the best way for you to define and achieve your objectives.

Nobody with the amount of cash you have should be just left to try and figure this out for themselves - see my very first post on this thread. Your lawyer or accountant should have referred you to us to work through these issues prior to you signing the sale agreement.

Have you read any of the guides I posted on this thread?

The how to choose an adviser guide has had over 12,000 views.

Our investment philosophy guide sets out in detail how markets work with almost 100 years of data.

I taught the investment and capital markets course in Dublin business school for 4 years so if you want I can give you a 12 week lecture course but I think you’d benefit more from a chat through these issues with a certified financial planner.

I was a founder of this organisation

Www.Sfpi.ie

Marc said:

Nobody with the amount of cash you have should be just left to try and figure this out for themselves - see my very first post on this thread. Your lawyer or accountant should have referred you to us to work through these issues prior to you signing the sale agreement.

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The deal isn't actually signed, sealed delivered just let. The final version of the SPA has been sent now. I'd hope to have it signed in the next fortnight. So perhaps that advice is on the way from our legal team. They have been very good throughout and are very well known and high end so I'm not worried about that side of things.

Marc said:

Have you read any of the guides I posted on this thread?

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Yes I'm halfway through "Our Investment Philosophy" and your guide to property investment is next on my list. I have gotten quite a bit of information to absorb over the last few days in addition to still working at the day job so it's a slow process! But I appreciate the articles and fully intend to read and understand them.

Marc said:

I taught the investment and capital markets course in Dublin business school for 4 years so if you want I can give you a 12 week lecture course but I think you’d benefit more from a chat through these issues with a certified financial planner.

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Yes, once it's been signed I intend to sit down with one or two financial planners and wealth managers and determine what's best for me. You will most likely hear from me at that point.

So an ETF is an index of several stocks put into a singular fund. The s&p500 is an index of 502-505 of the largest stocks in America. Some stocks within the s&p are weighted so for example for every euro you put into the s&p500 etf, google is worth 5pc of it while a smaller company might only be worth .05pc. You can also have other etf's that are more dedicated to certain industries like travel, energy, health etc. s&p500 is the most general and most diverse. All of the biggest name stocks you can think of are in the s&p500 such as apple, amazon, google, coke cola etc. You can take a look at the list here:

If we didnt have the deemed disposal tax rule in Ireland, i would be telling you to just go for the s&p500 as then you can forget it, its as safe as it can be for equities and you can just forget about it but for some reason, ireland doesnt like etf's.

So if you are looking at the american market, most of the dividend stocks and capital appreciation stocks are in the s&p500. You also have Uk stocks and EU stocks along with the hong kong market if thats what you are after. I am mainly in the american market but each to their own.

Here are some dividend specific stocks that you could look at:

You can use yahoo to look at more info around companies that you might like:

If you go down the stock route, do not buy in lump sums. just slowly get into it slowly so you get more comfortable with it. What i did at the start was put 1k into a brokerage. I then bought and sold some sample stocks to get used to how it works. I then started moving larger amounts in as time went on and i became more comfortable with the interface

There is no holding period for stocks. You could buy 2.5m worth of a stock today. One hour later as long as there is enough buyers, you could sell it all again. Larger companies have more sellers and buyers(liquidity and volume) so you can sell and buy quicker. For all the companies that you should be going into, you should have no liquidity issues of selling same day. its really only the small cap riskier stocks that can have volume issues if selling a large amount. Selling is also dependant on how much you want for it. Similar to a house. lets say the house is worth 100k but you want 105k, no one will buy it until you sell it for market rate so in the same vane, if a stock is selling for 50e today per share and if you sell it for 50 or under, your more likely to close the sale quicker than putting it up 55e. Normally you can only sell during business hours in that stock exchange. EG if its usa, they start at 2.30pm GMT. Some brokers in ireland may offer after market trading where you could sell when they are closed but for simplicity just assume you can buy and sell during business hours. This is one of the best things about stocks in my opinion. Buying and selling a property can take 3-6months minimum while stocks can be sold within seconds of you wanting to sell it.

Let me know if you have any more questions.

It's not just deemed disposal on ETFs.
It's also the fact that they don't benefit from CGT tax treatment.

fonduster said:

So an ETF is an index of several stocks put into a singular fund. The s&p500 is an index of 502-505 of the largest stocks in America. Some stocks within the s&p are weighted so for example for every euro you put into the s&p500 etf, google is worth 5pc of it while a smaller company might only be worth .05pc. You can also have other etf's that are more dedicated to certain industries like travel, energy, health etc. s&p500 is the most general and most diverse. All of the biggest name stocks you can think of are in the s&p500 such as apple, amazon, google, coke cola etc. You can take a look at the list here:

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Ah now I'm with you, I done a little reading on it last night and listened to a good podcast also. The comment in your previous post also makes more sense now, regarding picking some proven performers myself and going that route. So just to expand on that a bit, if I were to invest 2.5M in the S&P 500, that is an ETF and while it's known to perform very well and would be considered as safe a bet as you can for a long-term stock investment, it's not good for net worth growth due to the tax implications. Specifically, a 41% "deemed disposal" tax which will hit me on any gains made during the previous 8 years unless I dispose of them before the 8 year period is up.

However, if I were to take a look at the S&P 500 myself and pick 50 companies, invest 50,000 into each of them and let that play out, I would essentially have my own version of an ETF, I could hold on to these for as long as I want and pay 33% CGT on them when I sell? Is that correct?
Why doesn't everyone just do that?
If I go that route, do I have to manage the portfolio myself or could I still have a wealth manager or someone of a similar title look after that portfolio for me? Like just sit down with him at the start of the process, pick out the companies from the S&P 500 I want to invest in and how much, and then leave him to look after things?

ClubMan said:

It's also the fact that they don't benefit from CGT tax treatment.

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Could you elaborate on that? Is it not one and the same issue. They are a deemed disposal, so you are taxed at 41%, therefore not availing of the CGT rate of 33%. What am I missing?

Yes, ETF growth is subject to income tax (not sure about USC/PRSI?) 41% tax on deemed disposal/actual disposal. This is much worse than shares subject to CGT on actual disposal only.

Edit: corrected mistake about tax treatment.

Always Learning said:

However, if I were to take a look at the S&P 500 myself and pick 50 companies, invest 50,000 into each of them and let that play out, I would essentially have my own version of an ETF, I could hold on to these for as long as I want and pay 33% CGT on them when I sell? Is that correct?
Why doesn't everyone just do that?
If I go that route, do I have to manage the portfolio myself or could I still have a wealth manager or someone of a similar title look after that portfolio for me? Like just sit down with him at the start of the process, pick out the companies from the S&P 500 I want to invest in and how much, and then leave him to look after things?

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You could try and do that manually yourself but managing even a small representation of the S&P 500 (50 stocks as you suggest - which stocks would you even pick out of 500?) would be a lot of effort. You would put a lot of work into ending up with an inferior product to the Vanguard ETF (VOO) that follows the entire SP500 for you at a tiny cost. Consider also that there are lots of other ETFs available (1000s of them) that allow you to easily follow the entire US stock market or major European indexes or Asia etc etc. Outside of Ireland it's so easy to manage a few ETFs that give you great diversification and a way to invest regularly at very low cost. In Ireland at the moment with deemed disposal, punitive and unclear tax rules it just doesn't make much sense, a real shame as it's a great way to save/invest, even for novices.

I agree.
It's a shame that investing in ETFs from Ireland (EU?) is basically pointless due to the tax treatment.
My fallback was to buy Berkshire Hathaway but I'd much prefer to be able to buy something like an S&P ETF.

Maybe consider investing some of your assets alongside the Rothchild family-

Hi Always Learning, I hope you are finding some of the comments and advice helpful and its always good to see someone who is prepared to do a proper review and due diligence on their options. If I may add a couple of comments.

1. Financial Planning where you pay a clear and fixed fee is the recommended first step. It will allow you to project your financial reality right through your lifetime and model both positive and adverse scenarios. This will also help you to focus on the non financial aspects of your third act ... what really matters to you and your family for the rest of your lives. This can be daunting and make the financial aspects actually seem easier to deal with. I would suggest you avoid focusing too much on potential investments at this stage and just prioritise the planning aspect
2. With a prospective amount such the one you are dealing with, you will probably want to have a substantial legacy for next/future generations as well as providing for all your financial requirements. Therefore at you also need to consider tax efficient inheritance planning strategies which may be incorporated into or in addition to whatever investment strategy you decide upon
3. I agree with 'Sarenco' re his comments on Sequence of Returns risk in that despite your age, you are actually in the same position as a Retiree i.e in a decumulation phase where you draw down on assets already built up to provide you with income and therefore the sequence of returns can have a significant impact. Bear this in mind whenever you come to investment strategies and asset allocation decisions
4. I fully endorse the comments/views to have several meetings with various firms to find the firm/people who best suit your needs/preferences. "Gordon" suggested talking to senior people in some of the larger firms and that can be a good idea. Our firm have done lots of client reviews with these type of wealth mangers and to date our view is that what you are offered tends to be the similar to what they offer other clients i.e you are in a standardised process rather than anything individually constructed for you
5. At these meetings leave no question unasked, and if a clear and compelling rationale is missing then move to the next meeting. At the end of the process it is perfectly fine to use you gut instinct to decide who you think is the best fit for you to work with , just as long as their proposition is backed by evidence. TBH everyone will say they are the best and try to ignore the marketing spin
6. In some of the data and graphs provided by others, you have been provided with historic market returns. Our firm has analysed the relative performance of most of the wealth managers, and life companies. We do our best to create accurate apples with apples comparisons. We start with the low cost passive investment approach and then compare against the alternatives. The passive approach has significantly outperformed the vast majority of active managers. This has been due to a combination of active mangers a) underperforming/not meeting their benchmark and b) higher costs with active managers. No one knows if the underperformance will continue, worsen or revert. However you can be certain that the higher charges will be a drag each and every year. With this passive approach you will get the market returns less fees this is as close as you can get to no regrets investing. Our view is that then the onus is on the active managers to convince you as to how they will beat the market over the long term and provide evidence of doing so.
7. Time is your friend but also your enemy. Your investment time horizon could be 60+ years which means that you have the luxury of being able to ride out any market fluctuations/crashes and over the long term you can be almost guaranteed to make positive returns. However we all underestimate the effect of underperformance/higher fees compounded over a very long time frame. If the market return was 6% per annum and one portfolio underperformed by 1% per annum - assuming you invested €4mio and drown down 4% each year as income; over 30 years that 1% drag will cumulatively cost you approx €2.47mio in total
8. In some of our recent reviews some of the well know firms here underperformed the passive alternative by multiples of the above 1%
9. When you have done some initial research if you wish, we can on a fixed fee basis provide you with a passive option to compare against what you have been recommended before you make your final decision.

I hope you find the above helpful and very best wishes on your third act as well as congratulations on your success to date.

All the best Vincent

ClubMan said:

Yes, ETF growth is subject to income tax (not sure about USC/PRSI?) on deemed disposal/actual disposal. This is much worse than shares subject to CGT on actual disposal only.

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ETFs are subject to a separate 41% rate.