What to do with a million euros?

M

madam2014

Registered User
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Personal details

Your age: 49

Your spouse's age: 54

Number and age of children: 2 aged 9 and 14


Income and expenditure

Annual gross income from employment or profession: €30,000 (state job)

Annual gross income of spouse/partner: €60000 (state job)

Pension: have maxed AVC’s (should I also buy back years? I was 27 starting in this job)

Life Plan and Income Protection Plan through work


Summary of Assets and Liabilities

Family home value: €1.3 million

Mortgage on family home: 0

Cash in bank on deposit: €950,000

An Post State Savings: €340,000, (should we invest this elsewhere, we did this very quick last year knowing we'll look at this in more depth this year)

Background: We came into some money last year. Both in good health, no health issues.

We are both quite risk averse. We went to a financial advisor and were advised to stay away from stocks and shares as we know nothing about them. We have a lot of experience with property, planning, engineers, architects, taxation, revenue audits. He advised us to stick with what we know ie. Property.
We’re reading that there is a trend of landlords leaving the buy-to-let market, selling up as the costs/taxes are so high and also because I think tenants rights may be in the tenants favour, there are some horror stories on the web. I have had a buy-to-let in the past, paid top price in 2003 and sold in 2017. I had no issues with tenants in the 14 years of having my buy-to let.

We’ve been looking at the Deposit section here and the various options under “Savings Best Buys”. They sounds safe enough and low risk. We're kind of kicking ourselves for not looking at this a year ago, but a crazy busy year for us and family distracted us and we are focused on this now.

Would buying one or two buy-to-lets and also putting money into some of these Deposit schemes be the best options for us?

But I’m wondering should we be looking at something else. Are we playing it “too safe”.

Any direction would be greatly appreciated.
 
Did the financial advisor not tell you that part of his job was to guide you on investing? To ignore the stock market is to ignore one of the greatest wealth making machines on earth.

You are now in a position where you should be comfortable for the rest of your life.

The things I would do:
  1. Max out pensions each year
  2. Set up trusts for your kids and contribute €6,000 a year to it for each of them to help them out in the future
  3. Draw up a list of all the things that you would like to do in life and how much it will cost
  4. Think about whether you want to reduce your workload or are you happy to continue with work
  5. Invest lots of your money so it grows for you in the long term while you do nothing.
  6. Consider buying a property. I wrote an article about people buying property because it is tangible on Monday. We use the companies that we buy stock in every day. I'm using a few of them typing this!!
Have a plan on what you want to do in life and how to pay for it with the correct structures.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Based on the fairly limited information provided, I would suggest your financial adviser is utterly incompetent and you should seek a new one immediately.

You already have very significant exposure to Irish property via your €1.3m home. Putting a further €1m of your cash into more Irish property would be gross negligence.

You don’t need to understand stocks to buy an index of diversified global stocks. If you really really like and know property maybe you could allocate a small portion of your money to a BTL or a REIT but undoubtedly a significant portion of your money should be going into global equities. You could do this your self it’s that easy, but if very uncomfortable a financial adviser will manage the allocation for you (for a fee).

You will probably be advised to consider some bonds by some advisers. Personally in your situation, I wouldn’t bother as you can afford the volatility. But it’s not a terrible idea.

You should explore options to maximize pension benefit before all of the above. Hopefully this adviser has not overlooked that too.
 
If you know property and are confident in your ability to purchase a property:

A) at the right price (difficult to judge but not impossible)
B) in the right location (capital appreciation potential)

and if you are good at vetting tenants (this is a soft skill that people either have or dont, basically good judge of character).

Then you should buy a property. The returns can be fantastic. Of course theres risk but only you can make the call in relation to the above.

I get the benefots of investing in stock market. Im heavily invested in it and in the past have done very well in property.

Financial advisors will push the inest in stocks options over buy a property - for obvious reasons.
 
I agree with Steven Barrett, he has very sound advice.

If you are happy in property then buy one or two but the rest you should invest in global equities. Putting your money is a best buy saving account is not making your money work hard for you. It is too passive and may erode the value of your money.
 
madam2014 said:
paid top price in 2003 and sold in 2017.
Click to expand...

Things have changed a lot over the past few years in the property market between the PRTB, Threshold and tenants' rights generally.

From what we are hearing/reading in the media these days and from what I've read from landlords on AAM, I would run a mile from being a landlord. It does appear that lots of them are getting out of the business and I don't blame them. Too much like hard work, especially in light of two jobs and two children. You don't appear to need the cash/hassle and I would agree again with Steven Barrett.

Take the easy option and enjoy your life while your children are young
 
madam2014 said:
Annual gross income from employment or profession: €30,000 (state job)

Annual gross income of spouse/partner: €60000 (state job)
Click to expand...

You seem risk averse.....and so the volatility of equities might be off putting....but as others have said to ignore it is to ignore the best place for your excess cash.

I'd suggest the following......you together take home about 50k......take 250k....which is five years net salary and put it in the highest yielding cash like instrument you can find...personally something cash like to me....would be a bond fund with limited duration risk. This is your comfort blanket, more money than you'd know what to do with ordinarily....its an emergency fund, its a spoil yourself occasionally fund.....but most importantly its the 'act well' holding equities fund.

Then take the balance - some €1.1m.......and invest it in a broad based global etf......and barely ever look at it again.....and especially not when you hear there might be something 'going on' in the stock market!
 
like many above ignoring equity investment (I.e shares) is likely to be negative to your wealth over the long term but I’d be wary of investing a lump sum in a single go, particularly if your are risk averse. Think about drip feeding into the market over 24 months maybe.

I would also invest in a passive basket or maybe something that limits exposure to individual stocks. For example, much off the world equity performance over the last year or two has been driven by a small number of stocks, by buying an index you get quite a lot of exposure to these stocks, consider something potentially that limits exposure to theses.

getting exposure companies like Walmart, McDonald’s, miners, consumer goods, utilities etc means you’ll share in the success of these companies over the longer term. By passively investing in a global index or basket of stocks you get exposure to thousands of companies around the world (albeit with a high concentration to US)

Yes the value might go down significantly at some point but a globally diversified basket of stocks is very very likely to perform over the longer term and you have a long enough investment time horizon to do this.

as an aside my own strategy is broadly 50% equities, 50% buy to lets but I think I’d prefer to be 100% equities.
BTL is Grand when it works but all you need is one bad tenant and it becomes an expensive nightmare very quickly
 
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Cameo said:
BTL is Grand when it works but all you need is one bad tenant and it becomes an expensive nightmare very quickly
Click to expand...

This really is the key point. When it works, it's fine.

But it is so high risk because a bad tenant can ruin your finances and your life. It's just not worth the risk.

The fact that you have picked good tenants in the past is no guarantee that you will pick good tenants in the future.
 
As you have €1.3m in property already, you remaining funds should be in equities - either through your pension fund or directly owned via an ETF or even individual shares.

letitroll said:
.you together take home about 50k......take 250k....which is five years net salary and put it in the highest yielding cash like instrument you can find...personally something cash like to me..
Click to expand...

This sounds theoretically sound, but it makes no sense at all. If you have €1.2m in shares, and you need an emergency fund, you can cash part of them whenever you like.
 
madam2014 said:
We are both quite risk averse.
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There is no such thing as a risk-free investment. You have to accept that.

The highest risk is property - a bad tenant can ruin your finances and your life.

Cash is the next highest risk - You have a very long-term investment horizon so there is a very high risk that it will be gradually eroded by inflation.

Cash appears not be risky because €1.3m today will be worth €1.3m tomorrow. But after 20 years, you could well have lost half of it due to inflation.

Equities are volatile which is not the same as risky. If you invest €1.3m today, it could be worth €1m after a year. However, over the longer term, it should beat inflation.

Another way to look at it is that shares are risky in the short-term while cash is risk-free in the short term. But over the long-term cash is very risky, while equities are less risky.
 
Thank you all very much for taking the time to respond to me.
I'm so glad I came on here, I had a feeling that we were playing it "too safe" and need to look at the bigger more long term picture.

Steven Barrett said:
Think about whether you want to reduce your workload or are you happy to continue with work
Click to expand...
I secured a job share position last year, the salary above of 30k is my 0.5 FTE salary. I plan to remain on this for the foreseeable.

Steven Barrett said:
Consider buying a property. I wrote an article about people buying property because it is tangible on Monday. We use the companies that we buy stock in every day. I'm using a few of them typing this!!
Click to expand...
Great article!
Part of the reason we are considering two buy-to-lets, was to have two houses for the kids down the line. The housing supply issue doesn't seem to be getting any better. Apparently we are short tradesmen and laborers and we don't have a large amount of school leavers going down the trade route so this contributes to keeping the cost of construction up. I wonder what houses will be available in 10 years.

This I would love to get into but I don't know where to start. Is there any online videos you would recommend as a beginning. I saw the Swedish Investor mentioned on another post.

Clamball said:
Putting your money is a best buy saving account is not making your money work hard for you. It is too passive and may erode the value of your money.
Click to expand...
letitroll said:
You seem risk averse.....and so the volatility of equities might be off putting....but as others have said to ignore it is to ignore the best place for your excess cash.
Click to expand...
Steven Barrett said:
To ignore the stock market is to ignore one of the greatest wealth making machines on earth.
Click to expand...
Cameo said:
like many above ignoring equity investment (I.e shares) is likely to be negative to your wealth over the long term
Click to expand...
Thank you, I'm hearing a common theme here and will definitely seek further in person professional advise regarding equities, it sounds like it's a no brainer and that we would be stupid not to look at them.

This explains everything I needed to hear in a nutshell! Thank you very much for the explanation.
 
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Regarding two buy-to-lets for the kids, do you really want to pick where they're going to live for them? You have a significant sum that can reasonably be expected to keep up with house price inflation if invested wisely, so you can still help them out by gifting them the cash they need when they're ready to choose for themselves. Investing in equities would save you a whole heap of hassle with tenants, property maintenance, etc., in the meantime.
 
This is something that comes up with clients a lot and it is not something I agree with for a number of levels:

  1. Children should not be given houses. It is not good for their own financial independence. Part of our roles as parents is to lead our children to independence. Giving them a house means they don't have to sacrifice or budget to save for anything. It is a good learning process for them. Help them out financially, but do not give them a house.
  2. Don't decide where your children live. They may live in another part of the country/ world or meet someone and want to live closer to where they are from. What are you going to do with a house that they don't want to live in?
  3. Your children are 9 and 14. If you buy a house for them, what are you going to do with it in the meantime? Rent it out? Do you want to be a landlord for the next 10+ years?
 
Was in a not dis-similar financial situation 15 years ago. For what it’s worth my advice would be:

1. Find a financial advisor you both trust & like. I was horrendously badly advised initially (as many others were during the Celtic Tiger & certainly learned some hard lessons). I honestly believe at this juncture that much of what any good advisor does in these scenarios is not rocket science nor is absolutely maximising returns/performance what most people such as yourself need or want. Educate yourself in the basics of financial investing— there are ample sources out there & this forum is excellent; I only wish I had come across it 5 years before I did !. Above all, you need to feel comfortable that your advisor is on your side. Run a hundred miles from any advisor who recommends that you borrow to invest as many of the charlatans during the Celtic Tiger did.

2. Much of this is money which you may personally not require until the long term if at all. It therefore needs to be invested across financial markets in a variety of products. My money, for example, is currently invested in a variety of products such as State Savings/Davy/Aviva/New Ireland/Zurich & cash (too much of the latter at present I well know but again I don’t lose sleep over this & have it earmarked for use in the medium term).

3. Maximise your pensions throughout the rest of your working lives.

4. Buy further property in your own names but only if/when your kids are going to college. Such property should be for exclusive use by you/your kids & their college friends. That’s what we have done & it has worked brilliantly. Not having to worry about where the kids were going to live when they left home has been the biggest practical upside of our good fortune bar none. Who in their right mind would want to be an amateur landlord to unknown tenants in this country at this time ?. Certainly not me.

5. Down the line when you are more comfortable with your situation start divesting money to your kids via Small Gift Exemption & ultimately be looking to help them with house deposits etc.

6. Enjoy your fortunate situation but don’t let it change you. I continue to work in a job I enjoy even though I could likely retire today from a financial perspective. It’s great to know that I could/can retire when I want to though & certainly brings a different perspective to my work.

7. Don’t obsess about financial performance. I talk to my advisor once or twice a year & we rarely make any fundamental changes.

8. Update & keep your Wills under review etc.
 
Honestly, with regards to equities all you need to know is to:
- get exposure to broad array of equities through a diversified global fund holding many companies across countries and sectors (look for names along lines of “total world index fund”)
- Keep fees low (i.e. avoid active management and the associated fees)
- Keep emotions out of it, and leave it alone for the long term.
- Treat anybody who claims to have a system better than the above with a huge amount of skepticism. Approach it the way you’d approach a friend saying he has a great tip for betting on football this weekend. If your adviser starts offering anything overly complicated. Find a new adviser.

A little bit of knowledge can be a dangerous thing. Sometimes those not familiar with equities massively overestimate the level of understanding required. The reality is pretty much nobody has any special knowledge which will beat the simple rules above.

In Ireland there’s a little bit of complexity around tax with deemed disposal applying on the cheapest/best way of buying equities (ETFs). It’s this tax piece where you should focus your research or, given the sums involved, where your new adviser should be helping you out.

By all means read some books on investing. But a lifetime doing so is unlikely to make you any extra returns. Best of luck!
 
Only if your kids are both going to third-level in the same places does it make sense to buy a two-bed apartment for the duration compared to paying rent.

Otherwise I wouldn’t buy your kids houses.
 
For many years I had a basic understanding of shares/stock markets and was comfortable with putting my long term maximised pension savings into equities, but was a little more averse to putting significant chunks of my non-pension savings into shares. The diversification, potential risk/volatility and tax issues put me off. So I tended to invest indirectly via low charges unit linked funds. These served me well but I could've done much, much better if I had invested directly in shares due to the lower charges and taxes.

Better late than never I started more seriously investing directly in shares in the last decade and because I didn't want the hassle of creating/managing/rebalancing a basket of shares (for diversification), and the taxation of ETFs continues to be so confusing and likely unattractive, I decided to just buy already diversified conglomerate shares like Berkshire Hathaway Inc., Markel Group Inc., IAC Inc. etc. and just sit on them. The fact that they don't pay dividends suits me as it eliminates another tax issue. Some people may prefer a dividend income stream but you can always just cash in some shares as needed instead.

I've done alright over the years on the pension and other investments fronts, but I could've done a lot better if I had been willing and able earlier to invest directly in shares for the long term. I slightly regret incurring that opportunity cost but it's a real first world problem and I can't really complain!

This post is not intended as a stock tip post but just to illustrate that investing in shares doesn't have to be complicated. And if you pick a suitably diversified conglomerate company then you could even just buy shares in one or two companies and then just forget about them until you need to sell some. Do get advice (certainly better advice than your previous "financial advisor"!) but don't make it overly complicated or over think it (like I did for years!). You have a lot of leeway for coping with potential risk/volatility so try to exploit that to get the best returns on your assets.

(Disclosure: I continue to hold shares in the companies mentioned.)

Edit: another thread in a similar vein:

Berkshire Hathaway as an alternative to an ETF?

I think it has been mentioned before that Berkshire Hathaway is a good alternative, as there is no deemed disposal, and we are only taxed when we sell. However, this stock being a conglomerate gives far more diversification than a run of the mill stand alone stock. Are there any better...
www.askaboutmoney.com
 
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