Where to invest lump sum for a young adult?

[Brendan Burgess]

A fixed term deposit should be avoided. Even though the OP says that the money will not be needed for 5 to 10 years, life has a habit of getting in the way, and he might need it earlier.

I don't know the Fusion plans, but I assume that they are subject to the exit tax, so I would avoid them.

This individual can tolerate risk. Last week, he had nothing. This week, he has €70k. I presume he has a low income. So I would be looking for some high dividend shares. The correct financial thing to do is to invest the full €70k. But it would depend on the individual. If they are a nervous type and likely to cash out if it falls 10%, then I would start with about €10k and put the balance in a deposit account until he is more confident.

And if he is coming close to needing the money, e.g., as a deposit on a house, then switch the lot to cash.

 

[Dr Strangelove]

I think it's a very good opportunity to educate people about the stockmarket.

Some of it should be invested in stocks so that he sees that it goes up and down.

Holding single shares involves fees in and out and hassle with tax. It is also high risk. It is poor advice for someone with no interest in nor background in investments.

A fixed term deposit should be avoided. Even though the OP says that the money will not be needed for 5 to 10 years, life has a habit of getting in the way, and he might need it earlier.

The ten-year bond still pays out interest even if you cash it in early. See here. It's backloaded so there is a benefit to staying the full ten years but it is not in any meaningful sense locked away.

Which is subject to reinvestment risk (ie the rates on the instant access deposits might fall).

Reinvestment risk is symmetrical though. Deposit rates might rise too. For the rest I fully agree

 

[Brendan Burgess]

Holding single shares involves fees in and out and hassle with tax. It is also high risk. It is poor advice for someone with no interest in nor background in investments.

As has been discussed, there is no risk-free option.

I am certainly not suggesting investing in a single share - a portfolio of 5 to 10 shares.

And the point of it is to stimulate the person's interest in and experience of investments.

People are giving up huge amounts in returns by avoiding the stockmarket completely.

Brendan

 

[Dr Strangelove]

I am certainly not suggesting investing in a single share - a portfolio of 5 to 10 shares.

A portfolio of five shares is still very high risk!

People are giving up huge amounts in returns by avoiding the stockmarket completely.

But there are much simpler ways of doing so. I don’t know why any naive investor would construct their own portfolio when they could just buy a diversified ETF.

It’s not 1986 anymore.

 

[Brendan Burgess]

A portfolio of five shares is still very high risk!

The ETF is very tax inefficient for a young adult with no income.

It would be better to have 1,000 separate shares.
But there has to be a balance between administration and diversification.

As I pointed out. Last week, he had nothing. This week, he has €70,000.

He is well able at his age and stage of life to tolerate risk.

Brendan

 

[charlie007]

not accurate, interest is mainly accrued from year 5 onwards, but it is a sliding scale, based on what year you withdraw, explained in full in table 1, part 2.4:

Product Terms & Conditions | Ireland State Savings

Ireland State Savings Product Terms & Conditions

www.statesavings.ie

This is why, it is better to invest in a number of seperate 10 year bonds, so one can take one, and leave the others intact, investing all in one bond means, if your circumstances change, you forego more interest, as the whole amount is subject to the early withdrawal.

I don't believe this is true.
Below is an old post of mine:

Thought I might mention a flexibility in State Bonds that might not be appreciated by everyone.
Interest is of course back loaded and whatever you cash in early will earn little.
However what remains still enjoys the full advantages that were there at the start.
I also understand there is no restriction on the number of times you can do this.

 

[ClubMan]

It’s not 1986 anymore.

What does this mean other than literally being true?

 

[Dr Strangelove]

What does this mean other than literally being true?

It means you can get exposure to equity returns without having to invest in individual shares!

The days of people being on the phone to their broker to sell Smurfit and buy AIB are long gone.

 

[Corola]

What does this mean other than literally being true?

Exchange-traded funds and cheap online brokers didn't exist in 1986. The barriers to entry to the stock market are a lot lower now than then.

 

[Brendan Burgess]

It means you can get exposure to equity returns without having to invest in individual shares!

You could have done that long before 1986?

Unit linked funds have been available for years.

While the costs were higher, the taxation was more favourable.

Brendan

 

[ClubMan]

Still don't understand the reference to 1986.
As far as I know the first ETFs were introduced in the early to mid 90s.

 

[GSheehy]

What are your thoughts on investing on AIB fusion 5 or 6 plans instead?

There's a previous thread here on those funds

In short, there is no savings/investment or pension product that any bank has on offer that you cannot buy, at (up to) half the cost, elsewhere on the market with a bit of research.

Banks are about shareholders, not you.

Rule 1 - Never buy a savings/investment/pension/life assurance product from a bank
Rule 2 - Never forget Rule 1