Read Rich Dad Poor Dad - Want to put it in to action

PeterTheNinth

Hi people,

I have some money about 60k that is just sitting in my bank account and I want to learn how to do something with it. I read Rich Dad, Poor Dad and he's got me scared enough that I want to learn more about how to invest in medium risk and low risk investments. I dont want to put the money in the fruit machine, but I'm not completely risk averse either.

I want to learn about what investment opportunties are available, particularly in Ireland I guess a sort of Irish Investing 101 is what I'm looking for.

thanks to eveybody in advance

topper_harley2

http://www.boards.ie/vbulletin/showthread.php?t=2057639162

Can you answer all of these questions I posed? And then think about investing?

There are loads of similar threads on this forum already about Investing 101. I would suggest you start there. Beware of US-based books, they are often very US-centric and they certainly dont take any account of Irish tax laws, which once you start doing your research on this forum, you will find is very punitive for UCIT ETFs.

PeterTheNinth

Hi Topper, thanks for the reply

1. Have you any high interest debts like car loan/credit card etc
No
2. Have you an SVR mortgage
No, I'm renting
3. Have you a rainy day fund of 3-6 months salary
That 60k that I quoted is 20k less than my total amount in savings. So that 20k would be my emergency money.
4. Have you a pension
No, I decided against for the moment.
5. Have you kids/married
No, single with no kids.
6.Have you any investment property
Dont have any investment property, all new to me.
7. What exactly constitutes success for this investment portfolio
What I'm trying to build is some sort of sustainable income generating source. I havent put numbers on it yet. But just trying to build assets.
8. How long are you happy to be without this money
5 Years, maybe longer.
9. What would you do if value dropped 30% overnight
I would understand that this is part of the risk of investing.

I'm conscious like what you said, that an American book is not going to be relevant, which is why I'm looking for a good Irish book to teach me about these things. So my plan would be to read at least two books on the subject (relative to Ireland), and then begin investing.

For ever odd

PeterTheNinth wrote: »

Hi Topper, thanks for the reply

1. Have you any high interest debts like car loan/credit card etc
No
2. Have you an SVR mortgage
No, I'm renting
3. Have you a rainy day fund of 3-6 months salary
That 60k that I quoted is 20k less than my total amount in savings. So that 20k would be my emergency money.
4. Have you a pension
No, I decided against for the moment.
5. Have you kids/married
No, single with no kids.
6.Have you any investment property
Dont have any investment property, all new to me.
7. What exactly constitutes success for this investment portfolio
What I'm trying to build is some sort of sustainable income generating source. I havent put numbers on it yet. But just trying to build assets.
8. How long are you happy to be without this money
5 Years, maybe longer.
9. What would you do if value dropped 30% overnight
I would understand that this is part of the risk of investing.

I'm conscious like what you said, that an American book is not going to be relevant, which is why I'm looking for a good Irish book to teach me about these things. So my plan would be to read at least two books on the subject (relative to Ireland), and then begin investing.

http://www.edmundconway.com/Site/50_Economics_Ideas.html
This book skims over various aspects and will give you loads of research jump points.

topper_harley2

Immediate thoughts are that 5 years is not long term for investing. Under ten years = deposit account in my book.

Why no pension? You basically double your money if you're in top tax bracket. I'm maxing AVCs in mine, 20% salary.

Doubt there are any Irish specific investment books. Rory Gillen runs a seminar but it's 600 quid or similar.

Similar position as myself overall though.
Are you planning to buy house soon(next five years)? If so, concentrate on maxing deposit would be my approach, you get immediate and tax free return of 3% (rather than paying it in mortgage interest).

chompdown

The Tricks of the Rich by Paul Overy might be a good place to start. It's Irish.

PeterTheNinth

topper_harley2 wrote: »

Immediate thoughts are that 5 years is not long term for investing. Under ten years = deposit account in my book.

Okay, yeah a deposit account was offered to me by the bank before, but I never got back to them. tbh, I feel like a fool when talking with "experts" about these things, so I end up just putting the money in to my account and not looking at it. And this is what I am trying to rectify.

Why no pension? You basically double your money if you're in top tax bracket. I'm maxing AVCs in mine, 20% salary. Are you planning to buy house soon(next five years)? If so, concentrate on maxing deposit would be my approach, you get immediate and tax free return of 3% (rather than paying it in mortgage interest).

I'm in the fortunate position that I have use of a relatives house for the next few years, so no plans to buy a house. I refused pension on the basis that I've seen what's happened to other people's pensions since the crash. A bit simplistic probably, but that is what I've done.

thanks for those book recommendations, I will hunt them down.

topper_harley2

PeterTheNinth wrote: »

I refused pension on the basis that I've seen what's happened to other people's pensions since the crash. A bit simplistic probably, but that is what I've done.

That makes less than zero sense.........even moreso if your employer offers to match say 5% contributions (thats basically free money!!!)? You are asking about investing outside pension (not tax efficient) but are not investing in a pension (tax efficient) specifically due to recent crash, even though you get a huge a tax break and possible employer matching?! I don't understand this at all.

People who continued investing (inside or outside pension wrapper) during the crash are up about 20-30 percent now. A crash is the ultimate buying opportunity. Staying out of the market due to a crash indicates to me that you have zero appetite for investing.

You should read up on dollar cost averaging and how it benefits regular investors (i.e. monthly via pension).

Also, having a particular bank "offering" you a deposit account indicates to me you are not Au-fait with the various deposit accounts on offer across ALL banks. See here for an independent comparison of deposit accounts http://www.askaboutmoney.com/threads/savings-best-buys.90481/

lcwill

PeterTheNinth wrote: »

I refused pension on the basis that I've seen what's happened to other people's pensions since the crash. A bit simplistic probably, but that is what I've done.

I'd say the first thing you need to do is read up about pensions and how they work. After paying debt and building an emergency fund, maximising your pension contributions is normally next priority.

Until you retire a pension is just another kind of investment account - one with huge tax advantages and often extra free money from your employer.

I am very curious what you think happened to other people's pensions since the crash? You said you would be comfortable of your investments dropped 30% as you understand that is part of the risk. What is the difference with the impact of the crash on pensions?

somefeen

A lot of people have found a lot of problems with that book and the advice given.
I'd read a bit more before going any further.
I'm not an expert either but I'd say "the richest man in Babylon" should be next on your list

jose_doyle

PeterTheNinth wrote: »

Hi people,

I have some money about 60k that is just sitting in my bank account and I want to learn how to do something with it. I read Rich Dad, Poor Dad and he's got me scared enough that I want to learn more about how to invest in medium risk and low risk investments. I dont want to put the money in the fruit machine, but I'm not completely risk averse either.

I want to learn about what investment opportunties are available, particularly in Ireland I guess a sort of Irish Investing 101 is what I'm looking for.

thanks to eveybody in advance

rich dad poor dad is awful rubbish

chompdown

The book is only a starter and is best used to open the reader's eyes as to a different viewpoint, and it seems to have done that for the OP. Calling it awful rubbish is a bit harsh imo.

It's a shame that the Irish education system deeply reflects the author's view on education - that we are trained and pushed into third level education first, followed by life as an employee. Personally, I had to leave Ireland before this became clear to me!

I'd actually like to describe something as awful rubbish - the Bachelor of Commerce degree in UCD. What a complete and utter waste of time and money!

Tigger

jose_doyle wrote: »

rich dad poor dad is awful rubbish

rich dad poor dad motivated me massively
but yes its crap

goz83

I've actually enjoyed reading most of the rich dad books. I have 2 on my bedside locker at the moment. I only read the first one after reading the Mike Maloney book on gold and silver. For me, it has helped me see where I have been going wrong in areas and has helped me make corrections, which have seen my business grow as a result. So, I wouldn't call it rubbish at all. They can be repetitive, but it drills home important points and they are an easy read for people who (like me) don't read many books.

Sonnenblumen

lcwill wrote: »

I'd say the first thing you need to do is read up about pensions and how they work. After paying debt and building an emergency fund, maximising your pension contributions is normally next priority.

Until you retire a pension is just another kind of investment account - one with huge tax advantages and often extra free money from your employer.

I am very curious what you think happened to other people's pensions since the crash? You said you would be comfortable of your investments dropped 30% as you understand that is part of the risk. What is the difference with the impact of the crash on pensions?

Pensions are a black art with the tax incentives overstated but actually relatively small and limited, returns are grossly overstated, whilst escalating costs are often hidden. Do not be conned by the pinstriped snakeskin sales patter, if it were not for the thin credibility provided by tax incentives on contributions but not returns (effectively delayed tax liabilities), pensions would decline even more. Pensions are investments for the masses! Enough said.

650Ginge

Sonnenblumen wrote: »

Pensions are a black art with the tax incentives overstated but actually relatively small and limited, returns are grossly overstated, whilst escalating costs are often hidden. Do not be conned by the pinstriped snakeskin sales patter, if it were not for the thin credibility provided by tax incentives on contributions but not returns (effectively delayed tax liabilities), pensions would decline even more. Pensions are investments for the masses! Enough said.

Couldn't agree more.

iainBB

650Ginge wrote: »

Couldn't agree more.

Oh I wish I could have put it better myself. Spot on . You will never find a rich person getting a pension it's just a bad gamble with tax incentives which make it seem good and safe.

Prezatch

But what about employers matching your contributions - surely you guys would recommend that everyone who has employer matching in their scheme should maximise their contributions up until the point that they get the most benefit ie. if an employer offers to match your contribution up to say 7% then you should also contribute 7% to get the most out of it.

phantom_lord

Lads you're mad, 40% tax relief and for the most part tax free growth. You're not going to get anything like that anywhere else.

phantom_lord

iainBB wrote: »

Oh I wish I could have put it better myself. Spot on . You will never find a rich person getting a pension it's just a bad gamble with tax incentives which make it seem good and safe.

Most execs have million euro pensions.

chompdown

phantom_lord wrote: »

Lads you're mad, 40% tax relief and for the most part tax free growth. You're not going to get anything like that anywhere else.

Yes, but what they are saying is that you'll pay tax on it eventually when you take it from the pension.

Maybe its better to take the hit on the tax now, and invest it yourself without all the fees. Who knows what's best, thats the beauty of discussion.

jive

If you have employer matched contributions then it is an absolute no brainer to put in whatever % they will match.

Making additional voluntary contributions (AVCs) are worth thinking about but in general, for the vast majority of people, it is worth maxing out your AVCs if you can afford it.

Investing in Ireland is an incredibly expensive endeavour and confusing if you are managing your own investments. Any tax incentives should be taken advantage of as you will pay out the arse for CGT on your own investments after already being taxed in your income.

Prezatch

chompdown wrote: »

Yes, but what they are saying is that you'll pay tax on it eventually when you take it from the pension.

The first 200k you take from your pension is free (although the contributions will have been taxed for USC and PRSI). 200k - 500k is taxed at 20%.... quite a bit cheaper than the marginal rate of tax.

alb

To those saying its a no brainer to invest in pension funds, have you compared the once-off saving of taxes on contributions against the higher annual fees you will have to pay (versus buying for example low-fee vanguard etfs through degiro). Wouldn't mind seeing how the maths work out using typical examples.

Cute Hoor

People should not dismiss pension fund investments (or the sellers of those pension funds) without doing a fair bit of due diligence. Some people may feel they are more capable of getting better returns on after tax income than 'professional' fund managers can make on pre-tax income, this may be the case but I would give the 'professional' fund manager a fair auld chance against your average amateur investor.

People say that you are only deferring the tax on your pension investment until retirement age when you start drawing down your pension, while this is technically correct, it is just simplistic and inaccurate.

As an example: If you have invested €1m in your pension fund over your lifetime working, it will have cost you €575k approx, presuming that you are a higher rate tax payer. Assuming that your pension salesman hasn't managed to make any return (unlikely?) you have a €1m pension pot to play with at retirement. Straight away you can take a tax free lump sum of 25% of the accumulated value of the pension or 1.5 times of your final salary, depending on your circumstances. That is up to €250k TAX FREE - you pay no tax whatsoever on it, it is all yours. After that you invest the rest in a pension fund that pays you an annual salary. This is of course taxed, and indeed some of it will probably be taxed at the higher rate but a very significant part won't. You could have an annual effective tax rate of 20% or much lower depending on your circumstances and how you manage it. So anybody who says that you are merely deferring the tax payment is wrong, you will be deferring some of that tax. If your pension salesman (or even your pension manager) manages to make an annual % or 2 then the above figures will improve significantly.

I can give two very specific, factual, examples of how 2 different pension funds have worked out so far.
Money (Nett) invested in a pension fund between 2003 and 2010 is currently showing a return of 200% after fees.
Money (Nett) invested in a pension fund in 2007 is currently showing a return of 500%+ after fees.

Phantom Lord says above that most execs have million euro pensions, I would go further, I would imagine that every senior exec has a multi-million pension fund (part of their remuneration package in most cases) and every exec worth their salt has a (multi-)million pension fund.

Don't take the word of anybody here (including mine) though on it, don't be swayed by your (or others) impression of pension fund salesmen, the salesman will be long gone gone before your pension fund reaches maturity, do your own research on it before deciding whether it's right for you or not.

I hope the figures above are accurate. I know very little about pensions and how they operate but there is a raft of free information available to you on the interweb.

Tigger

Sonnenblumen wrote: »

Pensions are a black art with the tax incentives overstated but actually relatively small and limited, returns are grossly overstated, whilst escalating costs are often hidden. Do not be conned by the pinstriped snakeskin sales patter, if it were not for the thin credibility provided by tax incentives on contributions but not returns (effectively delayed tax liabilities), pensions would decline even more. Pensions are investments for the masses! Enough said.

people say to me "i thought you'd have a pension, you're good with money"
yeah you probably think I have a mortgage and business debt and i don't have those either

alb

Cute Hoor wrote: »

....Assuming that your pension salesman hasn't managed to make any return (unlikely?) ....

What returns he makes may be less relevant than what fees he takes. If he's making returns, then maybe a passive fund I invest in personally outside of a pension scheme makes similar.

How about doing the numbers on how much that salesman takes if there's a 1.5% annual fee over what lets say a 30 year lifetime of the pension. How much have you lost in fees then? how much would you lose in fees if the pension grew to 2 or 3 million over that time?

phantom_lord

chompdown wrote: »

Yes, but what they are saying is that you'll pay tax on it eventually when you take it from the pension.

Maybe its better to take the hit on the tax now, and invest it yourself without all the fees. Who knows what's best, thats the beauty of discussion.

JoeyD wrote: »

The first 200k you take from your pension is free (although the contributions will have been taxed for USC and PRSI). 200k - 500k is taxed at 20%.... quite a bit cheaper than the marginal rate of tax.

How on earth is it going to be better to start with €60 instead of €100? Nevermind the fact that the tax you'll pay on the pension at the end is lower. AND you're going to be paying CGT on anything outside of a pension.

Can't believe this is up for debate at all. It's not even close.

phantom_lord

alb wrote: »

To those saying its a no brainer to invest in pension funds, have you compared the once-off saving of taxes on contributions against the higher annual fees you will have to pay (versus buying for example low-fee vanguard etfs through degiro). Wouldn't mind seeing how the maths work out using typical examples.

I pay 1% on my pension in fees. When it gets bigger I'll pay less.


Every €100 I invest in a pension it costs me €60. Vanguard fees are lower but they're nothing compared to that €40 difference. And I don't have to pay CGT.

alb

phantom_lord wrote: »

I pay 1% on my pension in fees. When it gets bigger I'll pay less.

What are the exact details about paying less when it's bigger? is that a common scenario?

phantom_lord wrote: »

Every €100 I invest in a pension it costs me €60. Vanguard fees are lower but they're nothing compared to that €40 difference. And I don't have to pay CGT.

Lets take that €100 which cost you €60 as an example. Imagine there's a strong bull market or a lot of inflation and over the first 10 years of your pension it grows to be worth €200, you're now paying €2 per year on it. After 20 years you've lost the initial €40 you saved, and anything after that is an additional loss.

Fair point on the capital gains liability though, that's a significant difference alright, but maybe not so much if you're planning to retire somewhere with a zero or low rate of it. On the other hand, you also have the advantage of not being locked in until retirement with non-pension investments.

phantom_lord

If your pension has zero growth for 20 years you've a lot more to worry about than your fees.