New to investing

poeticjustice

I'm 31 and have spent the last 10 yrs messing about with career choices and travelling. Need to get serious about the future and have started reading and learning about investing and getting my money to work for me. Just starting a new job. Salary is good and I'm trying to decide the best way to get the most out of it.

I'm on 72k a year and want to start a pension. There's no company pension plan although they do offer a PRSA with Irish life for those that want to partake. I have an existing pension with Zurich with very little contributed to it. Just over 1k. I also want to invest a good chunk of my earnings, maybe in a low cost index fund for long term although I'm open to active funds or other suggestions.

Is now a good time to start? I read a lot about how timing the market is very difficult and how for long term investments, for example 20+ yrs, that it shouldn't matter too much when you invest but it's something I can't fully wrap my head around.

For example, if I buy in now when indexes are high and if they drop in value then obviously my investment loses value. So I keep faith, continue investing and don't sell. Over the years the price rises again, my investment gains back it's value. Do I make money during this period or have I mainly just salvaged my original investment? Apologies if it's a basic concept but I can't get it clear in my head!!

-What is attracting you to investing? - I want to maximise my moneys potential so I can hopefully retire well before i'm 65, preferably in my 50s or sooner. Thats the goal.
-What existing savings have you - Have 10k in a savings account.
-Do you want to save or invest - Invest
-Have you any high interest credit card - Always pay off credit card on time
-Have you a rainy day fund of 3-6 months salary - 10k rainy day fund
-Have you a pension - yes but not worth much
-Have you any investment property - no
-What exactly constitutes success for any investment portfolio - higher return than inflation and savings accounts.
-How long are you happy to be without this money - 20+ yrs
-What would you do if value dropped 30% overnight - obviously not ideal but id keep calm and keep investing
-What is your tax rate - 40%
-Are you taxed in Ireland - yes
-Have you any existing CGT losses - No

I'm unmarried, have no kids, don't want kids, no mortgage and currently living at home to save money so I'm in a good position I feel. Have girlfriend and ideally would love to buy a house in 2-3 years with her, all things going well. Both in stable jobs.

I've taken online risk assessments and I feel I'm young enough to take fairly high risks at this stage. So this is what I'm thinking:
-Take out a PRSA with a low cost broker like LABroker and max it out to take advantage of tax incentives. 1% annual management fees but no contribution fees compared to 5% contribution fees dealing direct with Zurich or Irish Life.
-1000/month (maybe more) in low cost index fund (or other investment) with degiro or other low cost transaction fee broker
-1000/month (maybe more) in EBS savings account for future house deposit and to demonstrate my ability to save.

I'm looking to meet with an independent financial advisor too as I feel this would be beneficial so asking friends and colleagues for recommendations at the moment. Would like to have some knowledge before that initial meeting.

Totally new to this so I'm sure there are lots mistakes in there. Any advice would be greatly appreciated.

topper_harley2

Firstly, congrats on the new job and good salary. Good through post above with useful info, thanks for using my template!

First thing to do is to get the emergency fund in order. 10K is plenty as you are living at home (more to come on that!).

There are three main things that you need to consider:
* Pension
* Investing outside pension
* Mortgage

1. Pension
Its a pity your company doesnt offer occupational pension. Since you have basically zero pension currently I would put the max allowed for your age 20% into a PRSA to get started ASAP. The earlier the money is in, the longer it has to compound and grow. The deferred tax benefit too great to ignore (you can read differing opinions on pension on this forum, but that is my opinion). Since you are living at home, I think you can afford this. I dont know enough about PRSA options to give advice on which to choose, Im sure someone else can chip in here.

2. Investing outside pension
If you are considering buying a house in 2-3 years, forget about this. Get your house in order instead!

3. Mortgage
Instead of investing, pour ALL your money into maximising your deposit in order to reduce LTV ratio. Living at home and on 72K, I estimate you should be able to save circa 25K per year into a deposit. Having a higher deposit, and hence lower LTV will save though thousands on interest over the mortgage term.

Also, once you get the mortgage, you should overpay it aggresively, rather than investing. The reason is that if you are paying 3% on mortgage, you get a tax-free return of 3% on any overpayment, risk free. The likelihood of getting this consistently on ETFs etc is slim. If you overpay you could be mortgage free by 40, and at that point you could begin re-building savings and investments. However, Im unsure if its worth investing outside a pension in Ireland, due mainly to the penal tax on ETF/unit link funds (41% currently), 33% for CGT investments.

Basically, the argument of investing vs mortgage is that there is little point in borrowing money at 3% (i.e. your mortgage) and then put it on deposit at 1% (savings account) or in risky investment that MAY return a profit and then pay 33% or 41% tax on said profit. Get out of all debt first (mortgage is debt, even if you are not in arrears), then consider how to grow savings. The point of investing in pension at same time is that you are doing both without realising it, since the pension contributions are gone before your wages hit your account.

*This is my opinion, does not constitute investment advice etc. etc.

poeticjustice

Hi Topper. Thanks for the very detailed response. I appreciate it a lot.

I totally agree with you regarding the pension. Getting that set up with 20% of my salary is my first priority.

Very interesting to hear your views on a mortgage instead of investing for now too. I realised paying off a mortgage quickly save a heap but wasn't sure if I should start investing even a little bit as early as possible to get compound interest working.

So put all my savings into a deposit account until I'm ready to apply for a mortgage? I think KBC and EBS offer 3% under certain conditions at the moment which seems to be the best rates currently on offer.

Thanks again. Good to get experienced advice.

topper_harley2

poeticjustice wrote: »

Hi Topper. Thanks for the very detailed response. I appreciate it a lot.

I totally agree with you regarding the pension. Getting that set up with 20% of my salary is my first priority.

Very interesting to hear your views on a mortgage instead of investing for now too. I realised paying off a mortgage quickly save a heap but wasn't sure if I should start investing even a little bit as early as possible to get compound interest working.

So put all my savings into a deposit account until I'm ready to apply for a mortgage? I think KBC and EBS offer 3% under certain conditions at the moment which seems to be the best rates currently on offer.

Thanks again. Good to get experienced advice.

Yep. In my opinion, gguarantee, risk free, tax free return of 3% is brilliant. You'd need 7% per annum return on investment to match this, every year. You are putting into pension at same time don't forget so you are getting early compounding of investments.

topper_harley2

As an example, if you had 270k mortgage at 3% for 25 years, you would save 88k and shave 18 years off it by increasing monthly payment from 1300 to 4000.

http://digital.ulsterbank.ie/personal/mortgages/secure/mortgage-overpayment-tool.html

poeticjustice

topper_harley2 wrote: »

Yep. In my opinion, gguarantee, risk free, tax free return of 3% is brilliant. You'd need 7% per annum return on investment to match this, every year. You are putting into pension at same time don't forget so you are getting early compounding of investments.

There is a max contribution for the 3% and hoops to be jumped through but for short term it seems good.

topper_harley2 wrote: »

As an example, if you had 270k mortgage at 3% for 25 years, you would save 88k and shave 18 years off it by increasing monthly payment from 1300 to 4000.

http://digital.ulsterbank.ie/personal/mortgages/secure/mortgage-overpayment-tool.html

This is a big eye opener and a huge help. Topper, you're a gent. Thanks

topper_harley2

poeticjustice wrote: »

There is a max contribution for the 3% and hoops to be jumped through but for short term it seems good.

No no, I meant you get a risk free 3% return on your money when you overpay the mortgage. I didn't mean the savings account. That 3% on savings as very its limited as its only 1K per month i.e. this is peanuts (and its subject to DIRT) when compared with getting 3% saving on the mortgage overpayment.

poeticjustice

topper_harley2 wrote: »

Not sure what you mean here?

Sorry, 'contribution' was probably the wrong word. KBC offer 3% interest on savings up to 40,000 in their Flex Regular Saver account but their is a maximum deposit of 1,000 a month. You also have to open a current account with them and deposit a minimum of 2,500 into it every month even if you withdraw it again straight away. You have to use this current account to fund the savings account via a standing order.

EBS offers 3% interest on savings for 1 year up to 13,000. Again theres a max deposit of 1,000 a month.

This is my understanding of it anyway.

poeticjustice

topper_harley2 wrote: »

No no, I meant you get a risk free 3% return on your money when you overpay the mortgage. I didn't mean the savings account. That 3% on savings as very its limited as its only 1K per month i.e. this is peanuts (and its subject to DIRT) when compared with getting 3% saving on the mortgage overpayment.

Ah my apologies. Thought you were talking about the savings account.

But is the savings account still the best option for a house deposit?

topper_harley2

poeticjustice wrote: »

Ah my apologies. Thought you were talking about the savings account.

But is the savings account still the best option for a house deposit?

Absolutely 100000 percent. Do not take any risk with deposit money.

poeticjustice

topper_harley2 wrote: »

Absolutely 100000 percent. Do not take any risk with deposit money.

Good enough for me. Thanks Topper

irish_investr

"Do I make money during this period or have I mainly just salvaged my original investment?"

--You Never make (or lose) money, until you sell.

irish_investr

"Do I make money during this period or have I mainly just salvaged my original investment?"

--You Never make (or lose) money, until you sell.

poeticjustice

irish_investr wrote: »

"Do I make money during this period or have I mainly just salvaged my original investment?"

--You Never make (or lose) money, until you sell.

If I sell, would I make money during this period or have I mainly just salvaged my original investment?