50k to invest - looking for ideas/advice

InvestQ2020

Hi

Firstly apologies if this is posted in the wrong place -

I've a few bob sitting in a bank acc at the moment and yes i know it's losing money there but i was waiting on a few things to line up before i could feel comfortable knowing i wouldn't need access to the cash over the foreseeable

I'm in my early 50s and i'm looking for 5 to 10 yr investments -
i'm not sure if i'd be confident playing the stock market myself - wouldn't really know where to start

I was thinking of putting 15k in to the Government 10yr savings bond which would yield €17,400.00. I know this is guaranteed and tax free but is it really a good return on a 10yr investment?

And as for the remainder of the cash, what would be the best way to divvy it up to high risk - low risk investments etc?


Just kicking tyres at the moment and looking for ideas

Tnks

Browney7

InvestQ2020 wrote: »

Hi

Firstly apologies if this is posted in the wrong place -

I've a few bob sitting in a bank acc at the moment and yes i know it's losing money there but i was waiting on a few things to line up before i could feel comfortable knowing i wouldn't need access to the cash over the foreseeable

I'm in my early 50s and i'm looking for 5 to 10 yr investments -
i'm not sure if i'd be confident playing the stock market myself - wouldn't really know where to start

I was thinking of putting 15k in to the Government 10yr savings bond which would yield €17,400.00. I know this is guaranteed and tax free but is it really a good return on a 10yr investment?

And as for the remainder of the cash, what would be the best way to divvy it up to high risk - low risk investments etc?


Just kicking tyres at the moment and looking for ideas

Tnks

How is your pension situation looking?

InvestQ2020

Browney7 wrote: »

How is your pension situation looking?

Tnks for reply Browney - Pensions ok, the company i work for give a decent contribution and i'm upping my own personal contributions/AVCs

I'm looking for something outside of that pension pot that I can treat as more of a short term investment

Mantis Toboggan

Are you mortgage free?

InvestQ2020

Mantis Toboggan wrote: »

Are you mortgage free?

No i'm not Mantis - i suppose i could lob it off the mortgage but the mortgage is manageable and i like the idea of being able get my hands on the 50k if i needed to for any unforeseen need

So if i pay it off the mortgage it's "gone" where as if it's invested i can still access it

dxhound2005

InvestQ2020 wrote: »

No i'm not Mantis - i suppose i could lob it off the mortgage but the mortgage is manageable and i like the idea of being able get my hands on the 50k if i needed to for any unforeseen need

So if i pay it off the mortgage it's "gone" where as if it's invested i can still access it

You won't get much value out of the 10 year bond if you find you have to take the money out in the first few years. After 4 years your 15K will have added only €150.

Irish_rat

The 10 year bond is a terrible return. Inflation is eating away at it more than the interest you'll receive.

Sorolla

I think the most sensible thing would be to pay off the mortgage first.

Also any personal loans.

Make sure you have a rainy day fund of about 3 net salaries.

You never know what emergencies may occur.

If you are sure you can do without the rest for the next 15 years then I would suggest all in in an All World ETF

This is highly diversified so the risk is a lot less than individual shares

PHG

Sorolla wrote: »

I think the most sensible thing would be to pay off the mortgage first.

Also any personal loans.

Make sure you have a rainy day fund of about 3 net salaries.

You never know what emergencies may occur.

If you are sure you can do without the rest for the next 15 years then I would suggest all in in an All World ETF

This is highly diversified so the risk is a lot less than individual shares

You want return but not confident in the stock market so you will not get a decent return or beat inflation

Sorolla gives good advice above

I would say pay off credit card debt (if you have it) as you will be charged 16% plus on what you owe which is a lot more than a govt bond. Keep 3 months expenses in Cash so add what you need from the amount to your current savings. Then put the rest at the mortgage (as you have mentioned a decent pension).

Will put it this way, imagine the thought of not having a mortgage payment anymore!!!

Bob24

Agree with others that given the awful return of savings accounts or government bonds, you’re better off paying your mortgage/loans with your spare cash than getting those (besides what you are keeping as your emergency fund or any expensive thing you have in mind which will require a lot of cash in the near future).

Another option if you are fairly prudent but prefer to invest the money could be this investment trust (or any similar one): https://patplc.co.uk/

It is very conservatively managed (with a mix of inflation protect bonds, gold, and very safe company shares) but still manages a decent return (6% annualised in the past 10 years, and you can see it only dropped slightly during the stock market crash this year and has since then more than recovered): https://tools.morningstar.co.uk/uk/cefreport/default.aspx?SecurityToken=E0GBR01KRI%5D2%5D0%5DFCGBR%24%24ALL

(taxation is also better than ETFs in most circumstances).

s3ndnudes

If I was in your situation, I would do in the following order:

1) Pay off any high interest debt in order of the highest interest rate (Credit cards, term loan, car loans etc).

2) I would allocate at least some of the 50k to the mortgage (personally i'd allocate 100% to it but nothing stopping you adding less). Assuming a 4% interest rate annually, i'd go for this guaranteed return over expected returns in the stock market.

3) I would do any home improvements that generate a RETURN and do the one that gives the best Return On Investment (E.g could EUR 10,000 spent on insulation or say solar panels save you Eur 500 a year on heating costs? That would also be tax efficient as you won't be paying any tax on cost savings but you could (depending on your tax rate) be paying up to 50% on income tax on dividends. It will also add value to your property. There can also be some fairly lucrative grants for certain home improvements.

4) I would invest part of the funds into a well diversified stock market ETF. Personally i'd go for VANGUARD FTSE AW or VANGUARD S&P500. They are near all time highs but you could average in your contributions over a couple of months. Also, you have a 5-10 year horizon so on the upper end of that I would expect some appreciation.

You could take a blended approach- pay down some of the mortgage and Invest in the stock market. Just my two cents for what it's worth. The main factors for me would be Return on Investment, Guarantee vs Risk and tax efficiency.

Ironman76

I am in a similar position to the OP.
I don’t have 50k mind, but I am looking to start investing about 5-10k.

One thing that read about ETFs in Ireland is they are prone to high CGT?

Can anyone shed any light? This is the biggest stumbling block for me currently.

Thanks

Bob24

Ironman76 wrote: »

I am in a similar position to the OP.
I don’t have 50k mind, but I am looking to start investing about 5-10k.

One thing that read about ETFs in Ireland is they are prone to high CGT?

Can anyone shed any light? This is the biggest stumbling block for me currently.

Thanks

See here: https://www.informeddecisions.ie/blog42/

The problem actually is that you don’t pay CGT but rather exit tax at 41%, and that it is due every 8 years after buying a share even if you haven’t sold that share (so you are taxed on capital gain you haven’t even made, and reporting is a mess because for each of your shares you need to remember to pay the tax after 8/16/etc years, meaning if you invest every months after 8 years you will also have new tax liabilities each month). Dividends are also incurring exit tax.

LessOutragePlz

Bob24 wrote: »

See here: https://www.informeddecisions.ie/blog42/

The problem actually is that you don’t pay CGT but exit tax at 41%, and that it is due every 8 years after buying a share even if you haven’t sold it (so you are taxed on capital gain you haven’t even made). Dividends are also incurring exit tax.

Correct me if I'm wrong but I thought CGT only applied when you realise a gain due to a chargeable event such as selling shares or your shares in an EFT. So in your example you haven't made a gain until you sell the shares/eft and the money is in your account?

Bob24

LessOutragePlz wrote: »

Correct me if I'm wrong but I thought CGT only applied when you realise a gain due to a chargeable event such as selling shares or your shares in an EFT. So in your example you haven't made a gain until you sell the shares/eft and the money is in your account?

For regular company shares, CGT is triggered on the day you have sold the share.

But for ETFs there is something different called “exit tax” (see the link I provided) which is due every 8 years *even if you haven't sold the share and the gain hasn’t been realised* (yes, taxing a theoretical gain which might never be realised is a complete rip-off and to my knowledge it is not common at all in other tax jurisdictions - but our great politicians thought differently and put this in the law).

James Bond Junior

Following with interest. Similar position to OP but don't want to go past 2 year investment. Reluctant to pay down the mortgage as the interest is tax deductible against rental income.

Saudades

As a beginner to investing, following with interest too.

UK Investment Trusts look appealing as a basket of stocks but taxed at 33%.

Bob24

Saudades wrote: »

As a beginner to investing, following with interest too.

UK Investment Trusts look appealing as a basket of stocks but taxed at 33%.

Also they are not subject to the deemed disposal rule every 8 years.

For sure this is not something they were thinking about, but from a tax perspective Irish legislators have actually made UK based Investment Trusts more attractive to Irish resident than Irish based mutual funds and ETFs.

Saudades

Bob24 wrote: »

Also they are not subject to the deemed disposal rule every 8 years.

For sure this is not something they were thinking about, but from a tax perspective Irish legislators have actually made UK based Investment Trusts more attractive to Irish resident than Irish based mutual funds and ETFs.

Nice. So from my limited reading, pros and cons of UKIT's;

Pro -
*8% less tax than Euro domiciled ETF's.
*No 8 year deemed disposal.

Cons -
*Higher volatility as they're all trying to beat the index rather than ETF's that track the index.
*Around 0.5% higher fees than a standard ETF tracker.
*0.5% UK stamp duty? (Not sure about this one if we don't live in the UK).
*Currency conversion of Euro to Stg - risk of currency loss when converting back into Euro in the future?

Bob24

Saudades wrote: »

Nice. So from my limited reading, pros and cons of UKIT's;

My feedback on your points:

Pro -
*8% less tax than Euro domiciled ETF's. [Yes for capital gains. How dividends compare depends on your income tax band.]
*No 8 year deemed disposal. [Yes]

Cons -
*Higher volatility as they're all trying to beat the index rather than ETF's that track the index. [Not necessarily, for example Personal Assets Trust would be less volatile as it is managed very conservatively. But yes at the other end of the spectrum a trust like Scottish Mortgage has performed insanely well but is more risky and volatile.]
*Around 0.5% higher fees than a standard ETF tracker. [Yes or maybe sometimes a little more.]
*0.5% UK stamp duty? (Not sure about this one if we don't live in the UK). [Unfortunately yes we have to pay it.]
*Currency conversion of Euro to Stg - risk of currency loss when converting back into Euro in the future? [Currency exchange fees when you buy and sell yes. But not really a currency risk as the underlying assets aren't necessarily in GBP. The fact that the Trust price is in GBP just makes it harder to compare performance vs EUR or USD denominated funds]

Also one more thing I would add is that ITs are close ended funds as opposed to ETFs which are open ended. Not necessarily an advantage or an inconvenient but a difference to have in mind (it is a good idea to understand the concept of premium/discount of the share price v.s. the net asset value (NAV).

dxhound2005

Before dismissing the mortgage paydown option, people could do a calculation to see how much could be saved.

https://www.ccpc.ie/consumers/tools-and-calculators/extra-mortgage-payments-calculator/

Ironman76

Bob24 wrote: »

See here: https://www.informeddecisions.ie/blog42/

The problem actually is that you don’t pay CGT but rather exit tax at 41%, and that it is due every 8 years after buying a share even if you haven’t sold that share (so you are taxed on capital gain you haven’t even made, and reporting is a mess because for each of your shares you need to remember to pay the tax after 8/16/etc years, meaning if you invest every months after 8 years you will also have new tax liabilities each month). Dividends are also incurring exit tax.

Thanks so much for the info.

ETFs look like a waste of time so? Shame as it’s not like a get rich quick scheme. Better to invest in individual shares albeit more risk I suppose.

Bob24

Ironman76 wrote: »

Thanks so much for the info.

ETFs look like a waste of time so? Shame as it’s not like a get rich quick scheme. Better to invest in individual shares albeit more risk I suppose.

I wouldn’t say they are a waste of time and I think many people still use them, but yeah for me the way they are taxed tends to make me avoid them.

Yes going for direct share ownership is one option, and as mentioned is the past few posts British investment trusts are another one.

Bob24

Bob24 wrote: »

Also one more thing I would add is that ITs are close ended funds as opposed to ETFs which are open ended. Not necessarily an advantage or an inconvenient but a difference to have in mind (it is a good idea to understand the concept of premium/discount of the share price v.s. the net asset value (NAV).

And one more potential difference which just came to mind: while it is easy to find a capitalising ETF which doesn’t distribute any dividends, ITs almost always distribute dividend (but for many of them most of the gains are ire invested and the dividend is small - 1% or so).

InvestQ2020

Thanks to everyone for their input to date - lots of good advice there to mull over

James Bond Junior

James Bond Junior wrote: »

Following with interest. Similar position to OP but don't want to go past 2 year investment............

Two years is too short a term for an investment IMO, 5 years minimum I reckon .......

C0N0R

Can I dip my hat in here please,

Currently have no debt, of any kind, sitting on over 100k of savings generating nothing, working overseas (Middle East) and looking to do something with savings, not interested in buying individual shares, don’t have the time to do the level of research required, and happy to lock up the money for at least 5 years and probably longer. Anyone care to give some advice on where to go? And to potentially pay the least amount of tax.

Thanks

ECTime

InvestQ2020 wrote: »

Hi

Firstly apologies if this is posted in the wrong place -

I've a few bob sitting in a bank acc at the moment and yes i know it's losing money there but i was waiting on a few things to line up before i could feel comfortable knowing i wouldn't need access to the cash over the foreseeable

I'm in my early 50s and i'm looking for 5 to 10 yr investments -
i'm not sure if i'd be confident playing the stock market myself - wouldn't really know where to start

I was thinking of putting 15k in to the Government 10yr savings bond which would yield €17,400.00. I know this is guaranteed and tax free but is it really a good return on a 10yr investment?

Oh forgot to say you can also trade virtual money to practice trading.

And as for the remainder of the cash, what would be the best way to divvy it up to high risk - low risk investments etc?


Just kicking tyres at the moment and looking for ideas

Tnks

I only new to trading stocks but been studying the markets over the past few months, but my advice is to:

Hold your cash, and wait for a pullback, drop in stock market prices. But timing is difficult but there is a high likelihood that it will happen before the year ends, Hopefully for me

For Long Term Investment follow and trade stocks that Warren Buffett is investing in.

I use a certain trading platform (I will direct message the link as I believe it's against T&C to post link) to trade long Term as it's easy to use and popular in the UK especially, also if you're not yet confident you can invest by copying professional traders, they trade you trade and they have the experience to spread their trading portfolio for security.

Recommend Trader to copy is jaynemesis who is from the U.K he is up 55.65% this year, he recommends copying for at least 2 years and has a good spread of stocks.

By the way I am a partner with this Trading platform so hope its okay to post, you can direct message me anytime, or respond to the trend, I am happy to help.

Oh forgot to say you can also trade virtual money to practice trading.

ixtlan

On ETFs:

Bob24 wrote: »

I wouldn’t say they are a waste of time and I think many people still use them, but yeah for me the way they are taxed tends to make me avoid them.

Yes going for direct share ownership is one option, and as mentioned is the past few posts British investment trusts are another one.

I know where you are coming from and it is important that people understand the tax implications of ETFs if they are investing directly. I would add though that there are ETF funds available via for example BOILife where they will handle all the tax liability for you, selling as required to cover the 8-year rule. The annual charges are higher than perhaps is reasonable, but they are convenient...

Ix.

Bob24

ixtlan wrote: »

On ETFs:

I know where you are coming from and it is important that people understand the tax implications of ETFs if they are investing directly. I would add though that there are ETF funds available via for example BOILife where they will handle all the tax liability for you, selling as required to cover the 8-year rule. The annual charges are higher than perhaps is reasonable, but they are convenient...

Ix.

Do you have an example of those out of curiosity? I know Irish mutual funds are handling the 8 years rule, but I haven't seen one based solely on ETFs and I'd be curious to see what kind of fees they charge (the main selling point of ETFs is the low cost structure, so wrapping them into a mutual fund seems to defeat the purpose unless the fees for the fund are really low).

Also I would say that the issue with the 8 years rule isn't just tracking the paperwork, but also the fact that it is reducing the compounding power of your investment (being taxed throughout the investment period rather than just once when you sell the asset prevents from compounding part of the yield, so at the end of the day you end up-up with less capital than if you could have compounded your full gains).

s3ndnudes

I am open to correction, but it is my understanding that it is only the accumulating ETFS that the 8 year rule applies to. It was my understanding that you could have a distributing ETF whereby you pay the Income tax for the dividends each year, and then when you sell the ETF, you would only then pay capital gains tax? If i'm correct a distributing growth ETF with low dividend yield would be quite tax effective.

Is this not the case?

Bob24

s3ndnudes wrote: »

I am open to correction, but it is my understanding that it is only the accumulating ETFS that the 8 year rule applies to. It was my understanding that you could have a distributing ETF whereby you pay the Income tax for the dividends each year, and then when you sell the ETF, you would only then pay capital gains tax? If i'm correct a distributing growth ETF with low dividend yield would be quite tax effective.

Is this not the case?

I don’t believe the above is correct (for Irish and E.U. domiciled ETFs that is).

In the case of a distributing ETF as far as I know you are paying exit tax on the dividends as they come, and exit tax potential capital gains every 8 8 years (i.e. neither income tax nor CGT).

s3ndnudes

The exit tax I assume is at your marginal rate? So, therefore, little difference to your income tax rate?

The exit tax on your marginal gains on disposal of ETFs is very disappointing and very punitive.


If you are paying tax as you receive the dividends, it seems unfair to tax your capital gains on an exit tax basis? I see the logic in taxing dividends at your marginal rate- that would be a similar treatment to shares. But it seems deeply unfair to put an exit tax on distributing ETFs as you are not getting tax free growth as such.

I don't see any tax efficient strategy then aside from individual stocks ? or mutual funds with hefty fees?

Bob24

s3ndnudes wrote: »

The exit tax I assume is at your marginal rate? So, therefore, little difference to your income tax rate?

For Ireland and EU domiciliated ETFs, I believe it is 41% regardless of your marginal tax rate and both for dividends and capital gains (which makes no sense to me but I believe this is the case).

See: http://www.moneyguideireland.com/buying-exchange-traded-funds-etfs-in-ireland.html

Also I stand to be corrected as I am not sure about that one, but I believe the other way this is screwing you is that since the tax which is due on gains is not technically CGT, potential losses on one ETF cannot be offset against gains made elsewhere (as is the case with CGT).

s3ndnudes

Wow! If this is the case it is fairly brutal. I work in finance so have lots of tax contacts- might try and persue this a little further and do some research. I was thinking of starting a new thread on what is your Investment strategy from a tax perspective. There seems to be so few options here with much less favorable treatment to what you get in the US/UK where there are Roth IRAs and ISA accounts that give a much more preferable treatment than to what we have.

To me there seems to be fairly few (tax efficient) options:
1. Invest in a mutual fund that does the tax for you and accept the hefty fees.
2. Invest in individual stocks

I think if you developed a large enough well diversified portfolio of individual stocks it may be the best option. This is frustrating though- I would much prefer to stay passive with Vanguard world Index/emerging markets etfs/S&P 500 ETFS.

Bob24

Yeah they basically voted crazy laws in relations to ETFs as they see long term ETF investment as a way to avoid paying capital gain tax (which is BS as eventually a tax is due, I think in truth this is jusT the government deliberately taxing future potential gains to have today the tax money it should only have tomorrow and if there is indeed a gain).

s3ndnudes wrote: »

To me there seems to be fairly few (tax efficient) options:
1. Invest in a mutual fund that does the tax for you and accept the hefty fees.
2. Invest in individual stocks

Just on 1 - it will make tax reporting and payment easier than with ETFs, but you still have the nasty taxation of unrealised gains which is killing the compounding power of your investment.

A third option are U.K. investment trusts, which are close-ended investment vehicules and are taxed like regular company shares as legally their are LLCs (and most of them have pretty decent fees IMO). Some of them are very well actively managed as well (don’t take this as investment advice and of course past performance doesn’t predict future performance, but have a look at “Scottish Mortgage” and you might be impressed by the performance).

ixtlan

Bob24 wrote: »

Do you have an example of those out of curiosity? I know Irish mutual funds are handling the 8 years rule, but I haven't seen one based solely on ETFs and I'd be curious to see what kind of fees they charge (the main selling point of ETFs is the low cost structure, so wrapping them into a mutual fund seems to defeat the purpose unless the fees for the fund are really low).

BOILife have for example the "Technology Indexed S9 fund".
This fund aims to generate long term capital growth by tracking the performance of the Nasdaq 100 total return index (inclusive of dividends).
I don't know enough to say if it's exactly an ETF but it is "passively managed", and it's 5 year performance graph exactly matches the Nasdaq.... but indeed you are right on the costs, with that being 1.5%p.a. which indeed is rather ridiculous for a passively managed fund. There is also a Eurostoxx passively managed fund, also at 1.5%. I would say the low cost is one ETF advantage, but also it's a more conservative/hands off approach rather than picking stocks.

Bob24 wrote: »

Also I would say that the issue with the 8 years rule isn't just tracking the paperwork, but also the fact that it is reducing the compounding power of your investment (being taxed throughout the investment period rather than just once when you sell the asset prevents from compounding part of the yield, so at the end of the day you end up-up with less capital than if you could have compounded your full gains).

Indeed quite true. Still for some people these mutual funds (thanks for that term, which is correct) based on ETFs may suit. One advantage of the mutual funds is that I believe that within the umbrella of an account you may have several funds invested, and gains/losses between funds in the same account can be offset.

Ix

Bob24

ixtlan wrote: »

BOILife have for example the "Technology Indexed S9 fund".
This fund aims to generate long term capital growth by tracking the performance of the Nasdaq 100 total return index (inclusive of dividends).
I don't know enough to say if it's exactly an ETF but it is "passively managed", and it's 5 year performance graph exactly matches the Nasdaq.... but indeed you are right on the costs, with that being 1.5%p.a. which indeed is rather ridiculous for a passively managed fund. There is also a Eurostoxx passively managed fund, also at 1.5%. I would say the low cost is one ETF advantage, but also it's a more conservative/hands off approach rather than picking stocks.

Thanks.

I couldn’t find the information document by googling the fund name, but yes based you what you are saying it seems like a very expensive passive tracker. I guess they sell it to people who don’t want to bother with tax reporting as well as some of their captive audience who is intimidated with opening a brokerage account and trusts their bank to do the investment for them.

Saudades

ixtlan wrote: »

BOILife have for example the "Technology Indexed S9 fund".
This fund aims to generate long term capital growth by tracking the performance of the Nasdaq 100 total return index (inclusive of dividends).
I don't know enough to say if it's exactly an ETF but it is "passively managed", and it's 5 year performance graph exactly matches the Nasdaq.... but indeed you are right on the costs, with that being 1.5%p.a. which indeed is rather ridiculous for a passively managed fund.

Presumably that fund is taxed at 41%?

ixtlan

Saudades wrote: »

Presumably that fund is taxed at 41%?

Yes indeed it is, and every 8 years it automatically implements a sale of shares as required to to cover the tax owed at that point in time. That could lead as you might expect to a scenario where you pay tax on a gain, then the market crashes and you paid tax on a gain (but had no opportunity to hold that gain outside the account) and now your account is possibly even below what you put in. At that point you probably should stay in and not cash out, as any future gains will be covered by the tax already paid.

I must confess as you might have guessed that I have one of these mutual funds accounts with the nasdaq/eurostoxx trackers. They have already gone though one 8-year "deemed disposal". Every year or so (sometimes when I read this forum!) I ponder how stupid am I to be paying 1.5% p.a fees on a tracker. What makes me hold on to them is that I would not feel confident handling the tax on an ETF, ie would I remember the date of the acquisition several years in the future and pay the tax? I do also have a broker account with individual shares, but with the mutual funds it's a trade-off of tax convenience and less volatility vs costs.

Ix.

Bob24

Bob24 wrote: »

................ETFs.......

Also I would say that the issue with the 8 years rule isn't just tracking the paperwork, but also the fact that it is reducing the compounding power of your investment (being taxed throughout the investment period rather than just once when you sell the asset prevents from compounding part of the yield, so at the end of the day you end up-up with less capital than if you could have compounded your full gains).

Most folk would be happy enough with 8 years of compounding and an exit tax after 8 years of 41% of the profit surely? Admittedly the annual €1270 CGT exemption is non applicable but there's still huge merit in the ETF option just from a diversification standpoint IMO.

Drumpot

I’m not making any Recommendation but if OP is working and paying income tax, topping up their pension as at least part of their strategy seems like a no brainer:

Let’s say you apportion €20k of your savings into the pension. Instead of drawing down €25k/€33k of income, you put more income into your pension and use this €20k fund to subsidise drop in income.

If you are on the lower rate of tax you can actually put maybe up €25k into your pension or circa €33,000 if you are on the higher rate of tax before you have your €20k or savings spent. So your €20k investment turns into as much as €33k from the start.

You don’t just get compounded interest on this money, you get compounded interest and zero tax on it while it grows. The difference in value that. €20k investment over 15 years in a pension versus after tax investments can be massive.

People tend to focus on “well I will be taxed coming out” without doing any maths. I had a client who wanted to payoff his mortgage at 58. I showed him how to do that and then showed him what he might be able to Build up in a pension in the same period. It was a no brainer, the figures told him all he needed to know.

Paying off a mortgage is not an unwise decision , Peace of mind is priceless. But When you understand the benefits of alternative ways of using your money you can take multiple strategies that you are comfortable with and make a lot more of your money.

Bob24

Augeo wrote: »

Most folk would be happy enough with 8 years of compounding and an exit tax after 8 years of 41% of the profit surely? Admittedly the annual €1270 CGT exemption is non applicable but there's still huge merit in the ETF option just from a diversification standpoint IMO.

Sure agree the lessened compounding efficiency doesn't render ETFs useless and they are still fine for many people. But added to the fact that tax reporting becomes messy after 8 years (if you make regular purchases), that you lose the CGT exemption, and that (as far as I understand) you can't offset losses from a particular ETF against gains made on any other asset/ETF, those things are starting to add-up in terms of reducing the attractiveness of ETFs for long term investment.

I personally tend to prefer a portfolio of good investment trusts, in good part because of our tax laws related to ETFs.

Bob24

Bob24 wrote: »

.........But added to the fact that tax reporting becomes messy after 8 years (if you make regular purchases).............

Ah yes, definitely true, great for a lump sum though IMO if someone wants to just leave €xxxx somewhere for years as an investment.

For regular investors it does indeed get messy

Lex Luthor

if it was me, I would always hold a 6 month emergency fund that is readily accessible in case you ever lose job or an unforeseen circumstance

then look and see if you can clear some debt and then think about what to do next

Daddy Ireland

Drumpot wrote: »

I’m not making any Recommendation but if OP is working and paying income tax, topping up their pension as at least part of their strategy seems like a no brainer:

Let’s say you apportion €20k of your savings into the pension. Instead of drawing down €25k/€33k of income, you put more income into your pension and use this €20k fund to subsidise drop in income.

If you are on the lower rate of tax you can actually put maybe up €25k into your pension or circa €33,000 if you are on the higher rate of tax before you have your €20k or savings spent. So your €20k investment turns into as much as €33k from the start.

You don’t just get compounded interest on this money, you get compounded interest and zero tax on it while it grows. The difference in value that. €20k investment over 15 years in a pension versus after tax investments can be massive.

People tend to focus on “well I will be taxed coming out” without doing any maths. I had a client who wanted to payoff his mortgage at 58. I showed him how to do that and then showed him what he might be able to Build up in a pension in the same period. It was a no brainer, the figures told him all he needed to know.

Paying off a mortgage is not an unwise decision , Peace of mind is priceless. But When you understand the benefits of alternative ways of using your money you can take multiple strategies that you are comfortable with and make a lot more of your money.

I am 61 and earning 35k p.a and intend retiring at 65. My pension pot is 220k in a cash fund and I only contibute 1,200 to my pension and employer puts in 4 k. So annual costs of fund are approx 2k so between now and 65 the pot will end up to be 232k approx. I only have a small mortgage for several more years and interest is only cosing 85 euro p.a I have 60k sitting in a deposit account doing nothing. For such a short timeframe of 4 years to retirement would you suggest that I max my pension contibution % for next 4 years as a 20% tax payer as the best safest way to make good use of the 60k that I can do without.

Maxing pension contributions with intention to take a big a tax free lump sum as possible would be not a bad idea. As you are not paying 40% income tax thectax benefit isn't as big for you.

Still 200k+ pension pot is a nice fund.....

Maxing contribution & taking a nice lump tax free will see you save lots of 20% tax.

Drumpot

Daddy Ireland wrote: »

I am 61 and earning 35k p.a and intend retiring at 65. My pension pot is 220k in a cash fund and I only contibute 1,200 to my pension and employer puts in 4 k. So annual costs of fund are approx 2k so between now and 65 the pot will end up to be 232k approx. I only have a small mortgage for several more years and interest is only cosing 85 euro p.a I have 60k sitting in a deposit account doing nothing. For such a short timeframe of 4 years to retirement would you suggest that I max my pension contibution % for next 4 years as a 20% tax payer as the best safest way to make good use of the 60k that I can do without.

Obviously I have no idea how any of your other circumstances line up so can just comment in isolation. This is not professional advice, just musings and food for thought but this sounds like a reasonable plan that you have pitched. I regularly suggest to clients To blitz in as much as they can getting closer to retirement if they can. Particularly ones who are on higher rate of tax and will be lower rate when retired. But some people actually won’t pay much tax on retirement (single to 18k and couple to 36k) so it can still be worthwhile).

If you have a partner working as-well , depending on their income and tax rate you could move tax credits to them (would talk with a tax consultant first of which I am not one). So for example let’s say they were on 68k and you were on 35k, you give them all your tax credits, max out your pension contribution (40% of your salary) and may end up paying much less tax between you. You would potentially be paying higher rate of tax but you’d be putting nearly half your salary into a pension. That’s only a throw out example that might work for you.

But let’s say your income is 35k, you can put in up to 40% per annum into your pension. That’s an extra 14 x 4 = 50k that may push your pension over 270k.

At that stage 25% tax free and presumably balance into ARF/AMRF. At that stage you can try to devise an investment stragey to grow what you won’t be drawing down. On €270k you get €67.5k into hand tax free. Balance of roughly 200k you Drawdown as income. 5% per year works out at circa €10k income. You shouldn’t be liable for too much take on €10k + state , circa combined 23k.

Depending on your circumstances, You may also be a year or two out of state pension (67).

Even reinvesting your ARF money , it grows tax free. If you have after tax money on deposit or in savings , why not consider your ARF money your investment risk and Consider not using after tax money to invest?

I suggest to a good few people To use their pension for risk (when appropriate and they understand the risk) if they absolutely want to grow their portfolio. After tax income is harder to earn and you pay way more tax trying to grow it.

Daddy Ireland

Thanks for that food for thought.

RasTa

Buy a place in Liverpool for the rental market. 50k would get you something. Even if you rent it back to the council.

uli84

That whole topping up pension advice, would that work also for someone under 40? Can it be accessed before the retirement? Im worried that i’ll die before i even see any of the money “invested” that way.