Where to invest €500a month?

lightspeed · 13-11-2020 6:47pm #1

Hi all

I'm thinking of investing €500 a month in an investment fund but I'm not sure what would give decent and stable returns.

I'd like to aim for a return of 5% a year . I looked at the below and see there are good returns from several. One such that caught my eye was 5 star 5 America fund. However, when I click on it and scroll down to the factsheet the returns seem different from what calculator shows whether I pick annualised or calendar year.

https://www.zurich.ie/funds/fund-performance-calculator/

https://www.zurich.ie/funds/fund-products/equity-funds/american-equity-funds/5-star-5-americas/

I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?

Do I have to pay income tax each year on profits made on the fund even if I dont make any withdrawals or sale of my shares in the fund?

Diarmuid · 13-11-2020 7:55pm

5% after inflation? You are looking at equities.

Stable and decent are usually translated into risk and reward. And it shouldn't be a surprise that they are related. One goes up the other goes down. If you are not willing to either invest for say 5+ years or could not handle a 20% loss in a single year then equities are not for you. And you are not going to get a 5% return (after inflation)

Those are managed funds which are well documented to underperform index funds in the long run. You need to read up on the difference between the two

The tax treatment of investment funds in Ireland is needlessly complex and again probably something that you need to read up on

13-11-2020 8:06pm

I'm interested in this too so gonna monitor here for other useful info.

lightspeed · 13-11-2020 9:08pm

Diarmuid wrote: »

5% after inflation? You are looking at equities.

Stable and decent are usually translated into risk and reward. And it shouldn't be a surprise that they are related. One goes up the other goes down. If you are not willing to either invest for say 5+ years or could not handle a 20% loss in a single year then equities are not for you. And you are not going to get a 5% return (after inflation)

Those are managed funds which are well documented to underperform index funds in the long run. You need to read up on the difference between the two

The tax treatment of investment funds in Ireland is needlessly complex and again probably something that you need to read up on

Thanks I did some googling on mutual funds and index funds. Its seems odd to me that index funds outperform mutual funds considering my understanding is that mutual funds cost more as the funding is paying people huge salaries on basis that they can make the right investment decisions.

My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund.

So for example, If I'm understanding things right if I invested 6000 a year for 15 years in S&P 500 id have 201,518 even with adjusting for inflation according to calculator in the below if results were repeated. I put in start year of 2004 to 2019 on below calculator for S&P 500.

https://financial-calculators.com/historical-investment-calculator

Any idea how much fees would be or what the best way to invest in an index fund would be?

I did have a look at tax implications but how are index funds specifically taxed?

I'd have thought it would only be when I sell my shares that any profit realised would be taxed at 33% based on current CGT rate.

Jim2007 · 13-11-2020 9:40pm

lightspeed wrote: »

Thanks I did some googling on mutual funds and index funds. Its seems odd to me that index funds outperform mutual funds considering my understanding is that mutual funds cost more as the funding is paying people huge salaries on basis that they can make the right investment decisions.

Well contrary to what a lot of people think, these fund managers not particularly bad at there job, in fact many of them do a good job, given the handicaps the face.

There are several disadvantages to managing the typical fund as opposed to say a pension or sovereign fund.
- The first is that you can't be fully invested, you must always maintain a high degree of liquidity to be able to facilitate all the withdrawals and so on.
- Then there is the need to attract and retain investors, so you need to be invested in the popular stocks at all times. Because when an investor reads a story about great result etc... they are going to check their fund to see if it has a position
- The need to track a benchmark as closely as possible.
- They are restricted by the legal and fund framework

So the task of a typical fund manager is to try and replicate the performance of a given benchmark without being fully invested, while at the same time attract and retain investors by keeping up with the trend.

So it is not really surprising that they often fail to deliver in such circumstances. And those that do well in such circumstances tend to get head hunted by pension and sovereign funds.

namloc1980 · 14-11-2020 1:44pm

Unfortunately tax laws in Ireland are punitive for regular investors. Pension funds offer the only real way to shelter your investments from the Taxman. As mentioned above the taxation of funds is quite complex and needlessly punishing. Investing directly in shares is an option.

Jim2007 · 14-11-2020 2:31pm

namloc1980 wrote: »

Investing directly in shares is an option.

It is not a realistic option for the average Joe or Mary, most will dramatically under perform the the typical index fund, even after taxes.

JackieChang · 14-11-2020 2:35pm

Have a look at Scottish Mortgage Investment trust. Although might be too risky for you.

It's the only stock in my retirement portfolio. Yolo to the max baby.

If it's a bit high risk for you, you could look at their other funds: https://www.bailliegifford.com/en/uk/individual-investors/funds/

Jim2007 · 14-11-2020 2:44pm

lightspeed wrote: »

I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?

I would say no. General consensuses is that equities should return about 8%. Allowing for fees that would mean a realist expectation would be about 6.5% to 7%. Also note that the funds you have referenced are reporting gross returns.

On the other hand the two trust funds I'm most familiar with have annualized returns of 18% - 20%, which is the kind of return you'd expect from an actively managed fund over the period.

Jcarver · 14-11-2020 10:05pm

Hi all,

Since this discussion is broadly on different investment funds, does anyone have any experience or opinions on Altana Wealth?

I am considering investing in their 'Top Billion Fund'
https://www.altanawealth.com/tbf-overview

Cheers!

Jim2007 · 15-11-2020 2:26am

Jcarver wrote: »

Hi all,

Since this discussion is broadly on different investment funds, does anyone have any experience or opinions on Altana Wealth?

I am considering investing in their 'Top Billion Fund'
https://www.altanawealth.com/tbf-overview

Cheers!

I have neither the time nor the motivation to dig into it, but a quick look would lead me to advise great caution.

lightspeed · 15-11-2020 12:32pm

Jim2007 wrote: »

I would say no. General consensuses is that equities should return about 8%. Allowing for fees that would mean a realist expectation would be about 6.5% to 7%. Also note that the funds you have referenced are reporting gross returns.

On the other hand the two trust funds I'm most familiar with have annualized returns of 18% - 20%, which is the kind of return you'd expect from an actively managed fund over the period.

I'm a bit confused as you say no with regard to my question of realistic returns of 5% after inflation but then quote higher rates?

Are you saying in some cases returns could be higher? I assume gross rates dont include fees. Would these be typically 1.5 to 2%?

Why do people opt to invest in mutual funds over index? Is it just that they believe the mutual fund they have chosen will offer a greater return?

If one was to invest in an index funds, are they putting their money into a pot effectively that is used as capital or are they actually buying shares?

I'm trying to figure out if I invest in an index fund will i pay income tax on any profits each year at 51% marginal rate, or just Cgt at 33% when I sell all shares and realise the profit?

Saudades · 15-11-2020 6:32pm

lightspeed wrote: »

I did have a look at tax implications but how are index funds specifically taxed?

Gains on Index funds like the S&P are taxed at 41%.

This article is almost three years old but still up to date as far as I know - https://www.irishtimes.com/business/personal-finance/don-t-invest-in-an-etf-until-you-understand-the-tax-1.3421331

unplayable · 15-11-2020 6:38pm

lightspeed wrote: »

Hi all

I'm thinking of investing €500 a month in an investment fund but I'm not sure what would give decent and stable returns.

I'd like to aim for a return of 5% a year . I looked at the below and see there are good returns from several. One such that caught my eye was 5 star 5 America fund. However, when I click on it and scroll down to the factsheet the returns seem different from what calculator shows whether I pick annualised or calendar year.

https://www.zurich.ie/funds/fund-performance-calculator/

https://www.zurich.ie/funds/fund-products/equity-funds/american-equity-funds/5-star-5-americas/

I'm a bit lost but is the above fund decent? Is 5% a realistic return or not?

Do I have to pay income tax each year on profits made on the fund even if I dont make any withdrawals or sale of my shares in the fund?

Do 400 pm in a mix of Zurich prisma 3 and 4 very good funds.

Maybe the other 100 into Bitcoin.

jams100 · 15-11-2020 6:43pm

lightspeed wrote: »

My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund

Why would you put money in an investment fund before paying off the mortgage?
Your going to end up paying tax on any profits from the investment funds and your immediately negating any profits by not paying off more of your mortgage.
I really don't see why you wouldn't pay off your mortgage quicker?
To get a more assured return on your investment fund your going to have to leave it there for 5+ years anyway otherwise its just too risky.
My two cents are: pay off mortgage quicker whilst at the same time look around at what funds are most suitable to your needs

dxhound2005 · 15-11-2020 9:28pm

This site will let people calculate how much they can save by increasing their monthly mortgage repayments and/or paying in a lump sum.

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

lightspeed · 17-11-2020 8:36pm

jams100 wrote: »

Why would you put money in an investment fund before paying off the mortgage?
Your going to end up paying tax on any profits from the investment funds and your immediately negating any profits by not paying off more of your mortgage.
I really don't see why you wouldn't pay off your mortgage quicker?
To get a more assured return on your investment fund your going to have to leave it there for 5+ years anyway otherwise its just too risky.
My two cents are: pay off mortgage quicker whilst at the same time look around at what funds are most suitable to your needs

Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?

dxhound2005 · 17-11-2020 8:55pm

You said this in an earlier post:

"My hope is that I can have my mortgage paid off in 15 years whilst throughout that time also be able to invest 500 euro a month in an investment fund."

Does that mean you are making extra payments or lump sums to shorten the life span of the mortgage? If you haven't done so already find out the exact interest rate you are paying and put that information in the calculator, along with a €500 a month top up. You could find that you will have paid off the mortgage in maybe 8 years instead of 15. Which means you will have cleared the principle as well the interest, and that needs to be taken into account in a long term calculation.

cooperguy · 17-11-2020 9:08pm

unplayable wrote: »

Do 400 pm in a mix of Zurich prisma 3 and 4 very good funds.

Maybe the other 100 into Bitcoin.

Gambling 20% of your monthly savings seems like a very high proportion to me.

Shedite27 · 17-11-2020 9:18pm

lightspeed wrote: »

Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?

Correct. While mortgages are this low you're far better off investing your spare money.

jams100 · 17-11-2020 9:50pm

Shedite27 wrote: »

Correct. While mortgages are this low you're far better off investing your spare money.

Ok, that's a fair point but there is still a risk even if its small by investing the money but there is no guarantee that the mortgage will be at that rate either, unless its a fixed rate.

The way I see it is that paying the mortgage quicker is a 100% guaranteed way of saving money rather than investing it where it could (however unlikely) return a minimal amount.

conor1979 · 17-11-2020 10:21pm

lightspeed wrote: »

Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

I think mortgage is 2.3% so is my money not getting a better return if I can achieve anything above this rate?

Hence rather than increase mortgage payments to decrease the amount of money I'm paying at 2.3% is it not better I use same money to invest if I get a rate above e.g 5%?

Am I getting this wrong, would it not be better to pay down the mortgage if you can?

Based on the fact that 2.3% interest on the principal amount (assuming its 6 figures) would be higher than 5% investment income (unless the investment is also 6 figures, or at least half of the mortgage)???

y0ssar1an22 · 17-11-2020 10:35pm

Have you got a pension?

Dellboy2007 · 17-11-2020 11:30pm

I’m doing something similar, except putting the €500 a month into a CFD which tracks a well known index. Benefit of doing this is tax at 33% rather than the aforementioned 41%.

Jim2007 · 17-11-2020 11:50pm

lightspeed wrote: »

Perhaps I'm missing something but would that not be a poor investment decision given how low mortgage rates are?

The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
- You borrowed to invest
- You invested in a high risk asset class
- You failed to diversify the risk
- More than 7% of your wealth is in a high risk asset class leaving you very exposed
- you are invested in a high risk asset class with a low rate of return.
- you have invested in an illiquid asset

There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.

BailMeOut · 18-11-2020 12:03am

Are you maxing out your pension as investing pre tax in a self managed PRSA might be a better option and diversify what you investment in each month.

Dellboy2007 · 18-11-2020 12:09am

Jim2007 wrote: »

The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
- You borrowed to invest
- You invested in a high risk asset class
- You failed to diversify the risk
- More than 7% of your wealth is in a high risk asset class leaving you very exposed
- you are invested in a high risk asset class with a low rate of return.
- you have invested in an illiquid asset

There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.

Two questions on this:

1. What’s the realistic alternative living somewhere in Dublin with a family? Rent?
2. What other investment opportunity allows you to leverage up to buy an asset by 10x 20x. I’m not sure if I went to the bank and asked them for a loan for half a million for buying a diversified pool of securities they would buy into it.

It all sounds very much like what David McWilliams spouts, i.e. the commonwealth (and ex commonwealth) country’s obsession with owning property, I’m just not sure how renting in places like Dublin is a viable alternative.

ShlugMurphy · 18-11-2020 12:17am

I've put on average 1000 quid into the markets since around May time - not each month but kinda lumped at different times.

Bought single stocks on DeGiro. Main holdings are BRK.B and BABA which is about 73% of my portfolio.

Other stocks I have are real estate and airlines which I am up about 40+% on these.

In total I am up around 7%. And if there were't any currency losses, I would have about 40% more profit currently, so maybe close to 10 or 11%.

I am really comfortable with BRK.B, well run, no major risks and well diversified.

I am down about 10% on BABA but confident this will turn around aswell. Breakeven on MSFT.

ShlugMurphy · 18-11-2020 12:37am

Jim2007 wrote: »

The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:
- You borrowed to invest
- You invested in a high risk asset class
- You failed to diversify the risk
- More than 7% of your wealth is in a high risk asset class leaving you very exposed
- you are invested in a high risk asset class with a low rate of return.
- you have invested in an illiquid asset

There is a very unhealthy emotion attached to property ownership in the English speaking world. The evidence is there for everyone to see. Every time we have a recession people’s financial futures get burned as a result of property related decisions. The old landed gentry were basically wiped out because property did not stand the test of time.

If you have a high risk portfolio it always makes sense to work on reducing your exposure because you’ll be better placed to face the next recession.

Property owners are cleaning up to be realistic though.

We had a once in a lifetime property crash and you'd still be better off buying at the worst possible time in the tiger than renting all the way through.

angryInch · 18-11-2020 12:46am

Dellboy2007 wrote: »

I’m doing something similar, except putting the €500 a month into a CFD which tracks a well known index. Benefit of doing this is tax at 33% rather than the aforementioned 41%.

What platform are you using for this?
Around what percentage are you paying in fees annually? Or are these short term trades?

Dellboy2007 · 18-11-2020 1:04am

angryInch wrote: »

What platform are you using for this?
Around what percentage are you paying in fees annually? Or are these short term trades?

I’m using eToro. No overnight fees or weekend fees. No broker commissions or transaction fees either. Etoro makes money off the spread which in my case will be on the buy side. I’ve researched it and couldn’t find a better way to do what I’m doing.

jams100 · 18-11-2020 1:24am

Jim2007 wrote: »

The poor investment decision would have been buying the property in the first place! In order to buy the property you went against every rule of thumb:

I imagine the house is where the guy is living and NOT so much an investment decision. What's the alternative, spend money on rent that he'd never see again once handed over?
Given the rent situation in Ireland your likely to be paying rent for decades before you have the chance to buy a house outright unless you have a very well paid job or generous family.

cagefactor · 18-11-2020 1:30am

Can use etore or trading212 to put 500 a month into stocks
- microsoft
- tesla
- amazon
- google
- visa
etc etc

Pick 3-5 stocks who are low risk, i.e. company is not going to tank.

Maybe you can even pay for some trading advice, and then just load the 500 split into your 3-5 stocks every month.

Jim2007 · 18-11-2020 4:24am

jams100 wrote: »

What's the alternative, spend money on rent that he'd never see again once handed over?

If you were to consistently apply that logic, then why go on holidays, most hobbies etc.... the answer of course is that you do get value out of all those things including renting accommodation. It depends on perception and marketing.

Given the rent situation in Ireland your likely to be paying rent for decades before you have the chance to buy a house outright unless you have a very well paid job or generous family.

Why do you need to buy a house at all? The reality is that for the most of your life it will not match your needs and consume a substantial portion of your income.

As I said, there is a lot of emotion involved, but purely from a financial point of view it’s not a great idea.

Jim2007 · 18-11-2020 4:41am

ShlugMurphy wrote: »

Property owners are cleaning up to be realistic though.

As opposed to what? If you want to be realistic then cost and benchmark mark it realistically against the alternatives. When we construct portfolios we don’t keep property below 6%/7% because we want to handicap the investor. We do it because experience tells us that beyond that the risks outweigh the advantages.

We had a once in a lifetime property crash and you'd still be better off buying at the worst possible time in the tiger than renting all the way through.

Recessions are a fact of life and property bubbles are part of it. And the next one is well on its way and right not the biggest stinker in there is consumer credit. And when that blows it is going to impact the average Joe & Mary’s ability to pay down their mortgage big time.

joeguevara · 18-11-2020 5:51am

You have not given enough information for people to give you a complete opinion. Firstly do you have any other debt such as credit union loans or credit cards. I’ve seen so many people invest in products that have a coupon less than the interest that they are paying on debt.

Also mortgages differ and trackers are so low but variables can be very high rates. Also overpaying your mortgage can drastically reduce the length of it but some mortgages don’t allow it or have different impacts.

Some posters have mentioned pensions and from a tax perspective can be hard to beat. If you’re looking for long term gain then they’re usually difficult to beat. Also you can have input into the investments or take advice. Depending on the product provider the fees can differ drastically.

Lastly, making money on the markets is not easy. If it was traders wouldn’t be working hard for others. Don’t be lured in by huge returns or get rich quick. Also you have to be able to handle the ups and downs. Listening to the amount of people who panicked when the markets plummeted with the start of Covid and liquidated their pension to cash against advice and are regretting it as markets recovered is crazy.

Everything depends on what you want and what you currently have.

lightspeed · 18-11-2020 1:18pm

joeguevara wrote: »

You have not given enough information for people to give you a complete opinion. Firstly do you have any other debt such as credit union loans or credit cards. I’ve seen so many people invest in products that have a coupon less than the interest that they are paying on debt.

Also mortgages differ and trackers are so low but variables can be very high rates. Also overpaying your mortgage can drastically reduce the length of it but some mortgages don’t allow it or have different impacts.

Some posters have mentioned pensions and from a tax perspective can be hard to beat. If you’re looking for long term gain then they’re usually difficult to beat. Also you can have input into the investments or take advice. Depending on the product provider the fees can differ drastically.

Lastly, making money on the markets is not easy. If it was traders wouldn’t be working hard for others. Don’t be lured in by huge returns or get rich quick. Also you have to be able to handle the ups and downs. Listening to the amount of people who panicked when the markets plummeted with the start of Covid and liquidated their pension to cash against advice and are regretting it as markets recovered is crazy.

Everything depends on what you want and what you currently have.

Apologies, that's fair as ive not provided much on my own circumstances and goals.

Im 33 and just got loan approval for a house. I also have a baby on the way.

I earn 50k a year but don't have a pension. I likely will start a pension once ive got the keys for the house as I can see its a tax efficient investment.

From crunching the numbers, if can see that I will clear the mortgage in 15 years if I put 500 euro extra a month off the balance. Im aware that some fixed rate mortages don't allow you pay it off with penalising you but ive been told by the broker I could wait until fixed term is up and lump it off in one go.

A pension seems a like a good use of the funds but I was hoping I could invest additional funds of €500 a month so that I would have sufficient funds to retire. I was thinking I could use such funds to get a mortgage on a multi unit buy to let property to generate income of around 40k per year. If my mortgage is paid of I figure It would be enough of an income to survive and provide for the family.

I will admit though that I had not calculated the impact of high amounts of tax when assuming id have sufficient funds to reinvest in the above.

My partner will be going on maternity leave but intends to return to work although we may have another child.

Timmaay · 18-11-2020 1:55pm

Dellboy2007 wrote: »

I’m using eToro. No overnight fees or weekend fees. No broker commissions or transaction fees either. Etoro makes money off the spread which in my case will be on the buy side. I’ve researched it and couldn’t find a better way to do what I’m doing.

Have you looked at the sums for doing similar on a spreadbetting platform like IG? You have fees for holding position's overnight, and you pay a spread however its considered gambling so tax free so you straight up will save your 33% cgt.

Dellboy2007 · 18-11-2020 2:41pm

Timmaay wrote: »

Have you looked at the sums for doing similar on a spreadbetting platform like IG? You have fees for holding position's overnight, and you pay a spread however its considered gambling so tax free so you straight up will save your 33% cgt.

Fees overnight? So I’d have to close position every day and reopen in the morning at which time the premarket will likely have swallowed up any potential gains? Or am I missing something here? How is this any better?

Shedite27 · 18-11-2020 2:45pm

lightspeed wrote: »

Apologies, that's fair as ive not provided much on my own circumstances and goals.

Im 33 and just got loan approval for a house. I also have a baby on the way.

I earn 50k a year but don't have a pension. I likely will start a pension once ive got the keys for the house as I can see its a tax efficient investment.

From crunching the numbers, if can see that I will clear the mortgage in 15 years if I put 500 euro extra a month off the balance. Im aware that some fixed rate mortages don't allow you pay it off with penalising you but ive been told by the broker I could wait until fixed term is up and lump it off in one go.

A pension seems a like a good use of the funds but I was hoping I could invest additional funds of €500 a month so that I would have sufficient funds to retire. I was thinking I could use such funds to get a mortgage on a multi unit buy to let property to generate income of around 40k per year. If my mortgage is paid of I figure It would be enough of an income to survive and provide for the family.

I will admit though that I had not calculated the impact of high amounts of tax when assuming id have sufficient funds to reinvest in the above.

My partner will be going on maternity leave but intends to return to work although we may have another child.

Sounds like you main goal is to have funds when you retire.

Your extra €500 a month, you put that into pension, you get €500 into your pension fund. Depending where you work, they may match or better that, so it's potentially €1000 into your pension fund. with 10% returns (S&P average), that would grow to €16k by the time you're 63 for every €500 you put in your pension today.

You take your extra €500 a month into a investment, you pay tax at source (42%) so it's now €290. Invest that for 30 years and get 10% return (S&P average), you get to €4,600. But your profit of €4310 is liable to 33% CGT so you've now got €2,873 for every €500 you put into your investments today.

So €500*12 to put away today, will give you the following options when you get to 63:
Pension: €192k
Investments: €35k

Quite a difference. I always advise people to max out their pensions contributions before looking at investments or paying off mortgages, the tax difference really adds up

ShlugMurphy · 18-11-2020 2:52pm

Shedite27 wrote: »

Sounds like you main goal is to have funds when you retire.

Your extra €500 a month, you put that into pension, you get €500 into your pension fund. Depending where you work, they may match or better that, so it's potentially €1000 into your pension fund. with 10% returns (S&P average), that would grow to €16k by the time you're 63 for every €500 you put in your pension today.

You take your extra €500 a month into a investment, you pay tax at source (42%) so it's now €290. Invest that for 30 years and get 10% return (S&P average), you get to €4,600. But your profit of €4310 is liable to 33% CGT so you've now got €2,873 for every €500 you put into your investments today.

So €500*12 to put away today, will give you the following options when you get to 63:
Pension: €192k
Investments: €35k

Quite a difference. I always advise people to max out their pensions contributions before looking at investments or paying off mortgages, the tax difference really adds up

Why do people in pensions never mention you have to pay tax on the pension when you get it.

And why would he be paying tax on the 500. The 500 would be net, not gross.

jams100 · 18-11-2020 2:57pm

Jim2007 wrote: »

Why do you need to buy a house at all? The reality is that for the most of your life it will not match your needs and consume a substantial portion of your income.

As I said, there is a lot of emotion involved, but purely from a financial point of view it’s not a great idea.

From a financial point of view it is a good idea considering the alternative. You do realise its either rent or own a house.

Every month of rent paid is money you'll never see again.
Every month of a mortgage repayment is money towards an asset that you'll own, which over a long term basis should rise.

Given the two choices I know which I'd pick.

Anyway back on topic, yes I'd max out pension contribution op if you haven't already done that and then pay off the mortgage as a lump sum when the fixed term ends with any remaining sums you have, if your wife is out of work can she pass her tax credits over to you if you haven't already done so? Think I've heard of people doing that before

ShlugMurphy · 18-11-2020 3:24pm

jams100 wrote: »

From a financial point of view it is a good idea considering the alternative. You do realise its either rent or own a house.

Every month of rent paid is money you'll never see again.
Every month of a mortgage repayment is money towards an asset that you'll own, which over a long term basis should rise.

Given the two choices I know which I'd pick.

Anyway back on topic, yes I'd max out pension contribution op if you haven't already done that and then pay off the mortgage as a lump sum when the fixed term ends with any remaining sums you have, if your wife is out of work can she pass her tax credits over to you if you haven't already done so? Think I've heard of people doing that before

Welllll...you're paying interest on a mortgage.

The way I see it, is I can pay interest or I can pay rent.

If I'm investing the "principal" while I'm renting, it can grow and then when it comes to buying a house I can withdraw the investment and use it as a massive deposit.

Shedite27 · 18-11-2020 3:38pm

ShlugMurphy wrote: »

Why do people in pensions never mention you have to pay tax on the pension when you get it.

And why would he be paying tax on the 500. The 500 would be net, not gross.

Well yes, you pay tax on it when you take an income from it monthly post-retirement, but the first €200k is tax free, and then you've your usual tax-free allowances on what you do get.

I was using gross=gross in both examples. If you want to take it as net=net then you'd have to increase the value into the pension in the pension example

Dellboy2007 · 18-11-2020 3:54pm

I think the whole pension thing is a bit overplayed. Firstly I’d note that I am not saying that you shouldn’t contribute to a pension, and in the above case I think you should definitely be starting a pension if you don’t have one, but for those who already have a pension which employer also contributes to, I’d take it with a pinch of salt when someone says to you that you should max out pension. Yeah you could have a huge pension of 1 or 2 million on retirement (which will be taxed) but whether the pension is 1 million or 2 million at that age matters less to me than having a lump sum in my 40’s / 50’s that I am in control of and have access to when I want. Don’t forget you’ll also have state pension, as long as SF don’t get into power and start means testing it or something bonkers.

Summary: if you already have a pension with employer contributions, think about it before making further voluntary contributions.

Shedite27 · 18-11-2020 4:41pm

Dellboy2007 wrote: »

I think the whole pension thing is a bit overplayed. Firstly I’d note that I am not saying that you shouldn’t contribute to a pension, and in the above case I think you should definitely be starting a pension if you don’t have one, but for those who already have a pension which employer also contributes to, I’d take it with a pinch of salt when someone says to you that you should max out pension. Yeah you could have a huge pension of 1 or 2 million on retirement (which will be taxed) but whether the pension is 1 million or 2 million at that age matters less to me than having a lump sum in my 40’s / 50’s that I am in control of and have access to when I want. Don’t forget you’ll also have state pension, as long as SF don’t get into power and start means testing it or something bonkers.

Summary: if you already have a pension with employer contributions, think about it before making further voluntary contributions.

I think everyone just needs to understand what they're going to live on when they get to that age. €250 a week is doable if you've a mortgage paid off and don't have any expensive habits. If you suddenly have a lot of spare time and want to take up some hobbies or travelling to spend the time, you'll need a bit more. Same if you want to leave an inheritance or help any offspring with house deposits.

I have a few friends who are anti-pension (realise you're not Dellboy), I can't see why you wouldn't take advantage of getting the money to invest without taking 42% tax, and also whatever your company tops it up with. It's literally free money.

ShlugMurphy · 18-11-2020 4:53pm

Dellboy2007 wrote: »

I think the whole pension thing is a bit overplayed. Firstly I’d note that I am not saying that you shouldn’t contribute to a pension, and in the above case I think you should definitely be starting a pension if you don’t have one, but for those who already have a pension which employer also contributes to, I’d take it with a pinch of salt when someone says to you that you should max out pension. Yeah you could have a huge pension of 1 or 2 million on retirement (which will be taxed) but whether the pension is 1 million or 2 million at that age matters less to me than having a lump sum in my 40’s / 50’s that I am in control of and have access to when I want. Don’t forget you’ll also have state pension, as long as SF don’t get into power and start means testing it or something bonkers.

Summary: if you already have a pension with employer contributions, think about it before making further voluntary contributions.

I have a company matched pension for a couple years and only now has it actually gone above the value of the money put in.

Now, 50% of that is company money so I'd break even if it dropped 50% but, the pension itself I don't think is doing well.

I'm young so I put it at the highest risk possible and it's doing way worse than "industry average".

namloc1980 · 18-11-2020 4:58pm

ShlugMurphy wrote: »

I have a company matched pension for a couple years and only now has it actually gone above the value of the money put in.

Now, 50% of that is company money so I'd break even if it dropped 50% but, the pension itself I don't think is doing well.

I'm young so I put it at the highest risk possible and it's doing way worse than "industry average".

That doesn't sound great. Based on the gains in the stock market and the longest bull market on record, the worst pension manager in the world should still be making gains. What kind of fund is it in or tracking against?

ShlugMurphy · 18-11-2020 4:58pm

Shedite27 wrote: »

I think everyone just needs to understand what they're going to live on when they get to that age. €250 a week is doable if you've a mortgage paid off and don't have any expensive habits. If you suddenly have a lot of spare time and want to take up some hobbies or travelling to spend the time, you'll need a bit more. Same if you want to leave an inheritance or help any offspring with house deposits.

I have a few friends who are anti-pension (realise you're not Dellboy), I can't see why you wouldn't take advantage of getting the money to invest without taking 42% tax, and also whatever your company tops it up with. It's literally free money.

Only reason I'm doing a pension is because it's a company one and they match it up to certain amount.

I am not really a fan of locking away money that you won't be able access for 40 years.

And who knows what the pension age will be in the future.

AndrewJRenko · 18-11-2020 5:08pm

ShlugMurphy wrote: »

Only reason I'm doing a pension is because it's a company one and they match it up to certain amount.

I am not really a fan of locking away money that you won't be able access for 40 years.

And who knows what the pension age will be in the future.

The pension age of this employer's pension fund is set by the trustees of that fund. It is probably 50 and has no connection to government changes for old age pension.

Check your small print or contact your trustees to clarify.

dxhound2005 · 18-11-2020 6:01pm

A €200K mortgage, 30 years 3%, works out at €303,500, repayments €843 per month. Pay in €500 a month extra reduces the amount to €248,500 and pays off the mortgage in 15 years 5 months.

If someone has €500 a month to spare, I see this as the obvious way to go.

Where to invest €500a month?

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