Where to invest €500a month?

jams100 · 18-11-2020 01:24AM

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 01:30AM

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 04:24AM

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 04:41AM

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 05:51AM

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 01:18PM

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 01:55PM

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 02:41PM

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 02:45PM

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 02:52PM

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 02:57PM

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 03:24PM

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 03:38PM

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 03:54PM

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 04:41PM

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 04:53PM

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 04:58PM

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 04:58PM

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.

18-11-2020 05:08PM

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 06:01PM

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.

Shedite27 · 18-11-2020 09:28PM

dxhound2005 wrote: »

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.

With interest rates at 3% and the average S&P index return at 10%......

Put your €500 a month to mortgage, and once that's paid off to savings/investments:
Year 15: €0 Savings, €0 mortgage
Year 30: €200k Savings, €0 mortgage

Put your €500 a month to savings/investments, leave mortgage at 30 years:
Year 15: €200k savings, €125k mortgage
Year 30: €1m savings, €0 mortgage

They're extreme examples and is obviously reliant on index return staying average and mortgage rates staying low. I'd probably advocate something of a middle ground, but the point is, at the moment I don't see the rush to get mortgage free. Having savings allows you a lot more flexibility for a rainy day, holiday fund, kids going to college etc.

dxhound2005 · 18-11-2020 10:09PM

After 15 years 5 months you would have the €843 and the €500 available every month for investment. Plus a freehold property, which would probably have increased in value over the 15 years.

Spanish Eyes · 18-11-2020 10:17PM

Pension contributions is a no brainer with tax relief.

Prize bonds for leftovers..

Shares attract 33% CGT on a gain + stockbroking Fee.

I see sheep · 18-11-2020 10:42PM

ShlugMurphy wrote: »

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.

Slightly off topic sorry but this post interested me.
I almost bought a house right before Covid took off, cancelled it because of the uncertainty.
Now I am considering not buying if we can rent a place for a reasonable price, if (it is a big if) we can keep saving what we have for the last two years for the next 12 we'd have enough in cash to buy the house then. Or just keep the money and keep saving for retirement.
Which is a very attractive proposition.
Obviously if house prices go up a lot this will go against us. But they're pretty static here and I think there must be a bit of a crash coming.
If there's a major crash I'd be tempted to buy something cheap hoping to be like people who bought at the bottom of the last crash.

Water John · 18-11-2020 10:49PM

I see sheep wrote: »

Slightly off topic sorry but this post interested me.
I almost bought a house right before Covid took off, cancelled it because of the uncertainty.
Now I am considering not buying if we can rent a place for a reasonable price, if (it is a big if) we can keep saving what we have for the last two years for the next 12 we'd have enough in cash to buy the house then. Or just keep the money and keep saving for retirement.
Which is a very attractive proposition.
Obviously if house prices go up a lot this will go against us. But they're pretty static here and I think there must be a bit of a crash coming.
If there's a major crash I'd be tempted to buy something cheap hoping to be like people who bought at the bottom of the last crash.

Static house prices or close to it, is largely a good thing for society. There is no evidence of a property crash coming.
Whether to invest in a property depends on each person's personal circumstances. A single person doesn't need a 3/4 bedroom house. The choice in that case is between buying or renting an apt.
Rental needs to be well below mortgage cost to make any sense.

dxhound2005 · 18-11-2020 11:10PM

The next Census has been postponed until 2022. The 2016 Census showed a considerable shift into renting compared to 2011, but also an increase in homes owned outright. To me this is the best position, no big lump of money going out every month for rent or mortgage repayments. I managed to pay off my mortgage a bit early, and it was a good decision.

We won't know for a couple of years, but no doubt renting will have increased even more in the next Census.

https://www.cso.ie/en/releasesandpublications/ep/p-cp1hii/cp1hii/tr/

I see sheep · 18-11-2020 11:25PM

Water John wrote: »

Rental needs to be well below mortgage cost to make any sense.

Does it though?

I'm still not sure. If I can save the price of a house while renting then I'm leaning that way.

When you get the mortgage offer and you see how much you've to pay the bank it's a kick in the teeth tbh.

I know the alternative is paying a landlord, it feels like choosing the lesser of two evils!

breadmonster · 18-11-2020 11:37PM

I see sheep wrote: »

Slightly off topic sorry but this post interested me.
I almost bought a house right before Covid took off, cancelled it because of the uncertainty.
Now I am considering not buying if we can rent a place for a reasonable price, if (it is a big if) we can keep saving what we have for the last two years for the next 12 we'd have enough in cash to buy the house then. Or just keep the money and keep saving for retirement.
Which is a very attractive proposition.
Obviously if house prices go up a lot this will go against us. But they're pretty static here and I think there must be a bit of a crash coming.
If there's a major crash I'd be tempted to buy something cheap hoping to be like people who bought at the bottom of the last crash.

Heres a compound calculator stick your numbers in there and see where you sit
https://www.thecalculatorsite.com/compound?a=60000&p=10&pp=yearly&y=12&rd=500&rt=deposit&rm=beginning&ci=monthly&c=2

lightspeed · 18-11-2020 11:52PM

I can see the benefits of a pension even though my employer does not contribute anything to the company pension scheme.

My only issue is that for most I believe it is 65 years before I could access the funds.

Im hoping to structure my investments in a way that can allow me to retire around 50 if possible.

All going to plan I should be around 50 when I have the mortgage cleared. Im hoping I have enough to buy a buy to let (preferably a multi unit property) that could pay around 40k a year.

Just so im aware of my options down the line and so I can better structure how soon to pay off the mortgage, can anyone answer the following?

1) Do you need to have all of your home mortgage cleared before a bank would give a mortgage on a buy to let property?
2) Would the bank take my salary into account when considering the application. I know this is the case for a home loan but I understand with a buy to let, that the income to cover the mortgage can be assumed to come from the rental income.
3) Is their an age restriction, such as at age 50 could I still get a buy to let mortgage over 20 years or more even though normal retirement age will probably be at least 68 or more by time at age 50?

ShlugMurphy · 18-11-2020 11:57PM

lightspeed wrote: »

I can see the benefits of a pension even though my employer does not contribute anything to the company pension scheme.

My only issue is that for most I believe it is 65 years before I could access the funds.

Im hoping to structure my investments in a way that can allow me to retire around 50 if possible.

All going to plan I should be around 50 when I have the mortgage cleared. Im hoping I have enough to buy a buy to let (preferably a multi unit property) that could pay around 40k a year.

Just so im aware of my options down the line and so I can better structure how soon to pay off the mortgage, can anyone answer the following?

1) Do you need to have all of your home mortgage cleared before a bank would give a mortgage on a buy to let property?
2) Would the bank take my salary into account when considering the application. I know this is the case for a home loan but I understand with a buy to let, that the income to cover the mortgage can be assumed to come from the rental income.
3) Is their an age restriction, such as at age 50 could I still get a buy to let mortgage over 20 years or more even though normal retirement age will probably be at least 68 or more by time at age 50?

I'm sure you're aware, but you need 30% deposit for BTL and your rate will be over twice as much.

Where to invest €500a month?

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