What am I doing wrong?

Jim2007 wrote: »

Well if this is where your at then you need to put some serious time in to learning about investing and understanding the nature of financial risk and maybe a bit more about taxation.


For instance property as an investment falls into a high risk asset class and as such should represent not more than a single percentage allocation in your portfolio, you already own a property and adding a second one will just put you of the charts in terms of financial risk.


Furthermore, this second property would break every rule of thumb when it comes to investing:
- A high risk asset class
- Failure to diversify the risk
- Borrowing to invest
- Accepting a poor rate of return on a high risk investment
These rules have evolved over time based on previous experience as a way to try and protect people from getting badly burned. As we say in the last recession, many people who ignored them got badly burned.



As for taxation, the amount you pay will ultimately depend on where you decide to locate and the double tax agreement between that country on Ireland.



My advice would be to do nothing now, but study, study, study.

Thanks for taking the time to reply.

I don’t think you ever stop learning, and I am always aware that there may be a certain aspect of an issue that I have not considered, which is why I came here looking for advice. Having said that, I make investment decisions for a living and have a solid background in the field, so I am afraid that for better or for worse, this is not a case of me not having the tools to make informed decisions.

I will however admit that I do not find this field particularly interesting, and that as a result I tend not to use too much of this knowledge in my personal life - basically I want to make sure I am on a solid path overall, but I have no real desire to spend time looking at the stock market, for instance.

Buying a bigger house is something that will hopefully happen in time, and is really lifestyle driven - ie. would not be happening for investment reasons. I would tend not to consider my primary home as a financial asset, in the sense that I cannot really live in a bond or stock portfolio. However, I do take the point that it is a substantial portion of my wealth.

The main question would be whether to sell the property I am currently living in, and roll the proceeds into the new property, or to keep the current property and buy with a mortgage.

Although I dislike the idea of being in debt, I also think that having a mortgage on your primary home is not unusual and probably an acceptable level of risk, given that my employment is relatively secure and with good prospects.

I could probably buy without a mortgage by selling my current house, but within a short period of time I would probably be faced with the issue of what to do with my savings.

Assuming things don’t change between now and then - ie. rates and risk premia remain at all-time lows, equity multiples remain at all-time highs, growth remains sluggish etc. - then perhaps not selling my current property would not be a bad idea? The net yield on it would probably be in the region of 3% of its current market value, after taxes, and assuming that my employment remains secure etc, I don’t think I would need access to this capital for years to come and therefore, I would have discretion to sell it at a time that suits me (for what it’s worth, the property is deep in the money, although my point of reference should probably be its market value at the time when I make a decision).

The only potential issues with the reasoning above that I can think of are the following:
- You could perhaps argue that 3% net is not an adequate return for the risk I am taking
- You could perhaps argue that my exposures are correlated, but I wonder if it really matters as long as I am not in a liquidity crunch and don’t have to sell? Working in the financial sector, my income and career prospects are also not insulated from the market, and I wonder if an equity portfolio instead of a rental property would really make me better off?

McGaggs wrote: »

10% going to the pension seems a little low.

Would agree with you - I think I will put most of my next pay rise into it.