If you had €50K to save/invest

runningbuddy

Hi folks

I have received an inheritence of €50K. Have cleared Visa bill so left with €50K. What is the best savings account to lodge this? Have never had a lump sum or savings for that matter !! Any advice/tips? many thanks

Jim2007

For savings have a look at these threads:

Instant Access & Notice Deposit Accounts

Term Deposits (Fixed Lump Sum Savings)

Regular Savings Accounts

With respect to investing, you need to provide some additional information to obtain realistic opinions:
- Time line: How long are you intending to invest for
- Risk Profile: If your investment were to drop to 30k, would you exit or hold on
- Performance: How much do you realistically want/need to accumulate.

In a nutshell you should never take on more risk that you need to in order to achieve your objective.

crisco10

I'll just get in there before others....

How's your pension looking? Probably not for all of it, but certainly a tax benefit toward using some of it.

The J Stands for Jay

Emergency fund
Pension
Mortgage

The J Stands for Jay

The J Stands for Jay wrote: »

Emergency fund
Pension
Mortgage

Everyone's different, of course, but for me, Mortgage would go before Pension.

caviardreams

Deleted User wrote: »

Everyone's different, of course, but for me, Mortgage would go before Pension.

Depends on your tax rate - if paying tax at the top rate and your pension isn't already incredibly healthy then it's a no brainer to avail of the maximum relief after you have your rainy day fund and cash for any immediate plans put aside.

dotsman

The J Stands for Jay wrote: »

Emergency fund
Pension
Mortgage

You forgot life savings and investments which goes between emergency fund and pension.

Deleted User wrote: »

Everyone's different, of course, but for me, Mortgage would go before Pension.

You are right that everyone is different, but anybody who actually wants financial security/independence would put overpaying a mortgage at the very bottom of any list.

TheDriver

dotsman wrote: »

You forgot life savings and investments which goes between emergency fund and pension.


You are right that everyone is different, but anybody who actually wants financial security/independence would put overpaying a mortgage at the very bottom of any list.

Really? Why is overpaying a mortgage not in keeping with financial independence?

Fred Cryton

Paying off the mortgage with €50k will save you about €200 per month in interest, or €2,400 per year. That's an annual return of around 5% on your money...tax free. And the money is not spent, you just own more equity in the your home.

By a mile it's the best use of the money. Assuming the OP has a mortgage. Don't go near a savings account if you have a mortgage.

The J Stands for Jay

Fred Cryton wrote: »

Paying off the mortgage with €50k will save you about €200 per month in interest, or €2,400 per year. That's an annual return of around 5% on your money...tax free. And the money is not spent, you just own more equity in the your home.

By a mile it's the best use of the money. Assuming the OP has a mortgage. Don't go near a savings account if you have a mortgage.

If you're paying 5% interest on a mortgage, it'd definitely be wise to pay it down.

The J Stands for Jay

TheDriver wrote: »

Really? Why is overpaying a mortgage not in keeping with financial independence?

The return will be the interest rate, which would be around 2.5%. As it's tax-free return, if you compare it to an investment that's liable to CGT it's the equivalent of 3.73% gross return. You should easily be able to get an investment that returns in excess of 3.73% which will get you to your goal of financial independence much more quickly.

Bandana boy

Fred Cryton wrote: »

Paying off the mortgage with €50k will save you about €200 per month in interest, or €2,400 per year. That's an annual return of around 5% on your money...tax free. And the money is not spent, you just own more equity in the your home.

By a mile it's the best use of the money. Assuming the OP has a mortgage. Don't go near a savings account if you have a mortgage.

If your mortgage is costing you 5% , then your very next step should be to change your mortgage provider .

If your mortgage payment is seriously affecting your quality of life , then pay this off the mortgage and live life better.
If that's not the case there is many ways to invest this dependent on how much risk your happy to take.

Fred Cryton

Bandana boy wrote: »

If your mortgage is costing you 5% , then your very next step should be to change your mortgage provider .

If your mortgage payment is seriously affecting your quality of life , then pay this off the mortgage and live life better.
If that's not the case there is many ways to invest this dependent on how much risk your happy to take.

Let's say it's costing you 3%. Name a savings account which would beat that.

The J Stands for Jay

Fred Cryton wrote: »

Let's say it's costing you 3%. Name a savings account which would beat that.

A savings account isn't a great long term investment, regardless on the interest rate environment at the time. It will usually struggle to beat inflation.

dotsman

TheDriver wrote: »

Really? Why is overpaying a mortgage not in keeping with financial independence?

Because it is a terrible idea for most people. Yet they still do it. Why? Because it was great advice 20 years ago - but it ain't anymore.

Up to 20 years ago, the average Irish person was paying huge interest rates on their mortgage and had little access to investment options (tbh, they had none). As a result, people left their money in a low-interest deposit account or under their bed. Thus, overpaying your mortgage offered a huge financial return compared to the alternatives and was great advice.

However, today, mortgage interest rates are ridiculously low (have been for a long time now and will likely stay low for the foreseeable future). Likewise Irish people now have access to great investment options. Investing in the stock market offers an average of 10% per annum. As per The J Stands for Jay's post above, with mortgage overpayments, even with the tax element, it is really only the equivalent of <4% return. That 6% difference per annum is huge, especially when compounded year-on-year.

But it is more than the huge difference in returns. When you overpay your mortgage, you have to wait until the end the mortgage (10/15/20 years for many people) before you receive that small gain. However, with investing, should you require the money anytime over the next 10/15/20 years, you can simply cash in some/all of the investment. Another way of looking at it is, when overpaying your mortgage, you (probably blindly) assuming that you don't get hit with a large expense or decrease in income at any stage during the life of the mortgage. That is a scary thought. One of the key aspects of financial independence is that you do have all your bases covered and can handle financial misfortune should it ever strike you.

Put it another way. Let's say that by overpaying you are reducing the term on your mortgage from 20 to 17 years. However, if you invest that money, not only do you have access to it if you ever need it, but if you don't end up needing it, you can always use it to pay off the remainder of your mortgage after maybe 13 years (as it will have grown significantly over that time - a lot more that the mortgage overpayments).

dotsman

Fred Cryton wrote: »

Let's say it's costing you 3%. Name a savings account which would beat that.

Savings/deposit accounts are for short term emergency funds. And nothing more.

Jim2007

dotsman wrote: »

Investing in the stock market offers an average of 10% per annum.

The general consensus is about 6% or 7% gross annualized for equities over the long haul. For the average Joe or Mary it’s more like 2% or 3%.

It’s not about the math, it’s about human behavior. The average Joe and particularly Mary will chop, change and time the market regularly over a 30 year period and many will be lucky to come away with the money they put in. A good pension fund manager as opposed to a fund manager could probably do around 12% gross annualized over a 30 year period.

Atlantic Dawn

Me, I'd put...
€15k in Berkshire Hathaway Inc. Class B. Current price $279.12
€15k in Blackstone Group Inc. Current price $97.65
€10k in Porsche Automobil Holding SE. Current price €91.44
€10k in whatever is the highest interest return bank account in Ireland, purely for emergency fund.

dotsman

Jim2007 wrote: »

The general consensus is about 6% or 7% gross annualized for equities over the long haul. For the average Joe or Mary it’s more like 2% or 3%.

It’s not about the math, it’s about human behavior. The average Joe and particularly Mary will chop, change and time the market regularly over a 30 year period and many will be lucky to come away with the money they put in. A good pension fund manager as opposed to a fund manager could probably do around 12% gross annualized over a 30 year period.

Not sure where the general consensus comes from, but from those who have analysed it, they all come up with figures of ~10% (and higher in recent decades)

https://www.nerdwallet.com/article/investing/average-stock-market-return

https://www.fool.com/investing/how-to-invest/stocks/average-stock-market-return/

https://www.thebalance.com/rule-of-thumb-for-average-stock-market-return-5115017

I think, where you are getting the 7% figure from is that, over the course of the past century, adjusting for US inflation, the figure becomes closer to 7% in real terms. However, we are not talking about inflation here (and the same inflation would impact all the figures we are talking about, so would be a moot point).

As for Mary & Joe, anyone who chops and changes shouldn't be investing. Again, its 2021 - there are countless sources for people to do even the slightest bit of reading and learn how to do it simply - create a diversified portfolio of >10+ (ideally 20+) blue-chip and well understood growth stocks (i.e. not meme stocks) and hold (or add to) over a period of time (the longer the better). Obviously, some changes can/should be made over the years, but never based on panic. There will be good years, there will be bad years. But there will be a lot more good years, and over the course of time, will average 10%. The journey is entertaining/scary (depending on your personality), but all that matters is the destination.

Jim2007

Not sure where the general consensus comes from, but from those who have analysed it, they all come up with figures of ~10% (and higher in recent decades)

Thirty plus years doing performance and attribution on approx. 1000 portfolios a year. Look at measures such as net assets at retirement age from countries with self directed second pillar pensions. People are not doing so well when left to their own devices.

The J Stands for Jay

Jim2007 wrote: »

Thirty plus years doing performance and attribution on approx. 1000 portfolios a year. Look at measures such as net assets at retirement age from countries with self directed second pillar pensions. People are not doing so well when left to their own devices.

In Ireland at least, it seems like self directed pensions are mainly owned by company directors who have made their wealth through running their own business. They stereotypically invested in Irish Bank shares and Irish residential property. This did not go well for them. And they still love property investment in their pensions (buying a single house in in the next town over because they reckon the rent is practically guaranteed income and "sure, you can lose money in bricks and mortar"). I do vaguely wonder what the new regulations on pension investment in property (I believe a pension will no longer be able to invest predominantly in property) will have on the market. Probably none because of the housing crisis, but I wonder where all these self directed guys will go next.

athlone573

Jim2007 wrote: »

The general consensus is about 6% or 7% gross annualized for equities over the long haul. For the average Joe or Mary it’s more like 2% or 3%.

It’s not about the math, it’s about human behavior. The average Joe and particularly Mary will chop, change and time the market regularly over a 30 year period and many will be lucky to come away with the money they put in. A good pension fund manager as opposed to a fund manager could probably do around 12% gross annualized over a 30 year period.

Can you point out any manager who has consistently delivered alpha on that scale over a long period?

Jim2007

athlone573 wrote: »

Can you point out any manager who has consistently delivered alpha on that scale over a long period?

It does not matter what the fund does, it's the personal rate of return that counts in the end. It's the person you see every morning in the mirror that has the biggest impact on your return. The churn, the chopping and changing in allocation, timing, selection of inappropriate financial products, dipping into the funds for the good cause etc...

People of avenge intelligence and limited financial experience don't have a problem identifying the good funds, stocks, bonds etc... And it does not matter how much financial knowledge etc a person has, people behave different when their entire pension savings are on the line. There is a very big difference in playing with 10k you can afford to loose and 250k you can't.

athlone573

Jim2007 wrote: »

It does not matter what the fund does, it's the personal rate of return that counts in the end. It's the person you see every morning in the mirror that has the biggest impact on your return. The churn, the chopping and changing in allocation, timing, selection of inappropriate financial products, dipping into the funds for the good cause etc...

People of avenge intelligence and limited financial experience don't have a problem identifying the good funds, stocks, bonds etc... And it does not matter how much financial knowledge etc a person has, people behave different when their entire pension savings are on the line. There is a very big difference in playing with 10k you can afford to loose and 250k you can't.

I would still challenge your statement "A good pension fund manager as opposed to a fund manager could probably do around 12% gross annualized over a 30 year period."

I think most people actually don't chop and change that much.

dotsman

Jim2007 wrote: »

Thirty plus years doing performance and attribution on approx. 1000 portfolios a year. Look at measures such as net assets at retirement age from countries with self directed second pillar pensions. People are not doing so well when left to their own devices.

As has been said, Irish people have no tradition in stock market investment. Those who went to Goodbody and Davy etc just simply threw their money into the horrific fees and terrible service. The fee structures made it impossible for people to build safe and diversified portfolios. Instead, people simply bought shares in 1 to a few different Irish companies and maybe even 1 or 2 British ones. But the Irish Stock market is/was a joke, dominated by a handful of companies, mainly banks. To put that into perspective, take the comparison with the S&P 500, Nasdaq, Dow Jones and FTSE of how the ISEQ has performed since the Financial crash:

Index | Pre-Crash Peak | Years to Recover to Positive from Peak | Return since Pre-Crash peak
S&P 500|Oct 2007|6 years|118%
Nasdaq|Oct 2007|4.5 years|294%
Dow Jones|Oct 2007|6 years|92%
FTSE|Oct 2007|6 years|5%*
ISEQ|Jun 2007|Still hasn't happened| -16%


*FTSE was doing well, and in synch with US markets, until Brexit threw a grenade into the mix.

A lot of people have made a lot of money over the past 14 years which includes the biggest financial crisis in living memory. Just not people who foolishly invest in Irish shares.

But it is 2021 now. Irish people have access to the internet and good stock brokers. They are able to easily find out how to invest wisely in the stock market. And they are able to use a broker that actually wants to help them do that.

As for international cases, I can't comment as not familiar with what countries etc you are referring to.

But I will leave this comment. When retail investors perform badly, it is nearly always simply down to bad education. If a child doesn't know how to swim, you don't just tell them to "never swim". You teach them how to swim safely. If a person doesn't know how to drive safely, your don't tell them to "never drive". You teach them how to drive safely. Instead of scaring people away from the stock market, there is an obligation on those who do understand how it works to teach those who don't. Because by denying people that access, you are denying them the best potential to make serious money that can have a significant impact on their life. It is not that hard for someone who has zero experience/knowledge to pick up the essentials in building a safe portfolio and managing expectations.

BorneTobyWilde

I have no idea about stocks, that I admit.

Who can teach

athlone573

I think most people aren't particularly literate when it comes to tax, pensions, savings and investment - much of the knowledge comes via word of mouth, brokers, and personalities such as Eddie Hobbs and David McWilliams - entertaining but with their own slant on things.

Maybe somebody will set up an equivalent of the ECDL for investment, to teach people, at least when I went to school we didn't do much more than income tax and compound interest

Flinty997

athlone573 wrote: »

I think most people aren't particularly literate when it comes to tax, pensions, savings and investment - much of the knowledge comes via word of mouth, brokers, and personalities such as Eddie Hobbs and David McWilliams - entertaining but with their own slant on things.

Maybe somebody will set up an equivalent of the ECDL for investment, to teach people, at least when I went to school we didn't do much more than income tax and compound interest

Exactly, should even be taught in school, and college.

Drumpot

athlone573 wrote: »

I think most people aren't particularly literate when it comes to tax, pensions, savings and investment - much of the knowledge comes via word of mouth, brokers, and personalities such as Eddie Hobbs and David McWilliams - entertaining but with their own slant on things.

Maybe somebody will set up an equivalent of the ECDL for investment, to teach people, at least when I went to school we didn't do much more than income tax and compound interest

Definitely should be thought in school, you are correct a lot of people can’t get their head around figures and tax relief. It’s not always easy to show either.

Right now the major benefit of throwing a lump sum off your mortgage is peace of mind. What price can you put on that? It’s a more subjective preference then a cold hearted objectively financial decision.

That’s what I’m trying to focus on more now, education of clients on risk v reward and investment volatility.

On a basic level , anybody paying higher rate of tax is prob paying closer to 50% of their top rate on tax. So you get a 10k bonus, it’s maybe worth 5k in your hand. It could be worth 9k top up of your pension. Then there’s the tax free compounded growth it can get in your pension which many people forget. Tax relief on contributions is not the only benefit of a pension.

This is just a simple example that’s not exact but trying to highlight a point. Let’s say you get a work bonus of 11k and are trying to decide what to do. You don’t need the Extra cash and would prob invest it if you take the cash. I am going to over simplify tax by saying regardless of your choice 1k will be taxed on usc and prsi:

Take the cash:
€1k Prsi/usc
€4K income tax
€6k net bonus into hand

Invest for 5 years in unit linked investment, makes 30%. Profit - €1800 - 41% = €1062. So you have €7,062 after 5 years.

Put bonus in pension:
€1k prsi/usc
€10k into pension.

With same investment strategy you have €13,000 in your pension after 5 years versus €7062 in your hand.

Now there are some extra variables like for example you only get a percentage of your pension tax free and do potentially pay income tax on the balance. But depending on the amount in your pension you may end up only paying less to no tax when you are drawing down your pension (as you are no longer working). A retired individual may be able to earn €18k per annum before paying any tax, 36k for a couple.

There’s also the compounded tax free growth that is savage over decades.

I’ve no intention of paying off my mortgage , particularly while rates are so low. I’d be looking to drip feed any excess lump sums into my pension. If you build up enough of a pension you can even factor in paying off the mortgage with your tax free lump sum.

jadamedske

It seems to me that money should always bring money. So the best way is to invest it somewhere. The most trivial option is a deposit in the bank. Still, you will receive small dividends, which will be equal to the inflation rate. Therefore it is best to invest in something reliable with high returns.

Jim2007

https://www.boards.ie/discussion/comment/118786771#Comment_118786771

And what would that be?