27 year old non-resident with €500,000 to invest

alwaysonit

Registered User
Messages
137
Age:
27
Spouse’s/Partner's age:
n/a

Annual gross income from employment or profession:
€40,000 but varies

Expenditure pattern:
Save more than I spend

Rough estimate of value of home no property

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
All in domestic banks on demand earning the maximum interest from CiaranT’s best buys thread while keeping below the deposit insurance limit in each bank.

Do you have a pension scheme?
No

Do you own any investment or other property?
No.

Ages of children:
None.

Life insurance:
No

What specific question do you have or what issues are of concern to you?
I am not a tax resident of anywhere (but am an Irish citizen) and I feel I could be doing better than earning circa 1% p/a after DIRT seeing as I can invest somewhere with no withholding tax legally. It seems impossible to change my Irish bank accounts to non-resident, I have tried.
I’ve looked at foreign bank accounts paying high interest on hard currencies while keeping below deposit insurance limits in the specific countries but most people on this and other forums think this is a poor long term investment. http://www.askaboutmoney.com/showthread.php?t=187709
Recently I have been reading other forums such as mrmoneymustache where most people seem to invest everything in ETFs. I don’t know much about this and it seems that I can’t invest in an ETF without paying at least 1% fee per annum, rather than the 0.17% Americans can pay with Vanguard.
I have no commitments anywhere and have no idea which country I will eventually settle in but settling seems light years away to me at the moment, so property investment might not be the best idea.
So in summary, I’m young, don’t have to pay taxes to revenue, have half a million Euro and it’s only making me about €5,000 a year. Help me make my money work for me! Thanks.
 
Forums such as this are great, but with respect, with that much money on the line I would most definitely seek professional advice.

Failing that I'll mind it for you :p
 
I agree with the statement that with that kind of money you need professional advice, but tread carefully. Also you need to officially clarify your tax resident status, you have to be resident somewhere. You don't want this to come back and bite you in 10 years time.
 
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Can you provide a link to the legislation that states "you have to be resident somewhere"?
I have certainly not satisfied residency requirements anywhere in the past few years.
 
Forums such as this are great, but with respect, with that much money on the line I would most definitely seek professional advice.

For the general investment advice, most situations have roughly similar principles. You will get good ideas and opinions on askaboutmoney. I can suggest what you should do, and someone else can challenge it. You can then make up your own mind.

By going to a professional advisor, you are taking a few risks. They may be incompetent and give you inappropriate advice. There is no real quality control on it. But worse, they may not put your interests first and may try to sell you something not suited to your needs.

For the tax advice, you definitely need professional tax advice. This would have to be someone specialising in international taxation. I too find it odd that you are not resident anywhere. I also find it odd that a non-resident would have all their money in Irish deposit funds subject to DIRT.
 
At 27 years of age, with €500k, what are your financial objectives:

I suggest a combination of wealth preservation and wealth maximisation.

This can be best achieved through a 100% allocation to the stock market. A diverse portfolio of international stocks is most likely to both preserve and maximise your wealth.

Your current strategy of investing it all in Irish deposits is very risky
You are taking unnecessary risk by having all your wealth dependent on the solvency of the Irish state. I don't expect the Irish state to collapse, but there is a risk. There is absolutely no reason for a non Irish resident to take that risk.

You are taking unnecessary risk that Ireland may pull out of the euro. Again very unlikely, but why are you taking this risk?

And of course, you will probably be slowly wiped out by inflation. As you are aged 27, inflation has plenty of time to impoverish you, slowly or suddenly.

You do not need to own property
As you don't know where you will end up, you should not buy property as an investment. You are well off, so if you decide you want to keep an apartment in Ireland for when you visit, that would be a fine use of your money. But this would be expenditure rather than investment.

How should you get exposure to the stock market?
My own preference is for a diverse portfolio of around 10 directly held blue chip shares. You pay no management fees to anyone. There would be minimal administration.

However, I don't know if this would be tax efficient for you. You will need to take advice where you live as to what the best vehicle for such investment is.

It could be that you can invest through a vehicle in the country in which you live, very tax efficiently.

Whatever vehicle you choose, should be flexible and low cost. So if you find yourself moving from wherever you are at present, to a different tax jurisdiction, you must be able to cash your shares without penalty and significant cost if that vehicle is no longer appropriate.
 
I don't think someone should move all their savings into shares in one move, which probably isn't what Brendan is suggesting but just in case that's what anyone takes from it. It's moving from concern you're about earning just 5k per year to possibly losing 50k overnight due to some bad news.

Everybody's risk tolerance is different, you need to find out what yours is. One way is to incrementally invest and at the point where you've trouble sleeping, roll it back. You'll also get the benefit of experience as you'll start to figure out when your stock market hunches were wrong and right.

Also as regards professional advise, this isn't a scientific discipline. The advice you get will be vague and based on the limited number of products the professional is familiar with, plenty of Irish people invested in loss making property related funds based on paid for professional advice. While it can't hurt to have a chat as long as you keep an open mind, if you lose money based on their advice you'll find you're on your own.
 
Hi ashambles

I am actually suggesting that. The correct financial decision is to buy €500k worth of shares.

You raise a valid point though. If he invests €500k in shares today, and the stock market falls by 10% tomorrow, he may well find his tolerance for risk is very low indeed and cash out at a loss. In practice, this is a greater risk than Ireland going bust or leaving the euro.

So, psychologically, it might be better to gradually increase your holdings in the stock market from 0% to 100%. Maybe kick off with €100k, and see how you handle the inevitable market drops.
 
Can you provide a link to the legislation that states "you have to be resident somewhere"?
I have certainly not satisfied residency requirements anywhere in the past few years.

No I cannot provide a link, but you cannot either provide a link that states that a person can not be resident anywhere. Unless you fall under some special tax regime in the country you are currently 'residing' in. Those do exist. But with your money and income I'd want it in writing from a lawyer/tax consultant that you are non resident everywhere.

And you'd be mad to put 500K in shares. Sure to have a heart attack at the first major drop. If you'd bought shares yesterday today is the day you'd be having the heart attack (Ukraine area - Malaysian plane shot down - shares plummet)

I guess diversification is key. Some in shares, some in deposits, some in property.
 
If you'd bought shares yesterday today is the day you'd be having the heart attack (Ukraine area - Malaysian plane shot down - shares plummet)

Eh?

London's FTSE lost 41 points (0.6%) to trade at 6,697 by 11am this morning, while the Paris CAC fell 13 points (0.3%) to 4,303 and the Frankfurt DAX decreased by 78 points (0.8%) to stand at 9,676.
Dublin's ISEQ index lost 29 points (0.6%) to trade at 4,705 this morning.

I don't think that "plummet" is the right word here.
 
Stick €200k into An Post bonds, collect €260k tax free in 10 years. No high folutin big wigs will guarantee you a better return than that, but they'll all tell you of the danger in doing so. Don't listen to a word they say. Go on , do it. The rest of it I'd stick into a 1 yr best return deposit a/c and see what the situation looks like in a years time. If you deal with the pro's they "might" get you a better return, but they'll guarantee you nothing and they'll scoop a big wad out of your bundle. I'll guarantee you that. Oh, make a will, you never know!!!!!!!!!!!!
 
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The very worst place you can put your money is An Post bonds.

The tax free bit is of no interest.

At 27, you do not want to tie up your money for 10 years.

And you should not have a big part of your wealth dependent on the solvency of the Irish state.
 
Brendan,
you tell him what he can get into his hand that's better than that after 10 years and guarantee it. At 27 years of age, it's a perfect time for him to stick it away for 10 years. It might not be a great return on one's money in the eyes of a "pro", but it's guaranteed and forget about Ireland going belly up which is a lame excuse we've been fed by whizkids for the last few years. I wonder how many hundreds of thousands of people would be happily smiling today if they did something like I've recomended a few years ago? I'm not a stupid person, but find someone saying it's the worst possible place to put your money to be an offensive comment. It's not the worst place, but putting it in shares could be, putting it into property could be, giving it to fund managers could be. Taking a guaranteed return isn't.
 
A lot can happen in 10 years. Why on earth would anyone tie up 40% of their savings for that amount of time?
 
It is difficult for anyone to provide advice without knowing your residence position for tax purposes.

From your first post, you appear to be an employee. Where is your employer based and how are you paid?

Were the funds in your Irish bank accounts deposited before you left Ireland or are you sending money from abroad into those accounts?
 
I and I'm sure alwaysonit are well aware of what can happen in 10 years, but maybe you could answer the posters question instead of berating my answer. Maybe I'm being totally naive and stupid, but tell us how you can get a better guaranteed return. In fact, can anyone? Not a projection, not a maybe, not what might or might not happen, just a guaranteed better return, not what's so stupid or amateurish about my advice. Thank you.
 
Can you provide a link to the legislation that states "you have to be resident somewhere"?
I have certainly not satisfied residency requirements anywhere in the past few years.

If you have not statisfied the residency requirements in any other country, then you remain Irish resident. The legislation and tax treaties are written in the opposite direction - you become resident somewhere by meeting certain criteria there and be definition you are no longer resident in the previous country where you were considered resident.

Think about it for a minute... people like Tina Turner, James Galway and Phil Collins all have access to the best tax advice going and if there was a way to be 'not resident anywhere' they'd have figured it out. But all three have established residence in Switzerland because they were able to do a special deal there - lump sum taxation: They pay a fixed amount (usually a couple of million) every year regardless of how much they earn. They would not be paying it, unless they had to.
 
I'm not a stupid person, but find someone saying it's the worst possible place to put your money to be an offensive comment. It's not the worst place, but putting it in shares could be, putting it into property could be, giving it to fund managers could be. Taking a guaranteed return isn't.

It is actually terrible advice you're giving out! To maintain purchasing power alone the payout in 10 years time would need to be closer to say 320K - 350K, there is a very real risk in what you are saying, one you fail to appreciate.

There is no such thing as a safe option when it comes to finance, every single decision has associated risks and unfortunately when it comes to bonds, time deposits etc... most people are oblivious to the risks involved.
 
If you have not statisfied the residency requirements in any other country, then you remain Irish resident. The legislation and tax treaties are written in the opposite direction - you become resident somewhere by meeting certain criteria there and be definition you are no longer resident in the previous country where you were considered resident.

Actually Jim that makes sense. You can also be taxed as a resident for certain taxes. For example if you or I sold a property in Ireland we would be liable for CGT. But both of us are exempt from Dirt tax.
 
I am actually suggesting that. The correct financial decision is to buy €500k worth of shares.

Great in theory from a tax point of view, but terrible in practice from a behavioural point of view!

First off, is the issue of price - most people will have no problem coming up with a list of 10 top shares such Coke Cola, 3M or whatever, but very few people, professionals included will be able to if the stock is reasonably valued or not. And one the keys to investing in individual shares is to at least buy at reasonable prices. So we are already off to a bad start for most people.

Next is the volatility issue, individual stock are more volatile that an index and since the holder can easily trade out of stock and back in again, they is exactly what the do, the result being that they often fail to catch the bounce on the stock, plus they incur additional trading charges.

Then there is the tendency to twig - if Coke Cola jumps 5% and it is not in my portfolio, then it will be tomorrow, just in case it might go up an other 5%... so I'll sell 3M and buy KO... and what happens 3M goes up 7% and KO goes back down.... no problem I'll just sell 3M and by KO and so the dance goes on....

Another issue is rebalancing - most people just can't bring themselves to do it, in fact may people do the opposite they continue to buy the winner while ignoring the rest and thus build up an incredibly risky portfolio.

I've no hesitation in saying that individual stocks are a bad idea for most people because despite all the tax advantages, very few of them will be in position to benefit from them.

I'd far prefer people to do will on index investing and deal with the tax consequence of success than trying to be smart about taxes and fail to perform in the process....
 
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