What should I do with €100k and no other assets?

M

Molly

Guest
I hope you don't mind me posting this question in this forum instead of the Savings and Investments forum - it's just that the standard of analysis seems far higher here.

My husband Leo has just retired. Our only income is the contributory old age pension which is €250 per week. We have a nice local authority house on which we pay a small rent. We are both in tip top health, so we expect to live for another 20 or 30 years.

We live a fairly simple lifestyle. Leo is an early riser. He always brings me my breakfast in bed. He goes on long walks every day and has a sandwich and a few pints in some pub off Grafton street. I stay at home most of the day, practising my singing, talking to myself in bed and surfing the internet.

20 years ago, Leo inherited £78,756.40 from some Eastern European relative. We have kept in the bank as I didn't want to take <!--EZCODE ITALIC START--> any<!--EZCODE ITALIC END--> risk. I manage the household finances as I have always done. I pay all the housekeeping expenses out of the pension and I give Leo the interest on our savings for buying pints. He is complaining that it is not enough. The interest is very low these days - back in the late 80's he did much better - we were getting 10% a year and up to 15% at one stage. But I always learned that you should live on your interest and not touch your capital and that is what I am insisting on doing. Leo keeps saying that he is not able to drink as much as he used to 20 years ago, but he is always complaining and I am not touching the capital.

I have just recently read the Guide to Savings and Investments and I am wondering if the deposit account was the safest place for my money all along? 20 years ago we could have bought a house on Eccles Street with the money. Now €100,000 wouldn't even buy a one bed apartment. I am thinking of investing in the stockmarket.

I like Brendan's advice of buying 10 different shares and holding them forever. Even I can understand that. Leo will have to live off the dividend income but that should rise over time - hopefully keeping pace with the price of pints. The dividend income seems to rise steadily enough although I see that the underlying value of the shares will rise and fall over time.

So here are my questions:
For a totally risk averse investor like me with no other assets and no other income, is investing in shares risky? ( I don't want to hear the words <!--EZCODE ITALIC START--> standard deviation<!--EZCODE ITALIC END--> or <!--EZCODE ITALIC START--> volatility<!--EZCODE ITALIC END--> or any other technical terms in the answer.)

Is it ok to invest only in Irish shares as Brendan suggests? Would it be significantly less risky if I bought shares in other countries?

And of course, how many shares should I hold to minimise the risk? (I don't want to buy a unit-linked fund as the charges are too high and I will pay 20% tax on encashment whereas the dividend income is unlikely to bring me above the income tax threshold. )

Thanks

Molly
 
Can't resist it

I think you can solve the 2 problems in your life
by starting a brewary for hubby.
You can keep half the profits and he can drink the other half.
 
Re:€100k

My apologies. I didn't realise I could not quote specific shares. Just to confirm that I am not trying to ramp the mentioned shares I will declare my interest in owning Sainsburys and having previously owned the other shares mentioned but not at the moment.

I would recommend that Molly might target a specific sector and observe the price movement of her selected shares throughout the day/week/month. Some good internet sites are www.iii.co.uk and www.Hemscott.net also she can watch CNBC throughout the day or switch to BBC 2's teletext service/business pages.

I would however warn her that it really is a risky business and there are lots of people out their very close to the coalface that seem to just one step ahead of everyone else.

Edited by ClubMan to fix links.
 
Risk

"For a totally risk averse investor like me with no other assets and no other income, is investing in shares risky?"

I don't want to try to bamboozle you with technical terms, or to talk about volatility, deviations etc., but it is important that you first understand that everything comes at a price, including investment returns and certainty.

You have your money on deposit, and I don't know what interest rate it earns, but lets just call it 4%. So that's €4,000 per annum to your husband's beer fund (ignoring D.I.R.T. for simplicity).

Now, you have acknowledged that the "real" value of your lump sum, and the "real" value of the interest payments isn't what it used to be. That is inflation at work. I don't have an exact figure, but let's say that inflation is running at about 5%. What does this mean? It means that for every €4000 in interest which you receive, the real value of your lump sum is going down by €5000. So, in real terms (which are the only ones which matter), you are actually getting no return at all on your money. You are in fact paying €1000 per annum as a cost of keeping the money in cash form. This is the price you have chosen to pay as a means of avoiding risk. Is it worth it? I don't think so. Perhaps you think it is worth it. But I suspect that - like a lot of people - you have never really confronted the fact that you are paying a real and measurable price for the security of a bank deposit. To put it another way, rather than look for higher returns and take the chance of higher losses, you have opted for the certainty of small losses. Of course, your losses are not an absolute certainty: there have been times when bank deposit interest was well in excess of inflation, so that the bank deposit was producing a real return. But that has not been the case in recent years.

So what can you do? You have identified what I consider to be a sensible strategy, namely to buy shares with a reasonable dividend yield and try to live off the dividends. I think you should go ahead and pursue this strategy, with a few simple rules.

1. Don't put all your eggs in one basket.

2. Pay no attention whatever to advice from stockbrokers. They don't know what shares to buy anymore than you do, and if they have some really good info, they certainly won't waste it on you. They will just want to take your money. Do your own research, and take your time about it.

3. I suggest you concentrate on Property (shares -those which have a reasonable yield only) Utilities and Tobacco. Remember diversity means picking a few different businesses, ideally in a few different markets. 10 tobacco shares would not be a properly diversified portfolio, nor would 10 U.K utilities. Use your common sense and you shouldn't go too far wrong.

4. Don't be in a rush. Make sure you are getting value. Decide on a yield which you would find acceptable and don't invest unless you can get this yield. At the risk of stating the obvious, don't be guided by yield alone. Do go the Motley Fool and other such sites where individual shares are discussed in more detail.
 
€100k

Seriously,molly
have a good holiday for a start,you deserve it.
you could invest some in those capital guaranteed bond type things,at least your capital is guaranteed.Check the ads and get some professional advice-the kind you pay for rather than the 'free advice'agents that sell the product that gives the most commission. Remember you cant bring it to the grave with you.
 
.

Alternatively, with €100k, you might just be able to afford a small round of drinks in a city centre pub! Better act quickly though...
 
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