500k Investment - Recommendations?

M

Mechman

Registered User
Messages
44
Hi all,

Not me, but I have a friend who has approx 500k to invest.

Hes a company director, and has been saving into low risk pension plans over the past few years, but with high fees, the outcome, even before inflation, has been negative. Hes 48 at the moment, and happy to invest for 15-20 years.

Just wondering could you offer any pointers on what would be a suitable investment route for that amount, it could be repeated for the next few years also

Could an amount like that just be parked in something like a Zurich Balanced or Performance fund at 1% fee, and leave it there, or is that type of investment method for smaller value more regular contributions?

Thanks in advance.
 
Mechman said:
Hes a company director, and has been saving into low risk pension plans over the past few years, but with high fees, the outcome, even before inflation, has been negative. Hes 48 at the moment, and happy to invest for 15-20 years.
Click to expand...
Join the dots.
 
Mechman said:
happy to invest for 15-20 years.

Just wondering could you offer any pointers on what would be a suitable investment route for that amount, it could be repeated for the next few years also
Click to expand...
With an investment timeframe of up to two decades - and maybe even longer if retirement is deferred or the pension is rolled over into an ARF - he really should be exposed to some level - and possibly a high level - of equities.
 
With figures of that nature he should definitely get a financial broker to look at his overall financial position before recommending a specific pension fund. Questions that he needs answered include...

  • Is a pension the most efficient use of this money?
  • If so, what type - Master Trust or PRSA? Pros and cons for both depending on individual's circumstances.
  • If he has other assets aside from family home, how are they invested? (Avoid over-exposure to a particular asset class or type.)
  • Has he considered Retirement Relief and Entrepreneur Relief?
  • What are his plans in life e.g. retirement, selling his company etc.
A product seller will just go for the pension sale. A good financial broker will cover all the above and ideally should work with his accountant in arriving at a plan. There's a few good brokers that post regularly on Askaboutmoney.

If it turns out that a pension is the way to go, he should be looking at an annual charge of less than 1% for sums that size.
 
Would you have them complete the Money Makeover template and post it, you’d probably get some helpful suggestions?

Though ultimately I think the conclusion will be that they should speak to a professional because there are likely some very tax efficient ways of taking figures like that out of the company directly into a pension fund.
 
Fortune said:
The risk of lower returns is still a risk, regardless of that risk approaching 100%
Click to expand...
I agree totally but it's worse than that - it's a built-in certainty, not a risk.

Unless there is inflation or in a sharply rising market, you'll rarely get high returns on a low risk fund
 
T McGibney said:
I agree totally but it's worse than that - it's a built-in certainty, not a risk.

Unless there is inflation or in a sharply rising market, you'll rarely get high returns on a low risk fund
Click to expand...
It's because of inflation that the worst performing investments are so called "low risk" funds. These are overweight in government bonds and since 2020 we are in a bond bear market because interest rates are rising and consequently bond prices are falling.
There should be a law banning the use of "low risk" to describe investments in bonds because many people have been duped by this sort of terminology
 
joe sod said:
There should be a law banning the use of "low risk" to describe investments in bonds because many people have been duped by this sort of terminology
Click to expand...
In my experience pension providers give much more nuanced and detailed information about funds - they don't just call them "low/medium/high risk" and leave it at that. Here's the information sheet for the fund that most of my pension is invested in for example:


Whether people actually read such info or get useful independent advice is another matter. I'm not sure that even more regulation governing specific terminology is really what's needed. Most financial companies are arguably already regulated to the hilt. Just look at all the useless pages that Central Bank regluation require mortgage lenders to send to customers along with their mortgage statements for example.
 
If you go to pick a pension fund they are categorised 1 to 5 based on risk, number 1 fund is categorised as the lowest risk and will have much more bonds than number 5 which will have more equities.
Many people don't read the fund fact sheet they just select the lowest risk fund thinking that will fall the least in a downturn. That generally works in a non inflationary environment. Therefore there should be that provision in the description, number 1 fund is only low risk in a non inflationary, non interest rising environment.
 
You must log in or register to reply here.
Back
Top