How to achieve diversification from equities

B

BadSuperman

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Hello all,

Age: 45
Spouse’s/Partner's age: 44

Annual gross income from employment or profession: 135k + Bonuses ( 10% - 20%)
Annual gross income of spouse: 100k + Bonuses of 10%

Monthly take-home pay - net approx 7k per month after pension contributions and salary forgone

Type of employment: Private Sector

In general are you:
Saving approx 3k per month

Rough estimate of value of home: None
Amount outstanding on your mortgage: None
What interest rate are you paying? None

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? N/A

Savings and investments: Approx. 1 million in cash

Do you have a pension scheme? Yes
Me: Deferred DB Pension of Approx 8k and DC of approx 500k
Spouse: Current DB Scheme - accrued benefit of approx 12k with projected benefit of approx 45k per annum and DC/AVCs of approx 200k. Has overcontributed over last few years and has 80k in AVCs to set against tax over next couple of years

Do you own any investment or other property? Yes
Former home from before we left.
Original Price - 370k
Current Value - 300k (guess)
Mortgage - 220k
Interest Rate - Tracker +0.95%
Rent - 1,600 per month

Ages of children: 8 and 6

Life insurance: Through work pension schemes and old mortgage protection
Income Protect: Through Work


What specific question do you have or what issues are of concern to you?

We have moved back to Ireland after a period in the US and are thinking about property purchase etc. We estimate that we have approximately EUR1m to use to purchase a house and expect to be in a position to purchase our forever house for between EUR850k and EUR1m which will use most/all of our savings.

We are thinking about how best to structure investments going forward. We will both continue to max out our pension contributions even though we will both be paying higher rate tax in retirement. Given the horizon involved (hopefully) we are ok with this and our intention is to maintain 100% in equities until post retirement (although our position may change on this).

We are wondering about how best to invest outside of the pension schemes. Given equity strategy underpinning pension investment strategy we are looking for ways to diversify our asset allocation. One thought was to buy a more expensive PPR given the favourable tax treatment but it would require us to sell at a later date to get access to cash (if required) so not ideal. Would welcome any thoughts?

Thanks
BadSuperman
 
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After buying your house, your position will be

5200

In addition to this, you have defined benefits of €20k a year, which must have a capital value of at least €1m. And this is the equivalent of a cash or bonds investment.

Your €700k in your pension funds is, presumably, in a diversified fund.

So your overall net worth of €3m is well diversified already between cash, property and equities.

So when you have another €100k to invest, if you buy just one share e.g. CRH , you are not getting any further diversification or concentration.

So you do not need to look for diversification from this. If you inherited €3m, then you would have to review things.

In your situation, I would keep it simple. When you have €100k , but shares in one company.

Then when you have another €100k, buy a different share.

If one of these falls 100% , so what? You lose 3% of your overall wealth. It's not the end of the world, so it's not worth paying for diversification.

Brendan


Brendan
 
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Should you buy a bigger house with the excess over €1m as an investment? Let's say you buy a house for €1.5m.

This is a very interesting idea.

The extra benefit you get from living in the house is tax-free.
Any increase in value is tax-free if you ever sell it.

Against that, you will have higher local property tax and, probably, higher maintenance.

I think it's close. If you have €500k in shares, you will have access to the money if you need it e.g. to help the kids buy houses in about 20 years.

But you should certainly buy your forever home and if it costs €1.5m, so be it.

Brendan
 
Is stamp duty higher on house purchase >1M in Ireland?
Also
PPR as Tax Free, enjoyable way to store wealth is an interesting idea ....would you suggest if you have the basics sorted e.g rainy day fun, pension etc then maxing out (within CB rules) is (in general) a good thing to do?

Brendan Burgess said:
Should you buy a bigger house with the excess over €1m as an investment? Let's say you buy a house for €1.5m.

This is a very interesting idea.

The extra benefit you get from living in the house is tax-free.
Any increase in value is tax-free if you ever sell it.

Against that, you will have higher local property tax and, probably, higher maintenance.

I think it's close. If you have €500k in shares, you will have access to the money if you need it e.g. to help the kids buy houses in about 20 years.

But you should certainly buy your forever home and if it costs €1.5m, so be it.

Brendan
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The stamp duty is 1% up to €1m and 2% on the excess. So the additional cost would be 1% or €5k. That is neither here nor there.
 
tom_tom said:
would you suggest if you have the basics sorted
Click to expand...

It's well worth considering.

If the mortgage is very comfortable and if you don't need cash, then it's attractive.

If you need to borrow 3.5 times your salary, it's not a good idea.

Brendan
 
If not 3.5 ..what would you consider the max?

Brendan Burgess said:
It's well worth considering.

If the mortgage is very comfortable and if you don't need cash, then it's attractive.

If you need to borrow 3.5 times your salary, it's not a good idea.

Brendan
Click to expand...
 
tom

It has to be very comfortable which depends on a lot of circumstances. But as a rule of thumb - twice salary.

Brendan
 
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