Investment diversification

Your wealth might be maximised by doing pension first, on the pure maths of it alone. But for a lot of families, getting the mortgage down to an acceptable level to allow for flexibility of leave/workforce breaks might enhance your quality of life more in your young family years versus during your retirement years. It is never just black and white.

I think people should realise they can split your excess cash between the two, it doesn't have to be an all or nothing decision.
 
misemoi said:
But for a lot of families, getting the mortgage down to an acceptable level to allow for flexibility of leave/workforce breaks might enhance your quality of life more in your young family years versus during your retirement years.
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This is the point I am trying to make.

It is not just about maximising the return at the expense of all else, it is about maximising the flexibility while still getting a good return.

I have seen many cases of deep mortgage arrears where the bank could not come up with a sustainable solution. Had the mortgage been lower or had there been positive equity, a solution could have been offered.

Over the next twenty or thirty years, there will be a few busts where mortgage arrears will become a problem again. In those cases, people with 50% LTVs will be a lot better off than those with higher LTVs but better funded pensions. And those with lower LTVs will get lower mortgage rates as well.
 
For the avoidance of doubt, I’m very much in favour of paying down a mortgage ahead of schedule where possible.

I just don’t think that should be prioritised over adequately funding a pension.

A common scenario that we come across on AAM is somebody in mid/late career with a paid off home but with pitiful retirement savings.

That’s not a good result.
 
Itchy said:
Your actual portfolio is Cash: 52%, Pension: 28%, Investments: 21%. 101%! (Rounding i'm sure
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Hey Mayo.
Ideally for me, if I was <10 years from retirement I would want my mix to be closer to
Cash: 15%, Pension: 50%, Investments: 35%.

The main thing for you do now is to max out the pension contributions (for both pensions). If this means you have to drawdown some of your cash, so be it. It's tax efficient anyway, so your future self will thank you.

After you're confident that you are maxing your pension contributions and making sure that you are leaving enough cash for 1 years worth of expenses, then you might consider moving some cash to increase your investments to roughly 35%.
Keep it simple, so if you are a DIYer, something like (Berkshire 28%, F&C Investment Trust 30%, JPMorgan Global Growth & Income Trust 30%, Other individual stocks 5%, Gold 7%). Or if not a DIYer, Pick a global index tracker with a Life company
 
I would tend to be an advocate of paying off the mortgage asap. Paid mine off in 4 years. Relentless focus, and now I am an investor as a result of needing a new focus. There is more to money than raw mathematics.
 
On post #23 above:

Why has the person pitiful savings? Your home is an asset in the sense that you would otherwise have to pay rental for shelter. When you pay off your mortgage or reduce it to an acceptable level, this frees up a stream of income you can now use to make additional payments to your pension / investments. Or even build up cash savings, in situations where there is an elevated risk of unemployment. Your house is an illiquid asset that provides a notional annuity through the opportunity cost of renting and/or the savings from mortgage payments.
 
Again, I’ve no issue with paying down a mortgage ahead of schedule. In fact, I’m very much in favour of it.

But I don’t think that should be prioritised over adequately funding a pension.

There are annual limits that apply to the tax-relief on pension contributions. There is no mechanism to make “catch up” contributions. If you don’t avail of the relief in any given year, it’s gone for good.
 
Thanks everyone for the replies and the debate it provoked (I take the constructive criticism in the benevolent sense it's meant!).

I s'pose my OP might have, to the chagrin of Brendan, conveyed the misleading impression that AAM experts were advocating paying off ones mortgage above all else as an investment strategy. I accept that is not the case and I took on board the importance of prioritising reducing and ultimately eliminating the mortgage along with pension investment over other investment decisions. Hence I guess part of the reason I have ended up with an excessive cash pile as opposed to more diversified investments. I have maximised my AVC contributions for recent years progressively up from up from 10% (when I was paying full whack on the mortgage) through 50% of the maximum up to the present maximum. AFAIK I'm not permitted to add any more lump sums of backdated payments to our pension funds. That has led me into dipping my toes in stock investment in the last couple of years (from the time when I had the mortgage payment reduced to an inconsequential amount) and it's been a tentative learning experience, hence the reason its a gradual process of transfer of diversification.

Regarding the cash and the gold. I suppose that approach has grown out of my disaffection and disgust of banks over the last decade or more. I'm mindful of Ugolin in Manon of the Springs hoarding his gold sous in the pot under the earthen floor. I guess (without subscribing to the alt conspiracy theorists too much) the concept of having a portion of physical wealth in the form of gold if everything else collapses into mistrust (considering events in the last month in the US not a totally unlikely prospect I think) appeals to me somewhat. Incidently my gold and cash aren't hidden under the floor or in the mattress!

In addition to the AVC's we're lucky to also have the prospect of occupational pensions and the contributary state pension at 66 along with thanks to the UK pension thread, a full UK contributary OAP for me at 67, so I'm pretty happy about the level of provision I've made for the future .

Anyway, thanks to the insights offered here I shall continue to diversify further into stocks and equities over the coming year. Perhaps I'll report back in a year or so on how it's gone.
 
Hi all, just did a re analysis of my financial portfolio a year on as promised.

I did take on some of the advice offered on here and diversified more into stock investment. Unfortunately this happened to be 3 weeks before Trump's liberation day, so my investments tanked hugely for the following 2-3 months. Thankfully they did bounce back in the following 9 months however and I'm now up over 15% on the year, but I do appreciate that these kind of investments are meant to be measured in the longer term than simply one year.

I expect no more than the previous initial posting some of my investment decisions will still invite critical analysis of my logic and I do appreciate I still have far too much in cash/low interest deposit accounts but I am diversifying cautiously and holding out that Harris will launch the new consumer investment incentive in this years budget to facilitate me to move much more of my savings to investment portfolios.

Anyway here are my current %'s (last years in brackets). Any observations welcomed.

Savings (Deposit a/c, Savings bonds, etc) 30% (39%)
Cash in hand 1.3% (1.9%)
Foreign bank a/c's 0.6% (0.9%)
Prize bonds 1.7% (2%)
Children's education fund (Zurich) 7.9% (8%)
Own and wife's Pension funds 32.7% (27.4%)
Peer to Peer 1% (1.2%)
Gold 6.4% (5.9%)
Stock portfolio 18.2% (13%)

Also just some supplementary notes:
I know before anyone says so, still WAAAAY too much in Inflation negative deposit accounts. Hopefully this will change in the next year with Harris's initiative.
Switched both pension funds from New Ireland/Irish life to Royal London Irish in the last year. Deciding factors were much smaller AMF and better projected returns. We are maximising our contributions for our age group to these at the moment, although as some contributors have pointed out we should have probably been maximising much earlier. However, we both have the prospects of good public service pensions thankfully, and I am also looking at a full UK contributory state pension at 67.
Gold has continued to shoot up in the last year. The % increase for no additional purchase is partly offset by the more proportional increase in my stock portfolio, but the gold itself has accumulated about a 25% increase in value in the last year in real terms.
The diversification to the stock portfolio has been somewhat tempered by Trumps actions and unpredictability in the last year. I've gravitated away from US to European stock with some of my later investments. Generally though most have performed admirably, with the exception of Berkshire Hathaway.
 
Mayo1969 said:
US to European stock with some of my later investments. Generally though most have performed admirably, with the exception of Berkshire Hathaway
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is it the dollar exposure thats killing your returns on berkshire as a european? in dollar terms the share price is stable enough but Buffet was always too focussed on US markets, he never really invested internationally when US stocks got too expensive preferring to leave it in cash and bonds. I asked a question myself on european alternatives to Berkshire.

european berkshire hathaway style stocks

Anyone any ideas on european conglomerates that are similar to berkshire hathaway, berkshire is very US centric with a spattering of international stocks. Im looking for a stock similar to berkshire that buys other stocks and companies but focussed on Europe and rest of world. From googling I...
www.askaboutmoney.com
 
Mayo1969 said:
t) but surely anything that appreciates in value over time is also an investment?
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Depends on how you quantify investment I suppose, and yes it has appreciated considerably over the last few years especially, but to my mind remains more of a hedge than most other investment options.
 
‘Gold in Krugerrands’ is “flight money”, i.e. having enough gold to bribe your way onto the last Ryanair flight out of Ireland if things go belly-up. It’s insurance not investment.

Gold as part of an allocation to ‘Real Assets’, e.g. gold miner, oil producer, metal miner, agriculture supplier, timer/forestry production, etc. will add a layer of inflation protection in your asset allocation and, as these are denominated in USD, CAD and GBP, will also provide an insurance policy if EUR weakens, which often happens when global energy prices / raw materials spike. (I’m retired but have 15% of my portfolio in real assets, so you could go for more, but note they can be more volatile than the general stock market.)

You’ve 31% in euro cash and cash equivalents. But inflation is a greater threat to your investment performance than market dips. As you appear to have many years to your investment horizon you can weather market dips out, so you could consider swapping out of cash to equities. Good funds in foreign developed markets, emerging markets, and domestic (i.e. euro-denominated) equities will provide you with general growth.

I also think you should pay down your mortgage. (Well, I did.)
 
You have around €6k in Prize Bonds. This is chance of outcomes over one year, rounding to 2 decimal places of a percentage.
1772465128406.webp

The chances of the bigger wins is as follows:
1772465658825.webp
 
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PMU said:
Gold as part of an allocation to ‘Real Assets’, e.g. gold miner, oil producer, metal miner, agriculture supplier, timer/forestry production, etc. will add a layer of inflation protection in your asset allocation and, as these are denominated in USD, CAD and GBP, will also provide an insurance policy if EUR weakens,
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I like the sound of this - is there a ticker you can share or a way to invest in these.directly.
 
Your focus should not be on diversification.

Your focus should be on maximimising your return within an acceptable level of risk.

At the moment, you are minimising your return and maximising your risk. You are getting the poor returns of cash combined with the high risk that inflation may seriously reduce the value of your portfolio.

You own your own home without a mortgage.
You have a lot of investable assets.
You should be fully invested in shares but it's ok to keep your gold insurance.
And the best way to hold shares for the long-term is through your pension , so maximise that.

If you had followed this when you first asked the question, then you would be much better off now.

Because of the big returns on shares over the last year, you may be worried that we are due a fall. And at some stage, there will indeed be a big fall. But we just can't time the market. It may rise 30% before the fall of 20% comes.

But the key point is that you can well handle a fall. It won't impact your life.
 
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