Priorities for Late 30s Onwards

NoRegretsCoyote said:
I disagree. Over a 20 year horizon overpaying on the mortgage will give a better expected return than investing in an equity product with fees and taxes.

OP could get into the habit of overpaying mortage by the cost of college for a few years when kids in late teens, then stop the overpayments when kids are actually in college.
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But he won't have built up any cash as it has all gone into the mortgage.

And while the expected return is greater, the actual return over the last 10 years has been less and you would have made more money by investing. Of course, there is no guarantee, that is the element of risk v return.

But my main argument is that there will be a need for liquid assets that overpaying a mortgage doesn't provide until decades later. That is why I advise a bit of A and a bit of B. I don't need you to agree with it. We just have a different opinion on this.


Steven
www.bluewaterfp.ie
 
Steven Barrett said:
But my main argument is that there will be a need for liquid assets that overpaying a mortgage doesn't provide until decades later.
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It's true that you don't have a liquid asset. Once a mortgage is paid it's paid and home equity is very difficult to access in Ireland right now but that might be different in 20-odd years.

Otherwise I agree our differences are only on emphasis, not fundamentals.
 
So one thing that we've decided to do straight away is start putting the children's allowance into an index fund. @Firefly pointing out how much it amounts to even in the absence of growth was a real eye opener. It's basically invisible to me in terms of income, yet if I'm calculating right a 4% growth rate would see it worth ~€45k after 18 years. I see a Zurich estimate that the cost is €12k PA for a student living in rented accommodation so while €45k is unlikely to cover it in 18 years time but might be worth a year or two hopefully! If another little one comes along we will do the same. I'm thinking that this would be better for my partner to have in her name as she has headroom in the 20% income tax bracket and I think we're likely to end up in a fund where the gain will be taxed as income?

We're also going to take out a joint life insurance policy, although I'm still not really sure what sort of amount is advisable in general. I'll think on it some more.

We also agreed we should probably get married without further delay as well so I may have to ask @Steven Barrett to stand for me :p
 
If you're going to invest the child benefit in equities for a period of 10-15 years then you'd arguably be better off buying shares directly rather than buying into an investment fund due to the better tax treatment and lower costs of the former.
 
wherefore said:
So one thing that we've decided to do straight away is start putting the children's allowance into an index fund. @Firefly pointing out how much it amounts to even in the absence of growth was a real eye opener. It's basically invisible to me in terms of income, yet if I'm calculating right a 4% growth rate would see it worth ~€45k after 18 years. I see a Zurich estimate that the cost is €12k PA for a student living in rented accommodation so while €45k is unlikely to cover it in 18 years time but might be worth a year or two hopefully! If another little one comes along we will do the same. I'm thinking that this would be better for my partner to have in her name as she has headroom in the 20% income tax bracket and I think we're likely to end up in a fund where the gain will be taxed as income?

We're also going to take out a joint life insurance policy, although I'm still not really sure what sort of amount is advisable in general. I'll think on it some more.

We also agreed we should probably get married without further delay as well so I may have to ask @Steven Barrett to stand for me :p
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You aren't the first to get married based on my financial advice. And who said romance was dead :)

Index funds aren't taxed as income or under CGT, they are taxed under exit tax at 41%. If you use a company like Zurich, they will look after the tax for you and pay it to the revenue from the fund when it is due.

On life cover, just get as much as you can for your budget. If you have another kid, you will need more then than you need now. It's easier and cheaper to get one plan now rather than a smaller one now and a top up later.


Steven
www.bluewaterfp.ie
 
On the marriage front, it's worth considering doing a quick & easy civil ceremony to be legally married, then plan whatever celebration you have down the line. You will get the benefits of the marriage immediately but if a big day out is what you want you can plan that at your leisure!
 
ClubMan said:
If you're going to invest the child benefit in equities for a period of 10-15 years then you'd arguably be better off buying shares directly rather than buying into an investment fund due to the better tax treatment and lower costs of the former.
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Steven Barrett said:
You aren't the first to get married based on my financial advice. And who said romance was dead :)

Index funds aren't taxed as income or under CGT, they are taxed under exit tax at 41%. If you use a company like Zurich, they will look after the tax for you and pay it to the revenue from the fund when it is due.
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Bah, it's been a few years since I had any personal investments so I misremembered how the different taxation schemes are applied. Thanks for the tip re:Zurich - I see now from googling that a lot of companies have investment products targeted at this sort of education saving for modest investments. I'll do some research but at least I think we have a direction of travel on this front - invest ~€200p/m specifically for the small fella's college in some appropriate vehicle the bulk of which comes from Child Allowance and won't hinder mortgage overpayment much. We will need to keep an eye on the investment and adjust if it looks like not being enough.

Steven Barrett said:
On life cover, just get as much as you can for your budget. If you have another kid, you will need more then than you need now. It's easier and cheaper to get one plan now rather than a smaller one now and a top up later.
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Got it, thanks.

misemoi said:
On the marriage front, it's worth considering doing a quick & easy civil ceremony to be legally married, then plan whatever celebration you have down the line. You will get the benefits of the marriage immediately but if a big day out is what you want you can plan that at your leisure!
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I think this is what we're going to do. I don't think either of us have much appetite for spending a big wedge on a hoolie to be honest. Other peoples' weddings are better craic anyway :D
 
wherefore said:
Bah, it's been a few years since I had any personal investments so I misremembered how the different taxation schemes are applied. Thanks for the tip re:Zurich - I see now from googling that a lot of companies have investment products targeted at this sort of education saving for modest investments.
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They're almost certainly all unit linked style funds subject to taxation and charges that is worse than shares.
 
ClubMan said:
They're almost certainly all unit linked style funds subject to taxation and charges that is worse than shares.
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True. But there's no work involved. Complete the form at the beginning and sign the direct debit. You get investment in the MSCI World Index or the like, the life company takes care of all the tax and admin for you.

If you are paying €200 and buying shares, you have to do all the buying, admin and taxation yourself. I'd be happy to outsource (and have done so in the past) for a relatively small monthly amout.


Steven
www.bluewaterfp.ie
 
Fair enough, but one will pay significantly in terms of reduction in yield for the convenience. I have some unit linked funds over many years myself but regret not having just invested the money directly in shares.
 
ClubMan said:
I have some unit linked funds over many years myself but regret not having just invested the money directly in shares.
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Out of curiosity, how much do you diversify?

I have no experience but I would have thought that having direct holdings of 50-odd shares and periodically re-balancing is a lot of work.
 
NoRegretsCoyote said:
Out of curiosity, how much do you diversify?

I have no experience but I would have thought that having direct holdings of 50-odd shares and periodically re-balancing is a lot of work.
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That would be my concern as well - how do I pick the shares and how complicated is tracking gains/losses for tax purposes on different shares bought month by month in small amounts?
 
NoRegretsCoyote said:
Out of curiosity, how much do you diversify?
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I don't know what you mean.
I have some money in equity heavy unit linked funds.
Obviously I don't manage the composition of these.
I've been meaning to review these and maybe cash them in and invest directly in shares.
NoRegretsCoyote said:
I have no experience but I would have thought that having direct holdings of 50-odd shares and periodically re-balancing is a lot of work.
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My main direct shareholdings are in Berkshire Hathaway and Markel. I let them do the diversification because I'm lazy. I am aware of the risks involved (currency, concentration in certain markets/geographic regions etc.).

If (most) ETFs weren't taxed so penally I would invest in them. Maybe some day that will change? :(
 
I've been ruminating on the positives and negatives of the funds vs direct share investing for the kids' college fund for a while.

I came across Irish Life's saving scheme (https://www.irishlife.ie/investments/long-term-savings/) which looks potentially ok. Looking at the ‘Consensus Equity Fund’ for instance. There’s a 1% entry fee which is a government levy, after that it’s 1.65% a year. Not great but not atrocious. I plugged numbers into a calculator just to get an idea and the impact is actually not terrible (if I've calculated it properly). There's a value to not having to worry about calculating the deemed disposal amounts - just signing the direct debit mandate and letting it run as @Steven Barrett mentioned.

I'm still toying with the idea of a pseudo-diversified portfolio of direct shareholdings like Berkshire, J&J etc as @ClubMan described (really neat idea, hadn't thought of it) but I think I might do that in addition over the course of the next couple of years rather than instead of the fund.

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We've applied for a joint life insurance top-up of €400k with a term of 25 years that will cost ~€500PA also
 
wherefore said:
There’s a 1% entry fee which is a government levy, after that it’s 1.65% a year. Not great but not atrocious.
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I disagree. That is an atrocious annual management charge in my opinion.

Are you sure about the 1% entry fee being a government levy? Do all unit linked style funds have to levy that? I wasn't aware of it but it's many years since I invested via such a fund. Can't find anything authoritative online. I just see it mentioned on the Irish Life site but not elsewhere so far...
 
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ClubMan said:
I disagree. That is an atrocious annual management charge in my opinion.

Are you sure about the 1% entry fee being a government levy? Do all unit linked style funds have to levy that? I wasn't aware of it but it's many years since I invested via such a fund.
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1.65% is expensive.

The 1% charge is the government levy on life assurance investment funds and protection policies. Still in place and no sign of being taken away. Afterall, only rich people save. :rolleyes:
 
Thanks @Steven Barrett - I wasn't aware of that 1% and many of the sites dealing with unit linked funds seem a bit coy about the charges that apply for some reason! :confused:

Are there any unit linked funds not structured as life assurance funds and exempt from the levy?
 
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