Should we be investing at this time?

R

redcloud

Registered User
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Hi there,

Very new to this so apologies for the basic questions/understanding. Trying to educate ourselves as much as possible but would appreciate any advice that is offered.

I was recently made redundant due to COVID and received a nice lump sum. I have now secured employment and will be starting in 2 weeks. We have cash savings of €122,000 sitting in deposit accounts. We are hoping to get on the property ladder in Dublin the next 18months and also looking to get married within 18-24months.

We recently spoke with an independent broker about to get advice so would like to get opinions on this. We were advised to invest €100,000 and monthly savings of €2000 into Zurichs easy access fund to be invested in Prisma 5 Fund for the next 5 years.

We're hesitant to invest that much due to mortgage and wedding mentioned above in the short term but also conscious that our savings are sitting in deposit accounts with v low interest rates. Should we proceed with this recommendation?

I've outlined some details below but please let me know if I'm missing anything.

Age: 31
Partner's age: 31

Annual gross income from employment or profession: 115k (incl annual bonus and RSU's)
Annual gross income of spouse: 100k (incl annual bonus)

Type of employment: Private Sector

Currently renting in Dublin at €17,500 per annum and have a car loan of €4200 per annum (3 yrs remaining). No other debt.

Savings and investments:
Cash savings in deposit accounts €122,000

Pension scheme:
I currently don't a pension scheme set up but will be prioritising this once i start in new company. Employer does not contribute towards this.
Partner: Contributing 6% of salary which is matched by employer and has been paying this for 2.5yrs.

Any advice would be much appreciated. Thanks in advance.
 
If you wish to buy a property within the next 18 months you should not be putting your money anywhere except on deposit. And any "independent broker" who advised you otherwise should be reported.

Yes the return on your money is non existent, but that is what it is, you cannot get a better return without taking on risk and with a house purchase on the cards within 18 months no responsible advisor would recommend that.

I see that the Zurich Prisma 5 is a 'medium to high risk fund' from Zurich's website. Absolutely not suitable for your situation.

This in a nutshell is why brokers have a bad name. He should have advised you not to invest, but that would mean no sale for him.

There are many decent people doing their best as brokers many of them post on here, but your broker is more typical of the kind that gives the whole business a bad smell.

Please report him/her to whatever excuse for a professional association he claims to belong to.
 
18 months is too short a period of time to be investing in equities. Markets are doing very well despite company profits being down and dividends cut. This is not normal.

You have two major expenditures coming up in a very short time, do you want to be worrying about stock markets and if a fall in markets will impact on where you live or what wedding you have? These are the most important things to concentrate on.

You both earn good salaries, you have plenty of time to invest over your careers but 18 months away from when you want to spend it isn't a good time. You're obviously unsure yourself too.


Steven
www.bluewaterfp.ie
 
redcloud said:
have a car loan of €4200 per annum (3 yrs remaining).
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This is the only aspect I'd look at - is it worth paying this off now (if possible) out of savings. Remove an outstanding debt for when you're looking for mortgage approval
 
That ‘independent’ broker is scum.

Under no circumstances should you be investing as the money is needed in the short-term.

But the right advice wouldn’t pay him or her hefty commissions.

These people should be driven out of business.

Pay off the car loan and keep your money in cash until the house piece has been resolved. And then focus on pension investing/AVCs. If the cash you have is greater than the amount you need for your deposit, your wedding, an emergency cash reserve, and other things like furniture etc, you could look at a pension contribution against last year’s earnings.

Disgraceful.
 
redcloud said:
We recently spoke with an independent broker about to get advice so would like to get opinions on this. We were advised to invest €100,000 and monthly savings of €2000 into Zurichs easy access fund to be invested in Prisma 5 Fund for the next 5 years.
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By the way, if an advisor receives any form of commission (doesn't have to be related to work done with you), they can't call themselves independent. Against Central Bank rules
 
redcloud said:
We have cash savings of €122,000 sitting in deposit accounts. We are hoping to get on the property ladder in Dublin the next 18months and also looking to get married within 18-24months.
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Why would you not get on the property ladder now? With a good deposit and good salaries, you should be able to get a mortgage. The interest on a €500k mortgage would be about the same as you are paying in rent.

redcloud said:
I currently don't a pension scheme set up but will be prioritising this once i start in new company. Employer does not contribute towards this.
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No,no,no, no,no. Get the house. Get the mortgage down to a comfortable level and then worry about contributing to a pension.

The only justification for contributing to a pension in your circumstances is if the employer matches it.

Brendan
 
Brendan Burgess said:
No,no,no, no,no. Get the house. Get the mortgage down to a comfortable level and then worry about contributing to a pension.
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Poor advice. If you have a joint salary of >200k and >100k of a deposit then even a mortgage on a very good house in Dublin is going to be "comfortable".

You should start a pension immediately to take advantage of the tax relief and compound interest over the next 50 years, even if only making small contributions.


Otherwise don't go near an equity fund if you are planning on buying a house short term.
 
Savings and investments:
Cash savings in deposit accounts €122,000[/QUOTE] Unless you have already done so, it would be prudent to divide this sum between several different financial institutions covered by the Deposit Guarantee Scheme https://www.depositguarantee.ie/. In the event of a financial institutions authorized by the Central Bank being unable to repay depositors the DGS covers your deposits for up to EUR 100,000 per person per institution.
 
Brendan Burgess said:
I forgot. Compound Interest only applies to investments. It does not apply to mortgages. :rolleyes:
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Long-term return on equities is almost certainly greater than the interest rate on your mortgage. Your house also depreciates.

They'll have their mortgage paid off in 30 years. A 31-year old will likely be relying on equity returns in 50 years still.

So the compound interest effect is both greater and longer.
 
Gosh that's some bad advice you got from that so-called independent broker. I thought I was cynical but I must be naive to be this shocked.
 
I missed this response at the time.

NoRegretsCoyote said:
Long-term return on equities is almost certainly greater than the interest rate on your mortgage.
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So you would recommend to people to borrow money to invest in equities?

I wouldn't.

Would I recommend someone to borrow to invest in a pension? Only if the level of borrowings was very comfortable.


NoRegretsCoyote said:
Your house also depreciates.
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I think that the long term return on residential property has been and is likely to be very good. There is physical depreciation, but the increase in value is far higher.

NoRegretsCoyote said:
They'll have their mortgage paid off in 30 years. A 31-year old will likely be relying on equity returns in 50 years still.
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I am not sure what point you are making here. If he buys a house he will still be benefiting from it in 30 years and in 50 years.

The absolute first priority for a 31 year old is to buy a family home. The advantages are huge. The "income" is tax free. The capital gains are tax-free. It's usually cheaper than renting. It is ignored for means-tested benefits.

It is much better to buy on the middle rung of the ladder rather than on the bottom of the ladder. You have more invested. You will not face the costs and risks of trading up.

So the OP should buy the best house he can comfortably afford.

He should then get the mortgage down to a comfortable level.

And then, he will have plenty of time to fund a pension.

Brendan
 
Brendan Burgess said:
So you would recommend to people to borrow money to invest in equities?
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No. No one would lend to at low enough rates for it to make sense!

However once you've got a mortgage down to a comfortable level I would prioritise spare case into a pension over paying down a mortgage.


Brendan Burgess said:
I think that the long term return on residential property has been and is likely to be very good. There is physical depreciation, but the increase in value is far higher.
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My estimate is that Dublin houses have returned 6% gross over the last 40 years. After inflation that's below 4%, and net it's lower again.

The S&P has returned 8% inflation-adjusted over the same period!


Brendan Burgess said:
I am not sure what point you are making here. If he buys a house he will still be benefiting from it in 30 years and in 50 years.
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But the psychology is different. If you are making pension contributions you will likely continue to do so. Once the mortgage is paid off you'll take your foot off the gas.

I don't think we are quite as far apart as you think. My point is that it makes sense to have at least some level of pension accumulation while buying your PPR, at least for diversification.
 
If history is any guide, it is highly likely that the return on global equities will exceed average mortgages rates over a 30-year timeframe.

However, even if the return is identical, pension contributions still trump mortgage repayments because the tax relief/deferral on pension contributions effectively constitutes an interest free loan from the Government.

Where there is a genuine choice involved, I would always prioritise maximising pension contributions over paying down a mortgage ahead of schedule.

However, I think it rarely makes sense to invest after-tax savings while carrying a mortgage.
 
I agree 100%

And I would go as far to say that mortgage overpayments should only be taking place when a sustainable retirement funding plan is in place.

i.e. prioritise pension over mortgage repayments but not if you’ll be overfunded for example.
 
Sarenco said:
Where there is a genuine choice involved, I would always prioritise maximising pension contributions over paying down a mortgage ahead of schedule.
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The OP hasn't bought a house yet.

For all the reasons Brendan outlines I agree that buying a house definitely comes before pension contributions. Once a house is bought paying down the mortgage is a different matter, I would agree that funding a pension takes priority over overpaying a mortgage.
 
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