What to do with additional 150k p.a.?

NoRegretsCoyote

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I understand the rationale behind most of these, but not the last point, is that just for convience? Same development seems to concentrate your risk?
I guess so.

This is more economies of scale. One management company to deal with. You are more attractive customer to a managing agent and contractors.
 

Gordon Gekko

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It’s also worth pointing out, especially in the context of the number of AAM contributors naively looking to “go it alone”, that Vanguard have a study showing that clients with a financial advisor do 3% better per year...


People need to be very wary of all of the “which cheapest ETF or pension should I buy?” threads...
 

AGoodLife

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Thanks, I have seen several studies referenced that say financial advisor can increase return. I think a lot might depend on the client, and their starting point though. Like everything, people have different levels of knowledge and skills. I think I have fairly decent knowledge, having immersed myself in finance related stuff for years, but I probably have some blind spots that I dont know about.

I will read the doc - here is a highlight of the table and where the gains come from.


Benefit of moving from the scenario described to Vanguard Advisor’s Alpha methodology

Typical value added for client (basis points)
Suitable asset allocation using broadly diversified funds/ETFs> 0*
Cost-effective implementation (expense ratios)34
Rebalancing26
Behavioral coaching150
Asset location0 to 75
Spending strategy (withdrawal order)0 to 110
Total-return versus income investing> 0*

Range of potential value added (basis points) About 3% in net returns

* Value is significant but too unique to each investor to quantify.

Notes: We believe implementing the Vanguard Advisor’s Alpha framework can add about 3% in net returns for your clients and also allow you to differentiate your skills and practice. The actual amount of value added may vary significantly depending on client circumstances.

Source: Vanguard.
 

Blackrock1

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689
Unfortunately (from my point of view!) my spouse does want to work. They value having their own independence and career highly. I think this is mostly about, the what ifs, and in particular, if we seperated, they still have their own career and income. Relationship longevity statistics are not awe inspiring.

They also enjoy the intellectual and social side of working outside the home, but they also tend to overwork,and their employer is not as considerate as mine, so their work life balance is worse.

They would also be very interested in getting invlved in some charity/not-for-profit stuff, but don't have the time today.

Overall, I think our qualiy of life would be much much higher if we only had one breadwinner, and with the rental, and tax bands, and childcare, I don't think we would even be that much worse off.

It takes time and energy to organise outings, activities, social events, weekends away, holidays, Having someone with more time to focus on that would be really great for the family.

Any strategies to convince my spouse to take the plunge?

i think you have hit the nail on the head there, when we weighed it all up, having one breadwinner and one person solely dedicated on the family and organising all that goes with that (which is more than a full time job in reality) leads to a better life for everyone.

We were fortunate in that while my partner was a very high achiever when she started out, as we started our family and she was out of the work place for extended periods (i think she took 14 months off for each child) she started to get left behind and seeing less capable people elevated galled her a little (even though she understood why). After the second we started to look at the financial reality of one income and realised that with some adjustments we wouldnt be that much worse off and would accrue all the benefits of her being at home full time. Added to that there was the opportunity of a vol redundancy (she has been with one employer since we left university) so it would have been crazy to pass on that. So it gives us the opportunity to treat this as a temporary career break (which is mentally easier) but i dont see her going back (to her old career at least who knows what will happen in the future).

If you could convince your wife on the above she could then take a part time charity role which would give her all that she values from work except financial independence, thats something you have to work on together i suppose. My partner and i have been together since college so we had nothing when we met and everything we have now is considered shared, even with the current arrangement we split everything down the middle which makes life easier.
 

AGoodLife

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38
So you’ve about €450k in cash/shares, the renovation might cost €600k, your mortgage is €275k, and you’re generating a surplus of €150k a year.

You’re already maxing out your pensions, so my analysis would be quite simple:

- Use your €450k and one year’s surplus income to fund the €600k renovation
- Don’t switch to Avant’s 1.95% rate as you won’t be able to pay down your mortgage aggressively
That's a good point, you can't overpay with Avant, the interest bill would be about 10% lower with avant, but if I pay down 10% a year with UB, it gives a similar net interest bill for the year.
- Then over two years clear your mortgage and make sure you’ve around €50k in cash for emergencies
- Then invest €150k a year in a diversified share portfolio and don’t look back
Thanks Gordon.

I think this is a good plan and concise summary. I guess I feel this is a bit too "safe" for me.

Question: What do you think about contributing beyond tax relief to the pension (with little chance of claiming relief in future) in preference to direct share portfolio? (until danger of reaching funding limits)
 

AGoodLife

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On the plan for the future, I see three options emerging in front of me at the moment

a. The Safe Way - Following the safe plan that @Gordon Gekko @Brendan Burgess @Blackrock1 @SBarrett advised - Prioritise paying down the mortgage before further investment. take a 2 year fixed with UB, get the renovation done, pay down 10% of mortgage during Y1 and Y2, Pay the rest of the mortgage during year three and four. Start putting surplus cash into market during end of year 4. This means I miss four years of time in the market; Market inflows would look like Y1-3 0, Year 4 75, Y5 150, Y6 150.

b. The mild leveraged way - sign up for the UB 5 year fixed, get the renovation done, overpay the 10% pa, in year 6 pay off the remaining ~120k. Putting the surplus into the stockmarket as I go. Y1 0, Y2 0, Y3 120, Y4 120, Y5 120, Y6 50. this gets more money into market soner, maximising time in market.

c. The Avoid rental renovation & lock in low cost debt way - discussed a bit with @_OkGo_ - Buy a suitable ppr to live in during renovation, (likley to be @800k to get space we need and stay in area), lock in a long term ppr low mortgage rate, renovate existing home, and then rent it the purchased home (or potentially sell if market moved favourably). I still haven't run the figures on this, but I think it would mean delaying or reducing renovation budget, or living in a home that is not great for us during the renovation, None of which we want to do.

Notes:
I don't anticipate that I will still be 'working' or earning at these rates in Year 7 but who knows!
I still am not definite that I would put in market, instead of buying high yield rental, and long term lease to council.
I am still unclear if the stock market investment should be direct share portolio or non relieved contributions to pension.
I don't know why but plan A. seems to easy and safe to me.
 
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AGoodLife

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Thanks for sharing your life experience and advice Blackrock.

If you could convince your wife on the above she could then take a part time charity role which would give her all that she values from work except financial independence, thats something you have to work on together i suppose.
I will have to work on this.
 

AGoodLife

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Thanks EmmDee, I think I didn't get a chance to reply to you yet, great to hear from others who are in a similar place.

Hi,

I'm in a situation not dissimilar to yours. You already have a number of suggestions relating to mortgages / build or buy / investments etc already. I don't think I can add much to that. But I can suggest a couple of "lifestyle" comments...

- We have a really good cleaner who has been with us for almost 10 years. We also have an equally good gardener. Neither need any form of supervision or tracking. They come and do their job and maintain the place seamlessly. The cost is not large but the time and hassle saving is well worth it - weekends aren't about chores or looking at an overgrown garden. We have continued to pay them through the lockdowns - it's in our interest.
I see @Bronte and @Blackrock1 also strongly recommended cleaner, housekeeper, gardener. And I really think some extra help would be great, it might even help me work a few more years in the high earning job.

I can fully relate to the overwhelming garden, and we have done most of the work ourselves so far, but it is neverending, we have tried to be strategic and do work that will reduce future work.

We had a cleaner before for a few years, but we suffered from the (self enforced stress) on the amount of tidying we had to do in advance, for the cleaner to be able to clean somewhat effectively.

What does a housekeeper do?

We could do with some advice, on how to find good folks to help out, but maybe more importantly, on how to manage and organise the work, and how much to pay/budget for the work. How frequent, how long etc?

I think we could do with that advice for gardener, cleaner, and house keeper



- On holidays, I'm not that into doing multiple holidays a year or some of the more ostentatious stuff that you see sometimes. But I would recommend thinking of a special "experience" holiday every 2 or 3 years - especially with the kids at the age where they can get a lot out of them. One time we did a three week trip to Costa Rica with stops in various environments (rain forest, cloud forest, pacific ocean). Another time we did an "all in" holiday in Mauritius. In between we had pretty simple holidays. But the kids remember the "big" holidays more than anything else.
We need to do more here. We haven't done enough of this.

- Flexibility is a major thing for us. We treated the fact that my "salary man" status gave my partner the flexibility to do more flexible work or do things not based on earning a certain salary. That has a big impact on the stress of the household. So, the idea of doing something charitable or socially minded would fall under that. Also allows location flexibility - a couple of summers we rented a place on the west coast of France for a couple of months on AirBnB - big discount because of the months and length of time. Was easily accessible which meant my partner was based there with a couple of trips back, I could go over and back a couple of times.
I'm jealous of this! For the moment my spouse would prefer to have an independent career.

Otherwise, like you, we haven't a lot of overheads or status symbols. Car is 10 years old, house is mid-size and suits us, outlays are low. As with you, if I lost my job, I don't think I could achieve the same revenue - so am conscious of not digging myself into a hole by ramping up general expenditure without reason
Have you done a money makeover post yet? I recommend it to get views from others! Sounds like you have most of your affairs in good order though.
 

Gordon Gekko

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I really don’t see how clearing the mortgage over 2 years is “the safe way”! I think “the smart way” is a better description.

Who can predict what markets will do over that two year period? So you’re locking-in a guaranteed after-tax return of around 2.2% for two years which is the equivalent of maybe 5% in a managed share account. Whereas you could lose significantly through equities over a short period like that, or make circa 7% a year on average over the longer-term.

But thereafter you’re lashing €150k a year into an all equity strategy (i.e. once your mortgage is clear after 2/3 years).

I think it’s the approach that makes most sense and it’s what I would do myself.
 
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time to plan

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242
It’s also worth pointing out, especially in the context of the number of AAM contributors naively looking to “go it alone”, that Vanguard have a study showing that clients with a financial advisor do 3% better per year...


People need to be very wary of all of the “which cheapest ETF or pension should I buy?” threads...
Interesting document but I wouldn't give it too much weight unless it's been peer reviewed and published in a respectable academic journal.
 

Gordon Gekko

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Interesting document but I wouldn't give it too much weight unless it's been peer reviewed and published in a respectable academic journal.

You’re right. It’s controversial to argue that someone with a professional advising him or her should do better than a know-all paddling his or her own canoe.

Exhibit A is the volume of eejits who fled the market last March. Exhibit B is the volume of eejits fleeing the market recently.

Some investment trusts are trading at significant discounts right now and the managers are attributing it, in part, to dumb retail money which is flitting in and out of the market at the slightest hint of bad news. A sure fire way to lose money over time.

1) Have a diversified portfolio and be smart about tax
2) Stay invested and ignore the newsflow
 

Dublinbay12

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Messages
524
i think you have hit the nail on the head there, when we weighed it all up, having one breadwinner and one person solely dedicated on the family and organising all that goes with that (which is more than a full time job in reality) leads to a better life for everyone.

We were fortunate in that while my partner was a very high achiever when she started out, as we started our family and she was out of the work place for extended periods (i think she took 14 months off for each child) she started to get left behind and seeing less capable people elevated galled her a little (even though she understood why). After the second we started to look at the financial reality of one income and realised that with some adjustments we wouldnt be that much worse off and would accrue all the benefits of her being at home full time. Added to that there was the opportunity of a vol redundancy (she has been with one employer since we left university) so it would have been crazy to pass on that. So it gives us the opportunity to treat this as a temporary career break (which is mentally easier) but i dont see her going back (to her old career at least who knows what will happen in the future).

If you could convince your wife on the above she could then take a part time charity role which would give her all that she values from work except financial independence, thats something you have to work on together i suppose. My partner and i have been together since college so we had nothing when we met and everything we have now is considered shared, even with the current arrangement we split everything down the middle which makes life easier.

I assume this is a much easier conversation when there is a large variation in pay between spouses?

Interestingly I think this is starting to shift for those starting families now in their late 20s early 30s. There is much more equality in the workplace and support for mothers taking maternity in not falling behind in their careers. I know in my own experience that I historically earnt more than my spouse but in the last few years the gap has closed. We probably need 75% of our total income to live comfortably but each contributes near 50% each.

As an observation with the high salary and low mortgage you could probably employ somebody part-time to do your admin for you.
 

Blackrock1

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689
I assume this is a much easier conversation when there is a large variation in pay between spouses?

Interestingly I think this is starting to shift for those starting families now in their late 20s early 30s. There is much more equality in the workplace and support for mothers taking maternity in not falling behind in their careers. I know in my own experience that I historically earnt more than my spouse but in the last few years the gap has closed. We probably need 75% of our total income to live comfortably but each contributes near 50% each.

As an observation with the high salary and low mortgage you could probably employ somebody part-time to do your admin for you.
There was a large pay variation by the time we made the decision but for 15 years or so my wife earned as much as i did, but one way or another us starting a family impacted that, either by her deciding not to move jobs as we got closer to starting a family and missing out on promotions due to the time she took off to have the kids. Anyway by the time the second came along we were both of the view that for us it would be a better family life and a better life for the kids if she was off. We will see how it goes but for now its definitely the best thing for us.
 

EmmDee

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We had a cleaner before for a few years, but we suffered from the (self enforced stress) on the amount of tidying we had to do in advance, for the cleaner to be able to clean somewhat effectively.

What does a housekeeper do?

We could do with some advice, on how to find good folks to help out, but maybe more importantly, on how to manage and organise the work, and how much to pay/budget for the work. How frequent, how long etc?

I think we could do with that advice for gardener, cleaner, and house keeper

I don't think there is a hard and fast rules here. But if any of these help....
- We pay a gardener €100 per month flat. The arrangement is that he comes and goes as needed. So during the Summer he'll come more often, less during the Winter. We have a small grass element but he cuts that and then does various things depending on the season - trimming, beds, weeding, planting.
- We pay the cleaner about €18 p/hour for three hours once a week. That is above average but over the years we have increased it. We also pay a month extra at Christmas which again wouldn't be standard. The three hours has become a bit notional really because we have a good routine and we leave it to her (we often leave the house when she's here - use it as an excuse to go out and do things). So some weeks she might be here a little less than three hours, some weeks a bit longer.
- Different people have different irritations about house keeping. Some hate ironing, some don't mind it. I'd sit down and think of things that you both hate doing but if they were done weekly would make a difference. Some people save their ironing up and have their cleaner do that and you have a pile of ironing done for the next week. Not for us - we get all the floors done (hoover or washed), the cooker cleaned really well, all surfaces and bathrooms washed, dusting.
- You shouldn't have to clean before the cleaner. Depending on your list, you might have to prep a bit but it is a good routine. For example, we need to clear floors and surfaces before she comes but it only takes 15 mins and it's good to do be forced to do it. When the kids were young, the rule was they had to tidy their rooms for the cleaner. If they didn't we told her to ignore their room and they had to do the hoovering and cleaning of their room. Was a pretty handy routine
- Find the right person. Have a specific list of what you want done. If you have a candidate, have them do a couple of weeks as a trial - if the "dynamic" isn't right or you (or your partner) doesn't feel the job is done as you'd like to see it, then change quickly and go with an alternative. People have different areas of emphasis in terms of cleaning - better to find someone who matches your "style" rather than someone who doesn't and you trying to change them. If you get the right person, you won't feel you have to monitor them really closely, won't feel you have to clean the house before they arrive. And if you have specific jobs you want done, you won't need to clear something they won't be working on. The place doesn't need to be a show-house before they arrive.
 

Blackrock1

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The way the tax system works, couples are heavily incentivised to have a second spouse earning at least €25k pa.

yes absolutely but unfortunately part time working with small kids introduces as many issues as it solves, its a pity that single income families are worse off on the same income than with two people earning half that amount.
 
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