Where to park savings

[Superman8]

Personal details

Age: 38
Spouse’s/Partner's age: N/A
Number and age of children: 0


Income and expenditure
Annual gross income from employment or profession: 90k
Annual gross income of spouse: N/A
Type of employment: Private sector

Summary of Assets and Liabilities
Cash sitting in Irish bank earning very little - 155k
Cash on deposit in Trade Republic earning 2% - 50k
Individual stocks - 95k
Gold\Silver in Vault company - 85k
Bitcoin - 17k

Family home mortgage information
N/A, I don't own a home, currently renting

Other borrowings – car loans/personal loans etc.
None

Buy to let properties
None

Other savings and investments:
Have a modest pension


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

I was abroad for most of my life working and built up my savings. I now find myself in the unfortunate position of not having bought a home.
I have recently moved back to Dublin, am currently renting, but am now looking to buy a house in Ireland. My renting circumstances do not dictate that I am in a rush to buy a house, I have secured decent rate, which I wont go into. I have been viewing houses and bid on a couple but refused to get roped into a bidding war.

Now, I am in a situation where I am really worried about my saving being dwindled away by inflation. I need advice on where to park it until I buy a property, which Im hoping will be sometime within the next two years(could be next month if something comes up). I am not foolish enough to wait for a drop in property prices, I am more just waiting until I found a home I am happy with.
On the stocks side, I came up with most of my choices myself, that's probably a discussion for another day.
The other question, when I do buy a property, how much of my saving should I put into it?. I have qualified for a good sized mortgage so I have the option of using that.

 

[noelÓm]

Hi SuperMan.

Based on your plan, you will need access to cash at the drop of a hat for a property purchase. So you don’t have a lot of investment options. Whatever you invest in needs to be liquid and not too risky. That sounds like a bank account to me.

I would sell the stocks, metals, and bitcoin. As your investment horizon could be as short as one month, it is risky to hold this stuff, potentially suffer losses, and need to draw down a larger mortgage than otherwise necessary. Spread the cash into several bank accounts to ensure that it is all covered by deposit guarantees. You can find the best demand deposit rates in this thread.

I would see if I could contribute some of this very large cash pile as a lump sum into a pension and claim tax relief on the contribution. Separately, I would also step up regular monthly pension contributions to avail of generous income tax relief. Right now, you are doing your own DIY investing with your after-tax income. That's not very tax efficient and is a potentially expensive hobby if you don't know what you're doing.

I would set aside 3-6 months living expenses as an emergency fund and then use the rest of the cash (or as much as is needed) for a property purchase. I would aim to keep the mortgage balance as low as possible.

I would only consider investing my after-tax income if I had maxed out income tax relief on pension contributions, cleared any mortgage I had drawn down, and still had regular monthly savings to invest.

Do you really want to be viewing places for two years? You are wealthy and you say that your rent is affordable, so it’s not a big issue financially for you to wait. But you are well able to transact now on some of the most expensive properties in the state. Are you being too picky?

 

[skrooge]

I agree with the above. Inflation beating investment is not guaranteed and would require a lot of risk that doesn't seem wise given the possible short investment horizon. By moving most or all of the €155k out of Irish banks deposit accounts and spread it across the likes of Bunq you should boost your deposit rate with no increase in risk.

On a side point if the aim of your wealth is to purchase a property then general inflation isn't the most relevant benchmark. Sure the CPI is increasing by 7.7% but you're not planning on buying €300k+ in Tesco or Aldi. The cost of you not purchasing a property in the last year is 3.2% i.e., the cost at which Dublin property increased over that time frame.

 

[Superman8]

Hi SuperMan.

Based on your plan, you will need access to cash at the drop of a hat for a property purchase. So you don’t have a lot of investment options. Whatever you invest in needs to be liquid and not too risky. That sounds like a bank account to me.

I would sell the stocks, metals, and bitcoin. As your investment horizon could be as short as one month, it is risky to hold this stuff, potentially suffer losses, and need to draw down a larger mortgage than otherwise necessary. Spread the cash into several bank accounts to ensure that it is all covered by deposit guarantees. You can find the best demand deposit rates in this thread.

I would see if I could contribute some of this very large cash pile as a lump sum into a pension and claim tax relief on the contribution. Separately, I would also step up regular monthly pension contributions to avail of generous income tax relief. Right now, you are doing your own DIY investing with your after-tax income. That's not very tax efficient and is a potentially expensive hobby if you don't know what you're doing.

I would set aside 3-6 months living expenses as an emergency fund and then use the rest of the cash (or as much as is needed) for a property purchase. I would aim to keep the mortgage balance as low as possible.

I would only consider investing my after-tax income if I had maxed out income tax relief on pension contributions, cleared any mortgage I had drawn down, and still had regular monthly savings to invest.

Do you really want to be viewing places for two years? You are wealthy and you say that your rent is affordable, so it’s not a big issue financially for you to wait. But you are well able to transact now on some of the most expensive properties in the state. Are you being too picky?

Thanks for the response Noel,

I am going to increase my monthly pension contributions. Thats good advice and I have been putting it on the long figure. My plan was to look at lump sum contribution after I had a property purchased.

Your point about risk and liquidity is good. I do think all my "investments" are fairly liquid as I should be able to get back cash within a week. But obviously there is risk there.
I am just looking at holding currency as also a risk. That may be a little alarmist but we are experiencing inflation, Euro had a massive fall against the dollar recently and has now recovered a little. If something causes central banks to start cutting rates could we see inflation and other problems run out of control?. I'm just trying to diversify a bit, thats my rookie thought process. Maybe I have been on the internet too much, but I accept I could see significant losses in some of those investments.

On being a little too picky. You could be right there, I have just been struggling with the standard of property available for my price bracket. I may have to just bit the bullet.

 

[Superman8]

I agree with the above. Inflation beating investment is not guaranteed and would require a lot of risk that doesn't seem wise given the possible short investment horizon. By moving most or all of the €155k out of Irish banks deposit accounts and spread it across the likes of Bunq you should boost your deposit rate with no increase in risk.

On a side point if the aim of your wealth is to purchase a property then general inflation isn't the most relevant benchmark. Sure the CPI is increasing by 7.7% but you're not planning on buying €300k+ in Tesco or Aldi. The cost of you not purchasing a property in the last year is 3.2% i.e., the cost at which Dublin property increased over that time frame.

Thanks, I already am using Trade Republic, you suggesting just splitting into other like that?. I am not familiar with Bung.

 

[skrooge]

Thanks, I already am using Trade Republic, you suggesting just splitting into other like that?. I am not familiar with Bung.

Yes, it's on the same link that @noelÓm provided. You can get a little extra on your new deposit for minimal effort.

I'd also be divesting from your risky assets if you're going to use those funds for the house purchase in the near term. Lock in those gains now so you've certainly in terms of your budget. Depending on price bracket it will also help reduce/avoid mortgage interest expense. If those investments cannot guarantee an after tax return equal to your mortgage rate you would be better off divesting.

If you can afford to buy for cash I wouldn't rule out taking out a mortgage:

1) re-saleability, if a lender is willing to lend to you for it then it goes someway to suggest it should be marketable of you want to sell it in the future.

2) if cashback options would allow for a quick profit ( assuming you can pay the mortgage back immediately).

 

[Superman8]

Yes, it's on the same link that @noelÓm provided. You can get a little extra on your new deposit for minimal effort.

I'd also be divesting from your risky assets if you're going to use those funds for the house purchase in the near term. Lock in those gains now so you've certainly in terms of your budget. Depending on price bracket it will also help reduce/avoid mortgage interest expense. If those investments cannot guarantee an after tax return equal to your mortgage rate you would be better off divesting.

If you can afford to buy for cash I wouldn't rule out taking out a mortgage:

1) re-saleability, if a lender is willing to lend to you for it then it goes someway to suggest it should be marketable of you want to sell it in the future.

2) if cashback options would allow for a quick profit ( assuming you can pay the mortgage back immediately).

I was speaking to someone from the US briefly yesterday.
They said they can get 4 percent rates on short term US treasuries over there but didnt go into much detail. Does anyone have any details on this, I guess not open to Irish?

 

[Marc]

I was speaking to someone from the US briefly yesterday.
They said they can get 4 percent rates on short term US treasuries over there but didnt go into much detail. Does anyone have any details on this, I guess not open to Irish?

You should never have cash assets in one currency (usd) and your liabilities in another (euro)

Otherwise you are taking a pedestrian savings account and throwing in a side bet on the currency markets. Which have a volatility of 8 to 10 and zero expected return.

 

[Allpartied]

Put the whole lot into Prize Bonds.

Liquid,
Easy to access,
Small, tax free return ( not guaranteed, but statistically likely),
The entire amount in one easy to manage account, which is state guaranteed..
And you get the chance to win 50k every week....

 

[ClubMan]

Small, tax free return ( not guaranteed, but statistically likely),

How exactly do you believe that it's statistically likely?
Many people gave Prize Bonds for years and never win anything.
If the money is likely to be needed (e.g. for a house) imminently then better to put it on deposit for a guaranteed rate of return, even if marginal.

And you get the chance to win 50k every week....

Not in the 4 weeks each year that the €250k prize is on offer.

 

[Allpartied]

How exactly do you believe that it's statistically likely?
Many people gave Prize Bonds for years and never win anything.
If the money is likely to be needed (e.g. for a house) imminently then better to put it on deposit for a guaranteed rate of return, even if marginal.

Well, 135k of Prize Bonds is, likely to win a few 50 euro prizes per year. ( 0.35% tax free)
But the main advantage is the state guarantee on the whole amount. Another large American bank went bust today and no-one is really sure if we are on the verge of a major, worldwide banking crisis. So, for me, it would be safety first.
Plus , for a short term holding, you are, at least putting the money on the state account, thus reducing state borrowing requirements.
It galls me to put my savings into High Street banks who are getting a state guarantee, whilst fleecing savers and rinsing borrowers.
But, if the 0.5%, ( before DIRT) is worth the hassle of opening two separate deposit accounts, with two separate providers, then that's an option