3rd June 2019
Welcome back to Informed Decisions with me, Paddy Delaney!
A couple of weeks ago I mentioned that the coming ‘season’ would be focused on how to prepare for and importantly, navigate our incomes in retirement. It’s not that I am breaking a promise but this week I want to take a very slight diversion from that, for two very valid reasons a) an article I wrote was published in the Sunday Times this week, and b) I didn’t allow myself sufficient time this week to complete next piece as fully as I had hoped…..so you’ll have to wait till next week for that one I’m afraid! Sorry!
It is not everyday that someone like you and I gets a full article published in one of the main weekend papers – and for someone that has been an admirer of these papers, and of the people who write articles in them, it was a big deal! So I’d love to share the article with you, in the hope that it is of value.
Before I do that I have an ask of you. I have been blogging and podcasting (or ‘casting pods’ as my mate Lenny calls it!) for 3 years now. I absolutely love writing and creating the Blog every week, get tons of feedback and emails from people, and indeed some of you have become hugely valued clients who I work with on an on-going basis.
During the 3 years I have had a strong desire to do more. I have a desire to reach out and connect personally, to perhaps meet as part of a group or community of sorts. In my mind at least, there is nothing more rewarding than spending time with people who are interested in similar things and sharing ideas. It is an opportunity for forming new relationships, and learning from each other.
With that in mind, if you are reading this in June or July of 2019, I would really love your thoughts on the following:
If I were to host a Personal Finance/Investing/Retirement conference, meeting or Webinar, would you be interested in attending? If so, have you any suggestions on the specific topics or aspects you feel would be of most value and importance to you?
I have some ideas on what I feel would be of value to people, and based on my own years as a facilitator and coach feel would be able to bring something of real value. The question in my mind however, would there be anyone else there apart from me!? So who better to ask than you, my supporters. Would love you thoughts, email me here with your thoughts.
Pause me, reflect on this, would you attend, and what topics or format would be of value to you? Let me know either way! Once you’ve that done have a read of the following Sunday Times article as of 2nd June 2019.
The Generation Game…
‘One generation makes it, the next generation maintains it, the next generation blows it’
There are lots of things that you can do with an inheritance. Lots of potentially beneficial decisions to be made. I will aim to share some of these in this short piece. Before I do I’d like to make clear that there are only 3 potential long term outcomes for what you inherit; you will grow it, you will maintain it, or you will spend it.
Common financial sense would suggest that clearing high interest rate debt is a priority upon inheriting money. Unsecured loans such as personal loans and credit cards typically cost most, and should be the first to go. A €15,000 car loan at 8% APR will cost you €3,200 in interest over 5 years, or 21% of the original loan amount. Similar credit card balance will cost you double that in interest.
If you have the resources to do so it is borderline reckless not to have a nest-egg set aside for potential speed bumps and emergencies in the future. Some claim that it should equate to 3 months household expenses, others say 12 or indeed 24 months – only you will know what feels right. These are not monies which are mixed in with other pots of money – it should be a dedicated account which you only touch in case of genuine emergency! The important thing is to set that up in such a way that you have access if and when you need it. You will sacrifice return for having that access, but do it anyway.
Many investors have quite rightly turned to equity investing over the long term in order to grow the purchasing power of their funds above and beyond the rate of inflation. However, many investors find it difficult to determine the optimum way to do this effectively. I believe that you should be aiming for a structure that will ensure your funds remain safe at all times, that will deliver the rate of return that you seek, and where you pay no more than you should in on-going fees and costs. There are hundreds of diligent investment and financial advisors in this country, aim to find one that can help you achieve all three key pillars; safety, returns and costs.
Another route for achieving growth which is once again as popular as it ever is buying and letting property. Those that purchased property at the depths of the recession have benefited hugely from the property value increases, and well done to them. If you are considering becoming a landlord the fact that rents have risen continuously for past 27 quarters, and rental inflation has stood at 7/8% per year, will be fuel to your desire. Current yields of 5-8% offer further substance to the decision. However, there are often hidden financial costs and tax considerations to being a landlord that need to be weighed-up before making a decision. In addition we all know how quickly and violently these rental yields, property values and occupancy rates can change.
I was born in 1980. A €25,000 investment in a simple Global Equity Index fund, with dividends reinvested, has multiplied 55-fold over that 39 year period, to €1.3m. The same investment in a residential property has multiplied 25-fold, from €25,000 to €625,000. Will these rates continue for the foreseeable decades? Despite what some might claim, that is unknowable. History is all we have to go on, and there has been only one clear optimum route over the past 4 decades.
Supposing you want to merely maintain the assets you have inherited, and avoid the concern or hassle of bigger decisions. One simple option, if available, is the keep the assets in the same form as your inherited them, be that property, deposits, shares, land or other. It may be a strategy which works for you over the long term. We do see cases where people inherit hugely under-diversified assets, and holding them in that format is a risky approach to take. Careful consideration for growth, tax implications, and risk needs to be taken.
Finally we get to the most exciting aspect of the 3 options; spend it! With new assets comes new options for many of us. Rather than blow it on shiny new things I strongly encourage you to consider the life choices that this inheritance gives you. What have you always wished and hoped to do, that a lack of money stopped you from doing? For some that may be a career change, or perhaps reduced hours; in favour of a richer quality of life. For others this may be moving house, or upgrading their current one, for a more pleasant and comfortable home environment. For others it may be an opportunity to bump up their retirement planning, be that a Purchase of Notional Service (PNS) or topping-up their employer Defined Contribution schemes, so as to finish full-time work that little bit earlier. It could be the difference between being financially independent at late 60’s or many years earlier.
For others the thing that gives them the most meaning and satisfaction may simply be giving money to a loved-one to enable their ambitions, or to a good cause to support it’s endeavors. Anne Frank said that ‘no one has ever become poor by giving’. While we can question the technical accuracy of that phrase, there is no doubt that money goes much deeper than to grow it, maintain it, or blow it.
Paddy Delaney is Director of InformedDecisions.ie
Hope you found it of value…….thanks for reading, and don’t forget – let me know about the conference/Webinar idea Thanks!?
Paddy Delaney QFA RPA APA Coach
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