As a young boy growing up many years ago a million euros (or pounds as it was!) always sounded like an inexorably large amount of money. If you had €1m you were officially a millionaire and were in our eyes elevated to a stratospheric status.......The same can't be said anymore though! While it no doubt is still a significant amount of money by anyone's standards the sheen of being a millionaire has dampened thanks to inflation mostly! Nevertheless we are are today going to explore how and if €1m in an Irish Pension is enough, and specifically explore if it would be enough on which to retire at say 60 years of age.
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Impact Of Inflation On Your €1m:
In order to elaborate on the comments about impact of inflation on your €1m lets just look at that for a moment. It was 25 years ago when I was 13 years of age. When I was 13 years of age €1m seemed like a crazy amount of money. Indeed it was, and still is however if you had €1m 25 years ago (1993) and you put it under the mattress, it would today have approximately 40% less purchasing power, due solely to inflation.
According to data from Central Statistics Office you would need to have €1.61m today to be able to buy what €1m would have bought in July 1993! The price of goods and services here have increased by over 60% in those 25 years. If on the other hand you had invested that €1m in the S&P 500 Index in 1993 it would now be worth approx €12m!
Bottom line is that if you decide to invest your funds under the mattress you will lose every time! If you want to retain and indeed potentially grow your funds above inflation you may need to consider this. If you are a long-time listener you will know our views on that whole topic very well by now however!
Let's look at how you would be set if you retired right now with €1m, as a couple at 60 years of age......
Paddy Delaney
QFA | RPA | APA | Qualified Coach
Welcome to Ireland's only dedicated Financial Planning & Personal Finance Blog & Podcast. Last year we won the award of 'Ireland's Best Finance Blog'......we have re-entered that same competition again this year, and will hear how we get on over the coming couple of months.....this might just be akin to the 'difficult second album'!! As we approach our 100th Podcast we have really tried to focus on the areas that our readers and listeners get in touch with us about and who come to us for help on an individual basis.....we are on a mission to help people to achieve what is important to them, and stay authentic and true to our values in the process. If you have any questions or have suggestions on how we can make this site the best possible resource it can be please do drop me a mail directly here.
Speaking of Financial Planning there is one short story which, for me, sums up exactly what Financial Planning is all about, and the part it plays (or not!) in people's lives. I first read it about 3 years ago and have often thought about sharing it here, but perhaps felt it wasn't 'financy' enough. That view changed when I was working with a really motivated and hard-working person recently, who was really consumed and motivated by growing her business (which she loved in fairness!) and making sure she made the most of the financial situation she finds herself in. I shared this story with her, and it really resonated with her. I am not going to pretend that it changed her life dramatically over-night but she did say that it gave her a little perspective on what is real importance to her both now and into the future....I hope you enjoy it!
Paddy Delaney
QFA | RPA | APA | Qualified Coach
Welcome back to Ireland's award winning Finance Blog & Podcast. Delighted you have joined us! Our mission is to help people avoid mistakes and help themselves to live successful financial lives. Our big aim is to ultimately change how financial advice is done here in Ireland, to put the focus back on what you want to achieve, not the products that only really serve as the tools to enable you to do it!
This week we are exploring a much-covered topic. It has not been much-covered by us but if you google 'Director's Pensions Ireland' you will see 3.9million results, and every single one of them is trying to flog you one! However we are not talking about the pensions themselves here today, we are talking about the much more important aspect of all of this and focusing on the 'planning' aspect, the bit is (or at least should be) central and should come before the 'product' (pension!). We will compare the stories of 2 fictitious brothers, who have very different approaches to life, and who go about planning in 2 very different ways...............full blog here.
Paddy Delaney
QFA | RPA | APA | Qualified Coach
There was a large scale research study done by Gallup Consulting Group (a hugely credible global research company) this year which shows that the majority of people under 35 years of age do not own any form of shares/equities through investments, pensions or savings. This is in comparison to 2007 when the majority of people under 35 did own some for of equities. The research also demonstrated that the majority of people over 35 years of age held them in 2007 and that today the majority of people over 35 still hold them! It got me thinking!
I remember vividly cycling my bike on my way from school when I was about 7 years of age and living in Skerries (yes I originally hale from 'enemy territory!). I was cycling along a quiet street and was passing a row of parked cars on my left. I was probably imagining I was Sean Kelly in the Tour De France and so getting a buzz from cycling past the cars a little too close, and mistakenly clipped one of the rear view mirrors of what I think was a Renault 11! Now i barely clipped it on my little peddler, i didn't even move it or damage it in any way. However that didn't stop what I can only assume was the owner of the car, who happened to be standing on the path beside the car, from letting an almighty roar at me, followed by some sort of fist-waving expression and a brief chase. It all seemed a huge over-reaction and a deliberate attempt to scare a young boy on his bike!
Needless to say the harmless young Paddy was terrified and with increased motivation cycled home at a truly speedy pace! Not sure why this was so ingrained in my memory however I do know that for the remainder of that school year I avoided that street altogether for fear of encountering the 'Reno Man' again! I ended up cycling a very long way to and from school and cost myself lot of unnecessary time and concern. That was the first time I experienced being bitten, and then being twice shy about repeating the experience. However I happened to pass the 'scene of the crime' as a teenager and it reminded of that day, but to say the least there was zero fear about encountering the 'Reno Man' again, if anything I was keen to see him so I could tell him what I should have told him that day! On reflection it was OK to feel the fear but it was foolish to act upon it and to then pay the price and the inconvenience for the rest of the year!
You might wonder what this has to do with investing in equities (quite rightly!). My take is that when it comes to pensions, investments, savings and all that boring stuff the truth is that many of us got quiet a fright 10 years ago (seems much more recent than that!) when the Global Financial Crisis hit. Anyone that owned equities/investments/pensions during that period felt the fear, the concern and either made a decision to act upon that fear or to do nothing!
A typical portfolio fund in an investment, personal or Director's Pension with 80% Equities and 20% Bonds fell by 35% from January 2008 to December 2008. A portfolio with 100% equities fell by 40% in the same period. Forgetting about the fact (yes the FACT!) that they both rebounded by 55 and 70% respectively in the following 12 months, this was a genuinely scary time for investors. Many people made the mistake of getting out of Equities during these temporary declines. They panicked. Some may have been forced to, as in they needed to get their hands on the money for some genuine emergency, but the vast majority who sold their equities during the temporary decline did so out of fear and panic.
In order to relive it let's picture a scenario. In 2006 everything is rosy. The Irish economy is booming, the good times are here. Bertie and his merry men are saying that this will last forever, that we're a mighty little country and that we should keep spending and lapping it up! Investments have delivered double-digit growth for past few years (since the tech bubble) and there is no reason to doubt that it will continue. You see your investment or pension pot grow in value from €200,000 to €250,00 over the course of 2005-2006. You are happy, you buy a few more houses, you buy a new car, install a new en-suite, a hot tub Jacuzzi out the back garden. The new decking is looking fabulous and your neighbours are all envious! All is well in the world!!
And then WHACK! The global economy collapses, we lose jobs, Joe Duffy is telling us the world is coming to an end, Lehmans Brothers and a few 'big hitters' (non prudent ones obviously!) go bust. Your property empire starts to crumble. Your decking goes mouldy and your hot-tub doesn't get used anymore because you're too busy worrying about things! Your investment/pension pot falls in value by 40%, from €250,000 to €150,000, and continues to fall. You fear for your life savings. What is going On? What Sort Of A Fund Is This? Will I lose It All? These are questions you ask yourself or indeed ask your broker or advisor. They probably don't have an answer that assures you in any meaningful way.
What happens next defines whether this investor achieves financial success or not. Full Blog at www.informeddecisions.ie
Paddy Delaney
QFA | RPA | APA | Qualified Coach
Growth and Value Investing are both around a long time as an 'investment strategy', and there are compelling rationale for investing in either, there are many fans of both, yet there is also quite a lot of regular investors that have no real familiarity with either. We aim to fix that even if ever-so-slightly in this episode. We will endeavor to explain a few key things about this 'earth-moving' topic......!
1) What is Value Investing?
2) What is Growth Investing?
3) Who does either or both?
4) Which has given greatest level of return? (that's all anyone really cares about right!?)
5) Which one should I do??
Before we get into the nitty-gritty however I wish to let you know that I am thrilled that you are reading this, you obviously have an interest in your own finances and in making some good decisions when it comes to your money, which I admire greatly. I would personally be very thankful if you would tell a friend about what we are trying to do here at Informed Decisions, who knows, it might help them help themselves! Thanks.
Paddy Delaney
QFA | RPA | APA | Qualified Coach