Podcast #64: The 5 Simple Things....(I Promise!)

11/14/17 • 13 min

Informed Decisions Independent Financial Planning & Money Podcast

Welcome to Ireland's #1 Financial Planning Blog & Podcast. Our purpose is to help you make informed decisions with your money, and importantly to avoid some costly mistakes that they rest of us have made! We are aiming to make this THE home of Financial Planning ideas and insight for normal people in Ireland!

This week, after last weeks' cracker about clearing your loans at 32, we are back with a bang, and what more do we love than a good oul list! Which is ironic seeing as only recently I had the fortune to have attended a Workshop on using Mind-Maps....which suggest that lists are the devil's work and that our brains hate lists really. I have to say I am a fan of Mind-Maps now, I'm converted, so don't be surprised if I land a financial one on you all in the very near future!

It was actually doing a Mind-Map for myself that got me thinking about what is absolutely of most importance to me at the moment in terms of personal, family, career etc. It got me thinking of what we might say to an 18 year old version of ourselves, had we the chance to go back and give ourselves a right good talking to!! So here's my take on the 5 Simple Things I would encourage myself to have done financially from that age:

Be A Life-Time Learner: Personally I'm a little late to this party, only really getting into 'informational sponge' mode in the past 5 years. Had we forced ourselves as 18 year old's to read, and be curious about all things financial it probably fair to say we would be in a much better position financially than we are currently. So if you have found that you are still a little financially illiterate (you couldn't be if you are reading this right!!) then may I suggest starting with this book, a true gem; Millionaire Teacher.

Harness The Power Of Compounding: We have flogged this one to bits here at Informed Decisions but there is absolutely no escaping what Einstein referred to as the 8th wonder of the world. Imagine starting off at 18 years of age saving €250 per month. If you achieved a growth of 6% per annum, by the time you are 48 years of age this is worth €250,000, you yourself contributed a mere €90,000, the rest, €140,000 was magiced-up via compound interest....what possibly are you waiting for dear friend!

Become An Owner As Early As Possible: We believe that owning is much much more advantageous than borrowing. Take a home, for most us we need to be a borrower before we can be an owner.....the earlier you borrow the earlier you own (clear the friggin mortgage!). Despite the ups and downs of property value it is quite often clear to see that the sooner you can get onto that ladder, barring disaster, you may well stand to benefit earlier. The very same can be said of owning investment assets, be they property, equities, or other, it is much better from a long term returns perspective, to own as opposed to borrow, which you essentially are doing by owning Deposits Accounts!

Spend What You Have Left After Saving: Another that we beat the drum about here. Nobody enjoys the process of actually delaying gratification (usually!). Why would I save this money when I can out on the town tonight with my pals and have a whale of a time!?! By removing this choice from our hands we are ensuring that while still enjoying enough nights-out, that we also squirrel some money aside to realise our goals in the future, whatever they may be. It is so easy now to set up standing orders and savings accounts online that there is really no excuse not to, right now, go and set up a standing order out of your current account and into a savings account, the day after pay-day! Again, what oh what are you waiting for dear friend!? Most of the time people find that they can adapt to the new spending amount, so it's a win-win! And while you are at it I'd also make sure to know exactly what is coming in and what is going out each month....and to turn up or down the savings element whenever the situation warranted it...the art of budgeting!

Keep An Eye On The Small Print: So many people are swamped with jargon and terms and conditions when they do anything remotely financial related. Unfortunately it is usually one EU regulation or another that is insisting that you get this stuff. However the providers of these materials don't always make it easy for you to understand and digest them. One of the biggest culprits here is the fees and charges that you may be paying on financial products, savings, pensions, investments. These fees vary so so wildly from provider to provider that the difference between one and another can be a staggering amount of money.......make sure that that difference is in your pocket. Always always, as painful as it might be make every effort to know exactly what the fees are before you e...

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Podcast #62: When Jimmy Met Aggie......Life-Styling

Welcome to Ireland's #1 Finance Blog & Podcast. We are here to help you make informed decisions with your money...and ultimately to bring true Financial Planning to Ireland's normal people!

This week we are taking a little peep into the magical world of Jimmy & Aggie.....how they have different views on life and money, and ultimately how they went their separate ways with regards their pension options, and how that panned out for each of them!

Aggie's Story:

Aggie is in her mid-30's, a sound woman by all accounts! She works as an Accountant in a medium sized law firm. She's as happy as a trout in her job, and plans on working her way up the ladder over the next 10 years in the firm. Good on Aggie! When she met her now husband Jimmy it was like a scene from a Disney Movie.....sparks were flying.....they were married within 6 months. That was 7 years ago now, and in fairness their gut feeling was right...they're having a ball!

Herself and her husband Jimmy have a wee baby girl, Jacinta, who is the centre of their universe at the minute! Even before Jacinta's arrival Jimmy had been at Aggie to start stashing some of her disposable income instead of spending it on more 'bloody cycling gear' (they are big cycle fans ya know!).

Being the loving and responsible sort she has given in to Jimmy's insistence and recently went to get some advice on getting herself a pension. Aside from Jimmy giving her the verbals about doing it she has read and noticed lots of articles and blogs about it over the last few years, generally scare-mongering her into doing one with headlines such as 'start a pension of die a penniless and miserable oul widow'...none of which really gave her the nudge to do one!

She met with an advisor, a highly qualified professional, also in her 30's. This advisor recommended that she should put in place the 'life-styling' option, which she was told will gradually move her funds from the 'volatile shares portion' of her pension pot to the 'more stable bonds & cash funds' as she gets nearer to retirement.

She is told that by the time she is 65 or so that 75% of the pot will be in 'steady and secure' cash while the other half will be in 'volatile shares'. Ultimately the intention would be to protect the hard earned savings that Aggie would have built up by that stage.

This sounds like a great idea to Aggie, she has heard one or two stories over the years of people 'losing' their pension pot as they get near retiring because of a crash or recession & she ain't a fan of that happening to her thanks very much!

Seeing this as sound advice Aggie duly accepts the recommendation and signs-up, starting off with a monthly payment of €300 to her PRSA. Based on the information that her advisor gave her when she gets to age 68 this should build up to about €200,000 after charges and accounting for the Lifestyling. As a result of reducing the % of your pot invested in funds which offer solid growth, it reduces your potential growth over time.

Fast forward 3o-odd years, Aggie and Jimmy are still blissfully married, their now 3 kids have grown up and left the nest educated and set up to go and do their thing! They are both eagerly anticipating their retirement and going to do all the things that they have been putting off for 30 years (you can see where this is going!!). Aggie has long dreamed of herself and Jimmy taking 6 months to cycle across America......a friend of hers did it a decade ago and she has been planning for it since. She reckons that trip alone is going to cost them in the region of €30,000, a fair chunk of her anticipated €50,000 tax free lump sum from her PRSA when she retires.

As luck would have it just as Aggie is turning 68 and about to cash in her pension pot the markets have a shocker.....a global financial crisis of 2007 proportions strikes....global equities fell in value by 50%. Luckily for Aggie only 10% of her total pension pot (€200,000) was sitting in an equity fund. It could have been an awful lot worse but because the bulk of her fund was in cash her fund value has only fallen by €10,000, from €200k to €190k, as she goes to retire.

At this point in time she is showering grateful blessings on the advisor she met all those years ago for recommending Life-styling. Had she not had Life-Styling she would have potentially still been fully invested in Equities, and therefore lost half of her total pot.

Aggie then takes her 25% tax free lump sum, squirrels the rest into an Approved Retirement Fund (Check this out if that means nothing to you!). With her €47k tax free lump sum she decides then to treat herself and Jimmy to a 1st class trip via Concorde (its 2058 now, Concorde has been reintroduced right!!) to the west coast of USA to begin their cycling adventures......

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Podcast #65- The War On Commissions........(Green-Grocer Version!)

This week we are aiming to share some slightly different insights, and reveal some major news in the world of Financial Services in Ireland! Last week the Central Bank released a proposal which is due to come into force next year (subject to Dept. of Finance), which is aimed at maximising the protection consumers get when it comes to buying any financial products....we have dissected all the Publications released by Central Bank to determine the details, and it's an interesting one!

Firstly, thanks for checking out Ireland's award-winning Financial Planning Blog & Podcast, we're delighted to have you join us. We'd be thrilled if you had the time to check out our 'why', and to learn a little about what we are trying to do, for you our reader.

The Green-Grocer!

Indulge us for a few moments, trust me it'll make sense shortly! Imagine that you are walking down the road after getting off your bus from work, and you notice a shiny new green-grocer shop on the corner. It's called 'Gerry's Independent Stores'...sounds good to you!

You walk in and the friendly green-grocer welcomes you with a big smile, a warm welcome, and inquires as to how he can help you.....you are taken aback at his hospitality and part of you reckons 'I'm gonna be sold something here'....therefore you reply in the usual way and state that you are 'just in for a look'!

The shelves are stacked high with produce, so much choice of all your staple items, different versions of everything......you are confused with the level of options and so ask for some help with regards picking the 8 items you actually do need, milk, bread, broccoli, ham, cheese, yoghurt, apples & grapes (you healthy divil you!).

Before you know it the kind shop keeper picks out a version of each of the 8 items, in addition he tells you that he has a special rate going on the eggs, asparagus, Mars Bars, and Ice-Cream and he encourages you to buy those as well. You reckon that you actually probably could use these other items so you agree to buy them.

You go to the counter, pay for your stuff and happily head on off home with your shopping for the next few days done, and away home to make the dinner!

How Did The Green Grocer get Paid?

It is only the next day that you hear from a mate that the Green-Grocer actually makes more profit on certain options than on others. He picked the options for you that result in him getting the most profit. He also invited you to buy more stuff, because it turns out he gets a large bonus from the provider of the eggs, asparagus, Mars Bars and Ice-Cream if he sells a certain amount of it. In fact, he actually also get a holiday every year if he sells certain amounts of it to his customers. He might also actually get support to pay for advertising and marketing if he agrees to only sell that particular producers product....how do you feel now? Some people might feel like that is what they expect, others might not care less, while others might feel that they were being encouraged to take and buy stuff that might not have been the things that they needed or wanted! Again, how would you feel?

How Are Financial Advisors Paid?

It will be no surprise to majority of you to hear that most Financial Advisors & Intermediaries, Banks, Brokers are paid in a similar way. Majority of Brokers, Banks & Advisors (also known as Intermediaries- i.e the seller of products on behalf of a product producer) get paid commission when they sell a certain product. It is also known that some get paid more for selling a certain product, and indeed get paid bonuses if they sell a certain amount of certain products from certain providers....all very certain!!

It appears to us that the Central Bank are on a mission to increase the transparency that you the consumer has in regards how your 'Green-Grocer' is paid by the providers. In fairness that makes total sense. As we keep banging-on-about here, the focus of the industry has for too long been lazered onto selling products as opposed to delivering the real outcomes that consumers need and want....more often than not a product is required, but it should not be the starting point of the conversation!

What Will Change For You, The Customer?

In essence what the Central Bank appear to be aiming towards is a situation where there is a full and clear menu available to the customer as soon as they look up the 'Green-Grocer' online....you the customer will be able to see exactly what the grocer is paid from each provider, in advance of you actually going into the shop.

The impact of this would be that the next time you go into 'Gerry's Independent Stores' you will know how much Gerry will make if he sells Brocolli A, Brocolli B, or Brocolli C.....again all about improving the transparency for the shopper.

Also, when it comes to mortgages, the Green-Grocer ...