The Tax Man

A little bit Investing, A little bit personal

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3 Random Thoughts  

1.Pedestal Culture

Modern technology has ensured that personal highlight reels berate us daily.

Skills are advertised, flaws are hidden.

We all do it, but this societal tendency to keep the good side out has some severe consequences in a world where everything is relative.

One of my favourite quotes of all time sums it up pretty well.

"When you are keenly aware of your own struggles but blind to others', it's easy to assume you're missing some skill or secret that others have."

– Morgan Housel.

As a result of the flawless exterior images we create, so many people look at what others are doing and say, "I could never do that." Which is unfortunate because more people would be willing to try if they knew that those they admire are probably ordinary people who played their cards right.

I know this held me back in my career for longer than I care to admit.

Convincing yourself that others are Mavericks becomes an excuse not to try. You don't have the talent they have, so why bother?

But then you get older, you meet others in your industry, people at the top of their selected field… and you start to realise that most of these people are just figuring it out as they go along.

At best, they possess a potent mix of ambition, persistence, intelligence and luck; at worst, they are complete bluffers.

Either way, no superpowers.

The way I see it, most people who are very good at one thing are likely to be utterly inept in other aspects of their life.

Take the wealthiest people in the world as an example.

Musk has already racked up 3 divorces, a graveyard of failed investments and operates as a Twitter troll in his spare time. Gates has had his fair share of questionably misogynistic accusations over the years, and Buffet has been very open about his own shortcomings in his family life. 

These are people who possess generational talent, but that doesn't make them flawless or even good people.

We tend to take success in one area of someone's life and extrapolate it across all areas of their lives. But that's not how it works.

Perhaps you don't possess the characteristics of a Musk or a Bezo's, but they also don't possess some of the powerful attributes that you have.

Nobody's perfect. The sooner you realise that, the sooner you can use it to your advantage.

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2.Prioritise Spending

A guy emailed me during the week with a few questions about setting up an investment account. He was 23, just starting his first job and wanted to put every penny he could into the stock market.

In theory, his rationale was perfect, and I admire the sentiment. He's streets ahead of where I was at 23.

There is no denying that 'time in the market is more important than timing the market' and 'compounding is the real silver bullet in investing.'

Any financial advisor worth their salt will be able to dust off an investment calculator tool that shows that $50 a month invested for 50 years grows to $1.7 trillion* by the time you retire.

*numbers may or may not be accurate

But life isn't simply a financial equation.

For most people starting an entry-level contract, wages will be bleak.

When I first came out of college, I was on $24,000 a year….24K GROSS-INCOME.

When you're paying 50% of your wages on rent, saving is a luxury you simply can't afford yet, and that's ok. Focus on other things.

• Use your time and money to increase your earnings potential. Professional certifications, side hustles etc. Focus on figuring out how you can maximise your earnings potential in the future instead of scrapping by just so you can 'get ahead of the game' from an investing standpoint.

• Spend your money on travelling so you can get life experience. You may be money poor but your time rich. Use that time to go explore.

• Create the habit: Putting together an investment portfolio is something everyone should do. But if you're young, don't worry about how much you're actually contributing. $10 a month will do. All your trying to do is formulate a habit so that when the money comes rolling in, you know exactly what to do with it.

Not a take you're going to hear in many financial books but when your young, spend it all. Your future self will thank you for it.

3.Figuring it out

Is 33 too young to have a mid-life crisis?......Asking for a mate.

1 Investment Update

Pensions 101

Undoubtedly, pensions are the most boring investment topic imaginable, but they are inextricably linked to the most pressing questions on every Irish person's lips….

"How do I pay less tax?"

In Ireland, the tax man is basically equivalent to the Krampus. Mythical tales are passed down through generations. Untold horrors of 'double taxation' are proclaimed at the dinner table of every Irish home.

Unavoidable taxation has become a justifiable reason to scrap investing altogether.

My mother's investment philosophy pretty much sums it up…

"Ah sure what's the point, the government will take half of it anyway'

So while pensions may lack the glamorous allure of meme stock rallies, the tax benefits are worth paying attention to for all those still petrified of the tax man.

All You Need to Know

Despite previously working in pensions for many years, I rarely mention pensions in any of my writing.

The main reason for this is my curiosity leans towards more in-depth investment research so detailing the idiosyncrasies of the Irish pension scene was never high on my priority list.

I'm sure what I write about bores people at the best of times, but immediate narcolepsy would be unavoidable if all I did was rattle on about pension changes.

Another reason for never mentioning pensions is there isn't all that much to say.

Here is everything you need to know in 2 sentences.

1. For most people, maxing out your pension and AVC's should be an investment priority. The first port of call. Yes, the administration fees are questionable. Yes, the product offerings are less than inspiring, but the reality is, the shortcomings (of which there are many) are outweighed by the tax benefits. Like so many financial decisions in Ireland, the tax implications determine the answer.

    

2. Keep it simple: Don't let your pension provider upsell you into any bullshit 'structured products' you don't need. Get exposure to the market through their cheapest most liquid products. Majority Equity, Some Bonds and just 'target-date' your way to retirement from there.

A Pension Change That Actually Makes A Difference

There are rare occasions where something happens in the pensions scene that is worth noting. This is one of those occasions.

Thanks to the 2022 finance Act. As of 1 January 2023, BIK charged to employers making contributions to their PRSA in excess of the ceiling has been entirely removed.

What does this mean for business owners with PRSA's?

It's a game-changer.

A trading company can now make unlimited contributions of company cash to a PRSA up to a max of 2 million euros.

In theory, a company director can now legitimately take up to 2 million Euro in cash out of the company and move it into their PRSA or into an employees PRSA while remaining within a completely regulated tax structure.

Upon retirement, 25% of this PRSA can be drawn down in a tax-efficient manner (much more efficient than having taken the money as salary).

In practice, there must be a bona fide rationale behind the funding of your PRSA to ensure any sudden and drastic cash extractions from your company are not seen as 'excessive remuneration' by Revenue and taxed as salary or a distribution. In other words, if you maximize your PRSA today and draw it down next week, questions may be asked.

I doubt this opportunity will remain open for very long, but until then, a rare opportunity has presented itself for PRSA holders, and a huge incentive has emerged for those who may have put off setting up a PRSA. They can now play catch up without getting stung by tax.

Make sure you find the right tax and investment advisor to explore your options.

And now I vow never to talk about pension again on this newsletter.

Promise.

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