Get rich quick? It’s not too likely – but you can grow your nest egg
Here we look at the different options for those seeking to salt away their savings
Adrunk on the bus told me how to get rich…’
The classic lyric from the old Bagatelle song
Summer In Dublin sums up a lot of get-rich-quick advice. It’s basically worthless because you can’t get rich quickly, at least not with any degree of certainty.
And if someone has this magic secret why would they go around telling everyone instead of using it themselves?
What you can do is become moderately well-off over a long period by following some basic tips – ie don’t blow your money, don’t get ripped off, and invest what you do have wisely
But if you have a bit of money to spare that you want to salt away for a rainy day – where should you put it?
Should you save, invest or pay off your mortgage – or just put it all on the Lotto?
Let’s say you salt away €10,000 over the course of 10 years, what would you be left with (probably) looking at all these options?
Here are the pros and cons:
LOTTO
One wag described lotteries as ‘a tax on people who aren’t very good at maths’.
And the numbers kind of bear this out. Your odds of winning the Irish Lotto are around 10.7 million to one.
It costs €2 to enter so you’d have 5,000 attempts for your €10,000.
That would reduce you odds of winning to just 2,140 to one… but even then you’d most likely end up empty-handed. But not quite… There are quite a few lesser prizes with much better odds.
Your chances of winning €2 for a two numbers plus bonus line are one in 72. Out of 5,000 attempts to win you’d probably win that 69 times – pocketing €138.
You’d also win prizes for three and four numbers multiple times – but probably not anything at or above the four numbers + bonus level, where the odds of winning are 17,896/1. Likely 10-year nest egg: €1,114 (but you could always win the jackpot!)
PRIZE BONDS
Prize bonds don’t pay interest but you can cash them in when you like. Instead of interest they pay out a sum in prizes. Effectively, you are betting the money you would otherwise earn in interest
on the chance of winning a prize.
A total 0.85% of the prize fund is spent on prizes every year, which is the equivalent of the interest rate.
However, with half a billion prize bonds in circulation, the chances of winning the big one are even less than your chance of winning the Lotto.
But at least you get to keep your money. Likely 10-year nest egg: €10,000.
SAVINGS
Savings returns have been falling for years and have really plummeted in the past year as banks such as KBC realised they had enough customers roped in with high ‘teaser’ rates, so they reduced them. Rates are so low that it’s hardly worthwhile going for longer-term rates, as in many cases they are similar to what you get on demand.
So you might as well keep your money accessible in case you need it.
Likely 10-year nest egg: €10,459 (based on KBC’s demand rate of 0.45%).
INVESTMENTS
Investments have done really well lately but stock markets are at what many analysts regard as dangerously high levels.
Where they go from here is anybody’s guess.
And returns on investment funds will also be reduced by 41% tax on exit and ongoing charges (although the latter can be reduced by using passive investment vehicles such as exchange traded funds through the likes of ETFmatic, which recently set up in Ireland). Likely 10-year nest egg (after tax): €13,088 (based on 10-year active managed fund returns).
PAYING OFF YOUR MORTGAGE
Mortgage rates are exceptionally high in Ireland.
The average interest rate on new mortgages was 3.38% in November, nearly double the equivalent euro area rate of 1.72%.
Many borrowers on standard variable rates are paying over 4%. But you can beat the banks at their own game by taking advantage of these high rates and pay off your mortgage early.
At even the average rate of 3.38%, there are huge savings to be made – way more than with any other form of secure saving.
When you take the lack of risk, tax and charges into account – and the current precarious state of stock markets – you’ll probably be better off doing this than buying shares at the moment.
And remember, our calculation of nearly €4,000 in interest savings is based on 10 years of mortgage payments. If you were to use your €10,000 to pay off a 30-year mortgage at the outset, you’d save €17, 108 – more than four times as much (see panel). Likely 10-year nest egg: €13,943.