Transcript

Good morning, folks.

This is a picture of our mother and father. This is Sean and Mary Brady. We are originally from Elphin in Roscommon. Coman, the other advisor and owner in our business is still based in Elphin, I’m based in Sligo.

Our parents were business owners, and at least one of the reasons that we’re in business, and one of the reasons that we provide the type of services we provide, including talking about the content we’re going to talk about this morning, is that when we grew up, there wasn’t a lot of talk in our house about money. We were well provided for when our father passed away in an untimely fashion in 1987, he could have had better provision for himself up to that time. And when we got started in our careers, we learned how to make the best of our Financial decisions through trial and error as so many people do. It would not have been uncommon for money not to be talked about much in the house. And it would not have been uncommon for people to learn through trial and error with various Financial decisions they have to make, instead of making Financial decisions through trial and error, one of the reasons that we’re in business today is that we like to advise business owners on how to make the best decisions with their money. And we like to see the improvements that can be made, and the benefits of the Financial advice, working with those business owners over time.

One of the queries that we get from our clients is how to invest their money. It’s a really important area. We’re going to try to add as much value as possible with this webinar, and share the information we have learned over the last 19 years in business. So good morning, everybody. My name is Enda Brady, I’m a certified Financial planner. I’m one of the owners with my brother Coman of IQ Financial. You’re all very welcome. Today’s webinar is titled ‘The five biggest investment mistakes Irish business owners must avoid in 2024’ and covers lessons we’ve learned in our 19 years of business. At the start some housekeeping to make sure we make the most of the next 30 minutes or so I will pass you over to Maria Devine. Maria is our Senior Financial planning administrator and our office manager.

My job today is to keep things running smoothly so we’re on track and on time. I’ll also be keeping an eye on any technical issues and any questions you might ask. The way you can get involved is by clicking the Q&A button on your screen where you can type your questions. We’ll answer questions at the end. And we don’t want anyone leaving today without having their questions answered. I’ve also put a couple of links in the chat to our websites where you can access IQ Financial guides for business owners, and how to book and Learn More Call or sign up for our newsletter for business owners. After the webinar will send a follow up email with a recording of this session, the slides and links to our guides for business owners. So if you miss anything the first time around, you can catch up later. So now I will hand back to Enda to get started.

This is what we will cover the five biggest investment mistakes from our experience that we’ve seen Irish business owners make in the last 19 years, how to avoid major investment blunders that can kill your plans for yourself and your family, and what it means to be wealthy and the most reliable way we found to get there. You should leave today with the practical steps you need to avoid the mistakes that others have made and make the most of your investment decisions.

To set the scene, investing is the practice of putting your resources typically your money to work in different asset classes with the goal of growing the value of that money over time, generating growth or profit on that invested money. It involves hopefully a deliberate choice to put your money to work in assets like equities, which is investing in publicly listed businesses, bonds or bricks and mortar property with the aim of increasing the value of your investment and/or generating an income from it.

The biggest investment mistakes from our experience that we’ve seen can be summarised in the following five areas. Too much of a reliance on property investment, that’s residential or commercial buildings, a lack of diversification.

Not having a plan for your personal money and your personal wealth is another.

And the other three most common mistakes that we have witnessed are what you might call mistakes that investors have made when short-term emotion has taken over. That’s trying to time investments and react to short term events. It’s feeling that you have to always find or try new investments and have to go out and find the next best thing and finally being led by what others do and having a fear that you’re missing out.

Most business owners are focused on driving the turnover in their business coming up with new products and services to grow the business, they are in control and want to be in control. It’s a key part of being a business owner in the first place.

At the start, we have seen many business owners when their income is increasing, manage their own investments, typically by buying some property. They may have a pension that they start off in their business or company but have viewed their property investments as the most important part of what would provide for their lifestyle in the future.

We have seen that business owners can have a different mindset in relation to their property investment compared to other investments or pensions that they may have, particularly when it comes to pension accounts, they may look at their pension accounts less regularly, and treat them as an another product they have to get for tax reasons. In the past, that has been a common theme. So business owners have been more active and more conscious about their property investments when they start to accumulate some assets and less concerned about other investments. One of the reasons that business owners have liked property is that they can control it, they can pick the property they’re buying, they can go and visit and see the property they own.  In addition to control, there is that element of overconfidence when it comes to property investments, almost to the point where there’s a feeling that the property investment will always work out. Unfortunately, based on our experience through the decades, there is an underestimation of the costs involved when you’re managing a property, an underestimation of the time involved to manage the investment, and an underestimation of the impact of changing tax rules and other regulation that affect the investment. Property investment, particularly if you can hold the property for decades and be a great investment. But there has been an over reliance on property investments. And we all know situations where investing in property has been a disaster. It is by no means a sure thing. Relying on a relatively small number of properties, to be the foundation of your wealth for you and your family for the rest of your days is a risk that business owners do not need to take.

A second area where we’ve seen problems cause for business owners with their investment decisions is making your investments decisions on a piecemeal basis and not to best serve the needs of a personal Financial plan you’ve created first. The vast majority of business owners that we deal with have a plan for their business, a plan which helps the business owner decide what projects they’re going to take on in their business and a plan that will see the business through for at least the coming few years. Many business owners however, do not have a personal Financial plan for themselves and their family. They do not have a plan which identifies based on their priorities, how much they need for the living expenses and lifestyle they want for the rest of their days. A plan that helps them decide the most effective way to extract money from their business and understand how much they need from their business and their investments for themselves personally.

Making any sort of a significant investment decision in the absence of a plan is more like speculating than investing. When you invest in the absence of the plan, you’re destined to make decisions in a much more piecemeal way.

You’re destined to create more work by managing each investment individually. And it’s likely to be a more time consuming and costly process in the long run. The person with the plan for their money has a much better chance of success than the person without one.

Let’s talk about the other three common investment mistakes we’ve seen Irish business owners make. Together, these are mistakes that can be grouped under the heading of letting emotions have a greater say, than you would like.

If there was no uncertainty in investment returns, then investment returns would be predictable. If there was no uncertainty, there’d be no difference between putting your money in the bank and investing in equities or property. The return and profit you make from investments is the reward you get for putting up with uncertainty. Some uncertainty when it comes to investing is unavoidable.

When the unexpected happens, a great recent example of this is COVID-19, when asset values fell for a short period, many investors feel like they should be doing something with their investments when they suffer a temporary fall in value. Often media headlines stoke your emotions with predictions of more doom and gloom. When there is a recession or your feel there’s about to be a period when investment values will fall, it’s really seductive for business owners to try to do something to mitigate the potential short term loss. Our experience and the research across the world backs this up is that it’s impossible to consistently know when to get out of an investment and move into another in a way that generates a profit. There are too many variables to manage, and investors consistently lose money and sleep when they do this, markets cannot be consistently timed.

To use an example, missing out on the best year, month or even week of your investment can significantly reduce the profit you make in the long run.

Investors can be led by new popular investment ideas that get the majority of the media attention at any point in time, cryptocurrencies have been talked about a lot, there was a time when investing in certain countries was the vogue like investing only in Brazil, Russia, India, or China, or there was a time when investing solely in Internet stocks. These are all examples of the next great thing that didn’t have long term returns.

Trying to pick the individual business that wouldn’t be a future outperformer is futile. Almost no investor can do this consistently through their lives. Between 1927 and 2023, almost 100 years, on average, businesses that outperform the market on the way up, failed to outperform in the years after making the top 10 list.

You might also be inclined to select investment based on past returns, expecting a top-ranked investment to continue delivering the best performance. Research shows that most funds and investment managers ranked in the top 25% didn’t remain there in the top 25%. In fact, only about one in five equity funds stayed in the top performing group and only about a third of bond funds did.

How can business owners avoid these kinds of investment pitfalls. Before you invest ensure your finances are built on a solid foundation. Specifically, what we mean by that is three things.

Take Control of Your Cash Flow. Know what you’re earning. Know what you’re spending. No matter what you earn, if you spend more than you earn, you will never have money.

Pay off high interest debt. Your Home Mortgage Debt is the least harmful debt you have, but pay off high interest debt, and establish an emergency fund cash savings to cover at least six to twelve months living expenses.

These three actions combined will mean that you are likely to know how much you can invest and crucially be able to invest for longer without needing money for shorter term needs or a surprise bill. That increases your chances of earning a positive return on your money substantially.

When you have that solid foundation, you can then start to expand your personal Financial plan for you and your family and start to think about more informed, longer term decisions.

Before I hand back to Maria, who has a reminder for you, in the final part of the webinar, before we take questions, we’re going to look at both how you make informed decisions when you create your personal plan and cover the most reliable way we have found to help build long term wealth. We’ll show you where you can invest, where returns have come from in the past and the taxes involved. But first, a reminder from Maria.

Hello everyone just to remind you that you can put your questions in the Q&A section. In the Q&A section the things that you write are not visible to everybody, only Enda and myself can see them, and comments in the chat are around for everybody to see. If you want to talk about any of the topics we’re talking about in more detail, you can send us a message in the Q&A or the chat now and I can set up a meeting for you. Or you can click the link to our website that I put up to book a Learn More Call. Okay, I’m just going to go back to the presentation with Enda.

The vast majority of investment choices fall into the following three categories

Equities – This means ownership of the great businesses of the world that you and me use every day.

Bonds – debt issued by governments or companies you are in effect lending money to a government or a corporate for a specific term for a set annual return.

Property residential or commercial property  – purchased to generate rental income and/or capital appreciation. They are the main three what you’d call asset classes.

It’s worth mentioning that there are other asset classes that investors use, including commodities, and currencies, but these three are the main asset classes.

Between 1926 and 2002, almost 200 years, the yearly return for money invested in publicly listed businesses in the world, also known as equities, has been 10.1% per annum. It’s almost never exactly 10.1% per annum, with returns yearly, much higher and much lower than this, but 10.1% is the average yearly return to date.

The return from bonds has averaged 4.8% per annum. A good measure of the return from property is by tracking the returns on property investments called Real Estate Investment Trusts, or REITs. And they have averaged yearly returns of 6.5%, albeit there is a much smaller choice of REITs to invest in and they have a shorter track record than equities and bonds. You can see how these asset classes compare with bank cash or bank savings that have returned very low amounts in the last decade. And historically about between 1% and 2%.

There is a risk in choosing not to invest. Because if your money doesn’t grow over time, it won’t go as far in the future, cash under the mattress can’t keep up with inflation.

You don’t need to pick one or a small number of successful investments to have a good investment experience. You can see that over the last 100 years equity investment markets have returned an average of 10% a year before costs and taxes. If you can capture as much of that return as possible, you will go a very long way towards having the investment returns that are going to help you meet your personal targets.

Keeping your costs low and being as tax efficient as possible is a critical part of successful investing, you’re more likely to stick with your plan when you know it’s cost effective and tax efficient.

You should not invest for tax savings only, however. There is nothing like taxes to get the attention of business owners, you should make your investment decisions based on maximising your chances of achieving your personal goals and then be as tax efficient as possible. The taxes should not dictate all your decisions.

Just for the record, so you know the numbers, if you invest in shares or a property your returns are taxed at 33%. If you invest in a fund, your returns are taxed at 41%. If you invest through your limited company returns are taxed at 25%, and savings in a bank deposit account are taxed at 33%. There is no tax on returns for as long as money is invested in a pension, tax applies on part of your pension fund when you withdraw money.

Putting this all together, what it means to be wealthy, and the most reliable way we have found to get there.

We’ve seen definitions of what it means to be wealthy, and from working with clients, the best descriptions of wealth, can be summed up in these three statements. Being able to do what you want, with whom you want.

When you want for the rest of your days. Or accumulating enough assets to generate the cash flow you need for the rest of your days. Or always having what matters most to you.

And here’s the most reliable way we’ve found to get there.

The future is uncertain, but the quality of your decisions doesn’t have to be when you make informed decisions, you have the satisfaction of knowing you did everything within your control even if things don’t work exactly the way you’d hoped. If you want to reliably build your wealth, the first step and vital step in our experience is to start with your personal Financial plan for you and your family.

Your plan will be based on three things, your priorities, your plan and strategy for your situation, and then the investment portfolio. We call that your three Ps. The first P is your personal priorities.

What are the things that are important to you? What is the cost of the living expenses that you want to provide for for the rest of your days?

Who do you need to provide for? What are the things that matter most to you and why? That’s the first P that’s your personal priorities, your personal goals. The second P is the planning and the strategy for your individual situation.

What are your available Financial resources and Financial assets? How much time do you have to invest? How much money can you invest?

And in your situation, what’s the most tax efficient place to put your money to work? That’s the second P, it’s the planning and the strategy around your individual situation.

The final P is the investment portfolio itself. The account, the tax structure, the investment provider, the fund, that should be used to maximise the chances of you achieving your individual priorities.

We can’t stress this enough, picking the individual investment itself comes last.

Once you know why you investing your money, once you have checked the best way to use your available resources based on your individual situation, when you know these things first, then and only then should you decide how to invest the money that is available to be invested.

We cannot predict the future. But we are certain that if you follow these steps, you are maximising your chances of growing your money and having a more successful investment outcome.

This is what we have just covered. The five biggest investment mistakes Irish business owners have made in the last 19 years, how to avoid major blunders that can kill your plans for yourself and your family, and what it means to be wealthy and the most reliable way we have found to get there.

What can you do now? What are your next steps?

We suggest three, pick a Financial planner, an advisor you trust to guide you over the long term,

prepare your personal Financial plan for you and your family based on your three P’s. And then set yourself up to invest and invest for the long term.

Maria, I’ll take a break there. And we can look at some of the questions that have been sent in.

Okay, we’ll do that. We’ll finish the webinar on time, but we can stay online afterwards to answer any more questions if needed. Just to remind you, everyone who registered for our webinar this morning will get a recording of this talk and they’ll also get a copy of the slides. We have some questions that when people registered, they sent them in, so thank you for doing that. We have one from Brendan, who asks, What would you recommend doing with a large amount of spare cash in the business rather than holding it in a deposit account?

Thanks, Brendan.

A large amount of spare cash in the business? Well, the first thing I would say, Brendan is that having a plan and knowing what your personal priorities are first is important, as we have mentioned, for cash in a business, and I’ll assume there you’re talking about a limited company, for cash in a limited company, certainly pension is the number one option to look at.

Depending on your age and your exit plans, depending on how close you are to retirement, there are other options for accessing spare cash in your business. And I wouldn’t sacrifice any plans you have for your business or any income you’re taking from your business by investing your money. But on the basis of that question, Brendan, certainly pension is the first area I would look at after you’ve done your your personal plan.

Okay, thank you. I have another question here from Paul, who says I have a limited company and just wondering about ways of accessing money from a company other than a pension without paying into it. Thanks, Paul. One of our recent webinars, we looked at options for taking wealth from your business and we’ll make sure there’s a slide that we get to you, Paul. There’s five options that we’ve identified for accessing money from your company. Pension is certainly a leading option. But you’ve asked about about other options.

The other options you have for accessing money from your pension are your salary, dividends, using potentially some of the assets the business would provide for you for personal use, or depending on how close you are to retirement or what your future plans are for the business, there are specific options on the windup or sale of the business to extract cash from the from your company. We will send you more details on that straight out of the webinar we did last October on options for taking wealth from your business. And if you’ve if you’ve if you need more than that, Paul, we will certainly give you a bit of time to follow up on that if you need more detail on it.

Thank you. We have another question here sent in by Kieran and he asks, apart from pensions, what other investment options does a company have, when there are no effective ways to reinvest in the existing Trading Company?

Okay. Thanks, Kieran, I’m taking it that’s a limited company, we mentioned there that a limited company can invest, a limited company investments are taxed at 25%.The asset classes we’ve talked about equities, bonds, investment accounts are available to limited companies to invest in those types of assets. So depending on, we need to be careful that we’re not accessing working capital, or we’re not taking funds away from the business that are needed for other short term projects. So deciding what timeframe makes sense for a limited company to invest can take a good bit of planning. But there are investment options in the asset classes we’ve discussed this morning that a limited company can use, and they can open a limited company investment account, which is taxed at 25%. And we would be, we’d make sure based on your personal plan, that you’re not going to affect your own income you’re taken from the business Kieran or affect any pension contributions, which will be an important part of your arrangements, but you can open an investment account and invest directly from your limited company alright.

Thanks for that. And just looking at the Q&A here, we’ve got a question come in from Michael, he says thank you for your useful information. How can iQ Financial help a person get clear on his three P’s who is a company director of a limited company?

Thank you for the question. We have a Financial planning process. And we have learned, we have done quite a good bit of training on how other Financial planners around the world help people to figure out their personal priorities. And we have a three step Financial planning process that we bring business owners through. So the first step, we call it a Discovery meeting where we have some questions that help business owners figure out what might matter most to them. That’s called a Discovery meeting. And then we have a Strategy meeting, which looks at their Financial arrangements in a little bit more detail and comes up with a plan or a strategy for what might be best in your situation. And then finally, we do what’s called an Implementation meeting, where we look and see what actions are needed including how your money would be invested. So that Financial planning process takes normally somewhere between three and six weeks. But we have a process and we have an experience to help you figure out what’s most important for you and your family. And ideally, if you have a significant other or you have a personal partner, we do that with you and your personal partner, ideally, to make sure that your household can make the most out of your Financial plans and the Financial decisions that you make.

Okay, thank you. I think we’ve come to the end of the questions now. So I’m just going to share our contact details.

So if you have any questions, any other questions about what you heard today or any other Financial query, we would love to hear from you. If you go to our website, which is www.iqf.ie, you can book some time in our diaries using the book a Learn More Call button at the top, where we can learn more about your query. And you can email us using clients@iqf.ie or call us on 0719155560. At IQ Financial, we help business owners make the most of their money so they can retire with confidence. We advise owners over 45 who want to sell, retire or make work optional in 5 to 10 years. We help business owners plan for retirement, provide for their family and invest wisely. Thanks a million for your time this morning. We hope you got value from the webinar. We would appreciate any feedback you have to help us improve future events. We are running two more webinars this year, addressing the most important questions that our business owner clients ask us and we hope to see you next time. Thank you.