"With markets going up, down and back up again in recent times it can be scary to consider putting your money anywhere other than a bank account."
What most people don’t realise is putting your money in a deposit account guarantees you one thing, you will lose money over time after inflation is considered.
So what are the alternatives and what do I need to know.
Well this piece draws on the combined wisdom of some of our contributors to give you a whistle stop tour of the things you need to get right.
Investment Tips Worth Remembering
It’s estimated that there is over €90 billion of household funds on Deposit in Ireland, this is despite the fact that Deposit rates are the lowest they’ve been in a generation. If you are one of these people and want to get a better return on your Investment, below is a short list of tips worth considering before rushing in
Try To Remove Emotions From Your Investment Decisions:
This is easier said than done I know, look at investment markets coldly and don’t allow emotion to cloud your judgement.
Greed and fear are two of the greatest threats to a good investment strategy.
A very good book on this topic is “The Behaviour Gap” by Carl Richards
Use An Investment Strategy:
Decide on an Investment strategy which suits your circumstances, this is likely to serve you better than an ad hoc approach. A few to consider include:
- Buy and hold: This is where you buy investments and keep them for a long time, ignoring short-term fluctuations in the market. It's “time in” the markets rather than “timing” that matters most.
- Euro cost averaging: this is where you invest a fixed amount of money on a regular basis. When prices are high, your monthly amount will purchase less, but if the price falls, your “new” money will buy more, ideal strategy for a long term pension Investor.
Avoid Individual Shares:
Diversification is the foundation of any good Investment plan, don’t be worried about missing out on the next “sure thing”, try to Ignore the “hot tip” you get from your mate in the Golf Club.
Investing in Stocks and in particular in a single stock is a high risk game.
Diversification across a large number of Stocks will give you some protection, It’s also important to diversify across a number of different asset classes, It's unusual that all asset classes would fall at the same time, diversification will help smooth your Investment journey in most market conditions.
Understand Your Risk Appetite:
There are many different types of questionnaires and online tools that can help put a figure on your risk appetite. Before discussing what constitutes a good Investment or not, a good financial advisor should help you understand your appetite for risk and more importantly your capacity for loss, after all, the two don’t necessarily go hand in hand.
Get Independent Advice:
This may seem obvious to most but it is important nonetheless. A truly Independent financial adviser will always be working on behalf of the client with their sole objective being to help the client receive a better return on Investment.
The Perfect Investment
If you don’t mind, I’d like to jump straight into this article and lift the lid on the investment industry’s worst kept secret – the perfect investment.
Now maybe you’ve been told about the ‘perfect investment’ before, by a colleague, friend or even a finance professional, but can’t quite remember what it was. Perhaps there was a property involved? Definitely an ‘option’ in place (though it’s not quite clear what that is), and some form of ‘downside protection’ for sure. Unfortunately you just didn’t show enough initiative at the time and missed the boat, so now you’re waiting for the next one to come along.
If that’s the case, then I’m delighted to present the perfect investment to you now. Let me describe it for you:
- This product delivers solid growth
- It’s really secure
- You can access it whenever you need it.
Sounds great, right? Almost too good to be true in fact……
Here’s the secret: It doesn’t exist.
.@curranfinancial "The perfect investment? Solid growth, secure, access anytime. Is this too good to be true?" #investing @enough_ireland
Despite what fancy brochures and smooth talking investment advisors might tell you, there is simply no investment product or strategy that can deliver on all three of these promises and, if you are ever presented with a proposal that does, say thank you and walk away.
That’s not to say there are no investment opportunities in Ireland of course. Indeed it is possible to build a ‘portfolio’ that contains products or strategies which cover these factors. What a good advisor can provide you with is something that covers two at a time.
This ‘best investing practice’ can show you what strategies provide:
Depending on your own personal circumstances, you and your advisor will be able to choose what the appropriate balance of investments, under these headings, are right for you. Once you are agreed, then it should be possible to discuss products or strategies that encompass each.
There’s more money than ever sitting on bank deposits these days, but you can see that money held there only covers one strategy – security & access.
If you want to ‘diversify’, and you should, talk to a proper fee-based investment advisor immediately and find out how they can deliver on all these strategies for you.
Cleona talks Property. The Irish have a passion for investing in Property - it's just something we like to do. But are there any drawbacks?
Expert Advice from Cleona Kinahan at O'Learys Financial Planning
Investing in Property
Investing in Property is something we Irish like to do; whether it’s a rental investment property that we manage ourselves or a commercial property that our pension buys. Investing in property is the combination of purchasing a future income stream together with the acquisition of a tangible asset.
There are several barriers to entry for direct property investment in Ireland such as Stamp Duty, property management requirements, difficult borrowing conditions etc.
Most Irish investors can understand the terms rental yield, vacancy rates so when it comes to investing in Commercial property funds run by the major investment providers these funds can seem very attractive. They allow smaller investor’s access to a variety of portfolios containing Retail, Industrial, and Office units which may be located in Ireland or overseas.
There’s comfort to be had by investors when they can walk down Grafton Street and see the retail shops that they part own by virtue of their savings plan or pension fund. There are vast arrays of funds available to us as advisors for our clients; some with borrowing and some without, some in Ireland, some European. Using expertly managed property funds is certainly a no fuss way of accessing this asset class.
The main drawback of investing in property is illiquidity, or the relative difficulty in selling property in the event of a market downturn.
Within a unit linked fund structure, the diversification and cashflow into the fund can help alleviate this issue. Typically a 6 month moratorium can be imposed by the manager in the event of a market decline in order to try and protect existing investors.
Undoubtedly as advisors it is our job to try and guide people to making well informed, rational investment decisions; don’t be swayed by the behavioural biases that are inherent within us; Overconfidence being one emotional bias. Property should only be part of your overall portfolio; diversification is the key to maintaining good long term returns with much lower levels of risk. Don’t forget past performance is not a guide to future returns.
There is no doubt to the merits of direct property and property funds shouldn’t be overlooked by investors as a good investment opportunity, particularly those looking for a solid rental yield in these mad times of zero interest rates.
.@OLeary_FP The Irish have a passion for investing in Property - "It's just something we like to do. But are there any drawbacks?" #investing @enough_ireland
Time to Leave the Bank?
Bank savings aren’t what they used to be. A decade since the financial crisis, banks still don’t want our money – so the interest they’re willing to pay us is usually tiny.
That’s why many savers are considering investing money.
Now, your savings can go down as well as up when you invest. But over the long term, investing gives your savings the opportunity to compound and grow substantially, and build back from any short-term ups and downs in the market.
If you’ve had enough of rock-bottom savings rates, and are wondering about the best ways to invest money, it’s worth considering three options.
.@moneycubeHQ "Had enough of rock-bottom savings rates, and are wondering about the best ways to invest money, it’s worth considering three options." #investing @enough_ireland
Investment funds, which are Moneycube's speciality, are well-suited to regular investments and first-time investors. If you’re unsure how to invest your money, this is a solid option, because the fund manager does it for you.
Funds pool together the money from many investors. Fund managers then use it to invest in a wide range of company shares, bonds, property and other assets. Each investor is issued units, which represent a portion of the holdings of the fund. In Ireland, the fund is often held via a life assurance policy, and comes from the likes of Aviva or Friends First.
In Ireland, the fund is often held via a life assurance policy. Investment funds are flexible and easy to manage (for example, you can set up a monthly direct debit, and add to or reduce your regular payment from time-to-time). Our customers like this because you get into a good saving habit quite easily.
There is a wide choice to suit the kind of risk level you are comfortable taking, and you can move funds periodically – for example, you can move the money into lower-risk funds towards the end of your investment timeframe.
Investment funds have moved on quite a bit over the last few years. You can manage them online, and with the right providers there are no set-up fees, policy fees, or early exit charges.
Investing directly in company shares is done via a stockbroker. If you are investing a lump sum, this could be right for you. You’ll need to spend some time investigating the companies you fancy buying – it’s often said you need a portfolio of at least 20 investments to spread your risk sufficiently.
And it’s difficult to make a regular investment directly into shares on a monthly basis. That’s because you will incur a lot of transaction costs and admin work, such as filing a tax return.
There are various alternative investments out there such as forestry, or property. Clearly they can involve a lot of exposure to a specific type of asset, which in itself is risky as all your eggs are in one basket.
Investing in property also leads many people to take on a second mortgage. Borrowing to invest can seem like a great idea when the market is going up. But there’s one huge risk: you can lose more money than you started with. The risk of negative equity means that for most of us, investment is best done debt-free.
Crowd Funding and P2P
These are the newest kids on the block.
Using a crowd-funding platform, you can help bankroll an entrepreneur’s big idea from the very start. Obviously, it involves a lot of uncertainty – but some big businesses have grown big by crowdfunding. For example Brewdog, the Scottish craft beer company, has blazed a trail for successful investment by using the power of the crowd.
For many investors, investing like this is as much about helping start a great idea as it is about generating hard returns.
Peer-to-peer (P2P) lending is a bit more business-like. Here, your cash is lent to a business or an individual who agrees to pay back a certain level of interest. In Ireland, Linked Finance has processed over €32 million of loans like this, lending to the likes of the Rolling Donut, and Dublin’s Viking Splash Tours.
As ever in the world of investing money, the level of return is connected to the level of risk you’re taking.
As with all lending, there is the chance that you won’t be paid back when you lend peer-to-peer.
People have been saying bank interest on our savings will rise for years now. Don’t bet on it. However you choose to invest your money, now could be a great time to look beyond the bank.
To Bitcoin or Not to Bitcoin - that is the Question. Paddy takes us through the Dot Coin Revolution and what to look out for when investing in Cryptocurrencies.
Expert Advice from Patrick McGettigan at McGettigan Financial Planning
The Dot Coin Revolution
The Dot Com revolution of the late nineties has a modern edition, The Dot Coin revolution.
I had a client half-jokingly (but only half) ring me to query why ‘You didn’t have me on Bitcoin’.
Financial Planners are working day to day to try and create reasonable cash flow plans based on responsible decision making and identifying Investment opportunities.
It is our job to try and educate our clients about long term planning, identifying the correct risk profiling and bringing diversification to their investments through a spread of asset classes.
There is so much noise around Cryptocurrency and the astonishing growth in the value of Bitcoin investment that clients want to talk about it and to quiz us as financial professionals around it.
There is a definite tone of ‘I could do this Investment stuff myself ‘.
.@Paddymcg28 The Dot Coin Revolution and what to look out for when investing in Cryptocurrencies. #investing #crypto
As a basic starting point, I think it is reasonable to compare the current Bitcoin Investment hype to the Dot com rush 20 odd years ago, like then it is a new investment option with unlimited potential.
In relation to the dot com rush and the regular quotation on Amazon and Google share prices if you bought in at the start, 99 % of the start-ups failed and it is expected to be similar for Cryptocurrency.
New Investment options are a good thing but as ever it is important to distinguish between investment and speculation.
To flesh out a bit of information around bitcoin:
It is fair to view Cryptocurrency as an Asset Class in its own right.
- There are close to 1500 Cryptocurrencies currently in circulation and the expectation is that by 2020 this will have risen to 10,000.
- There are 6 new Initial Coin Offering's (ICO’s) every single day and it is forecasted that the Cryptocurrency Market in 2020 at the height of the bubble could be worth $2.3 trillion.
Historically a rush like this leads to a crash 3-4 years on similar to the Dot Com bubble in the late nineties into the new millennium. If such a scenario plays out a crash can be expected around 2020 with just 1% of the expected 10,000 Cryptocurrencies surviving after this.
Like Amazon, the trick will be in identifying the 1/100 investment opportunity.
Where Should I Invest My Money?
Investing money is not simple, we all need help.
Indeed, that’s why we read articles like this.
Ideally, we would all like to have all our capital in the one sector that’s King of the Hill at any given moment, and then leap to the next hot sector just before it becomes Top of the Pops.
This is market timing and it's exquisitely impossible, no one can even begin consistently to do it and if they do, it’s called luck!
Therefore, we must realise that investing requires faith, patience and discipline.
For nearly all investors, be they investment or pension investors, the most sensible and efficient way to invest money, is through well diversified mutual funds. Mutual funds represent the easiest way to access the market place and achieve better investment outcomes. I won’t distinguish between Active Mutual funds and Passive Index Tracking funds (that can be another post) because in any event 90% of returns are generated from getting the asset allocation (where the money is invested) right at outset and throughout the investment.
You might fancy yourself as the next Warren Buffet and reckon that picking individual stocks and holding them over a long period will ultimately prove more remunerative, tax efficient and exciting. However, most people are not Warren Buffett, even superb companies go out of business and can you be bothered to do all this research and compliance work yourself?
What does an investor need to watch out for when selecting a combination of mutual funds – What rules need to be observed? #investing @enough_ireland
I suggest that you start by asking yourself and your advisor the following 10 questions:
Choosing your Investment Approach
In general, the best investment approach is via a combination of well diversified funds, managed by the worlds best fund managers, appropriate to the investors time frame in the most cost and tax efficient manner possible.
We have seen the emergence of a myriad of fund offerings ranging through Multi Asset, Multi Risk, Absolute Return, Small and Large Cap Growth Equity Funds, Small and Large Cap Value Equity Funds, Corporate Bond Funds, International Property Share Funds, Direct Property Funds. They all sound wonderful particularly when they are dressed up and marketed in the most alluring of ways.
Picking tomorrow’s winner, based on Past Performance is fraught with danger. Would you select the best drug for a medical condition based on an internet search?
A good investment advisor should be able to guide you through the haze and recommend an appropriate solution. Most importantly though, that Advisor needs to be able to hold your hand when things get shaky (as they will). You should feel confident in the outcome, rewarded for your risk and paying an overall fee appropriate to the advice, skill and service you are getting.
As my Latin teacher would say Caveat Emptor!!!
Gold As An Investment and In a Pension
Gold Valuable Diversification and Hedge Due To Growing Risks
After the bull market of the last nine years, there is a strong case to be made that it is time to rebalance portfolios. Bond markets and stock markets have significantly outperformed and may be due a period of underperformance. More risk averse investors and pension owners may benefit from diversifying into gold due to its hedging and safe haven attributes.
The defensive strengths of gold have been seen throughout financial history and of course before and during the Irish and global financial crisis when gold prices rose preceding the crisis and in every single year during the difficult period from 2007 to 2012
History including in recent years in Ireland also shows how gold has protected people from stock and property market crashes.
.@MarkTOByrne "Unlike property, gold is one of the most liquid assets in the world." #investing #gold @enough_ireland
Unlike property, gold is one of the most liquid assets in the world.
Also, there is no credit risk if investment grade gold bars are owned. This is rather than paper gold in a trust or exchange traded structure due to the added counter party risk that this involves.
Throughout history, gold has protected people from both bank failures and currency devaluations. This was experienced again by British investors and savers when sterling devalued sharply after Brexit and gold acted as a hedge by surging 30.2% in sterling term in 2016.
Gold’s hedging properties are clear but what is less well known is that gold has performed very well as a good source of long term returns.
Over a 5 year time period, gold has performed quite poorly as most stock, bond and property markets saw strong gains. However, it is important when considering investment and pension performance to focus on the long term. Over a 10, 15 and 20-year time frame, gold has performed strongly.
As an example, gold has returned 9.9% in dollar terms and 8.9% per annum in euro terms in the last 15 years (see table above).
Recent experience, financial history and research shows that gold is valuable as a diversification. It mitigates losses in times of market corrections and crashes. Its lack of correlation with stocks and bonds reduces volatility in the overall portfolio while enhancing long term returns.
How to Invest in Gold
GoldCore Secure Storage
Directly own gold coins or bars as an investment or in your pension in segregated and allocated insured storage in some of the safest private vaults in the world including Loomis Zurich and Brinks Singapore.
Premiums on gold bars range from 1% to 3.75% and annual insured storage is 0.49% to 1% per annum depending on the size of the investment.
Perth Mint Certificate Programme
Perth Mint Certificate Programme (PMCP) is run by the Perth Mint of Western Australia which is wholly-owned and guaranteed by the Government of Western Australia (established in 1899).
The PMCP allows Irish investors and pension funds to own government gold certificates. Fees on buying certificates range from 2% to 3.9% depending on volumes and the cost to liquidate is 1.5%.
"There is a lot to this investing lark, but all of that wisdom and experience is in the minds of the experts above. You don’t need to worry about the ins and outs, you just need to find somebody who understands this stuff and sit down with them.
They will guide you through the process and strip out what is not relevant to you. Where better a place to start than to contact one of the experts in this piece!"
Sign up to our newsletter below to get more information like this delivered straight to your inbox. No spam, just real advice delivered by people qualified to give it.