We have had 26 BULL (rising) markets to date and now matched since April with 26 BEAR (falling) markets – the next is a BULL but when ? To become a BEAR, the BULL had to drop 20% and with deposit interest rates still on the floor ( best demand rate is KBC Bank’s 0.15% and that’s BEFORE Deposit Interest Retention Tax – DIRT – of 33% leaving a net interest rate of 0.1005% ! ) investors are not flocking to deposit takers with their cash for the paltry returns available. But they need safety first. John Lowe of Money Doctors investigates.
Alternative investments where the returns might be considerably more attractive take the form of speculative and risk-laden options
- Wine investment
- Classic cars
- Numismatics ( coin collections )
- Philately ( stamp collection )
- Rock ‘n roll memorabilia
- Precious metals
- Mezzanine finance / Loan notes
One definition of the word safe in the Oxford English dictionary is free from risk. In light of asset performances in recent years, there is not a single investor who could state their investment is risk-free. Between oil crises, earthquakes, floods, famines, credit crunches not to mention the pandemic crisis the world is a different place than it was 12 years ago. So is anything safe today ?
Staying positive is crucial or as those nice people in Made in Chelsea say Keep Calm and Stay Positive. Remember first of all, downturns do not stay down forever. Everything is cyclical – here in Ireland, we have had a boom for over 11 years since the last “bust” and last month the BEAR finally arrived.
Cash is currently king or queen as the case may be. Staying “liquid” or having a Rainy Day Fund ( 3 to 6 months joint net annual income in a totally accessible account ) imperative for three very good reasons
- Emergencies – your clutch goes (for the uninitiated, that’s part of your car !)
- Sudden income loss – no bonus this year
- Investment opportunity – next door becomes available at half price.
Therefore, savings are key to our next boom. The question is where to invest in the meantime if you have savings and what to do if you don’t.
The property market is now on a knife-edge…reports of a potential 12% drop in 2021 do not help and with unemployment on the increase and the pandemic effects still affecting and hurting a huge number of people, it’s steady as she goes….Properties – commercial or residential investment – with long term guaranteed rental income will always sell. You just have to be sure of the tenant and their ability to maintain payments.
Aside from property, the other asset classes of cash, stocks, bonds and alternative investments should be examined and scrutinised for wealth preservation and growth. The buzz word is diversification and while, as I said, cash is king currently, consumers still want their cash guaranteed as per the Deposit Protection Scheme ( € 100,000 per person per institution )
Cash – remember the three deposit categories
- Demand accounts ( make withdrawals at any time )
- Notice accounts ( you have to give notice – from 7 day, 30 day etc )
- Fixed interest rate accounts ( you MUST invest for the period agreed – no withdrawals are allowed. Periods from 1 month, 3 months, 6 months to 1,2,3, 5 and 10 year fixed )
Amounts vary from a minimum € 1 to € 100,000 and in some cases a maximum of € 1,000,000 to no maximum but you need to bear in mind the government guarantee thresholds. Rates can vary and you really do need to shop around. If you have the time and patience, you could open a myriad of accounts in different institutions availing in many cases of the € 100K threshold policies of these deposit-takers. For example, KBC Bank and Permanent TSB offer the best demand (available any time) account in the country – 0.15% up to € 100,000 per person. Best long term deposit is NTMA’s 10 year National Solidarity Bond ( available in post offices or online ) offering 16% tax free on maturity – minimum € 500 and maximum € 120,000 per person. Capital and interest is guaranteed by the government.
The REGULAR SAVER ACCOUNTS pay better rates if you can commit to a minimum of € 100 per month up to in some cases a maximum of € 1000 per month – the best rate in this category is EBS at 1.25% ( 12 month savings ) If you do not have a savings plan, I beg you to start one now.
The stockmarket has had a roller coaster run over the last few years but over any period has always come out top of all the assets – for instance, most pension funds grew by c. 11% last year but, as everyone knows, this market is cyclical and can change from year to year as it has over the last 3 months. The trick is timing – buying in at the lowest price and cashing out at the highest, or when you want to retire. Ahh, but you would need a crystal ball I hear you say. A friend of mine told me recently the definition of stockbroker. He proffered a person to whom you give your money until it is all gone – while humourous, it is also untrue. Some of the stockbroking houses have incredible research facilities and can give you bell, book and candle on your preferred stock and the way it might move. However caveat emptor – they are not psychics and your decision when to buy or sell can make or break your investment. The decision, albeit an informed one perhaps, is yours and while you may delegate that decision to your stockbroker ( called discretionary ) you are in essence giving your stockbroker authority to gamble with your money AND if you suffer losses, excuses as to how it happened ! Over the last year or so, the emerging markets have stumbled, causing ripples from Asia on the stockmarkets across the globe. James Goldsmith is famed for his comment If you see a bandwagon, it’s too late. Still I like the new breed of managed fund – easy to understand and simple to operate. Email for details.
Taking the blunderbuss approach where you spread risk as much as possible across a whole range of stocks, bonds, managed funds and such like depending on how risk – averse you are, will minimise that risk. The prudent investor will not have all those eggs in the one basket. Advice again is so important and cannot be stressed enough.
While all investment is risk, Walt Disney summed it up in one sentence “All our dreams CAN come true if we have the courage to pursue them” – he never sat on his assets.