diversification 2

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, the world is a different place than it was even 8 years ago. Is anything safe ?

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 and neither do bull markets stay up. Everything is cyclical – here in Ireland, we have had a boom for over 15 years followed by a bust and now over the last six years, markets have quietly gathered momentum. Who would have thought the US stockmarket would have grown by 32% in 2014, or the UK by 28%. Even Europe had a tasty 22% growth while last year that trend continued. But don’t mention gold – down to its lowest price in 5 years but there is always an upturn…

Cash is currently king or queen as the case may be. Staying “liquid” or having a Rainy Day Fund imperative for three very good reasons

 1. Emergencies – your clutch goes (for the uninitiated, that’s part of your car !)

2. Sudden income loss – no bonus this year

3. 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 still on the increase though one could argue that the “bottom” was about two years ago. There is however bad news for four categories that may still have to sell, it is good news for those house and property hunters seeking a bargain. It is still a buyers’ market.

Those four categories are

  1. Property owners being re-located to a new region
  2. Those who have bought and are paying expensive bridging interest as they cannot sell their existing property
  3. Separating couple who can no longer stay in the same home together
  4. Those unfortunates who do not have tracker rates and have to endure the higher lending margins.

It is also not just the bargain prices that make some properties attractive to buy, but properties with long term guaranteed rental income will always sell.

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

  1. Demand accounts ( make withdrawals at any time )
  2. Notice accounts ( you have to give notice – from 7 day, 30 day etc )
  3. 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, 5½ 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. 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, Rabo Bank offers the best demand (available any time) account in the country – 1.25% up to € 50,000 per person. Over that amount it’s 0.5% and if you are in the happy position with over € 5million to invest, they will give you 0% ! KBC Bank offer 1.05% on demand ( net 0.6195%) on sums up top € 100,000.

The REGULAR SAVER ACCOUNTS pay excellent 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 Nationwide UK at 4% ( 15 month savings ) and EBS offer 3% for 12 months while KBC Bank at 2.5% ( 12 month savings – 3.5% if you open a current account with them ) 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 – for instance, most pension funds grew by 12% last year but, as everyone knows, this market is cyclical and can change from year to year. 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 few months, 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 action. Email for details.

Taking the blunderbus 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.

Government and certain corporate bonds are regarded as a safer investment than the equity market. Effectively these instruments should be the last to collapse and the coupon ( i.e. dividend ) guaranteed at least by the government. The return i.e. what you hope to make from the investment, is paltry a little like deposit interest rates.

Alternative investments might include art, rock n’ roll memorabilia – last year saw the 50th anniversary of The Beatles in America. One of their first performances was in Washington DC. A young photographer was assigned to the gig back in February 1964 – he did nt even have colour film for his camera and packed the photos up in his attic til 2008 when he sold them to save his Washington home from being repossessed. He did nt realise what they were worth – a cool $ 368,000 !

Art, diamonds, stamp (philately) and coin (numismatics) collecting, forestry, wine investment, first editions all make sense if you want to diversify and your security is good. For any of these alternatives, take professional advice.

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. Email me if you have a query – jlowe@moneydoctor.ie

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