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Category : News

How much money are you happy to lose?

“Well none obviously” I hear you say. But is that actually the case?

This is a really important question, and one that we spend a lot of time on with our clients, helping them to answer it. It is really important because it helps you clarify how much risk you are willing to take with your money in return for different levels of reward. Let us explain…

When we start working with a client who is saving or investing money, whether it is to build up a nest egg, grow an existing portfolio of investment assets or indeed plan for their retirement, gaining clarity around your investment objectives is the first step. When do you want this money to be available and what must this money be able to do for you? We’ll take an example…


Sean and Mary

We had clients recently (we’ll call them Sean and Mary) who had a sum of money to invest as a result of an inheritance. We spoke at some length about their future lifestyle goals and dreams and throughout our discussion, one goal kept coming to the surface. When they retire in about 12 years time, they want to escape from Ireland for a few months every winter and live somewhere warmer. They want their own place in the sun.

So now we had both a timeframe (12 years) and an objective (a holiday home). The question that they now started asking was what size / type / quality of holiday home could they afford? And so our conversation turned to risk and reward.


Attitude to risk

We explained that we needed to understand their attitude to risk. Are they people who would invest this money and take no notice of movements in stock markets and other assets over the next 12 years, even where there were significant swings? Or instead, are they likely to lie awake at night worrying if the value of their pot of money decreases at all, even just in the short-term? Of course relatively few people are at either extreme end of the risk spectrum, most are somewhere in between. It’s our job to find out where you are on this spectrum.


Capacity for risk

We also look to establish your capacity for risk. This is effectively your financial firepower in terms of taking risk, or how much you can afford to lose. If your financial goals are out of reach or significantly threatened should you lose some or all of your money, then you have very low capacity for risk. If you have lots of other financial assets and losing some or all of your money won’t make a material difference to you, then you have a high capacity for loss.


Risk v reward

Once we understand your attitude and capacity for risk, this leads us to a conversation about building the right investment portfolio for you. Because risk and reward are inextricably linked. If you can’t take or don’t want risk at all, then maybe your money needs to be on deposit. You will get a very steady return (or at least you should), albeit a very low return. And apart from the impact of inflation, you won’t lose any of your money. But you won’t grow it either.

However if you are comfortable with your portfolio being more volatile and taking swings in value, this offers the opportunity for you to make higher returns. But of course you are now running the risk of losing money (instead of growing it!) and possibly suffering a correction in markets just before you need your money, potentially scuppering your plans. This is the classic risk v reward trade-off.

We can demonstrate how different baskets of assets (cash, bonds, shares, property etc.) can be combined to produce different risk & reward profiles.


Back to Sean and Mary!

Coming back to Sean and Mary, they are actually relatively conservative investors. They don’t want to (and would) worry about their money if there are significant swings in their investment over the next 12 years. They’re happy with only gentle falls in their investment amount from time to time, while recognising that this conservatism will potentially suppress their return. But they are very sure about one thing. They definitely want to afford that place in the sun in 12 years time and have no other means of funding it. They’re happy if the property ends up being a little smaller than they might wish for. But to them this is better than shooting for a palace, but possibly ending up with a cardboard box!


Does your investment portfolio reflect your attitude to risk and your capacity to take it? We’d be delighted to hear from you and help you make sure that you have a risk appropriate portfolio in place.

Brexit, Trump etc. How do you keep your investments on track?

Lots of factors are currently creating a great deal of uncertainty for investors; Britain breaking up with Europe, President Trump settling into the White House (and everything that promises!) and continuing low growth across Europe. Then when you consider interest rates at rock bottom, uncertainty caused by global terror and other such negative factors, the picture is quite daunting for investors today.

So what do you do?

Well the answer is probably, not very much! Let us explain…


Stick to the plan

First and foremost, remember your investment objectives, and crucially your investment timeframes. In most cases, these are medium to long-term – at least they should be if you are invested in any sort of risky assets. These time frames are critical to your investment success. The markets regularly experience short-term volatility, but to try and time this volatility usually turns out to be folly. Research tells us time and time again that staying invested is the key to long-term success. Investors who look to sell out at the top and buy at the bottom usually miss both points, and often by very wide margins.


Volatility is not the enemy

Volatility is simply a feature of investment markets which go through periods of both calm and volatility, sometimes in line with the market cycle, at other times reacting to once-off events. Times of volatility have historically proven to be bad times to make significant investment decisions, as strategies tend to be coloured by short-term factors. Don’t let your emotions cloud your decision-making.


Stay diversified

A far more robust approach to investing is to stick to the asset allocation approach that was used in constructing your portfolio, as this is more likely to deliver long-term success. There are endless examples of investors chasing that one sure bet – technology companies in the late 1990’s, bank stocks in Ireland and foreign property investments in the 2000’s.  And we all know where these ended up. A key principle of successful investing is to stay diversified across asset classes, geographical regions and sectors. This will protect you against unforeseen calamitous events in a single area.


Don’t stop believing (or saving)

When short-term volatility happens, some investors are slow to commit more money to their investment strategies. This is effectively trying to time the market. It’s important that you keep the faith! Keep investing, although talk to us about the best way to do this. It may make sense for you to employ a strategy such as “euro cost averaging”. This is where you invest a fixed amount at regular intervals. This ensures that if markets are moving around, you are buying in to the market at various price points, thus ensuring you’re not exposed to the risk of investing and be exposed to an immediate fluctuation.


Look backward as well as forwards

While of course we are always at pains to point out that past performance is not a guide to future performance, at the same time it’s sometimes worth looking back and seeing where you came from. This hopefully will give you confidence in the future! Look at an investment that you’ve had for a long time – this could be an old pension fund, a children’s education fund or even your family home. Or for example, just look at stock market returns over any 10year+ time frame. With very few exceptions, the results are extremely heartening. This will give you a sense of how time is your friend and will bolster your confidence to stick with a consistent investment approach throughout good and bad times.
Often it simply makes sense to sit down with an expert who will look dispassionately at your situation and reassure you, or guide you towards a change. We would be delighted to help you.

Important: Past performance is not a guide to future performance

Image courtesy of Michael Vadon

What will you leave when you die – a legacy or a tax bill?

As Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes.” However the good news is that both of these don’t necessarily have to occur together!

This is one area that we’ve been getting a lot of queries about from people. As they start to think about their mortality and what they are going to leave behind for loved ones after they’re gone, our clients want to ensure that they leave a lasting positive legacy, rather than a nasty tax bill!

The reason we’ve been getting quite a number of queries about this area of personal finance is because it featured in Budget 2017, but maybe not to the extent that everyone hoped.


Inheritance Tax in Ireland today

Back in the heady days of 2009, a parent could leave up to €542,000 to each of their children (smaller thresholds apply for other relationships) before inheritance tax had to be paid. The tax that had to be paid was 20% of any excess over this amount. And then the economic crash happened… As a result, the parent / child threshold was slashed over a few years to a threshold of only €225,000, above which an increased tax rate of 33% had to be paid.

This caused all sorts of problems for people wanting to leave assets, particularly to a single child, and where their wealth was tied up in a single property. In many cases, the low threshold resulted in a family home having to be sold by a bereaved child, simply to pay a tax bill!

Fast forward to budget 2017 and there were great hopes around the parent / child threshold being increased back up above €500,000. This didn’t happen, however the threshold has been gradually increased over recent years up to €310,000 now. Unfortunately the tax rate has stayed stubbornly high at 33% of amounts above the threshold.

The situation is not so bad where there are a number of children inheriting from a deceased parent, as the threshold amount applies to each individual child. It’s important also to note that there is no inheritance tax payable by a bereaved spouse. There are also exemptions available when a farm or business are being inherited and in some circumstances where a child is living in the house to be inherited, so it’s important to get advice about these situations.


You need a plan

So if after you’re dead and buried, it is likely that the value of your assets will exceed the inheritance tax thresholds of all your children, you should come and talk to us, as all is actually not lost. It’s still possible to leave a lasting legacy rather than a tax bill, but this situation needs careful planning. Thankfully there are a few ways that we can help you.


Be Prepared

You first of all want to ensure that your assets are distributed exactly in accordance to your wishes. To ensure this happens, make sure you have a will as this will clearly set out your wishes.


Spread the love (and the money)!

When you’re writing your will and particularly if your assets are significant and it’s in accordance with your wishes, spread your inheritance also among grandchildren, parents, siblings, nephews and nieces as each of these will qualify for a tax free threshold of €32,500. Even outside of this, other people will qualify for a further reduced threshold of €16,250. The threshold amounts are lower… but it all counts! So spreading the love can reduce the tax bill payable later.


Don’t leave it all until death!

Another way to reduce or avoid a tax bill on death is to pass on assets at an earlier stage. First of all, every individual can gift €3,000 p.a. to another individual without triggering a tax bill for the recipient. So parents can gift each of their children €6,000 each year. This can build up over time… Of course also passing on property at an earlier stage may result in it being passed on while asset values are lower, as property values generally increase over time.


Get appropriate life cover in place

There are life assurance policies designed specifically to pay inheritance tax bills called Section 72 policies. These may well be the best route if your assets are significant, and your beneficiaries are likely to inherit amounts in excess of their thresholds. We can help you get this cover in place.


Dying is a serious business! If what you leave behind is important to you, then an inheritance strategy is needed. We’ll be delighted to help you leave a really positive legacy after you.

5 ways we can help you with money in 2017

We’re not trying to wish our lives away, but there is no doubt that our focus is starting to shift at this stage towards 2017. And as we approach the end of the current year, we’ve been thinking about how we can help our clients even more with all of their financial challenges. As part of this thinking we’ve identified a few ways in which we believe we help you manage your money better. So here goes…


Take a strategic view with your money

We all get sucked into focusing on the day-to-day and short-term challenges of our financial situation. Should we borrow to change the car? Are we saving enough for an upcoming holiday or should we just use the credit card for a few months? These are important challenges, but thinking only about these diverts your attention away from the longer-term picture.

We see our role as helping you to lead the life you want to live, both today and in the future, and that money is simply an enabler of this lifestyle. So we will help you take a longer-term view of your finances, looking at your income, expenditure, assets and liability. We might challenge you on your short-term budgeting, but with a view to helping you to achieve long-term goals! And we’ll help you actually identify those goals, and then work with you into the future to make sure you achieve them and live the life you want.


Stick to the plan

Particularly when investment markets are very volatile, there can be a huge temptation to ignore your financial plan, stay out of the markets and just keep your money in cash. And particularly with events like Brexit and the recent US elections, there has certainly been a lot of volatility and uncertainty around!

However we will help you keep focused on your plan and not react to every bump in the road. Because we’ve seen that these events typically only cause short-term impacts. Take the US election as an example. Excluding 2008 when there was an unusually deep recession (with little to do with the election cycle), the average return of the S&P 500 index in US presidential election years going back to 1960 has been 9.1% versus 8.8% for all other years. Not much of a difference there! So we’ll keep you focused on the plan to achieve your financial goals, rather than reacting in a knee jerk fashion to every market shock.


Make more informed choices

We all make choices every day in relation to money. Most of these are relatively small and while we can help you with overall budgeting, these are choices you’ll make on your own each day! However we can help you with the big financial decisions that typically will be based on desired lifestyle or other life goals. For example, how will you decide whether you’ll retire early, or whether you’ll buy a place in the sun when you retire, and what’s the relative financial cost of each? Or what impact will a 2nd annual holiday have on being able to privately educate your kids, if that’s what you want? These can be hard questions to answer, but we can help you at least to understand the financial picture of all of these choices.


Manage risk

This is one we constantly talk to our clients about. We don’t want you lying awake worrying about your investments. That’s why we place a lot of emphasis on fully understanding your risk profile. If you’re not fazed by your investments going up and down frequently, then we may guide you towards a portfolio with risk in it, once you have the capacity to live with that risk. However if you are going to sweat over every movement in the markets, we are more likely to suggest that you minimise the impacts that these movements will have on your portfolio.

We’ll ensure that you manage your money, rather than your money managing you!


Build your confidence

This is probably the most valuable impact that we can have. We can bring a realistic picture to manage any financial insecurities you might have. For example, we had a client recently who was worried that she wasn’t paying enough into her pension plan. However when we analysed this client’s situation and her lifestyle objectives, it became very clear that not only was her pension funding adequate, in fact she will be able to retire earlier than she had thought and still achieve her chosen lifestyle.

You may be faced with a simpler financial decision and be unsure which way to proceed. In all of these instances we’ll be delighted to provide a 2nd opinion to help you reach your decision, and bolster your confidence in the process.


Yes, we will make sure you have the best value financial products and we will help you maximise the impact of every euro invested. But we hope that our impact on your money goes far deeper than this. Talk to us, we’re in your corner.

10 ways we can help improve your lifestyle

We thought it might be useful to step back a little bit and review the value that we bring to our clients, in order to make sure we’re meeting your needs as much as we possibly can. We identified ways in which we enrich the lives of our clients and ended up with quite a long list! We then came up with the brainwave of narrowing down this list and sharing with you 10 ways in which we can help you to improve your lifestyle.


1. We help you develop a financial plan to achieve your desired lifestyle

When you set out on a journey, you need a map to get to your destination. The same applies to your desired lifestyle and the finances to achieve it. Think of your desired lifestyle as the destination. The map you need is a financial plan. This will show you what is needed to live the life that you want to live.


2. We help you sleep at night

We’re firm believers in the principle of risk based investing. Your portfolio needs to clearly reflect your own appetite for risk in order to ensure that your money is working as hard as possible for you, while not increasing the risk in your portfolio beyond your comfort levels. We don’t want you lying awake at night worrying about your portfolio.


3. We make sure an unexpected event doesn’t dash every hope and dream

Life is full of uncertainties that impact all of us every single day. Sometimes significant events change the course of your life and the lives of your loved ones. A serious illness or the death of a parent has an enormous emotional impact on a family. It can also be catastrophic financially and dash a lot of dreams. It’s our job to help you protect yourself financially against such events.


4. We help you reduce your tax bill

We’re very aware of how taxation can take large chunks out of your financial assets. We stay on top of changes to the taxation regime and this knowledge helps us to ensure you are reducing your tax bill as much as possible. This applies of course to retirement planning, but we also look to find tax saving opportunities in your investments, life assurance and income protection planning. We want the money in your pocket rather than the taxman’s!


5. We help you to keep your discipline and focus on long terms goals

Our goal is to help you live the life you want to live, both today and tomorrow. We’re not killjoys, only trying to get you to save as much as possible for the future! Instead we help you strike a balance between spending today and saving for the future. We want you to achieve your long-term financial objectives while living your life to the full.


6. We make sure your plan remains relevant

People get married, babies come along, people change jobs or even careers, future aspirations change. All of these types of events fundamentally change your financial plan. It’s our job to make sure that all of these changes are fully reflected in your plan and that you have the optimal set of financial solutions in line with your changing circumstances.


7. We help you to understand the swings and roundabouts of investment markets

Investment markets are moving up and down all of the time. Some people don’t notice, others sweat over every (downwards) movement. Often this is down to a lack of understanding of markets, volatility and how it works, and the impacts on your own portfolio. While ensuring you have the optimal risk based portfolio in place is an important job for us, it’s equally important that we help you understand how markets work.


8. We help you to make your debt v investment decisions

When incomes increase and there’s some extra cash left over each month, or indeed you get a windfall as a result of a bonus, a gift or maybe an inheritance, you’ve got decisions to make. Do you pay down debt or invest? We can help you make those decisions, taking account of interest rates, projected risk-based investment returns and tax considerations. We want your money working as hard as possible for you.


9. We help you to prepare for a long and happy retirement

Retirement is a significant event in all our lives. It’s also an increasingly lengthy stage in our lives, which means it takes even greater financial planning than before. This planning begins when you’re young and start building up your retirement fund. It continues through to retirement, at which stage important decisions need to be made when your income from work stops, and you need your fund  to sustain you into the future. And the planning doesn’t stop there, it continues onwards through retirement as you want to make sure you never run out of money. We’re here for you every step of the way, at every stage of this long journey.


10. We help you to plan for later in life and to pass your assets on to loved ones

And finally as you age and the end draws near… We help you plan for the transfer of your financial assets to your loved ones in the smoothest and most tax efficient way possible. We want you to live out your final years without the worry of causing any financial difficulties for your family as a result of poor financial planning.

Are deposits the answer to market fluctuations?

We understand that building an investment portfolio that meets your specific needs is no easy task. There are a few fundamental principles that we consider when advising you in this regard.

First of all, the aim in building a portfolio is not about “picking winners”, as this is a sure-fire recipe for disaster! Instead a portfolio needs to be constructed with an asset allocation that fully reflects your appetite for risk. This is why we spend time at the outset clearly establishing your own appetite for risk and then help you to build your portfolio from there.

Secondly we are firm believers in the importance of diversification in a portfolio, the concept of not having all of your eggs in one basket. The merits and de-merits of all asset classes need to be considered when building the portfolio. This brings us to the subject of deposits and their place in a portfolio today.


Deposit accounts have their (limited) place

There’s no doubt that deposits always merit some consideration when building a portfolio. They used to be considered risk free, however this notion was tested somewhat during the financial crisis as some banks teetered on the brink! However they are generally recognised as a very low risk investment vehicle, which is attractive to some investors. They also are extremely liquid. You can walk into a bank, and if your money is in a demand account you can withdraw it all on the spot. Deposits also make a lot of sense if your investment horizon is very short.


Never forget about diversification

However there are also issues with deposits that cannot be ignored. Some savers simply put all of their money in the bank and leave it there. This may be a mistake for a number of reasons. First of all, this approach may not suit your appetite for risk and it completely undermines the merits of diversification. Depending on your investment timeframe and risk appetite, you may be better served by also considering other asset classes in order to achieve your investment objectives. Yes, there is very often merit in having some of your money on deposit, however it often makes more sense when your money is split between deposits and other asset classes.


Timing markets is folly

Of course some people like to keep their money on deposit while they wait for the markets to fall, with a view to jumping in when investment assets are cheaper. From our experience this is folly, as trying to time the markets is not much different to trying to pick winners. Typically when investors try to time markets, they miss the peaks (to sell out of markets) and the troughs (to buy into markets) to the detriment of their investment portfolio. And they end up constantly questioning themselves, “Is now the time to buy / sell”?  Statistics have shown time and time again that successful investors stay invested through good times and bad. They make sure that their portfolio reflects their risk appetite and as a result, they can live with the swings and roundabouts of the markets as they take a longer-term view of their investments.

Coming back to the title of this article, seasoned investors recognise that market volatility is simply a feature of investment markets. They learn to accept it, once they have a risk-based portfolio in place that reflects their own appetite for risk. If deposits have a place in that risk-based portfolio, then they should be included. Removing volatility altogether is not the answer.


Negative interest rates?

And then of course, you just can’t ignore the really poor interest rates that are being offered on deposits. We’ve recently seen one of Ireland’s main banks starting to charge corporate customers for the pleasure of holding their money, rather than paying interest! And while this trend hasn’t carried through to consumer deposits as yet, already a number of the banks are paying 0% or very close to it to consumers on demand deposit accounts, meaning your hard earned savings are simply treading water. And then to cap it all off, DIRT (deposit interest retention tax) has been increasing over recent years and now stands at 41%. It’s hard to win with deposits!



In summary, deposits always warrant consideration and often make sense as part of an overall investment portfolio. However tying all of your money up in deposit accounts may not be the wisest strategy.

How much control do you have of your retirement plan?

The government, pension providers and financial advisers such as us expend quite a bit of time and energy encouraging individuals to take control of their retirement planning. After all, we’re all becoming more aware of the folly of relying on the state if we want to maintain even a half decent lifestyle in retirement.

But how much control can you actually take of your own retirement planning? We recently came across a really interesting piece of research from JP Morgan (Guide to Retirement – 2016 Edition) in USA that explored this topic, and we are now adding our own thoughts to this.

There are some factors over which you have full control, some for which you can influence but don’t have full control and finally there are some factors over which you have no control at all. We’ll examine these in turn and how we can help you with each of the factors.

You’ve full control

While your earnings potential may limit your financial resources available for retirement purposes, you retain control over how your money is allocated. Do you live for today and worry about tomorrow when it comes around? Or do you live frugally today with the view to being able to kick back early and in style in later years? Of course most of us are somewhere in the middle, but the balance of how much to spend and how must to save is our own to decide.

Similarly we each have control of how our money is invested. Do we lock it down in a savings mechanism that is 100% guaranteed but that will not achieve any meaningful growth, or are we willing to take some risk with the aim of greater reward over the long-term? The decision is yours.

Of course we will help you in both of these areas. We’ll guide you towards getting the balance right between living today while planning for tomorrow, and also getting the right risk adjusted portfolio in place to enable you to achieve your goals.

You have partial control

Then there are factors that you can influence, but where you don’t have full control. The first is in relation to your earnings power. Yes you can work longer hours and harder, increase your qualifications and work until later in life. All of these are likely to increase your lifetime earnings and capacity to save. But you don’t have full control over these. Some companies unfortunately close down, many have standard retirement ages and sometimes the value of qualifications is not fully rewarded. Some will assist you in your retirement planning, some won’t. So you can influence the level and duration of your retirement savings, but without full control.

Likewise you can influence how long you will spend in retirement. Live life as a hell raiser today and the chances are you won’t last very long! But if you eat well and look after yourself, you are increasing your chances of a long retirement. But of course none of us have full control over our health. The increasing longevity that we are seeing is a huge challenge for retirement planning. It is accepted wisdom that the first person to live to be 150 years old has been born – that person will need some retirement fund to see them through retirement!

We can help you clarify your own situation with regards to these factors. We’ll help you to look at your employee benefits and make the best financial decisions around these. We’ll also help you to understand the impact your potential longevity will have on your retirement plan.

You’ve no control

And then there are factors over which you have no control. Governments set policy; they decide the levels of tax relief available for retirement planning, the size of funds allowed and other important factors. You’ve no control over these (outside of your vote!) and must just plan within these constraints.

And then there are investment markets. Sometimes these change with alarming speed and with no warning – just look at the short-term turmoil that Brext caused! Again you have no control over these macro factors.

But on the other hand we can help a lot here. We can make sure you are maximising the opportunities available in our pensions system today and also as policy changes, that your approach to retirement planning remains the best way. We also don’t have any control over markets. But what we can do is make sure that you have a risk appropriate, diversified retirement portfolio in place.


At the end of the day, you have some control over your future. With our help you can give yourself the very best chance of dealing with all of these factors, whether you have control or not.

What Income Protection is and what it is not

As financial advisers helping our clients to build a better financial future for themselves, we are talking to clients every day about a whole range of issues in relation to their personal finances. With some clients, we are helping them with their retirement planning and to build diversified and risk adjusted investment portfolios. We also help our clients to protect themselves against a range of possible catastrophic events, from ill-health to death.

However we are sometimes concerned when we hear people talking about income protection, as they often don’t do it justice or sometimes don’t appear to fully understand it. Some think that they have income protection in place, while in fact having some other form of lower value cover. In these situations, we always sit them down and give them the A to Z on income protection, ensuring a full understanding of this really important protection product.

But to help you in the meantime, here goes on a whistle-stop description of what income protection is and what it isn’t.

Income protection is…

  • It is protection against being unable to work due to illness or accident. So it relates to your physical capacity to carry out your work. When taking out an income protection policy, you choose a deferred period. This is effectively a waiting period of anywhere from 4 to 52 weeks before your claim becomes payable. The longer the deferred period, the cheaper the premium.
  • Income protection is a replacement income. The insurance company effectively steps into the shoes of your employer / self employment and pays you your regular income instead, at your income protection benefit level. You will submit your tax credit certificate to the insurance company and they will pay you as a PAYE worker.
  • Income protection is a benefit that continues to be paid until your retirement date. So it ensures that your income is maintained right up until the end of your working life. Of course if you recover in the meantime and return to work, the benefit ceases, as your employer / self employment then replaces the insurance company again as the payer of your regular income.
  • Income protection is a fully tax relievable expense, so you can reduce your tax bill at your marginal rate by paying for income protection.

Income protection is not

  • It is not a lump sum payment if you fall ill. There is no once-off windfall payment, instead it is a regular (and often far more valuable) monthly payment until you retire. If it’s the protection of a lump sum you want in the event of illness, talk to us about Specified Illness Cover.
  • Income protection is not restricted to a list of specific illnesses. Claims are paid on your inability to work due to illness or accident, whatever the cause might be.
  • Income protection is not protection against redundancy. Claims are only payable when you are unable to work due to illness or accident.
  • Income protection is not an income for life, it is payable until you get better or until your retirement age.  However with most income protection policies, you can also choose to protect your pension contributions as well, thereby ensuring that your post-retirement planning and income stays on track.

Income protection is often known as the glue within a financial portfolio. Without income, everything is at risk – your mortgage, your pension, your other financial commitments. Now might just be the time to talk to us about securing your future income, and your peace of mind.

Do Irish Pensioners Get a Raw Deal?

We received quite a number of comments after the article in our last newsletter about Ireland’s future €440bn state pension issue. A number of our readers were shocked about the size of the problem facing the country.

They were also shocked that this problem is not being faced up to at all by politicians of any hue; it really is an enormous can being kicked down the road to be dealt with by future generations. And this begs one big question – are our expectations of what the state provides (or should provide) too high in comparison to other countries?

So we’ve examined this issue from two different perspectives before drawing some conclusions. First of all we look at some figures that were released at the end of 2015 by McKinsey that compared “pensioner poverty” levels in different countries. The second perspective is how much we have to pay while we’re working, to actually qualify for a state pension.

Poor pensioners or golden oldies?

How do the over 65’s in Ireland compare to other countries? A measure that is used to compare the wealth of pensioners in different countries is to look at the percentage of over 65’s who have an income that is below half of the national median household income. These people are considered to be living in pensioner poverty.

This research found that on average 12.6% of pensioners in OECD countries are living in income poverty. The graph below shows that the Netherlands is the best place to be a pensioner – only 2% of their pensioners live in income poverty. At the other end of the scale, you don’t want to be retired in South Korea, where half of all pensioners live in poverty.

Ireland fares pretty well on this measure, with less that 7% of pensioners living in income poverty, placing us as a strong performer. This is far better than the UK at over 13%, and a good number of our European partners.

But of course this begs the question; with a €440bn future liability, how can we afford to be performing so well here?

pensioner poverty (1)

But what’s the cost?

This is maybe where reality bites a little… We also looked at OECD figures that show how many years you have to contribute towards your state pension (through PRSI in Ireland) in order to qualify for the maximum available state pension. And guess what? Ireland is top of the charts here – with workers having to contribute an average of 48 contributions per year for 43 years to qualify for the maximum state entitlement! In the UK, you have to contribute for 35 years, in Australia for 10 years only.

Now it has to be said that the pension amounts in Ireland are actually quite generous. Currently the state pension is €233.30 per week in Ireland as compared to the equivalent of €197 in the UK.

The question of course again is – can we afford these levels of old age pensions? The answer unfortunately is no.

In Ireland you also need a minimum of 10 year’s contributions to qualify for any contributory state pension at all. Of course if you don’t have this, you might qualify for a means tested old age pension.

So where does this leave us now?

Well with the huge future liability being faced by the state, we’re certainly not going to see any reduction in the number of years you need to contribute to PRSI, in order to get a full state pension. We can (or should?) also expect to see a reduction in the amount of state pension payable – Ireland just can’t afford to be near the top of the class here! But this will take lots of political courage…

What we are more likely to see is gradual, further increases in the qualifying age for the state pension and greater incentives to help people financially plan for their retirement themselves. This is likely to include an element of mandatory private pensions in the future.

We’re constantly tuned into this changing landscape on your behalf. We’ll monitor the impacts that any changes in state pensions will have on your own retirement plan, and will help you alter your plan accordingly. At the end of the day, our goal is the same as yours – to help you live the life you want to live when you retire.

5 Principles of Sound Investing

Investing today can be a bit of a minefield. You could end up paralysed by fear, worrying about the possible impact of the likes of Brexit, market fluctuations, elections here and abroad and terrorism threats! However as your financial adviser, we remain focused on your long-term investment and pension objectives, and always do our best to keep you on track to achieve them.

Of course we remain vigilant about all of these potentially damaging events, but all of the time we stick to some important principles that have stood the test of time for investors for many years now.

Learn the Market Cycle                  

The investment market usually (but not always) follows a typical cycle as shown below. While you obviously cannot rely on all of the different factors coming together as illustrated, this is a useful picture to bear in mind.

There are always anomalies, such as the unprecedented low interest rates that we’ve seen in the last few years, but remaining aware of the market cycle can help you to avoid letting greed or excessive caution cloud your judgement.


Diversification is key

There is always the temptation for investors to follow the latest and supposedly greatest hyped-up investment. This might be investing only in property (remember what happened in Ireland 10 years ago…) or indeed acting on a great share “tip” that you got. Putting all of your money into one area is an extremely risky strategy; if it goes wrong, you could lose the lot.

Always spread your risk and build your wealth through funds or pools of assets. This diversification will give you some protection against one of the companies you’re invested in, or even one of the asset classes going south.

Volatility is okay!

When people get fixated on short-term changes in their investment and pension assets, volatility can cause a lot of concern. The focus turns to those short-term dips in returns and investors get anxious.

However volatility is simply a feature of long-term investing. Markets will go up and down, the critical tactic is to stay invested and not react to short-term factors.

Trying to time markets is folly…time and again it has been proven that you are better off riding out the peaks and troughs, rather than trying to call them yourself. However if you really struggle with the volatility of your portfolio, it’s possible that you don’t have the right risk-adjusted portfolio for you in place. Give us a shout, as we’ll help you to identify your appetite for risk and will design a portfolio that will allow you to sleep at night!

Know the magic of compound interest                                                                

Compound interest has a huge impact on investment and pension portfolios. For this reason, it is really important to start investing early, and to keep investing. The more time each tranche of your investment has to grow allows the magic of compound interest to really deliver!

To help see the effect of compound interest, it’s worth remembering the ” Rule of 72″. This is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself. For example, the rule of 72 states that €100 invested at a 10%p.a. return would take 7.2 years ((72/10) = 7.2) to turn into €200.

Knowing this rule will help manage your expectations in relation to the performance of your portfolio or will help you identify the return needed to double your money in a specific timeframe.

Time and compound interest are great friends of investors!

Cash costs you money

Cash in the bank today is simply a missed opportunity. Yes it is a safe haven and staying true to the diversified portfolio principle, it makes sense to have an allocation of your portfolio in cash. But many investors today have too much of their money sitting in the bank, being eroded by inflation and very low interest rates.

You have long-term financial goals and probably need a level of investment growth to achieve them. Leaving your money sitting in cash is likely to undermine your chances of achieving your goals.
At the end of the day, investing is not always straightforward. Your emotions, doubts and behaviours can get in the way and undermine your likelihood of success. But that’s where we come in. As your independent financial adviser, we can be completely objective and can help you plot your course to help you ultimately achieve your investment goals. These are a few tips to help you along the way – we of course would be delighted to discuss any of these or indeed any aspect in relation to your investments.

Warning: If you invest in these funds you may lose some or all of the money you invest.

Warning: The value of your investment may go down as well as up.