We are living in an era of zero interest rates, but, for many Irish people, the need to generate a return for their money has never been more important. So where do you put the money you save?
Uncertainty in Ireland is mirrored by global financial uncertainty. Fears of deflation, shrinking demand, a possible Brexit, oil gluts, political instability, terrorism and an influx of refugees are all threatening Europe with an instability that would have been unimaginable just a decade ago.
In the search for a return for your money, Ronan Goggin, managing director at O’Leary Life and Pensions, in Cork, points to alternatives to deposits. In an era of financial inertia, when there is more than €50bn lying idle in Irish current accounts (from people who see no value in moving this money to deposit accounts), such alternatives are desperately needed.
The answers he proposes lie in the areas of absolute return funds, Irish commercial property funds and multi-asset funds.
Absolute return funds have a low correlation with markets in general. The aim is to make a positive return, irrespective of whether the market is rising or falling. These funds benchmark themselves against cash, aiming at a return 4% to 5% above that — in current conditions, an effective return of 4% to 5% — by adopting multiple, market-investment strategies.
There is a variety of available absolute returns funds on the Irish market. This is not like having money on deposit, which you can access whenever you want. It can be accessed, but it might incur exit penalties. Funds are not capital-guaranteed values. It is a savings vehicle for a three-year period or more. Mr Goggin believes these funds offer a viable alternative to deposits for people who want a return and are willing to take a prudent level of risk.
Given recent experience, the idea of investing in Irish commercial property funds is often met with scepticism. However, in a low-growth and interest-rate environment, certain property funds are an attractive proposition.
Mr Goggin advises that when compared to the zero returns available on deposit, certain commercial property investments are worth considering, in the context of relative value. There are a number of property funds available in the Irish market, as well as others with exposure to the Irish, UK, and European markets.
As the name suggests, multi-asset funds are a conglomerate. Portfolios include absolute returns, property, and other asset classes. The idea is to blend a mix of asset classes and risk levels in a portfolio approach.
When considering any of these, underlying risk levels and market volatility need to be taken into account, so expert advice is needed.
Some savers are turning to the State-owned option, as a way of getting a return. State savings, at the end of January, amounted to €16.75bn, up by 2%, or €370m on December, 2014. Returns on the national solidarity bond, prize bonds, and savings bonds are tax-free.
Banks are falling down with money from Irish depositors and doing nothing with it. In January, 2016, Irish banks held more household deposits on their books than household loans.
So far, this year, there has been a surge in young savers in Ireland, desperate to put together a deposit for a house. The Central Bank’s tighter lending rules mean that in Dublin the average deposit now required is €51,000, and even higher in certain areas.
Those saving for a deposit earn next to no interest. At the other end of the spectrum, people about to retire, or who are newly retired, need to do something with their lump sum. The bank will give them nothing for it, and indications are that zero interest rates will be with us at least until the end of 2019. It is time for savers to reach for their thinking caps.
Article from Irish Examiner