I was part of an internal training session recently and the chat from our call centre was that we’re receiving an ever increasing amount of calls from customers looking for alternatives to deposit accounts - hardly surprising really given the significant drop in headline rates available to customers.
The ECB rate is currently at 1% and banks are struggling to continue to offer the headline rates customers got used to seeing on every billboard in town and newspaper they picked up. Some banks are under extreme pressure to reduce their savings account rates because it’s simply not sustainable and in some cases we’ve even seen banks increasing the interest rate on variable rate mortgages to make up the shortfall. This is not good for consumers but again, not surprising as some banking institutions have seen their margins completely disappear.
Ireland’s current financial situation will take some time to recover and the low interest rates (and higher rates with lots of sneaky terms and conditions) have made putting money on deposit less attractive and profitable, so it makes sense to start thinking about alternative ways to grow your money.
It’s always wise to have access to some ‘just in case’ money but for anyone willing to invest for longer periods, it’s important to remember you have options. There are a few things that all investors should be very clear about however before they take the plunge, these include:
The level of risk you’re willing to take.
The length of time you can afford to tie their money up for.
The return you reasonably expect to make in that time.
If you’re not sure how to answer these questions , our ‘what type of investor are you?’ tool might be a good place to start.
The alternatives
Target Click Funds
Target Click Funds (TCFs) are guaranteed lifecycle funds that provide investors with a risk averse route to meet financial commitments you know are on the way like, school or university fees for children, a child’s wedding or your retirement.
They invest in a mix of cash, fixed income securities and a leveraged equity component which goes on to invest in internationally diversified equity index derivatives. The allocation to these components adjusts automatically over time where the equity participation is higher and maturity time is longer. TCFs also offer a guaranteed value at maturity that you can see rise over time as capital gains are automatically locked in whenever the daily price rises above the existing guaranteed value.
Target Click Funds are a simple, defensive way to invest offering:
Freedom of choice: investors can choose a range of maturities from 2015 to 2035.
Opportunity and security: if kept to maturity investors will have the opportunity for equity returns without loss and they can be certain that locked in gains will never be lost.
Flexibility: if personal circumstance change before the maturity date, investors can make withdrawals at the market price (not the guaranteed value) without penalty.
Target Click Funds available through RaboDirect:
Fortis Investments Target Click Fund 2015 Acc
Fortis Investments Target Click Fund 2020 Acc
Fortis Investments Target Click Fund 2025 Acc
Fortis Investments Target Click Fund 2030 Acc
Fortis Investments Target Click Fund 2035 Acc
Bond Funds
Bonds are another alternative to cash and also provide some security. In essence the investor buys an official document and a fixed amount is repaid to the investor over a period of time with interest. With corporate bonds the money invested is lent to a company and with gilts, it’s lent to the government.
As such, gilts are 100% risk-free as you always get the exact return you’re promised, while corporate bonds involve an element of risk for a better potential return. It wouldn’t be uncommon for an investor with a large amount of capital to have funds in both cash and a variety of bonds.
Bond funds available through RaboDirect:
JPM Global Convertibles Bond Fund
Robeco All Strategy Euro Bonds
Robeco High Yield Bonds
Robeco Lux-o-rente
Balanced Managed Funds
Most investors will at some time or another have bought and sold shares. Historically, they’ve proved a sound longer-term investment, outperforming all other asset classes such as property, bonds and cash.
They’ve borne the brunt of wide-scale losses more recently as a result of the downturn in the world economy. But, if you’re the kind of person who thinks every cloud has a silver lining, then the downturn might represent opportunity and an ideal time to get in while share prices are low and long-term potential gain is high.
Above all it’s important to remember:
You should only invest what you could potentially afford to lose (that’s just common sense).
Your investment portfolio should be well diversified to help spread the risk. A balanced managed fund that invests in a large number of global companies as well as cash and bonds can achieve both and you have the added benefit of an experienced fund manager who will monitor and structure the fund in the best way possible to improve your long-term investment.
RaboDirect offer the following Balanced Managed Funds:
BGF Global Allocation Fund
BGF Global Allocation Euro Hedged
Fidelity Multi Asset Strategy Fund
Merrion Balanced Fund
The savvy investor
Getting a good return on capital is certainly more challenging during a recession, but there are opportunities out there. The more successful invest their money regularly and over time to avoid subjecting their total capital to sudden market drops, achieving a better average price and side stepping short-term volatility.
All food for thought. I guess the moral of the story is that there’s always an alternative if you’re thinking of changing the way you save or invest. You just have to find the one that suits you best.
Best Wishes,
Killian
P.S. Remember the views expressed in this blog are my views and are not a substitute for good independent advice.
Add comment
Trackbacks (0) Trackback url Permalink
3 Comments