Thanks for the reply everyone, ill try to answer all your questions as neatly as i can, but might be a very long post so sorry if it gets confusing
Hi Brian
If you invest in a deposit account, you will get your own money back after 3 to 5 years. It will probably lose a little bit of real value if inflation is higher than the interest rate.
Thanks for the reply brendan, do you think this also applies to robodirect?
If you invest in the stockmarket, it is likely that in 3 years time, that your investment will be worth more as the return in most cases will exceed inflation. There is a low chance - probably 20% that your investment will fall or rise by less than the rate of inflation. Can you handle such a fall? That's up to you, but if a fall won't hurt you too badly, then you should invest in equities.
To be honest i dont think a fall of that much would hurt me badly so I'd be willing to take a risk on it
The best way to do so would be though a fund which has no exit charges and no initial charges. This means that you could cash it in whole or in part at any time should you need it.
Could you give an example of one of these please brendan
Following on from Brendan's advice, also consider mixing your exposure:
e.g.:
With €20k of the €27k: Stick €10k in Rabo, €10 k into Northern Rock, Feed €1k a month into the High Interest Savings account from Anglo Irish, €300 into AIB, (and whatever into Bank of Ireland and Halifax - check the sub-forum for the exact details).
With the remaining €7k: Invest in stock
Thanks for your reply superman, I like the way you split it up, but unfortunately since i wont be working a permanent job over this time, i wont be able to put the €1,300 a month into Anglo Irish and AIB.
Hi Gonk,
Brian says he may need access to the money in three years. In three years' time, the value of an equity-based investment may have dropped and so he'd either have to sell the investment at a loss or defer selling until the value had recovered.
But I take your point - the five year rule of thumb is not based in any real scientific reasoning, to the best of my knowledge. I guess it's primary role is to be long enough to discourage inexperienced investors from attempting to "get rich quick" in a rising market, without being aware of the potential downsides. There's a minor point also that many equity-based managed fund products contain early encashment penalties in the first fve years, but they exist for commercial reasons.
I think the important part of the advice for anyone considering equity investment is that they muct have flexibility as to their exit date. If there is a definite need to access the cash after three years, I'd still hold that equity investment is not suitable.
Regards, Liam
Thanks for the advice Liam, i see what you are saying about cashing in early. But if i was going to suffer serious penalties for getting out early i would deffinately leave it be. Even if i was seriously strapped for cash i could never see myself cashing in and losing my profit.
Brian says he has €27k to invest for min 3 years, max 5, so he has the flexibility which you suggest is required in which to pick his exit point if he goes for equities. He will not be forced to exit at a low point in the market. (Unless that low persists for two years, which I grant is possible.)
Hi gonk, check the parargraph above
In my view a perfectly reasonable option would be to split between deposit and equity-based investments - say 50/50 between a deposit account and an ETF like the ISEQ 20 ETF.
ETFs have none of the drawbacks with regard to early encashment you mention and have very low management charges.
I have not heard of an EFT before but i checked out the ISEQ 20 EFT brochure
here. I like the looks of the companies that are in it.
Don't forget that the original poster seems, by his own admission, to have a relatively low appetite for risk/volatility.
Thanks for your response Clubman, I wouldn't say i would have a low appetite for risk. Its just id prefer to take calculated risks rather than jumping in the deep end.