This does not make sense when you advise the OP to move all their money out of the country.
I'm getting nervous about my deposits !!
- Thread starter TomPetty
- Start date
This does not make sense when you advise the OP to move all their money out of the country.
There are several issues to consider in this question:
Taxation
If you open a bank account offshore you fall outside of DIRT and therefore have to pay marginal rate tax on your savings. If you are a higher rate tax payer then this is a clear disadvantage.
A similar tax problem applies to direct purchase of Bonds. Again, marginal rate tax applies to the income payments.
So, opening a bank account offshore or buying German Government Bonds (or any directly held bonds for that matter) would not make sense for many people.
Investment considerations
Euro Inflation Linked Bonds are regularly tipped as a safe haven investment.
Whilst we like the concept of Inflation-linked bonds, these are not the same as short-dated government bonds. Although these bonds give a hedge against inflation because the maturity tends to be very long they are therefore much more affected by changes in the real interest rate – meaning there are still lots of uncertainties around these bonds such that if the real interest rate rises, they go down in value.
The best option
The best course of action here is to diversify. Diversification is the only free lunch in investing.
That is not to say open tons of bank accounts all paying low interest rates.
As the base of any portfolio I would recommend a Short-Term, High Credit, Global Fixed Interest Fund with a Euro currency hedge.
Let's break each of those elements down:.
Firstly, a fund would be taxed under the Gross roll up rules so tax at 25% on distributions of income and 28% on gains every 8 years. Nice and simple, no marginal rate tax to worry about. This is better than an offshore bank account or a directly held bond.
Short-term
Bonds with terms to maturity of less than 5 years are less volatile and less sensitive to interest rates. Meaning if interest rates go up, these suffer less than longer term bonds.
Equally, short holding periods gives you the opportunity to constantly roll over your investment. Unlike the National Sol. Bond or Savings Certificates.
So, if interest rates or inflation increase, you get to benefit each time you reinvest from the new higher returns in the bond market. Technically, this is a variable maturity strategy using the current yield curve as the best estimation of future inflation and interest rates. The bond market is extremely efficient and running a fund like this is extremely low cost.
High Credit
Since we are all concerned with the risk of default, it is important to hold high credit issues. Meaning mostly AAA rated Sovereign Debt, Supra-national Bonds (like the world bank) or very high credit Corporate Debt.
Remember that some companies are now considered less risky than the Irish State.
Global
Diversification on a global scale offers access to bonds from many countries and spreads risk.
Euro Currency Hedged
Avoid taking unnecessary risks. By substantially hedging the global currency exposure back to Euros avoids additional volatility.
As part of a balanced portfolio, we offer our clients an investment fund which is managed by a major institutional US manager with assets under management of over €150 Billion.
The annual management charge is 0.25%pa
Average annual return since launch on 25th Jan 2007 is 4.58%pa.
Please note that the minimum investment in a portfolio is €100,000
[broken link removed]
Taxation
If you open a bank account offshore you fall outside of DIRT and therefore have to pay marginal rate tax on your savings. If you are a higher rate tax payer then this is a clear disadvantage.
A similar tax problem applies to direct purchase of Bonds. Again, marginal rate tax applies to the income payments.
So, opening a bank account offshore or buying German Government Bonds (or any directly held bonds for that matter) would not make sense for many people.
Investment considerations
Euro Inflation Linked Bonds are regularly tipped as a safe haven investment.
Whilst we like the concept of Inflation-linked bonds, these are not the same as short-dated government bonds. Although these bonds give a hedge against inflation because the maturity tends to be very long they are therefore much more affected by changes in the real interest rate – meaning there are still lots of uncertainties around these bonds such that if the real interest rate rises, they go down in value.
The best option
The best course of action here is to diversify. Diversification is the only free lunch in investing.
That is not to say open tons of bank accounts all paying low interest rates.
As the base of any portfolio I would recommend a Short-Term, High Credit, Global Fixed Interest Fund with a Euro currency hedge.
Let's break each of those elements down:.
Firstly, a fund would be taxed under the Gross roll up rules so tax at 25% on distributions of income and 28% on gains every 8 years. Nice and simple, no marginal rate tax to worry about. This is better than an offshore bank account or a directly held bond.
Short-term
Bonds with terms to maturity of less than 5 years are less volatile and less sensitive to interest rates. Meaning if interest rates go up, these suffer less than longer term bonds.
Equally, short holding periods gives you the opportunity to constantly roll over your investment. Unlike the National Sol. Bond or Savings Certificates.
So, if interest rates or inflation increase, you get to benefit each time you reinvest from the new higher returns in the bond market. Technically, this is a variable maturity strategy using the current yield curve as the best estimation of future inflation and interest rates. The bond market is extremely efficient and running a fund like this is extremely low cost.
High Credit
Since we are all concerned with the risk of default, it is important to hold high credit issues. Meaning mostly AAA rated Sovereign Debt, Supra-national Bonds (like the world bank) or very high credit Corporate Debt.
Remember that some companies are now considered less risky than the Irish State.
Global
Diversification on a global scale offers access to bonds from many countries and spreads risk.
Euro Currency Hedged
Avoid taking unnecessary risks. By substantially hedging the global currency exposure back to Euros avoids additional volatility.
As part of a balanced portfolio, we offer our clients an investment fund which is managed by a major institutional US manager with assets under management of over €150 Billion.
The annual management charge is 0.25%pa
Average annual return since launch on 25th Jan 2007 is 4.58%pa.
Please note that the minimum investment in a portfolio is €100,000
[broken link removed]
This country would be a much better place if the general public had savings to fall back on in bad times. I'm not talking about having savings in order to prop up banks' balance sheets.
Thanks a million all - I have taken your advice and gone down the diversification route, with various institutions ( Irish and foreign ) like Investec / INBS / EBS / Nationwide UK etc .. No longer have all eggs in one basket. Hopefully I can weather the storm and have some money for my kids College education, when the dust settles.
Once again thanks all for your individual contributions.
Kind Regards ...
Once again thanks all for your individual contributions.
Kind Regards ...
+1.
600K savings for a forty-year old is certainly amazing - that would be an average of at least €25,000 a year from start of working life - well done. You have obviously taken great care of your money so far and could possibly give better advice here than any you might get. However, I swear by Rabobank.
Hi Tom, first of all compliments for saving so much in such a few years of working life. But out of curiosity how did you deal with your panic attacks 2 years ago when the fears were much worse before our Irish Government was forced to put a guarantee on the main irish banks?
I'm curious, if I compare my fears now with the ones I had 2 years ago I feel much more comfortable by the EU actively helping Greece since then.
johnny2shoes
Registered User
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- 42
Or to put it another way, "Would Ulster Bank be a safer place than Irish Nationwide"?
Hi Ciaran, which source can you read this from? As far as I know Ulster Bank is part of the very weakened RBS and they are relying on the Irish Deposit Protection Scheme at the moment... Nothing more...
Happy Girl
Registered User
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- 793
W
WhizzKid
Guest
Hi Godfather, going by his previous posts on this thread it looks like CiaranT has something against INBS in particular. Why so CiaranT?
Hi Ciaran, which source can you read this from? As far as I know Ulster Bank is part of the very weakened RBS and they are relying on the Irish Deposit Protection Scheme at the moment... Nothing more...
Ulster Bank are owned by RBS who are 84% owned by the UK government.
From a return on investment perspective, you will not go wrong with a 3.5% 3 month term deposit with INBS.
From a safety perspective, INBS are in serious trouble at the moment. They are far from the safest option.
Hi Tom, first of all compliments for saving so much in such a few years of working life. But out of curiosity how did you deal with your panic attacks 2 years ago when the fears were much worse before our Irish Government was forced to put a guarantee on the main irish banks?
I'm curious, if I compare my fears now with the ones I had 2 years ago I feel much more comfortable by the EU actively helping Greece since then.
Good question Godfather - To be honest, I was a little out of touch with what was going on & did not realise how precarious the situation was at the time. I'm more worried than ever now, with all this talk of Deposit haircuts etc ... Thanks again for all the info.