Key Post - Seeking long-term investment advice on lump sum

E

endowed

Guest
We are a 36yr old married couple with young family and a small mortgage. One self employed / one part time employee with pension.

We have €15000 to invest over a 5 to 10 yr period. We already have 2 ssia's, both at the full amount - one deposit with the TSB and the other equity based with the EBS. We also have a sum in a deposit a/c.

Our dilemma having perused your site regularly for the last 6 months and solidly for the last 2 hours is that we are now totally perplexed!!!!

Having said that we have some idea of what we would like(we think) ie low risk to our capital ( as we have already been burned in the stock market and the above money was my pension fund) and high return.

We were advised to consider the TSB secure investment bond but the intro charges seem excessive - 5%. Is Quinn life financially secure and should I put all our eggs in the one basket with the EBS?

Any advice would be really helpful and appreciated.

Note by endowed on 1/11/03:
According to , the TSB (Irish Life) Secure Investment Bond mentioned above is no longer open.
 
Investment

Hi Baloo Mowgli,

No replies to your post. I suspect the "low risk to our capital ... and high return" requirement may have been a bit of a deterrent. You generally only achieve high returns by taking some risk. It's really a matter for you to consider and decide what's the best balance for yourselves. I'll set out the various options:

1. You could put it on deposit. Ostensibly safe, since your capital will not reduce in nominal terms. However, it will almost certainly reduce in real terms, because the interest rate you'll get will not keep pace with inflation. So the buying power of your capital will diminish.

2. You could buy a capital guaranteed tracker bond. These promise your money back after a preset period (unsually between 3 and 5 years), and also give you a stake in the growth of one or several stockmarkets over the period - this stake is known as your participation rate, let's assume 50% over 4 years for this discussion. So in 4 years time, you get your money back, plus half the growth in the relevant market. (Some variants offer a deposit-like return, with a bit less participation.) Trackers are often aimed at people who want to do a bit better than deposits, but don't want to risk their capital. Note two risks - (1) if markets fall, you simply get your money back, so it'll have diminished in real terms even more than if you'd left it on deposit (since you got no interest), and (2) your funds are tied up for the period of the tracker, and you can't access them, even in an emergency.

3. You could buy a with-profit fund like the one recommended to you. These funds aim at providing exposure to stockmarket assets, but within a vehicle which (a) smoothes out the gyrations of the markets, and (b) provides guarantees of capital at pre-defined dates. These are complicated vehicles, so I can only outline them briefly here. Some points to bear in mind. If stockmarkets don't do well, then with-profit funds won't either - there's no additional source of potential returns. The guarantee periods are pretty long-term. The shortest worthwhile one is offered by the Secure Investment Bond you've been recommended - after 7 years, and every year thereafter. Funds with a high equity content are likely to do best in the long run.

4. You could buy an equity or managed fund. Here you're investing largely or exclusively in the stockmarkets, with no guarantees. If you go this route, then charges are one of the aspects you should consider in choosing between the various offerings, but only one. Investments are not commodities, and cheapest is not necessarily best.

The four options go up in the scale in risk, but also in potential return. If stocks do perform well, then 4 will give you the best return, followed by 3 (because you'll leave some money on the table to pay for the guarantees and smoothing), followed by 2 (because you have a reduced participation), followed by 1. If stocks don't deliver, then 1 guarantees your nominal capital and gives you a low return plus access to your money, 2 and 3 guarantee your nominal capital, might give you no return, and force you to tie up your money, and 4 might lose you money even in nominal terms.

Stocks have historically been the best performing asset over any reasonable time period (5 years would usually qualify, 10 years certainly would), and some analysts argue that markets are perhaps now in fairly low ground - certainly a lot lower than they were - although others believe them to still be overvalued. So you pays your money and you takes your choice.

Hope this is some help. Sorry I can't promise you low risk and high returns ... but don't believe anyone who says they can !
 
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Re: Investment

Dynamo - This is such a well-written answer that it's going to be a Key Post. If we had gold stars, we'd dish one out. Thanks. :)
 
Re: Investment

Great summary Dynamo

I am reluctant to add to it, in case I add to the perplexity! However...

I would think that over the 5 to ten years envisaged, the risk is sufficiently low for you to invest in the stockmarket. Either Quinn Life or the EBS is very good. Yes, your money is safe in Quinn Life, but if you are worried, go for the EBS.

If you can't handle the risk, go for the Standard Life With-Profits Bond. The company has very high reserves, so it has the highest potential of the with-profits funds. It does not carry a guarantee, but the risk is really very, very low.

If you do go for a with-profits bond, buy it through a discount broker.

Brendan
 
Savings

I would not suggest a With Profit Bond. I have one, and it is going down rapidly in price, even though it was guaranteed as a save investment. I have paid high Mgmt. fees etc. and can take it out before 10 years, but there are so many charges etc. also there are additional charges, mgmt fees etc. and I wouldn't even get back what I previously invested 5 years ago, much much less. I have to wait 10 years and keep my fingers crossed I will at least get back what I invested. Beware Beware of With Profit Bonds. I think the best savings are with AN Post - Savings Bonds.
 
Depending on your income you could invest in a property(of your choice) through a pension. and claim tax relief back. All gains on the property (capital or rental) you purcahse would be tax free.
 
Can you point to more detailed information about how this is done - e.g. the relevant pension rules/legislation? Thanks.
 
Yes, this sounds interesting. I am in the process of buying a buy-to-let. Is there some way that I can set this up as a pension fund of sorts. Do I need to go to an accountant to do this or can I do this myself ?

Schillachie
 
In relation to 'Unregistered Guest' and his advice about investing in a property through a pension, can anybody out there explain this concept further, or point to more detailed information as to how this is done (as per Clubman's follow up post) please. I keep hearing about this idea, but have never had it explained fully and clearly to me.Many thanks.
 
I'm in exactly the same position, thinking of investing a lump sum in the same range. I've read alot about low-cost trackers which seem very popular in Britain (www.fool.co.uk), however, I couldn't find information on products available to Irish investors (alternatly, I also have a German address & account if it is easier to invest there). Can anyone explain how to do it, and what about Quinn life? If there is info on this elsewhere, just send me a link. Thanks,
Fanny
 
An Post seems a good investment mainly because it is tax free over the period. It offers 8% over three years at present.
 
john f said:
An Post seems a good investment mainly because it is tax free over the period. It offers 8% over three years at present.
Click to expand...

Not really-Northern Rock will still beat An Post when tax is taken into account. Likewise for NIB and other, depending on the amount on deposit.
 
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