Reasons not to invest in a 5 Year Savings Certificate.

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Marsupial

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A retired couple, no debts, comfortable lifestyle have a Savings Cert (75K) maturing later this month. No need for the cash now or for the foreseeable future.

Having been stung by almost every dud investment recommended by a succession of "Q"FA's* over the past 20 years they are extremely risk averse so are planning to re-invest their loot in a Savings Cert paying 9% tax free after 5 years.

Are they prudent or foolish to plan this? And, if the latter, then what else should they consider?

* we regard the "Q" as debatable.
 
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What other investments do they have? Do they have risky, i.e. volatile, investments? If so, they should consider reinvesting, some or all, of the 5 yr cert as a hedge against volatility and as a source of uncorrelated returns. [Note that savings certs are not a hedge against inflation.]

Life expectancy in Ireland for a 64 year old male is approx. 19 years and about 22 years for a 64 year old female, so as a retired couple they are likely to be around for some time yet and could also consider cashing in the bond and spending some or all of the proceeds to improve their lifestyle, e.g. triple glazed windows, new bathroom, new kitchen, nice holidays, etc.
 
Marsupial said:
No it doesn't!
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No idea what other assets/investments they have. That's a huge information gap.
Marsupial said:
A retired couple, no debts, comfortable lifestyle have a Savings Cert (75K) maturing later this month. No need for the cash now or for the foreseeable future.
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PMU said:
What other investments do they have? Do they have risky, i.e. volatile, investments? If so, they should consider reinvesting, some or all, of the 5 yr cert as a hedge against volatility and as a source of uncorrelated returns. [Note that savings certs are not a hedge against inflation.]
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Marsupial said:
(The acronym KISS applies here!)
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The final 'S' is certainly apt.
 
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If they are in the business of estate planning they should just buy a dozen or so shares directly and forget about them. Try to avoid stocks that pay dividends to save on income tax complexity. Any CGT liable on any gain in value will die with them.
 
Extremely risk averse means they're unlikely to bear the risk of any drop in nominal value at all.
 
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Buying 5 year State Savings is as low risk as you can go

Virtually no risk of default
Some interest paid
Definitely will lose purchasing power over the term - inflation will erode the value of the capital amount without any doubt
 
CPI print in July was 1.7%, AER on 5-year certs is 1.74%.

It’s certainly possible that 5-year certs will produce a negative real return but it’s far from guaranteed.
 
A retired couple who invest in state savings and have little regard for financial advisors.

Mr and Mrs Marsupial ?

Make your own decision, rather than seeking advice from Q posters.

Post in thread 'NTMA increases rates for State Savings products'

NTMA increases rates for State Savings products

@fayf - Doesn't N26 also have an inner per transaction limit as well ? Double checked that with support, and they said yes, you can do a €20,000 card individual card transaction on say 1st of the month, but advised, would need to watch out for any scheduled /direct debit card payments for post...
www.askaboutmoney.com
 
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Marsupial said:
A retired couple
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Do bear in mind that a lot of replies you get on here are from those that probably don't consult with their partner on what to do with money that's 50% owned by someone else. There's actually a strong bachelor (ette) bias in some replies. Hey! it may be the correct advice at times but there's usually little or no consideration given to the fact that it's 'our money' and that that might influence the final decision.

There's no friggin way that both parties to the transaction are going to agree on 100% equity for this €75,000.

Seriously though, was there no investment that you made (or were advised to do) in your life that wasn't a dud? If there was, what was it, what term was it for and what asset class/es was it invested in.?
 
They may understand volatility risk (and be averse to it).

When an OP says "this is the investor's attitude to risk; will such-and-such an investment meet their requirements?", they're not asking you to critique the investor's attitude to risk. That's not to say that we can't suggest that the investor might reconsider their attitude to risk, but we should do so:
  • respectfully;
  • tentatively; we haven't been given all the pertinent information (and there's no reason why we should have been, because the OP hasn't asked for a critique of the investor's attitude to risk); and
  • perhaps with an express acknowledgment that this isn't the question the OP asked.
Plus, out of politeness if nothing else, we should also try to have something to say in answer to the question that was actually asked.
 
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