Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
SSIAs
In the article setting out the risk/return arguments, Mr Barry states that the Government contribution amounts to an annual return of 8.9 per cent. For deposit accounts, the annual return, assuming 4 per cent interest, would be 12.9 per cent. He then makes the argument that an investment account would have to achieve almost 16 per cent (assuming a 3 per cent risk premium) to be equivalent to a deposit account.
He rightly points out that this is at the higher side of reasonable expectations.
My question is this: Of the 16 per cent return that he refers to, is not 8.9 per cent guaranteed by the Government contribution, requiring the fund to only achieve about 7 per cent to be equivalent to a deposit account, which is actually on the low side of reasonable expectation? I realise that charges come into play for the investment accounts but, these aside, am I correct?
Mr K.O'K., e-mail
The figures given, as far as I am aware, do include the Government contribution. However, whether that brings the investment return required to "the low end of expectation" is debatable. As you note, the influence of charges has to be taken into account and these tend to be front-loaded in investment products, making the return required to match deposit funds in the early years more challenging, even without the risk premium.
You should also note that most commentators comparing the relative merits of deposit and investment special savings incentive accounts do so over the five-year period.
If you are prepared to let your money continue in its investment fund beyond the termination of the Government bonus scheme, it is more likely that you will be able to meet the sort of investment returns to justify the choice. Of course, there is always the chance with investment funds that you will lose the lot.
The past year has not been very good for these funds and the immediate future is uncertain, to say the least.
Eircom
I purchased 100 shares (ADRs) in the initial flotation in July 1999.
a) Am I entitled to the one-for-25 shares that was issued in July 2000? b) What is the number of Vodafone shares I am entitled to? What is the math? c) If I accept the eIsland/Valentia cash offer - it appears to me I have no choice - how do I maintain shares in the eventual parent of Eircom?
Mr J.P.B., New York
Yes you are entitled to the one-for-25 bonus issue on the basis that you held on to your original shareholding until the bonus issue was auctioned.
On point B, the mathematics are that you are entitled to 0.9478 of a Vodafone share for every two Eircell shares held. When Eircom broke itself up prior to selling Eircell, each shareholder received one new Eircom share and one Eircell share for every old Eircom share they held. Thus you had 100 Eircell ADRs (American Depository Receipts), each of which corresponds to six ordinary shares. Your 600 ordinary Eircell shares would have netted you 284 Vodafone shares and probably a small cheque from that company to compensate for the part Eircell share that was left over.
If you accept the offer for the new Eircom - currently the higher offer is the one from Valentia - you will no longer have a stake in the telecommunications group as the Valentia consortium is a private group in which most of the shareholders are finance houses.
As you say, it does appear you will have little choice about this as one or other bidder looks likely to get the magic 80 per cent share acceptance figure, beyond which they can compulsorily purchase the remaining shares.'
At that point, your two year-plus rollercoaster ride on the back of Eircom will end. This has caused some annoyance, especially to small shareholders who see themselves as having paid for Eircom's failures and being denied the chance to recoup their losses under a new regime that seems confident of being able to squeeze some money out of its investment. But that's the law.
Buying shares
Any there any Irish publicly quoted companies whereby the public can buy shares directly from them rather than going through brokers where, for the small investor, the fees can be very expensive?
Mr J.K., e-mail
Sorry, but you won't be able to do that. The nature of publicly quoted companies is that they issue shares to the general market. Within this market, brokers are the middlemen who buy and sell.
This is so even if you go online or opt for execution-only trading, where you pay the broker only to complete the deal and not for any advice he or she may be able to give you. Online and execution-only trading is cheaper but for the smaller investor, many of whom are inexperienced, this is a more dangerous route to share ownership.
I agree the costs can seem high but you should remember that brokerages are providing a specialist service. In any case, stock market investment is not really a game for nickel-and-dime investors, except through the avenue of pooled investments, such as unit-linked funds, where your money buys a greater range and the risk is reduced.
