It may not fit in with our happy-go-lucky self-image, but we are most definitely a nation of savers rather than spendthrifts. Figures produced by the Central Bank reveal that the level of deposits in Ireland reached an all-time high of €136 billion at the end of October 2021. To put that in context, that figure represented an increase of €24 billion since the pandemic hit in early 2020.
But we are starting to spend. November 2021 saw a fall of €1.4 billion in the amount of cash on deposit. But the question for a lot of people with those hard-earned nest eggs is what to do with them now. The best starting point is to get good professional financial advice.
"It's important to choose a financial adviser you can trust and one you are comfortable dealing with as you're likely to be interacting with that person quite a bit," advises John Alford, workplace financial planning lead with Irish Life.
There are some steps people should take when setting out to find that trusted adviser, according to Bank of Ireland head of pensions and investments Bernard Walsh. "The first step is to deal with somebody who is regulated and authorised. If you want to check, there is a Central Bank register. Unfortunately, there are people out there who are not authorised or regulated, and you have no come back if you deal with them. Next, you should deal with people with experience and who have dealt with people like you. Don't be afraid to ask the question. Ask if they have dealt with people like you and say you would prefer to deal with someone with a good track record of dealing with people like you."
There are other aspects to consider, says Rockwell Financial Management managing director Robert Whelan. “Ask if they are they tied to a particular investment manager or insurance company. Do you want to speak to somebody who can only talk to you about a particular company’s offerings, or do you want to speak to someone who can talk about the whole investment universe? You want an authorised adviser who has to capacity to advise on multiple investments and not a single insurance company or other provider. You need to ask them what their investment process is. How do they talk to a client and advise them on what their investment portfolio should be?”
Value for money
Investors should also ensure they are getting value for money, he adds. “An adviser should have frank and honest conversations with clients about their attitude to risk and their goals. A client doesn’t need to pay an adviser who just uses an online tool to assess their risk profile and pick a product for them.”
After that it’s a question of deciding on how to invest your money. For many people this will involve a managed fund which offers a mix of low- and higher-risk investments to generate reasonable returns while reducing exposure to market volatility.
“Investing in the stock market may be suitable for those looking to invest for the long term, from seven to 10 years or more,” says Alford. “And generally, over long time periods, people enjoy good returns from investing in the stock market, but if your investment term is a bit shorter or if you’re just not willing to take any sort of risk with your money, then the stock market is unlikely to be for you.”
For most people, a balanced investment fund made up of a combination of company stocks; government and commercial bonds; and other investment assets such as property; commodities; and cash on deposit strikes the right balance of providing good long-term investment return potential, while also not being overly volatile in terms of gains or losses year to year, he adds.
Walsh counsels caution when approaching the investment decision. “It’s about deciding what you want to achieve from investing. It’s not about a quick buck or striking gold. You could get lucky by going into things like cryptocurrencies but anything with the capacity to make 40 per cent in a very short period also has the capacity to lose it.”
That does not mean people should always stick to the mainstream, Whelan points out. “Have a conversation with your investment adviser and ask if there is anything not provided by insurance companies or other providers that you should be considering.”
He also advises drip-feeding the money into the market over two or three years rather than in one go. That way you are not losing sleep worrying about what’s happening to your entire nest egg from day one.
The four 50s
And then you’ve got to decide how much to invest. According to Walsh, most people with lump sums to invest can be categorised as belonging to the ‘four 50s’. “They are generally in their 50s, have about €50,000 to invest, are earning around €50,000 per annum, and fall almost exactly at the 50 per cent point or halfway point on our seven-point risk scale.”
But that €50,000 should only be invested once other matters have been looked after. Walsh advises dividing savings up into different pots. “Put aside enough for immediate short-term needs,” he says. “Then make sure you have enough for things you know you are going to need in the medium term like a new car in a couple of years. Then put aside a rainy-day fund for emergencies – we advise people to save up about six months’ income for that.”
Whelan agrees. “That six months’ money is your security blanket. If there is some problem with your home that needs repairs, or you have a work problem that means you have to leave you will have the cash to tide you over. You need to ring-fence that money before investing other cash.”