Are you 10 years or less away from retiring?

You’ve spent your working life saving and you can almost taste retirement. The decisions you make from here on could have a considerable impact on the size of your retirement savings pot and whether or not you can achieve the required income you need once you stop working.

I work with clients to help them see a snapshot of how their current strategy will look at retirement. If needs be we look at alterations they may need to make to achieve their goals. Here are some of the things we discuss:

1. What are your expenses now and what might they be at retirement?  Although you may be well-practised in budgeting, many people don’t know what income they will need when they retire. Make a budget or get financial planning advice on how to integrate pension savings into a retirement plan. This will also allow you to see how much money you need for everyday life and for additional events such as holidays and hobbies in retirement.

2. What will be your sources of income post-retirement?  Once you’ve got an idea of what income you’ll need, it’s now time to start identifying where your income will come from. There are a few common sources of retirement income, such as pensions, rental income from property, savings, state pension.

3. Make the most of your pension contributions now.  As you’re later in your working life, it’s possible that you’ll be at the peak of your earnings which might make it easier to put extra money into your pension. Many people throw in significant lump sums into their pensions as they get closer to retirement.

4. Check your investments.  Once you get closer to retirement - say 10 years to go – it might suit you to amend your pension portfolio into ‘safer’ or low volatile investments. I heard many stories from the financial crash of 2008 about people who “lost a huge portion of their pension value near retirement”. Part of the problem was that many people didn’t understand where their money was invested or the volatility of their pension strategy.

5. Combine your pensions or maintain separate?  Having your pensions together could make them easier to manage, as well as help you to make more informed choices when it comes to saving for retirement. On the flipside, there are scenarios where it makes more sense for some people to have more than one pension.

6. Start thinking about your retirement options.  Do you know what options you will have with your pensions at retirement? How will that help you achieve your retirement goals?

Market Update

US markets have officially entered a bear market, with only 1932 representing a worse start to the year for the key S&P 500 market gauge. A 50/50 portfolio of global equities and global bonds look set for their worst quarter in history.

However, it is worth noting that the above tells us that we are at extremes and hindsight will tell us that a move to cash in early January would have represented a salient New Year’s Resolution so far this year. Last Monday every constituent of the S&P 500 was in negative territory at some point (first time since 1996), and the wider New York Stock Exchange advance/decline ratio was the most negative since 2007. The moves over the weekend in riskier ‘assets’ such as Bitcoin (-70% from record high) also suggest sentiment is now negative in the extreme.

What does history tell us at this juncture?

Firstly, do we know when equities will start to rise significantly again? No, we don’t. But there are some things we do know. We know that there is technical overselling. We know that negative sentiment is extreme (Bull/Bear Spread). And we know that valuations are now below ten-year averages (Global P/Es). We also know that if you had stuck with stocks after the first 25% fall in 1970, 1974, 2001, and 2008 you would have been back in positive territory in between two and five years.

This is all very easy to note ‘ex-post’, and the price of admission to this point has been double digit declines across multi-asset funds so far this year. But the declines experienced by some investors in certain risk assets (single ‘meme’ stocks, cryptocurrencies) do not in general represent the returns experienced by those who engage with a financial advisor.

Markets may have ‘changed’ in the short term, but if a person’s circumstances haven’t it is highly probable that the plan, fund choice etc, at the start of the year continues to be the right one. It is also known that even in a world of rising interest rates; real returns are still negative – and are lower than they were at the start of the year. Inflation is decimating the purchasing power of money held on deposit more than any time this century. This is a crucial point for investors looking to save for the longer term. Whether for pension, child’s education, or a rainy-day fund.

Equity markets are under pressure, inflation remains hot, and interest rate policy continues to heat up. However, in scenarios such as this, those with cool, calm heads will prevail. This can be achieved by people engaging with their advisor, sticking with their financial plan, and recognising that the price volatility experienced whilst investing is the admission price for long term investment returns. 

Once again… a time to reflect and not necessarily to act ...

Almost 2 years ago to the day the global financial markets crashed badly, as fears of the COVID brought uncertainty and fear. Nobody knew exactly what was going to happen or how long it was going to be before relative normality would resume. Well, it feels like it was just starting to get to that point and then Mr. Putin decides to invade Ukraine.

The following graphs show a prominent Global Equity (Stocks and Shares) fund during two particularly volatile event periods:

Global Financial Crisis 2007

COVID 2020

I would potentially expect a similar reaction in the markets now and indeed we are already seeing it as I type this (the day Russia invaded Ukraine). While the circumstances have changed, the same concerns apply, how bad is it going to get? How long might it last?

I wouldn’t care to predict anything at this time, nor would I cling to a mantra that “past performance would indicate a rebound”. That said, the reality is that past performance has usually shown this to be the case.

Leaving money on deposit is not exactly a perfect solution either as inflation looks to be climbing dramatically in some cases (energy prices). So, while your €100 may remain €100 in your bank account, its spending power could diminish.

In the past, the best course of action has been to “take no action” when it comes to investments when you see how the markets usually recover. This is not to say that this strategy suits all investors/clients. In some cases, it is important to take stock of what you have now and to take corrective actions to preserve your savings/pensions even when the value has fallen.

Clever Investing

Let’s say you have a lump sum sitting in your bank account that you would like to invest, with the hopes of making a profit…what should a first-time investor consider when deciding on if and where to invest it?

How much risk are you comfortable with?

If you are ready to invest, consider how much risk you’re willing to accept. With all types of investments there will be some degree of risk, but some have more than others.

• Would you be more likely to choose high risk for potential high return investments, or an investment with the lowest potential loss?

•   Are you cautious or carefree when it comes to making financial decisions?

•   Are you quick to react to media or market changes?

Some tips to help with your investment decisions;

¬  Invest with a regulated company: A company regulated by the Central Bank of Ireland must always act in the best interests of consumers and comply with strict rules that help protect consumers. Your financial advisor will also be able to guide you in choosing a company and with assessing your needs.

¬  Diversification: Spread your risk across several types of asset classes and sectors to avoid putting all of your eggs in one basket.

¬  Consider volatility: Certain assets are more volatile than others. If you only invest in a single asset type (such as individual shares) you are more exposed to changes in market value for that asset type. This can demand a lot of your time to monitor the market and use your judgement as to when to sell.

¬  Choose a managed fund: You’ll have an expert investment manager at the lead who is knowledgeable about what assets across which sectors to mix, and who is actively monitoring performance and responding to market movements and opportunities.

What does return on investment mean?

A return on your investment is the potential amount you could gain or lose. A return can be positive where you gain money over the amount you have invested. Or a return can be negative where you lose money you invested. It’s important to know that unless there is a capital protection guaranteed, most investments are not protected, and you could lose some or all of the money you invested. No one can predict what is going to happen with the market. However, it is a good idea to leave the money you’ve invested alone for a while and a recommended duration of at least 5 years can give your investment a suitable time to perform.

A time to reflect and not necessarily to act . . .

As a quick reminder, I would always recommend you speak with your professional financial adviser before making any changes/decisions with regards to the products/services I discuss in these columns. Each person’s individual circumstances warrant specific advice that may make their decision different from what others have done. I never advocate trying to time investments, more to work off your personal circumstances and the time that you have to invest.

The last month has seen quite a change for us all, with the threat of a virus forcing us to change our behaviours and we have had to give up some freedoms many of us probably took for granted. So, in this new world, with so much uncertainty facing us possibly over months or years, what is the best action to take with investments and/or life assurance policies?

I have to say that I have not received anywhere near as many calls from clients as I had expected over the last few weeks. I really hope it’s as a result of educating my clients in the past on the ups and downs of investments and the importance of not letting our emotions/feelings affect our decision.

I would be reiterating this more than ever to clients, particularly ones who do not need to make any decisions on their investments. The investment markets go up and they go down, people are confident when they go up and are more risk averse when they go down. To me, this is no different and to make a financial decision now without any professional advice may be a bad decision.

Some investors may think that now is the perfect time to invest, as you are getting more for your money. If you had intended on investing 2 months ago but held off, in some cases you may be investing today at up to a 30% discount on the cost to buy a month ago. A simple comparison would be if you were going to buy a car in January but held off for various reasons. Now, if you still intended on buying the car but could get it for 30% less, it would appear to be a good idea to buy it, even if things were still up in the air.

In terms of Life Assurance, Mortgage Protection, Serious Illness cover or Income Protection, your normal conditions on these plans should apply. In the case of these policies, once you have disclosed all information possible at the beginning of the policy, events that change after the policy has started do not usually alter the conditions allowable to make a claim. If you are unsure or concerned, my recommendation is to contact your broker or the company who provided the policy. Many companies are still offering customer service support at this time.

Trump to the left of us, Brexit to the right…stuck in the middle with EU

There has been a lot of uncertainty surrounding Brexit and what impact this will have on people’s investments and pensions. A question I have been asked recently by clients, is whether they should move their investments to a safer fund or stick with their current strategy. At any given time, you need to accept the value of your investment when reviewing it. What you wish it was worth is not as important as taking a cold hard look at your circumstances for how you wish to strategize your investment going forward.

There are some things I would suggest you consider before giving any sort of advice:

•  How long do you have before you will most likely need to mature your investment?

• How much of your money can you afford to lose?

• How will you react if you lose a significant value of your fund? Will you cash in your investment or move to a safer option or remain committed to your fund strategy?

• What portion of your fund/investment would you call significant?

What has this got to do with Brexit? It has everything and nothing to do with it. I would not recommend that people try to time the market in terms of getting in and out of investments. Brexit may be the most immediate danger to the stability of the market, but it won’t be the only one over the coming years. So, if a person learns to see their investment as something that will go through good and bad periods, they will improve their chances of making the right decisions at different times.

One of the important things to note, is how long you plan to invest your funds. The longer you intend on investing your money the potentially greater the risk you can afford to take. The next thing is trying to work out how comfortable you will be with these fluctuations and this will help determine how much risk you can take.

So, what will happen with Brexit? Well, nobody really knows. Perhaps it will be a “Hard Brexit”. Maybe there will be a referendum or an election which will change the direction the UK is taking. What impact this has on investments is anybody’s guess. One would not expect that Brexit should lead to a worldwide recession like the crisis of 2007/08.

Where do you invest €10,000 today?

Well everyone seemingly has an opinion on this question and will give you a quick answer to it! Well that’s anyone with the exception of a Financial Broker, who is unlikely to give you a quick answer to such an important question. Because what to invest in is not about going with fads or trying to pick a winner as you might in a horse race. Instead finding the best investment opportunities needs to based on a very systematic approach and on your own particular circumstances. And that’s where a Financial Broker will help you.

Your Financial Broker will first look to become crystal clear on your investment objectives. Why are you investing? What is your end goal for the money? What is your investment timeframe? It’s only when they get clear on these types of questions that they can start to even think about what to invest in. Investing money in Ireland today is full of opportunities and pitfalls, it is really important that your Financial Broker understands your objectives fully first.

Understanding your attitude to take risk is the next essential step in determining the best investment for you, because what might be considered the best investments in Ireland may not be the right investment for you. At the end of the day, we are all different when it comes to what we consider acceptable risk in relation to our investments. For some people, they want to always get back at least their investment amount after a set period of time, even if this means lower potential returns. For others, they want to aim for the maximum possible returns and can happily sleep at night even if they risk losing some of their money. Your Financial Broker will ask you a series of questions that will help you to determine your personal appetite for risk (are you happy to take risk or not?) and also your capacity to take risk (can you afford to take risk or not?). This will guide them further towards the right investment opportunities for you.

Your Financial Broker will then want to know your full financial circumstances to see where your investments sit in your overall financial affairs, as this may also shape the suitability of individual products.

When they have all of this done, your Financial Broker will then research all of the best investments in Ireland to find the one that suits you. Unlike a bank or life assurance company salesman, they are not tied to advising in relation to the products of one company. They will find the best product to meet your objectives, one that fits with your attitude to risk and that also suits your specific personal circumstances.

So back to the question of where do you invest €10,000 today? We still can’t tell you the answer, but using the services of a Financial Broker will ensure that you end up getting the best result for you.