Are you doing it right?

 Since 2008 Ireland has been struggling, but it seems that in spite of government action, we may have turned the corner. Keynesian counter-cyclical economic policies always sounded sensible to me – take money out of the economy to slow down during a boom (raise taxes, cut government expenditure, raise interest rates) and put money in to stimulate the economy during a recession (reduce taxes, increase government expenditure, lower interest rates to encourage savers to spend.)

In Ireland we have no control over Euro interest rates, but our austerity measures over recent years could not possibly stimulate growth. In fairness I suppose our options were limited and of course there is no such thing as a “free bailout”.  In the not-so-distant past, one notable finance minister reduced income tax rates when the economy was booming; a commentator used the phrase “throwing petrol on the fire”. Do we ever do it right?

As individuals we seem to make the same mistakes when we are investing. After years of record rises in property prices we continued buying property with cheap easy credit in 2006 and 2007.

It doesn’t end there. Investors in managed funds, usually via life assurance companies, were hit hard in 2008. Many got out in late 2008 and early 2009, crystallising their losses at the bottom of the market. Then they decided over the next five years to put their money on deposit. True, there would be little risk of losing their money but no chance of making any. In the period from April 2009 to 04/09/14, most managed funds with Zurich Life, for instance, have grown by at least 120% and some equity fund growth exceeded 230% over the period! While most people held on tightly to their savings on deposit, they failed to notice the massive growth in equity and indeed bond markets. They missed out – not doing it right

Now that we have had 5 years of rising equity prices, can you guess what’s happening with Irish investors? They are taking their money off deposit and investing in equity based funds, at a time when most funds and equity indices are at all time high valuations. Investing anytime in equities should be for a minimum period of 5 years, but going in when the signs are we may be close to the peak could lead to disappointment in the short term.

How do you do it right?

* Make sure your risk profile matches your portfolio risk. In this way you can limit the volatility of your portfolio, i.e. lose less and make less, in accordance with your own attitude to risk. Any of us as Financial Brokers throughout Ireland will be glad to help you calculate your own risk profile and recommend a combination of investment funds which overall match that risk profile number.  Your attitude to risk is likely to change so agree an annual investment review with your broker.

* Do NOT invest in equity or bond based funds unless you plan to stay in for at least 5 years.

Are you doing it right?

Good Financial Housekeeping

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