FEBRUARY
2018 WORLD ECONOMIC AND MARKET OUTLOOK Graham O’Neill
BUSINESS BRIEFS SETTING BUSINESS GOALS FOR 2018 TIPS TO GET YOUR FINANCES BACK ON TRACK TECH SAVVY
TABLE OF CONTENTS World Economic and Market Outlook - Graham O’Neill
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Business Briefs
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Setting Business Goals for 2018
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Tips To Get Your Finances Back On Track
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Tech Savvy
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Meet The Team
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Range of Services
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Welcome to the February 2018 edition of our bi-monthly newsletter.
We hope that 2018 will be a good year for you and your business. This issue, as always, has a variety of articles which we hope will be of interest to you and your business. In this edition, Graham O’Neill has prepared the most recent World Economic Outlook and Market Update. If you require any more information on this or have any queries, please do not hesitate to get in touch and one of our highly experienced team will be happy to assist you.
Dervilla and Sarah.
December
2017
WORLD ECONOMIC & MARKET OUTLOOK Graham O’Neill - DIRECTOR AT INDEPENDENT RESEARCH CONSULTANCY LIMITED
Overview:
• Markets entered 2017 in state of flux, but to date ‘Cyclical Donald’ has had little impact • Disruption has continued to be a major force in industries, monetary policy and valuations • Many value orientated mean reversion strategies have struggled • Synchronised recovery provided excellent backdrop for equity markets • Low inflationary pressures allowed ‘goldilocks’ environment to become market consensus • Major challenge faced by investors is market valuations • Improving fundamentals should see US record longest ever expansion • Low bond yields make portfolio diversification difficult • Market in sweet spot but by year end many strategies positioned for this to continue • While ‘best of both’ (low rates and positive growth) can continue as always there are potential risks
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Introduction
Energy
Investors entered 2017 with both the global economy and market environment in a state of flux post the rise of populist politicians and policies during the latter part of 2016. Many investors expected reflationary populist policies to result in an increase in the inflation rate, with the belief that ‘Cyclical Donald’ could ‘Trump’ secular stagnation. This had resulted in the fourth Quarter of 2016 in a significant rally in value stocks and financials, with a belief that government bond markets would see yield curves rising and steepening.
Disruption has continued to impact many business models. Despite growth this year coming in at higher than expected levels and the significant rebound in China, oil prices weakened until an OPEC supply agreement with even then the expected range of $55 - $65 not breached. Shale oil has successfully cut costs significantly in the oil industry and furthermore there is the threat of electric cars to the auto industry over the longer term. The growing cost competitiveness of renewables is also likely to impact on oil over the longer term and even in the States where Trump is pro conventional sources of energy both local governments and corporates are driving demand for renewables higher.
Disruption Investors would have been aware this is an age of disruption which has several dimensions, with things not continuing or happening in a normal way. This has had already been seen in economics/markets, where non-normal or unconventional monetary policy had disrupted valuations. Disruption to a typical economic cycle has continued to be seen in 2017, where despite a US recovery which is heading to be the longest running in history and a significant re-bound in growth in Europe and China, inflationary pressures have remained muted with a lack of significant wage growth. Disruption to traditional economic models, together with globalisation and automation has continued to weaken the position of labour versus capital, allowing loose monetary policy to continue with liquidity a significant positive for markets this year.
Populism In politics electorates had in 2016 woken up to the fact that QE was really welfare for the wealthy, but despite the election of politicians with unconventional policies little has happened at the practical level to significantly increase economic growth rates. The view that those that caused the Financial Crisis have not paid for it has not really altered. While Donald Trump may have been elected with the slogan “Make America Great Again” the lack of impact of his policies to date in boosting growth (and therefore inflationary pressures) have however succeeded in making the S&P great again. As fears of a rapid tightening of US monetary policy receded, the US currency lost its position of strength helping translation effects of overseas earnings for US multinationals.
Retailers Many individual industries continue to suffer from disruptive forces and moving forward certain service sectors will continue to face the threat of disintermediation. The retail industry, especially in the States continues to suffer with a record number of store closures and the acquisition by Hammerson of retail Reit Intu at a discount of around 25% to NAV demonstrates the threats and difficulties to conventional retailing. In 2017 it was the threat of Amazon rather than discounters which had the biggest impact on the share prices of quoted food retailers.
Investment Strategies Disruption and technological change has made certain investment approaches struggle to achieve success with, in particular, mean reversion strategies struggling as some previously successful business franchises no longer seem to work. Investors looking at old economy stocks need to be confident that disruption will not affect the profit pool and many infrastructure stocks, whilst vulnerable in the short term to rises in interest rates or bond yields, do seem well placed to withstand disruptive forces due to their monopolistic and regulated returns.
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Market Sweet Spot The immediate post Trump rally had seen significant sector rotation, which reversed after the first couple of months of the year as forecasts for US interest rate increases were pulled back, as the Trump agenda failed to deliver significantly higher growth and inflationary pressures remained remarkably muted. Some Trump pro growth measures such as tax cuts and higher infrastructure spending were pushed forward in terms of delivery until 2018. Thus, although interest rates in the States are rising, and there has been a reversal of the post Brexit UK rate cut, monetary policy globally continues at levels which historically would be considered to be highly stimulatory. This has allowed markets to continue in a sweet spot dynamic, where growth is neither too strong nor too cold and as we end the year investor expectations that this “Goldilocks” outlook will continue for a good while yet has been a major factor behind the rally in markets in 2017.
Geopolitics
Thus even though markets had entered the year not looking cheap, an improvement in economic fundamentals in terms of the growth outlook, with the world seeing the most synchronised recovery in the post Crisis period, but without the threat of significant monetary tightening, has seen stock market gains continuing for far longer than valuation oriented investors expected. This had occurred both in 1987 and 1999 and investor confidence is a powerful force. It is also important to remember that the stock markets themselves can create their own propaganda, with rising share prices increasing not only investor, but also consumer and corporate confidence and people react positively to higher share prices. 2017 has certainly been a year when greed as an emotional factor has outweighed fear.
Geopolitics were expected to be lively in 2017 and this has proved to be the case. While events in the South China Seas have settled down, North Korea has continued to develop its nuclear threat. The North Korea administration believe that their survival as a pariah state is dependent on a nuclear deterrent and Kim Jong-Un clearly believes he has nothing to lose by continuing the nuclear programme, as without this his survival would be unlikely. 2018 is likely to see continued cat and mouse tactics by both the US and North Korea with the main risk being a miscalculation by any one side. America has drawn up lines in the sand and it is to be hoped the North Koreans do not cross this. China, whilst trying to restrain North Korea, is well aware regime change would result in an influx of unwanted refugees across the border and China certainly would not welcome increased US military presence in the region.
The rapid reversal in market leadership away from the sectors which dominated the second half of 2017 demonstrated once again that consistently making successful predictions is very hard to achieve. Successful investment strategies should not depend on heroic forecasts, with the safest strategy relying on making fewer mistakes and winning by avoiding significant losses. Markets do tend to rise over longer time periods, so when this is combined by tilting the balance of probabilities in an investor’s favour, significant returns ahead of cash can be made. The ability to take risk well is an important part of an investor’s armoury. The difficulties seen by Donald Trump in legislating pro growth measures through Congress, and the snail’s pace negotiations on Brexit show how difficult it is to predict the future.
Whilst the Middle East continues to see huge human cost in terms of the ongoing proxy war between Saudi Arabia and Iran, this has been a sufficiently low key conflict to make its impact on global markets negligible. One of the continued threats to peace in 2018 is the sense that America is retreating from its global role, allowing the potential for tensions to erupt as others look to fill the space of a retreating hegemon.
Synchronised Recovery Markets in 2017 have benefited significantly from a continuation of the era of low inflation and low interest rates. By February of this year it was clear that a global synchronised recovery was occurring and importantly for the first time since 2009, one which was not US centric. As it became clear that US growth was not the only game in town, US$ strength started to fade with important and positive implications for Latin America and particularly Asia. A strong US currency is always a negative for the Asian region as it puts upward pressure on interest rates which means liquidity support for Asian stock markets falls. US currency weakness allowed local Asian currencies to appreciate versus the US$ and countries were able to ease monetary conditions supporting a pickup in growth.
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Valuation
Portfolio Diversification
One of the most challenging aspects of markets today is valuation, as by most historical standards markets trade at levels between fairly valued and expensive and this encompasses not only equities, but also government bonds and credit. Traditional valuation metrics for government bonds, for example, would see investors require a real yield or return above inflation. Many years ago the old fashioned rule of thumb, which now seems to be forgotten, is that nominal GDP should equate to government bond yields. Today, in a world of low inflation, low growth and forecasts of secular stagnation, traditional bond valuation metrics seem a thing of the past. Notwithstanding this it is hard to equate today’s level of yields with any sort of pickup in inflation over the medium term.
For investors wanting to mitigate portfolio risk the continued lack of real or after inflation yield in government bond markets makes portfolio diversification difficult. Historically government bonds have shown in most circumstances an ability to rise in value when equity markets head south, but current valuation levels leave bonds especially susceptible to any small pickup in inflation expectations. Ultra low cash levels continue to make this (cash) an unattractive asset class for private investors as interest rates may not even cover the cost of, for example, pension structures. This makes cash an unattractive asset class for most investors despite the fact it gives optionality. Low cash rates have resulted in investors’ migration towards risk assets, a classic example of greed outrunning fear. What is an appropriate amount of risk depends on analysing both the downside for the portfolio and the time horizon for the investor. Being a forced seller of illiquid or volatile assets can be a costly investment strategy. Private investors are not really able to buy portfolio insurance in the form of futures, or put options and the fall in volatility has meant this has been an expensive investment strategy for many fund managers this year. Investors are able to structure a portfolio in a way that mitigates against what are considered to be the most likely risks, which today should include holding alternative strategies with a low correlation to equity markets and interest rates. Another way of guarding equity investments against an economic downturn is to limit cyclicality, or avoid holding highly leveraged companies.
Equity Valuations The area of the market where there is justifiably the most concern over valuation is the United States with a cyclically adjusted price earnings multiple the CAPE PE around a two decade high. Outside of the States cyclically adjusted market valuations in, for example, Europe and Asia, look more reasonable. Leverage globally also remains high and balance sheet efficiency has encouraged share buy backs with as a result corporate leverage increasing. Share buybacks have been a significant driver of the post Financial Crisis market rally, although less important in 2017. High levels of leverage are not a major source of concern at a time of improving economic growth and historically low interest rates, but a deterioration in either of these factors would leave markets vulnerable to a sharp correction. High valuations have been sustained as global economic activity has improved significantly. Furthermore, in the States corporate tax cuts will provide a significant boost to some company earnings over the next few years, although the exact impact of this is still impossible to be certain about.
Today’s market valuations, together with economic and political changes in an era of disruption, means not even experienced fund managers have direct historical experience of today’s conditions. This all argues in favour of a diversified approach to portfolio construction. For individuals both risk capacity and risk appetite are vitally important. The former is the loss that can be endured without having to significantly change spending plans or lifestyle and will vary on a case by case basis. Attitudes to market volatility depend on an investor’s temperament and inappropriate holdings for an investor’s risk appetite can result in sales of risk assets at low points which only serves to lock in losses. Over the longer term valuation is the best form of risk control and at today’s market levels it is hard to find any assets which look outstandingly cheap. This does not mean that investors should today cash in everything as there is certainly positive momentum behind economic fundamentals.
Fundamentals The US bull market in March became the longest on record, surpassing the 1921-29 period and next year the US economic expansion, if it continues, will hit a record in the length of duration of economic upturn. Long bull markets always cause concern and it is certainly true that the safest time to invest is after a significant market crash. However, the length of the expansion needs to be seen in the context of it being borne out of a Global Financial Crisis and academic research suggests post banking crisis economic recoveries are always more muted than a typical economic expansion. Whilst the recovery has been long in duration, the pace of expansion has been moderate with, as a result, few inflationary impulses. This combined with globalisation, automation and other disruptive technologies has left the global economy with few clear imbalances. It can be argued that without a boom it is harder to have a bust and formal Federal Reserve Chairman Ben Bernanke argues that there is no evidence that an economic recovery is likely to stall just because it is long running.
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SUMMARY 2017 has been a year when markets have benefitted from a synchronised global recovery at a time when monetary policy has remained surprisingly accommodative as inflationary pressures, especially wage growth, have remained muted. Opinions as to the extent of an inflationary pick up in 2018 remain polarised with many different opinions across the investment world. This “Goldilocks scenario” of growth neither too hot nor cold has provided investors with something we have previously described as the “best of both”. 2018 is likely to see some boost to US growth as the Trump administration finally puts in place tax cuts and some increased infrastructure spending. This should further extend the US economic cycle unless it is accompanied by a significant pickup in inflation. The US Federal Reserve are likely to continue to gently tighten interest rates, even if inflationary pressures remain moderate, as it seems likely the Fed want to some degree normalise monetary policy ahead of the next downturn whenever this occurs. Thus as long as the growth outlook remains positive US monetary policy is likely to tighten, even if inflationary pressures remain muted. Europe will be an area to watch in 2018 as any sign of a pickup in inflation could result in a change in sentiment about future monetary policy, although at present the ECB seem intent on holding down interest rate expectations, partly with the aim of mitigating potential Euro strength. Thus the current sweet spot for equity markets is likely to persist during the first few months of 2018 at least. One note of caution is that over the course of 2017 the belief in an ultralong low inflation cycle has become more consensual. There are now many strategies/approaches explicitly or implicitly betting on a continuation of low market volatility. Whilst completely accurate data is hard to get there could well be a significant amount of money which would need to abruptly change direction if volatility increased meaningfully. Thus if the ‘goldilocks’ environment appeared under threat a sharp sudden market setback could occur. Investors need to be aware of what are likely to be important longer term drivers of market levels. These are fundamentals, valuations and sentiment. There is no doubt this year has seen an improvement in economic fundamentals across the globe, with a recovery spreading out from the States to include Europe where the periphery has actually led the core and the significant improvement in Chinese nominal GDP rates not only helping Asia, but also the global economy. Whilst this is all positive, there is little margin of safety in markets due to full valuations with unconventional monetary policy bringing forward the financial if not the economic cycle as investors have bid up risk assets in a zero rate world. High levels of leverage do mean that as and when an economic downturn does occur, although this could still be a number of years away, operational gearing for some companies will have risen significantly.
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This is a very different economic cycle and as previously noted the US market has traded at a higher level of valuation (PE ratios both absolute and cyclically adjusted) than in the period prior to 1996. A pickup in inflation could in time result in some level of mean reversion in terms of valuation but this is unlikely to be rapid and if the era of low inflation and low interest rates continues to persist, investors could continue to be surprised by the length of this extended economic cycle. Whilst clearly it is more attractive to buy cheap assets there is a need for pragmatism and to accept that when markets have momentum it can be dangerous to stand against the herd. Notwithstanding this there is a need to be aware of potential risks and portfolio construction can help guard against these. One combination in particular to avoid is cyclicality and leverage and businesses with these characteristics are most susceptible to any slowdown in the growth rate or pickup in interest rates. High valuation levels means there is little margin of safety if any unexpected or exogenous shock occurs, including geopolitics, or interest rates were tightened significantly. At this stage of the cycle an interest rate shock is a greater risk to the market than recession, certainly as far as 2018 is concerned.
This suggests investors should continue to adopt a prudent diversified strategy rather than making all out bets on market momentum. Thus going back to basics, whilst fundamentals are improving valuation is not on an investor’s side. Investor sentiment has also improved this year and this is typically a contrarian signal. The best time to invest is when sentiment is very negative but fundamentals have bottomed, which is certainly not the case today. As the synchronised global recovery spread, equity markets in Asia, the emerging world and Europe have played catch-up and in US$ terms have been some of the best performing regions this year. Credit has outperformed government bonds as stronger economic growth has allowed default rates to decline even further. Whilst absolute levels of equity valuation look expensive in a historic context, this does need to be viewed in today’s interest rate environment. As long as monetary policy globally remains accommodative and the economic recovery continues, a significant setback to equity markets in the short term seems unlikely. Even the Fed, which is the only major central bank on a sustained path of tightening is raising rates at a glacial pace. As long as inflation, and particularly wage inflation remain muted, there is no pressure on central banks to tighten aggressively. Central bankers today also seem to understand the fragility of the economic recovery in a post GFC world where globalisation and disruption are long term secular disinflationary influences. The major central banks all seem committed to maintaining pro growth policies.
Markets this year have to a degree latched on to the prospect of an extended economic cycle and certainly to one which is more synchronised than US centric. As a result investors should continue to see a positive backdrop to equity markets over the early part of 2018 at least, but at today’s valuation levels hold some funds which offer the option of positive returns in a less favourable environment. Absolute return continues to have its place, although in a zero rate environment returns from this approach are likely to be low unless a fund is taking high levels of risk. Utilising managers with strong records of alpha generation and low dependence on market beta for returns allow a qualitative aspect of risk control within portfolios. The environment of the “best of both” is likely to continue for a while yet, but investors need to be aware of the potential risks at a time when market valuations globally have moved higher.
This year has been one there has been a huge divergence between growth and value. As a result valuation levels on many growth parts of the market seem stretched, but despite this mean reversion investing will remain challenging as disruptive forces and technological change continue at an unprecedented pace, meaning some traditional business franchises will never see a profit recovery.
Graham is an investment researcher of international note and has been working in this area for over 20 years. He began his career in the stock broking industry before becoming an institutional fund manager where he practiced both in Ireland and the UK where he worked in senior roles with a number of institutions including Royal Life holdings, Guardian Royal Exchange and Abbey Life.
GRAHAM O’ NEILL Director at Independent Research Consultancy Limited
Throughout his career, he has managed multi-million Euro funds and developed innovative investment fund concepts. Seeing the need for non biased, critical analysis of the investment industry, Graham began work as an independent investment researcher in 1992 and since then, principally, he has provided services to financial institutions. Graham is also a director of RSM Group, a leading UK investment research company. Through his research process, Graham filters through the broad range of Irish and International investment fund managers for those investment managers who consistently perform best. He conducts in the region of 150 teleconference meetings and on site interviews with asset managers in UK, Europe, China, Hong Kong, Singapore and Australia. Following on from these meetings, Graham produces detailed research notes.
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BUSINESS BRIEFS MOST IRISH BUSINESSES USING SOCIAL MEDIA BUT ONLINE SALES STILL LOW
with 23 per cent using YouTube. This compares with usage rates of 30 per cent and 21 per cent respectively in 2015. Irish businesses are also ahead of the curve in using customer relationship management (CRM) software, with 34 per cent of companies saying they availed of it to capture, store and make information available for other functions. This compares to an EU average of 33 per cent. Enterprise Resource Planning (ERP) was used by 29 per cent of businesses, the figures show. Over 12 per cent of Irish enterprises reported that they shared information electronically using Supply Chain Management (SCM) in 2017. The most popular method was via websites or web portals. Unsurprisingly, large enterprises led the way in terms of conducting sales electronically. However, almost all businesses said they made more online purchases than sales online.
Almost two-thirds of Irish companies use social media to promote their businesses and communicate with customers, the second highest number in Europe, according to new figures from the Central Statistics Office (CSO). In 2017, 69 per cent of Irish enterprises employing 10 or more people were using platforms such as Facebook and Twitter, compared with an EU average of 47 per cent. The figures also reveals that the use of social media by Irish businesses rose from 64 per cent in 2015 and 67 per cent a year later. Facebook was by far the most popular social media platform used by Irish businesses to connect with customers, with 67 per cent of companies saying they used it, up from 65 per cent in 2016 and from 62 per cent in 2015. In addition, 32 per cent of Irish firms said they used Twitter,
The Irish Times
MORE THAN 19,000 JOBS CREATED BY ENTERPRISE IRELAND COMPANIES IN 2017
a record high. There was a net jobs increase of 10,309, taking account of job losses. Job creation figures are up on 2016. Two thirds of the 19,332 new jobs were outside of Dublin. The agency also announced a Market Discovery Fund to support firms to diversify into new markets in the context of Brexit. There are three levels of funding available: up to €35,000, up to €75,000 and up to €150,000.
More than 19,000 jobs were created in Enterprise Irelandbacked companies last year. The agency said 209,338 people are now employed in companies it supports -
Irish Independent
56% OF IRISH COMPANIES HIRE RETURNING IRISH PROFESSIONALS
surveyed cited the cost of buying residential property as a major issue in recruiting staff in 2017, up from 27 per cent in 2016. Seventy per cent of employers increased headcount in 2017, the majority by between 10 and 20 per cent. Thirtyone per cent of employers surveyed said ICT roles were the most difficult to fill. For a growing proportion of ICT firms, the report found that more than a quarter of their staff were coming from outside the EU. “Eighty-five per cent of employers surveyed plan to take on new staff in 2018 with salaries in IT and finance pulling far ahead of other sectors,” said Donal O’Brien, managing director, Abrivia Recruitment. “In line with the general trend of staff shortages in key areas, 64 per cent of employers have employed a non-Irish applicant based outside Ireland in the past 12 months, up from 58 per cent in the previous survey.”
Irish professionals working overseas are opting to return home in greater numbers, with 56 per cent of the companies surveyed in a new report having hired returning Irish nationals in 2017, up from 47 per cent the previous year. The trend was strongest in the finance and banking sector at 71 per cent, according to the 2018 Salary, Employment and Economic Trends Survey compiled by Abrivia Recruitment in partnership with Trinity Business School. Some 7,400 companies and 45,000 employees were questioned for the report, which found that the shortage of rental accommodation continues to bite. Forty-seven per cent of employers surveyed in the report said it was impacting on their ability to hire staff, up from 40 per cent in the previous year. Thirty-seven per cent of the companies
The Sunday Business Post
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SETTING BUSINESS GOALS FOR 2018 This is a good time for companies to kick-start their target setting and revolutionise their performance management.
Studies have shown that companies that align the goals of individual employees with that of the organisation experience dramatic performance improvements. However, it can be challenging to set performance maximisation targets without experiencing harmful side-effects. Employees may try to achieve performance targets in ways that are not desirable to the organisation and negative attitudes can cause lack of motivation and a decline in company morale. Companies should be cognisant of data manipulation, which is another key concern in setting performance targets. It all starts with establishing the company’s mission and vision before bringing management and the employees into the fold. A company may opt to measure company growth by the number of lives that were impacted by their products, rather than the profits and income that was generated. Employees will feel that they are a part of something bigger than just a profit margin. Cynics might question the efficacy of such an altruistic view, but it does help employees and clients alike to form an emotional connection with the organisation. Mid-level managers who are tasked with negotiating reporting-related politics to senior managers may find motivational strategies more cumbersome. One way to handle that, is to figure out what motivates each individual staff member.
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Managers are faced with the mammoth task to establish performance targets and measures that provide direction and purpose to individual employees at different levels and in different parts of an organisation. There are four key areas to consider:
OWNERSHIP CULTURE Performance rewards can cultivate an ownership culture within an organisation. When a certain department achieves a performance target, the organisation could invest in technology or tools that will improve work conditions for them.
The financial and non-financial rewards employees will achieve for hitting performance targets should be considered regardless of the selected approach. Likewise, penalties for failing to reach a target are also important.
MONITORING PERFORMANCE Feedforward - information that enables organisations to learn and generate ideas, make plans and implement strategies.
Managers must implement an information flow system with adequate performance monitoring and learning support. To do so, managers must differentiate between and implement:
Ensuring that these systems are in place will support communication regarding targets and performance information.
Feedback - a tool that enables employees to undertake corrective actions.
PERFORMANCE INFORMATION AND EMPLOYEE EVALUATIONS Managers must consider whether it is worthwhile to use a different evaluation style in order to attain positive outcomes at the different organisational levels and in different settings.
The way in which performance information is used is the single most important factor that influences employee behaviour. Managers must consider the behavioural implications of a flexible or rigid performance evaluation. Rigid evaluation styles base evaluation purely on employees’ ability to meet targets. That means that employees who don’t achieve the targets will be given an unfavourable evaluation, irrespective of other factors, which might be considered in a more flexible approach.
In today’s competitive business climate, it is more important than ever to align organisational goals with employee decisions. Target setting and performance measures will continue to play a fundamental role in the business world, and managers have complex decisions to make. They must constantly reflect on their approaches and adapt them in order to maintain individual employee and organisational performance.
The flexible approach also uses target information as a performance indicator, but the evaluation is also conscious of other aspects.
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TIPS TO GET YOUR FINANCES BACK ON TRACK How to recover financial health after spending too much over the holiday season.
December is a time of over-indulgence. We spend too much and we eat too much. For many, the first few months of a New Year is a time of inflated waistlines and shrunken wallets - not to mention the bills piling up until they can no longer be ignored. If this describes your position right now, keep on reading... Many people start the New year in arrears, stretching just to pay the minimum balance on credit cards. Unless you up your repayments to clear that debt, you may find yourself in the same position - or worse next year. And keeping it up will result in repaying these debts for the next twenty years. Here’s how you can keep your head above water and reduce your debt.
1. DEVELOP A REALISTIC BUDGET
2. PRIORITISE
Avoid unrealistic budgeting or setting too tight a budget that will be impossible to stick to.
If you absolutely need it to survive, it is a want. If the item fits comfortably into your budget, by all means, go get it. However, if you can’t afford the latest gadget (and you can survive without it), you will have to set aside the money until you’re able to afford it.
Start by drawing up an annual budget. Knowing the exact running costs of your monthly household bills will help you plan your budget properly and if there is a surplus, you can plan for that too.
Economics 101 teaches us about the difference between ‘‘needs’’ and ‘‘wants’’, but it is hard for most people to put that into practice. It’s much more fun to spend money on wants than on needs.
Track your spending using a notebook or on your phone so that you can learn to budget realistically. Keeping a comprehensive budget will also help you to prioritise your spending and identify areas where you could economise.
3. DON’T COUNT YOUR CHICKENS UNTIL THEY’VE HATCHED
Perhaps you can even create a surplus fund that will allow you to save towards short- and long-term goals, and develop a savings programme. EBS offers the best regular saver programme in Ireland, allowing you to save €100 to €1,000 per month for an agreed period of up to 12 months at 3%.
Few things in life are guaranteed, so don’t spend your money until it is in your account. You may have received a bonus last year, but that doesn’t mean it will happen again in 2018. A bonus is really nothing more than a windfall and should be treated as such. If you receive one, that’s wonderful, but do not factor it into your budget until you receive it.
Make the mental shift to understanding that your goals everything from next Christmas to the exotic trip and the deposit on your new home - require planning and savings.
Develop a mindset of counting only on your monthly salary or your business’ net profit at the end of the year.
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4. KEEP A TIGHT REIN ON YOUR FINANCES
7. BE CREDIT SAVVY
Credit is a great backup plan that must be used wisely. You can avoid some of the unexpected pitfalls by reading the fine print on your credit agreement and by paying on time. Ultimately, it is best to limit the amount of credit you have. Remember that every late payment is recorded by The Irish Credit Institute (ICB) and it will soon also be in the all-new Credit Registry.
Don’t put yourself at risk by allowing someone else to control your money. If you earned it, you need to know how it is spent. Understanding your family’s finances - including income, investments, retirement savings and debts - will help you navigate negative situations such as illness, divorce and death better. These situations can put married individuals at risk, and it can add financial strain to an already emotionally strenuous situation. Much stress and tension could be avoided by knowing the details of one’s finances.
The majority of credit card companies charge 20% and more on balances. While you may not be able to clear your maxed out credit card just yet, you may be able to transfer your balance to them at 0% for six months. This should give you some breathing space. Use this time wisely by coming up with a solution to your debt repayment.
On that note, it is important to prepare a will. For elderly people, insist on enduring power of attorney.
All lenders will always check your ICB credit standing on home loans, car finance, credit union loans, and switching banks.
Single individuals should know exactly where all their money is and what financial consultants or brokers are doing with it. By being involved in the process, you can negate any questionable activities that might negatively impact your future finances.
8. REMEMBER RETIREMENT
The sooner you start saving for retirement, the better. When you start early, you will need to put away less every month as it will give your savings more time to grow. You should ideally save 15-40% (age depending) of your income if you wish to accumulate enough wealth to live comfortably in retirement.
Always avoid anything that sounds too good to be true, or that you do not understand.
5. THINK BEFORE YOU BUY
Ireland is home to 677,000 citizens aged 66 and over. This number will increase to 1.8 million by 2050. In 2013, there were six workers for every retiree, but by 2050, each retiree will represent two people in the workforce. Our lifespan has increased, and we have become healthier. That means that we need more money for retirement.
When it comes to spending your hard-earned money, make your decisions based on what you need and not on want. Leases and loans will lock you into a monthly recurring payment that may influence the amount of money you have available for emergencies such as car repairs, medical costs or replacing items that break in your home.
Recently, the ESRI recommended that the age of retirement be increased to seventy and government will gladly delay auto-enrolment, which forces employers to contribute to employees’ pensions until 2021. That means that now is the time to start contributing to a pension scheme.
Studies have shown that emotions influence spending decisions by 95%. The cost only influences decisions 5%. Personal finance is influenced 20% by knowledge and 80% by behaviour.
Speak to a registered financial adviser about the best options for your needs. Since not all savings are guaranteed, it is important to choose an option based on your risk category with which you are comfortable. A good financial adviser will be happy to check your fund with you every year and provide explanations of its performance.
Thinking before you buy can help you avoid becoming overextended financially. Examine your budget and expenditures to ensure that you can easily afford something you wish to buy before you commit. This principle applies to all types of investments, including phone contracts, new cars, homes or investments.
9. WEIGH UP YOUR OPTIONS
Most lenders will not approve loans with repayments that exceed 35% of your net monthly earnings. The rest should go towards your other living expenses.
The longer the repayment term on a home loan, the more you pay. In the long-term, you can end up paying two-and-a-half times the value of the purchase. Save money by opting for a 15year mortgage and start building wealth. Lending institutions will soon offer 15- and 20-year fixed term interest rate options, which will make it worth your while to shop around.
6. SPEND CASH - NOT CREDIT
If you spend more than 20% of your monthly net income on loans and credit cards - excluding your rent and mortgage - you need to make a few changes. This is a major red flag signalling potential future financial problems.
10. ROLL OVER YOUR PENSION
When you buy items on a credit card and you fail to pay off the balance, it will cost more in interest charges and that will impact on your savings over time.
If you have a pension and decide to change employers, find out about the options that are available to you. You should be able to take back your contribution if you have been paying for less than two years. Then you may either transfer the money into a self-managed pre-retirement bond that will give you control, or you could transfer it to your new employer. Either way, understanding your options now will ensure that you are prepared for retirement.
Instead, only use cash or only buy within your means. In a perfect world, paying off your total credit card bill every month will help you avoid large credit card debts that may prevent you from achieving financial security.
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TECH FREE APP TO TAKE PAIN OUT OF ORGANISING SCHOOL EVENTS Sunday Business Post
“The app is free for parents and schools and we will introduce some premium services later in the year – for example, Komeer Payments, which will allow schools to collect payments using our app. “We are also looking at some specific location-based child alert services and we’re developing a parent-teacher meeting organiser.” Walsh is also chief executive of Sky Business Centres, a lead mentor in Clontarf GAA Club, chairman of an Irish NGO, and chairman of Dublin City Enterprise Board Schools Enterprise Awards. “I’m acutely aware of the pain points in organising events and group communications – getting the message out to large groups of people and getting responses back,” he said. “Komeer came about as a better way for communicating rapidly and also encouraging participation and engagement or, in simple terms, getting people turning up at activities, getting more children attending speech and drama and sports activities like football or camogie. “If an event or activity is cancelled or the school has to close unexpectedly, it’s about getting the message out and getting a response back so you know the parents have got the message.” Komeer was one of 500 global start-ups accepted on the Facebook FbStart Programme in 2016 and was, last month, announced as one of two winners of the Dublin city Innovation Investment Fund programme. “We want Komeer in every school in Ireland and we also want schools abroad,” said Walsh. “We’ve met with more than 200 principals in Ireland and we have exhibited at IPPN conferences here and conferences in Oxford in the UK, where we now have eight schools signed up, and Atlanta in the US.”
Dublin businessman Pat Walsh has launched a new smartphone app that he hopes will replace SMS messaging and printed notes as the go-to method of communication between teachers and parents in Irish schools. Walsh has invested €120,000 in Komeer, a mobile two-way messaging service parents can download and use for free on iPhone, Android, Blackberry and Windows mobiles, using their email address to sign up via Facebook or Google. Schools can also use the Komeer app for free to announce upcoming events and meetings, discuss security issues, or announce cases of head lice or chicken pox. Unlike SMS texting, Komeer alerts are not limited to 160 characters. “They can create an unlimited number of groups – one for sports, one for each year, or class, and so on,” said Walsh, who has spent two-anda-half years developing the app and testing the Beta version with 30 schools before its official release last week. Users reading messages sent from schools via the Komeer app are required to tap their device to confirm receipt. Komeer automatically adds events to parents’ smartphone calendars. Map and location information is another key feature. Responses are summarised for the school on a dashboard, so the principal or administrator can see how many parents have received and responded to their message. “SMS messaging is used by 4,000 schools but its cost is increasing, so currently most schools are paying 5.5 cent per text message or up to €5,000 a year,” said Walsh.
SMART HOME ARRIVES IN IRELAND AS AMAZON LAUNCHES ALEXA AND ECHO The Irish Independent
available in Ireland for €3.99 per month per Amazon Echo device. Amazon Music Unlimited normally costs €9.99 per month for an individual plan that’s accessed from smartphones or other devices. The Echo smart speaker system uses “far-field voice recognition” with an array of seven microphones to hear users from across the room, while “beam-forming” technology combines the signals from the individual microphones to suppress noise, reverberation and competing speech. Amazon is bundling a Philips Hue smart lightbulb with the purchase of its Echo Plus smart speaker to encourage smart home adoption. The Alexa system ‘learns’ from users’ behaviour and habits. The company said that its ‘Alexa Skills Kit’ and ‘Alexa Voice Service’ is now available for local Irish developers to build compatible systems for locally.
The arrival of the smart home in Ireland just took another big step. Amazon has launched its smart voice system, Alexa, in Ireland. The company is now selling its Amazon Echo and Amazon Dot smart speakers directly into the country. Alexa, the voice-controlled artificial intelligence system that powers the smart speakers, will now work for local Irish services such as Ryanair, RTE and local radio stations. The system allows you to ask it questions, phone calls, send messages, play music or get news or weather. It also allows you to set alarms. It works with smart home gadgets such as lighting and heating systems, allowing users to speak commands to control household functions. Amazon has also announced that its rival to Spotify, Amazon Music Unlimited, is now
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Dervilla Whelan
Sarah Keane
(BBS, CTA) Managing Director
(BAAF, FCA, CTA, QFA) Director
Dervilla Whelan is the Managing Director of DLS Capital Management Ltd and also one of the founding members of DLS Partners. She was previously a taxation partner in Baker Tilly O’Hare (now part of Baker Tilly Ryan Glennon) and is a graduate of Trinity College, Dublin and the Institute of Taxation in Ireland. Her key skills include advising clients on all aspects of their financial affairs, including advising on the appropriate structures required for all types of investments and pensions. Dervilla is heavily involved in the Family Office service for our high net worth clients. Dervilla’s involvement with both DLS Capital Management Ltd. and the tax practice, DLS Partners, ensures that her clients benefit from a holistic approach to all of their financial affairs
Sarah Keane is a graduate of Dublin City University in Accounting and Finance and a Fellow of the Association of Chartered Accountants (FCA). She is also a member of the Institute of Taxation in Ireland (CTA), and the Professional Association for Financial Services in Ireland (QFA). Her key skills include advising clients on all aspects of financial planning, including retirement planning strategies, taxation and investment advice. Sarah is highly experienced in the preparation of investment financing strategies for individuals and companies. Sarah is also heavily involved in the Family Office service for our high net worth clients.
Graham O’Neill
Stephen Cahill
Graham is an investment researcher of international note and has been working in this area for over 20 years. He began his career in the stock broking industry before becoming an institutional fund manager where he practiced both in Ireland and the UK where he worked in senior roles with a number of institutions including Royal Life holdings, Guardian Royal Exchange and Abbey Life. Throughout his career, he has managed multi-million Euro funds and developed innovative investment fund concepts. Seeing the need for non biased, critical analysis of the investment industry, Graham began work as an independent investment researcher in 1992 and since then, principally, he has provided services to financial institutions. Graham is also a director of RSM Group, a leading UK investment research company.
Stephen Cahill is the Tax Manager at our Tax Practice, DLS Partners. He graduated from DIT and is a member of both the Association of Chartered Certified Accountants (ACCA) and the Irish Tax Institute. Stephen is responsible for all areas of Tax, including, VAT, PAYE, Income Tax, CGT and Corporation Tax. He also is involved in the preparation of Financial Accounts for sole traders and limited companies and assists in the preparation and review of monthly management accounts for larger corporations.
Independent Consultant
(BSc (Marketing), ACCA, CTA) Tax Manager DLS Partners
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RANGE OF SERVICES RETIREMENT PLANNING
FINANCIAL PLANNING
•• •• •• ••
•• Financial Planning is central to our
Tax-effective funding for retirement. Income Planning for your retirement Personal Fund Threshold calculations Protecting the underlying value of your pension fund throughout retirement •• Advice on the most tax effective drawn down of your pension vehicles •• Taking transfers from Defined benefit Pension Schemes
PENSION STRUCTURE ADVICE •• Personal pensions •• Self Invested Personal Pensions •• Company/Executive pensions
- Defined Benefit Schemes - Defined Contribution Schemes •• Small Self Administered Schemes •• Personal Retirement Saving Accounts (PRSA’s) •• AVC’s
service offering
•• We compile fact finds based on client’s
personal and financial details •• We produce a Financial Plan for each client, showing their current financial position and their future financial objectives. •• The Financial Plan will encompass all areas of a client’s financial position, e.g. investments, borrowings, protection policies and pension policies •• Financial Plans are reviewed on an annual basis, taking into account any changes in a client’s personal and/or financial circumstances.
FAMILY OFFICE SERVICE •• Preparation of Quarterly Net Worth Statements
•• Preparation of a comprehensive
INVESTMENT ADVICE •• •• •• •• •• •• ••
Managed Funds Exchange Traded Funds Unit Trusts Investment Trusts Tracker Bonds Deposits Employment and Investment Incentive Schemes (EIIS) •• Structured Products •• Qualified Investment Funds (QIF) •• Renewable Energy Investments
•• •• •• ••
database which contains all information on Assets and Liabilities, thus facilitating instant access to information Centralisation of costs on all Personal & Investment Properties Appraisal of Investment Opportunities Monitoring of Investments Attend meetings relating to Investments on behalf of clients
DLS Capital Management 25 Merrion Square Dublin 2
www.dlscm.ie info@dlscm.ie
DLS Capital Management is regulated by the Central Bank of Ireland
(p) 01 6119086 ( f ) 01 6619180