Investing? Start small but think big By N e a l K e l ly
If you’re not already investing your money then the chances are that you’ve probably got some money locked away in a savings or deposit account. If so, have you checked to see what sort of a return you’re getting on that money? In all likelihood, given recent and current deposit interest rate patterns, that return is very modest indeed. In fact, you’ll be lucky if the growth on the money you put away on deposit manages to outstrip the effects of inflation by the time you withdraw it. Generally the best way to save your money and earn a half-decent return is to place it into a long-term savings account. Usually, however, you will only earn the best rates if you are willing to lock your money away for a considerable period of time - typically from three to five years. But is that really a long time? Remember is SSIAs? Given the low returns offered by deposit accounts it makes real financial sense to investigate other ways of getting your money to work harder for you. Despite the trials and tribulations of the financial markets since the onset of the global financial crisis in mid-2007, investing remains the most tried and trusted way of generating a healthy return for your money, particularly over the medium to longterm. If investing sounds like a big leap to you then why not start with a single step? How about €50 a month into an investment fund of your choice? Not that hard or too much of a risk, is it? Starting small need not mean that your potential rewards will always be small as you can increase the amount you invest as you grow more confident and the effect of compounding means that every cent your capital earns can be ploughed back into your fund and
allow it to grow further. €50 a month adds up to €600 year or €3,000 over 5 years and that’s without the type of growth performance you might expect with a typical investment fund. Saving that amount in a regular deposit account with a typical AER of 1.5% would give you a gross figure of €3,784 after 5 years. So let’s bring in the investment factor and apply a not-unreasonable investment fund growth of 8% per annum: with €50 a month you could be looking at a gross total of €4,683 at the end of 5 years - that’s a return of €1,683. Step up to €200 per month and given the same scenario you could be looking at a return of €6,732. Such figures are hypothetical of course, but they illustrate the potential of investing your money. Where you put that €50 or €200 a month is where things get very interesting and this is where you’ll start to discover the type of investor you really are. It’s also the point at which your financial adviser will really come into their own. Even if you start out on your investing journey with €50 a month, the core principles of successful investing still apply. Diversification is one of the most important of these principles, and it’s particularly important given the volatile nature of the investment markets of the last two years. Essentially diversification means splitting your money across different assets such as equities,
2012