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,
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currencies, bonds, property and cash, a policy that’s also known as asset allocation. By spreading your money across assets you are protecting yourself from the worst of a fall in the fortunes of any single asset. If you’re just starting out, your financial adviser can tell you much more about the importance of diversification and asset allocation. Another investment principle to consider carefully is your attitude to risk. Some of the world’s most successful investors are often those who throw caution to the wind and pile into the riskiest assets. The truth is that we don’t usually get to hear about the equally incautious but far less successful investors because they don’t make for interesting headlines.
Your attitude to risk will probably be governed by whether you can ever afford to lose a sizeable proportion of the money you invest. The more you can afford to lose then the more risk you may be prepared to take in order to achieve a potentially greater return on your money. If you really can’t afford to lose at least some of the money you invest then perhaps investment isn’t for you after all - although there are so-called ‘protected capital’ or ‘protected equity’ funds which you may want to explore. But whatever your attitude to risk, €50 or even €200 a month is a very good way to start up an investment, and as your financial adviser will readily tell you, everyone has to start somewhere.
About Neal Kelly is a Co-Founder and Director of Thomond Asset Management and can be contacted @ neal@thomondam.com 82 O’Connell Street, Limerick | T +353 (0)61 462 024 | F +353 (0)61 312 055 | E info@thomondam.com www.thomondam.com Folk Asset Management Ltd t/a Thomond Asset Management is regulated by the Central Bank of Ireland.
Warnings: 1. The income you get from an investment may go down as well as up. 2. The value of your investment may go down as well as up. 3. Benefits may be affected by changes in currency exchange rates. 4. Past performance is not a reliable guide to future performance. This outlook does not constitute an offer and should not be taken as a recommendation from Thomond Asset Management. Advice should always be sought from an appropriately qualified professional