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What is Inflation?

Simply put, it is an increase in the cost of goods, materials or labour.

You can see inflation in anything from a litre of milk to house prices. The most noticeable at the moment (August 2021) is in construction prices for building and renovating houses.

How does it happen?

Inflation increases usually from a shortage of good/material/service or increase in demand. As lockdowns are eased, the economy opens up and there is a sharp increase in demand for goods and materials (eg timber for construction) as construction restarts and consumers start spending.

Is the inflation increase expected to be temporary or permanent?

Most economists expect the spike in inflation to be temporary, but normal levels of inflation at 2% (approx) to resume in 12 to 18 months.

What does it mean for you?

Your money doesn’t go as far. You earn the same amount but goods/services are more expensive.

House prices have reflected inflation as prices are near all time highs.

What does it mean for investors?

Persistent inflation means central banks will raise interest rates. Deposit savers probably won’t see this passed on by banks.

Persistent inflation above 4% is bad for stock markets but this is unlikely to materialise.

Residential property remain elevated for a number of years.

Alternative assets – sharp spike in commodities which will abate as demand normalises.

Crypto currency – seen as alternative to monetary system and inflation hedge – likely valuation increase.

Monthly Investment Plans have been gaining in popularity since deposit rates have been reduced to nearly zero.

Long term savers are looking for returns that will make their money work for them or in some cases just get them a better return than deposit without taking a lot of risk.

Setting up a Monthly Investment Plan is simple and goes as follows:

Have a coffee/chat with your financial advisor to establish how much you wish to save/invest and your overall goals and circumstances

Complete a Risk Profile Questionnaire to determine what level of risk you are comfortable taking

Select a fund or funds with your financial advisor

Establish the time frame that you wish to invest for

Complete the application forms and direct debit mandate

Start investing and benefit from long term compound interest returns

Monthly Investment Plans can be set to have full access to your money and ability to change funds at anytime. They are flexible and can be amended if things change for you.

You are not locking yourself into a long term commitment and you can pause payments if you need to so.

For more info contact hlambert@integralfinancialplanning.ie today

When investing, whether in a regular monthly investment or a lump sum investment, the following are some principles to keep in mind when doing so:

Diversify

Spread out your investment across many different types of investment classes – shares, property, alternatives (commodities, crypto etc). You will avoid being overly exposed to one particular asset – as an example, property or bank shares during the financial crisis from 2008 to 2011.

Keep Specialist Investments To 10%

Keep specialist investments to 10% or less of your overall fund/portfolio. In keeping with diversification, it means you are avoiding taking the entire drop in an asset valuation such as Cryptocurrency over the last number of weeks (May/June 2021).

Long Term View

Time is an asset in itself when investing. The longer the time frame the greater the chance of positive returns. Investing in shares for 10 years or more gives you a 94% probability of making positive returns (https://www.nutmeg.com/nutmegonomics/increasing-your-chances-of-positive-portfolio-returns-the-facts-about-long-term-investing/).

Savings and Investment Plans are only suitable for a 5 year plus time frame. If you think you will need to access money sooner then you would be better off putting on deposit. The returns are minimal but your money is secure and accessible.

Take Some Measured Risk

Put simply, you have to invest in growth assets for a medium to long period of time. This means shares, property, commodities and possibly Cryptocurrency. Other options are bonds and cash but the return just isn’t there on these investments at present. Over the long term US equities have returned 8% per annum (https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp) and you can expect commercial property to return approx. 6% when the market reverts to a more stable condition and employees return to work (estimated 2% inflation plus 4% rental income). Returns on bonds and cash are virtually zero now (June 2021).

Most managed funds have what is called an ESMA (European Securities and Markets Authority) rating which has expected volatility level (the movement in the value of the fund) so you can then assess what you are comfortable with.

I must confess to being reasonably new to ‘Crytpo’ investing. I have been aware of it as an investment alternative for quite some time but have always been cautious about it as I have no way of knowing what it should be valued at. I would also advise any potential investors of this as well. It is very difficult to know what direction the price will go when there are no valuation metrics. With shares, at a basic level you can value a share as a multiple of it’s annual earnings. Historically on average this tends to be 15 (so a share is valued at 15 times it’s annual earnings) but I am not aware of any metric for Bitcoin. There is some Technical Analysis available where prices are charted over a long period of time but no valuation methods like those used in the more traditional assets such as property and shares.

That said, Bitcoin/Crypto does have a more significant role in the future economy with notable business people endorsing it recently such as Paul Tudor Jones and Elon Musk. In a conversation on LinkedIn with an Irish Fund Manager, he advised me that Bitcoin was too volatile to be considered for mainstream funds in Ireland, but that is changing the US and will likely change here. Demand may drive that as more and more people are interested in Crypto as an investment so the funds industry may have to provide a product to meet demand.

It is unclear if Crypto in it’s current form will be accepted as a mainstream digital currency in the future. Will the likes of Amazon accept a payment which could decrease by 10% overnight? Perhaps Stablecoin will have a greater use in High Street Business

With any niche or specialised investment, I would recommend doing thorough research and limiting your exposure to the asset to 15% of your overall fund/money.

This article is opinion only and does not constitute investment advice.

I have many times over the past 10 years sat across from clients – who work in multinationals – and marveled at how much the company provides for them. Typically they are in receipt of Salary, Bonus, Stock Options, Death In Service (Life Cover), Income Continuance (Sick Pay) and Health Insurance. That said, many in the sector will say they work hard for what they get and I would agree.

From a financial planning point of view, most is covered in the above. Where I have found Multinational Sector Staff to need advice is when they have moved company a number of times and have numerous pensions on different schemes.

These can prove difficult to manage for a number of reasons;

• Moving House – pension companies can often be the last on the list of companies to update new address info. The upshot of this is that any pension info goes to your previous address. People quickly lose track of where the pension is or how to find out
• Where to Start – if you have located your pension it can be difficult to make a clear assessment on what to do. Pension correspondence can have jargon and can be tricky to understand
• Lack of Time – sometimes you just don’t have enough time or head space to start looking at these things. Work/Social Life/Exercise/Family takes up all available time and energy
  

To summarise options:

Company Pensions

If you have moved to a company with a pension scheme you may (most likely can) transfer into this scheme. This can be useful to streamline your pensions and keep everything together. It is useful to do a cost comparison to see what the charges are on transfer and also in the new pension scheme.PRSA’s​If the value of of your company pension is worth less than €10,000, you have less than 15 Years service or the pension scheme is winding down, then you can transfer into a PRSA – either company or individual. It is useful to do a cost comparison to see what the charges are on transfer and also in the new PRSA.​

Personal Retirement Bonds​

These are lump sum transfers from a company pension and can only take one transfer/contribution/payment. PRB’s typically give greater control over the management of a pension. The policyholder has greater ability to move funds and also can access a PRB from age 50. This can be a useful contingency fund but also allows a ‘staggered retirement’ where you can drawdown different pensions when it suits you.

There are merits to all options. Please contact us today on 0877785325.

Where to next for the investment markets?

There is a disconnect between that is happening in the economy and the performance of the stock market.

In February 2020, fear about the potential public health and economic consequences of COVID-19 began to rock the stock markets. What followed was a sharp and unprecedented drop in the markets that I have never seen before. Over the following 6 weeks, regular daily drops of 4-5% were recorded across global equities as investors fled equities and predicted a sharp recession and the knock-on effects on the listed companies on the stock markets.

Substantial Central Bank intervention turned the tides for investment markets as Central Banks across the World announced trillion dollar/euro fiscal stimulus packages, in addition, to already rock bottom interest rates and increased Government Spending.

How does all of this impact investment markets?

Economies are made up of business spending, consumer spending and government spending. Governments are increasing spending through a range of benefits such as Pandemic Unemployment Payment and Credit Guarantee Schemes to offset the drop in business and consumer spending.

Investors are forward-looking so they will be betting that, after lockdown during which the global economy contracted sharply (some countries contracted up to 25% during this time frame), that the global economy will begin to recover and will be helped massively by substantial Government and Central Bank intervention.
So while things are pretty bad on the high street, investors are betting the worst is over and they have been buying in at discounted levels on the basis of strong long-term returns from a low basis.

Investment markets typically move higher after monetary policy intervention (Central Bank stimulus) and periods of volatility. We have had significant amounts of both over the past 4 months so indicators are that investment markets will move higher albeit with some potholes. A COVID-19 second wave could put temporary pressure on returns.