Irish Financial Review

As Irish investors lose millions in Detroit, personal financial skills matter more than ever!

The headlines said it all…

Investors lose millions in Detroit property fund‘.


It’s a classic story of a trusted advisor getting an investment strategy wrong. It happens!

But in the case of the lost Motown millions, there is another story and it is one that Irish investors suffer from; lack of understanding of diversification.

Lack of diversification

A number of studies, including those by MoneyWhizz and Standard and Poors reveal that the Irish public has poor financial literacy skills and difficulty when it comes to risk diversification and the impact of inflation.

In the case of the shrinking millions in the Motown property market, the Irish public lost millions because their investment strategy was simply too focused in property. Sound investing begins with having the ability to contain and manage risk. Property by its very nature is and will always be a HIGH RISK INVESTMENT for a variety of reasons, not least, the fact it requires very large capital outlays and can be near-impossible to sell in a down market. In the case of the Detroit market, other factors were probably also at play but regardless of what those may have been, investing in one single asset class is generally not a recipe for long term success…unless the investors are extremely lucky!

Investing on blind faith

Another mistake investors can often make is investing on blind faith. This occurs when the investors are led to believe in a form of cult of personality. In other words, they invest without even the smallest level of financial knowledge and instead take a leap of faith in an individual or company hoping that a public profile will somehow protect them against significant losses; it rarely does. In fact, there is much evidence that proves the most successful ‘active’ fund managers cannot outperform ‘passive’ investors over time. And this is where there is a wide spread of risk, in small-cap and other fund asset classes. Property by it’s nature is a high-risk asset class that can destroy investor value for years, or worse, forever!

There are some basic rules all investors should follow to ensure they protect their money:

  1. Avoid investing on blind faith.
  2. Ensure they understand the risk of the investment.
  3. Seek diversification (minimise the risk).
  4. Minimise the TER / OCF (Total Expense Ratio / Ongoing Charges Figure.
  5. Take a long-term approach.
  6. Be humble – quiz advisers when they use jargon and become familiar with investment terminology.
  7. Be prepared to pay for independent investment advice (or analysis).
  8. Seek re-balancing options (it can ensure risk is managed effectively).
  9. Invest time to understand markets where they have investments.
  10. Forget loyalty and be prepared to switch advisers.

Building personal wealth is a long-term challenge. In order to be successful, investors must put their needs first. They must also be informed, patient and prepared to accept their only loyalty must be to their financial well-being. When it comes to their advisers, unless they can prove their value and earn their keep, like a poorly performing asset class, investors must be prepared to dump them!

Investing for success; the key rules

By Frank Conway

With the stock markets roaring ahead, US Republicans planning a major tax overhaul, UK authorities increasing interest rates and North Korea staring down the US and it’s allies while Saudi Arabia ratchets up the rhetoric of war, uncertainty reminds us that it never went away.

When planning for long-term financial well-being, it is important that you keep a few simple rules of investing in mind. Those are:

  • Invest according to your goals. Take a careful look at your portfolio, and ask yourself if your overall long-term strategy is sound. Do you have the right asset mix for your investment goal and time horizon? Are you properly diversified?
  • Focus on the big picture. Your investment decisions should always be strategic and not based on whether the market is up or down. Step away from the news, and ask yourself, does this event change my investment goals?
  • Rebalance. Disciplined rebalancing is vital to achieving long-term goals. It keeps your investment risk in check with your long-term plan.
  • Save more. Putting away something extra every opportunity you get isn’t easy, but it can give you the flexibility to get through tough situations.

Investing and wealth growth are a long-game. Short-termism can seem the right move when events become rocky but those short-term reactions are more likely driven by emotion and not reason. Time is the great healer, provided you diversify and rebalance on an ongoing basis.

Fees really do matter – yes, this is the key to long-term investing success. Reducing management fees to a minimum will result in higher growth rates and faster wealth accumulation. Remember, ask what your overall charges are, you can ascertain this using the TER or OCF measure. The lower your overall fee structure (not just the AMC) the more money you should have in your portfolio, provided you follow my four simple rules laid out above.

Best of luck growing your personal wealth!


Budget 2018 – 5 Pension Planning Tips

By Frank Conway

Top 5 Pension Planning Tips

There are a few smart tactics to be considered to keep pension plans on track, depending on the types of pensions an individual may hold and where they are in their life cycle.

Tip 1: Take FREE money and max out on tax relief that belongs to you!
If you are a higher rate of tax payer you should contribute as much as you can afford to avail of tax relief at 40% (2017 rate) subject to the maximum contribution limits. This chart provides the maximum allowable limits for personal contributions:

Age Amount which qualifies for tax relief
Under 30 years 15% of net relevant earnings
30 to 39 years 20%
40 to 49 years 25%
50 to 54 years: 30%
55 to 59 years 35%
60 and over 40%

Tip 2: Consolidate your accounts

Increasingly, we work for more than one employer and if you have been contributing to various pensions, you may want to examine the value of those perhaps even consolidate them to have one unified account (some employers may not permit this option). But it is always good to carry our this single-view exercise as it means that employers will have your personal records up to date, plus, it will make it easier to file for your benefits when the time arrives.

Tip 3: Start early

The best way to grow your pension pot is by starting early. Why? Well, it is because you can put the power of compound interest growth to work for you. And this is an important point in the growth of pension wealth. Remember, it is not just the savings and tax relief that you, your employer and Government offer, at the end of the day, it the very significant growth potential of compound interest growth that creates very significant personal wealth and the longer you are making pension contributions, the greater the ‘compounding’ impact.

Tip 4: Reduce management fees and charges

As outlined in Point 4, the real growth in the value of a pension fund is the compounding impact of interest over time. But, many older pension accounts have very high ‘management’ fees and charges and these simply rob your long-term growth potential. So, it is important you become familiar with what the overall Ongoing Charges Figure (OCF) that is applied to your fund(s).

Tip 5: Put yourself first

With any pension plan, the longer you contribute and the more you know, the more likely that you will start early, reduce fees, maximise contributions and minimise fees, this is a winning formula. But, be humble – ask your adviser all of the difficult questions and remember, there are no ‘dumb’ questions when it comes to growing and protecting your personal wealth. If you are not prepared to put yourself first, chances are high that your pension may not grow as fast as it could

 * Net Relevant Earnings: Earnings from a trade, profession, office or employment which are subject to income tax. Net relevant earnings are capped at €115,000 for 2016. (Part 30 of the Taxes Consolidation Act (TCA) 1997 as amended.) Tax relief is only available where you have Net Relevant Earnings in the tax year. 

* * The rate of 30% applies to certain specified occupations irrespective of age

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