We really sat up and took note of some analysis carried out by the stockbroker Davy into the Irish banks that was carried out a few months ago. The analysis found that there is €50bn (yes €50 billion!) sitting in current accounts in Ireland. Yes current accounts, not deposit accounts! And how much do the banks pay you for this money that they in turn lend out at meaty enough interest rates? Absolutely nothing…
Why is this money just sitting there? Well the main reason is that traditionally people may have moved spare cash to deposit accounts where they then earn interest on it. However with interest rates pretty much at zero today, people just aren’t bothering. Savers are being offered on average only 0.31% p.a. in deposit accounts and don’t see it as worth the hassle of filling out the forms, getting copies of this, that and the other in order to move your money on to deposit… So what should you do?
You may like the feeling of security of having money in the bank, where at least the actual value of it is not going to fall. But really this is not a good strategy, as any inflation at all means you are losing money in real terms. The good news is that there are alternatives out there that are worth considering, and different strategies that you can use to further minimise any risk.
We really believe that it’s in situations such as these that we can really earn our corn, when faced with a challenge of helping cautious investors find a slightly riskier strategy, and ensuring you are still able to enjoy a good night’s sleep…
Be clear about your objectives
Why are you actually saving money? Is it for a big holiday next summer or is it for your children’s education in 10 years time? Or indeed are you thinking about your retirement? Your goals and objectives will sit at the heart of our advice, as they determine the strategy. And maybe they will determine that putting your money on deposit is in fact the right thing to do.
Be clear about risk
Once we’re clear on your objectives, we need to get clear about your attitude to risk. If you are a very cautious investor, this requires a different approach than that followed by more aggressive investors.
Your appetite for risk (how much you like to take) and your capacity for risk (how much you can afford to take) need to be carefully determined, as these will fundamentally change the required investment or savings vehicle needed and the type of assets that you might invest in.
If you are a very cautious investor who leaves money sitting in your current account, we’ll run through some alternative ways of saving your money. While they might mean slightly more risk, we’ll give you some proper perspective on this – when it is explained fully to you, you might decide that the alternatives are definitely better than your current approach.
We won’t try and time the markets
None of us have a crystal ball and if we knew when markets are about to fall, well we probably would have retired long ago! Nobody can time the markets. And as a result, this introduces risk if you are going to put money into the markets. Of course you are worried that you might invest, and then markets might start to slide, resulting in you losing money.
If this is a concern, we might recommend that you drip-feed your money into the markets over a period of time. As a result, if markets fall, you are buying into the market at a lower price with some of your money. This is a great way of smoothing out some of the highs and lows of the market, if you have concerns that markets are a bit high. This strategy known as “pound cost averaging” means that you actually buy less of the market if prices are high and more of the market when prices are low.
At the end of the day, leaving money sitting in your current account makes little sense. There are alternatives out there for everyone. We would welcome the opportunity to chat through these alternatives with you, and find the right one to meet your specific objectives and your attitude to risk. And no matter what happens, we’ll do our best to make sure your sleep is not disturbed!