Investment Options – Personal & Corporate
- What is the purpose of the investment?
- How long can you afford to invest?
- How much can you afford to invest?
- Can you afford to lose?
- What is the tax treatment of certain types of investment funds?
The good and bad news is that there are thousands of investment funds to choose from. However, they can be broadly categorised under the following headings:
- No surprise here, these types of funds invest only in cash and deposit based instruments. Such funds offer the greatest level of security in that they are typically the lowest risk funds available, so you won’t get any nasty surprises. The problem is that cash and deposit based funds currently offer very little, if any, investment return, and in many cases they will not ever cover inflation and the annual fee on your investment.
- After Cash, Bond funds have been seen historically as the next best / lowest risk option. The problem here is that an environment in which interest rates are rising or are expected to rise can lead to volatility in bond funds. We are already entering a phase of rising interest rates in the US with the real prospect of rising interest rates in the EU in the coming 12-18 months. This may present challenges for most many funds.
- Equity or stock market based funds are plentiful and diverse. They range from equity funds that focus on a geographic region, for example US Equities, to funds that focus on an industry, for example ‘Green Energy’. Some would be considered riskier than others but they all have one thing in common – they have the potential to make and lose a lot of money in a short space of time, but almost all will produce a positive investment return over the long term and are the best home for long term investors.
- Property funds are essentially a collection of commercial properties (usually) held in a single fund. They make money when rent is paid by tenants and also by increasing property prices. They have been performing very well over the past 5 years but they are very cyclical.
Absolute Return Funds
- Absolute Return Investing aims to produce a positive return over time, regardless of prevailing market conditions. Even when markets are falling sharply, an absolute return fund still has the potential to make money. By their very nature Absolute Return funds will not make as much money for investors during a rising market but by their design they will also protect investors more during a falling market.
Multi Asset Funds
- Multi Asset Funds are funds which seek to invest in almost all asset classes in a single fund. A multi asset fund will have exposure to a wide variety of asset classes. Most Multi Asset Funds on the Irish Market are created by risk profile, so investors can pick a low or high risk Multi Asset Fund. Multi Asset Funds have become very popular with Irish investors over the past 5 years as investors now want to have greater control over choosing the nature of the risk associated with their investments and pensions.
Hard Capital Secure Funds
- Capital Secure Funds are generally fixed duration funds, for example 5 years, with the promise of a return of capital or the return of a set minimum amount of capital, for example 95%, at the end of the investment term.. These funds are at the low risk end of the spectrum as they offer a high degree of capital security but the trade off for the high level of capital security is that investment returns can be quite modest. Capital Secure Funds should really be seen in the context of being an alternative for deposits.
Soft Capital Secured Funds
- Soft Capital Protected Funds are also known as ‘Auto-Callable Bonds’ or ‘Kick – Out Bonds’. They are becoming increasingly prevalent in the Irish Market, especially over the past 18 months. At their core they seek to offer equity market like returns with some degree of capital protection. They should be seen as a means to gain access to equity markets with some degree of capital protection built into the product structure. They are not an alternative to deposits.