As rising interest rates turn up the pressure on the whole financial system, a few things have started to go pop. The big question is whether this is just the system blowing off steam or whether the whole thing is about to go kaboom.
The two things that went pop recently were Silicon Valley Bank in the US and Credit Suisse here in Europe.
Who are Silicon Valley Bank (SVB)? Ireland 2023
SVB is considered a medium sized regional bank in the US, but that doesn’t mean it’s small. At €250Bn in assets SVB was over twice the size of the biggest bank in Ireland, Bank of Ireland.
Compared to the major US banks though it’s only a toy, so it’s meant to be no great shakes if banks like this get into trouble.
In fact that’s why the bank successfully lobbied the Trump administration to remove regulations intended to limit the fall out from a bank blow out. SVB management and a number of other regional US banks argued that banks under €250Bn weren’t ‘systemic risks’ to the banking system, so didn’t need the extra red tape.
Yet, when things went off the rails for SVB the US Government decided it did in fact need to intervene, as the bank going under could put the wider financial system at risk.
What happened with Silicon Valley Bank (SVB)? Ireland 2023
SVB had grown rapidly over the last decade or so, by attracting the great and the good of the tech sector to bank with them. As the companies in Silicon Valley grew so did SVB.
The wheels started to come off though precisely, because SVB was so successful in tech. As interest rates started to escalate tech companies found themselves struggling to get new funding. As a result they started to eat into the cash they all had stashed in SVB.
SVB had invested that cash in long term bonds, which is a good bet if you hold them to maturity as they have a guaranteed return. However, with bank deposits dwindling the banks treasury now needed to sell the bonds to raise enough cash to pay back their depositors.
The problem though was that rising interest rates also mean rock bottom bond prices, so when SVB sold their recorded asset value plummeted overnight.
The big write down of assets spooked the cash strapped depositors who all of a sudden realised their hard won funding might be about to go up in smoke, causing them to pull all their money from the bank. Cue mass panic.
What’s the story with Credit Suisse? Ireland 2023
Credit suisse is the same, but different. They are even bigger than SVB weighing in at over €1 Trillion in assets, but the bank had been rocked by a series of scandals over the last twenty years or so.
As the markets got increasingly edgy over events in the US it emerged that the Swiss authorities had identified ‘accounting irregularities’ in the banks books. This coupled with the Saudi National Bank, the banks biggest sugar daddy, indicating that it wouldn’t be increasing it’s stake was enough to trigger a collapse in the banks share price and get it snapped up by it’s rival UBS for only €3 Billion.
What does the bank crisis all mean? Ireland 2023
Bank runs aren’t new, they are even movie staples, from It’s a Wonderful Life to Mary Poppins. Banks go belly up all the time.
Banks never have enough deposits to cover loans, that’s just how banking works. As a result they are fragile and completely dependent on the confidence of depositors.
The issue stalking the world of finance right now is fear and fear is contagious.
SVB and Credit Suisse were the canaries in the coal mine, indicating that rising interest rates might push the whole financial system over the edge.
What everyone is worried about now is that that fear will cause people to pull money and set off a financial death spiral.
There is another read on this however, SVB had a uniquely concentrated depositor base in a market that was uniquely deregulated by the Trump administration. Many believe if the Obama era regulation hadn’t been repealed the whole SVB debacle would have been avoided.
In this reading, Credit Suisse was famous, in fact infamous for its mis management. It was a zombie bank and only took a stiff breeze to blow it over.
In fact the swift action of governments and regulators, the US government guaranteeing all deposits and the Swiss forcing through the UBS takeover can be seen as evidence that they are in fact ready to do whatever it takes to prop up the banking system.
What does the bank crisis mean for me? Ireland 2023
Although the jury is still out, one thing seems certain. Inflation is going to stick around for a little while longer.
Inflation is the bogey man that haunts the Central Bankers. If inflation becomes ingrained then investors stop investing and the whole economy grinds to a halt.
This means Central Bank’s have a tricky path to tread on future interest rate rises, between financial catastrophe on one side and economic collapse on the other.
This backdrop is likely to result in a change of prescription for the sick economy, from a short sharp dose of interest rates to a gradual grind of sustained higher rates. Those hoping for a swift return to low interest rates, may have longer to wait than they bargained for.
Over the next two months Revolut customers will be offered Irish IBAN numbers for the first time. Although this may sound like a technical change, it’s actually big news.
Why?
Irish IBAN’s were the last thing holding back the two million + Irish Revolut holders from ditching their current accounts with the traditional Irish banks.
Current account switching has been non existent in recent years with the latest figures released by the Central Bank indicating only 0.03% of customers switching their Current Account per year.
Now Revolut customers can simply get their salary paid directly into their Revolut account making dumping the traditional banks much easier.
Technically speaking they should of been able to do this without Irish IBAN numbers under the Single European Payments Directive (SEPA), however many Irish employers never got round to upgrading their IT systems which meant the Lithuanian IBAN used by Revolut before today’s announcement often wouldn’t work.
The Rise of the Digital Banks
Revolut has gained market share more rapidly in Ireland than in any other market in Europe, due to the lack of innovation from incumbent banks, with Ireland now providing almost 10% of Revolut’s world wide customer base.
Other overseas digital banks such as German based N26 and the Dutch based Bunq have also entered the market recently hoping to capitalise on potentially complacency in the traditional Irish banks. Bunq launched Irish IBANs late last year and are also growing rapidly.
These Digital or ‘Neo’ banks, offer lower charges, slicker interfaces and a bevy of features like share trading, crypto trading, junior accounts and saving vaults, that aren’t available from the traditional banks.
With salaries now likely to flow into these accounts, balances are set to rise rapidly opening the door for the digital banks to add the much more profitable lending services such as consumer loans or mortgages.
Competition On The Horizon?
There are still hurdles to this happening, with the famously bureaucratic Irish Central Bank still standing in their way.
With pressure mounting though it now seems that a tipping point may have been reached and real competition across all banking services may finally be on the horizon.
The continued boom in multinational companies corporation tax receipts have led to a billions of euro surplus in the Irish tax take.
Just ten big tech companies now provide over 10% of our tax income.
So if Facebook, Apple, Google and co upped sticks and moved out, it would blow a huge hole in our national finances.
That’s why the government has committed to moving €6 Billion of those extra revenues into the national reserve ‘rainy day’ fund.
Unlike our closest neighbors we are still in the fortunate position of being able to cut taxes and increase spending while doing this.
The total package announced was €11 Billion in total, €4.1 Billion on once off measure mainly focussed on supports for the cost of living crisis and €6.9 Billion in permanent measures.
Income Tax
The most significant structural change announced was increasing the level at which the 40% tax band kicks in from €36,800 to €40,000.
This means €3,200 more will now be charged @ 20% instead of 40%
This means €640 a year less tax for anyone earning over €40,000
This is one of the biggest tax reductions in decades, leaving 70% of Irish taxpayers paying income tax at 20% or less.
Personal tax credits & Employee tax credits up by €150 per person
€1,700 to €1,775 personal tax credit
€1,600 to €1,700 carer tax credit
With the top USC band of 4.5% threshold now increased by €1,625.
€12,012- €21,295 to €22,920
€1,625 up difference @ 2.5% lower = €41
All in the average taxpayer will be €831 better off with these changes.
Cost of Living Supports
Energy
All households will receive a €600 credit.
To attempt to target more support to those that need it most an additional
€500 will go to those on the working family allowance
€200 on the living alone allowance
€400 more on the fuel allowance, with expanded eligibility for an extra 80,000
Pensions a ‘double double’ payment of €253
Welfare a ‘double double’ payment of around €200
Education and Child Care
Extra €140 per child for those in receipt of child benefit will be paid in November
€175 a month reduction in child care costs, around 25%
Free school books for primary school kids
3rd level fees will be reduced by €1,000 and by €500 permanently
Student grants to increase 10-14% depending on income
Health
Free GP Care expanded to with an extra 430,000 included
Free care extended to 6 and 7 year olds
Free contraception for women extended from 17-25 to 16-30
Removal of VAT on all period products
Removal of the €80 a day hospital inpatient charges
Cigarettes up by 50c a packet
Housing
€500 Rent tax credit for ‘22 and ‘23 for 400,000 renters
Social Welfare
All social welfare rates to increase by €12 a week
€500 payment for carers and people with disabilities
Summary
The budget package announced yesterday is one of the largest increases in the state’s history.
Given it is largely funded by the big tech corporation tax windfall, the key decisions though were about where the money went rather than the size of the package itself.
There was no real attempt to restructure our economy to wean it off the drug of corporate taxes by supporting indigenous industry.
Instead the focus was either on handouts to help or handouts to buy votes depending on your point of view.
The less well off in our society have benefitted the most with €624 more on welfare payments, which includes pensions and additional once off payments, totting up to almost €2,000 for most.
The average national wage in Ireland is currently just over €50,000, so many taxpayers will benefit to the tune of €830 from the tax tweaks as well as the €600 energy payments.
Where there is a bit of a blind spot though is in those not receiving welfare payments, but earning below €40,000. A lot of the so called ‘box room’ generation still living with their parents and earning under €40,000 will miss out almost entirely. It remains to be seen if leaving this group of potential voters out in the cold is a wise move for the current government.
The impending Ulster Bank closure and the pull out of KBC this year from the Irish market is set to cause significant customer disruption.
There are over 1 million accounts and an estimated 500,000 customers with Ulster Bank and a further 300,000 with KBC. Dwarfing the scale of previous bank closures from Anglo, Danke Bank etc..
Closure notices for Ulster Bank customers are drop through customer’s doors by the end of March 2022 giving Ulster bank customers 6 months to switch to another bank, before your account is closed.
If you don’t switch by then, you will be simply issued a cheque with your remaining balance.
If you a have a mortgage with Ulster Bank this is set to be transferred to PTSB, but with PTSB’s rates some of the highest in the market it probably makes sense to look at switching that as well.
So what options are left for best current account, savings and mortgage?
Don’t panic there are some better and less expensive options out there than Ulster Bank and switching may not be as difficult as you think.
Switching Current Account – Ulster Bank Closure Ireland 2022
Best Digital Only Bank
If you don’t need to lodge cash or cheques then the Digital only banks N26 or Revolut are great options.
They have no monthly fees, the lowest once off fees and the best apps on the market. With features from kids accounts to trading in bit coin already built in and a really slick user experience.
They are also both covered under the EU Deposit Guarantees up to €100,000 the same as the non Digital banks.
One thing to watch out for though is some employers on old payroll systems may struggle with the EU Iban. This will only be a minority of employers however as under EU law everyone should have upgraded their payroll systems a number of years ago to be SEPA compliant.
Revolut already has 1.7 million customers in Ireland and recently became a full bank, so that’s why they are our pick of the bunch.
However, if you still need to lodge cash or cheques you have two options. Get someone with a traditional bank account to do it to their account and then send you the money or get yourself a traditional account from one of the banks below.
Traditional Banks
If digital only isn’t an option for you there are now 5 other more traditional banks you can choose from for your current account. The interest on all these accounts is pretty much irrelevant as it is so low, so what you are looking for is low fees.
If you don’t use your ATM regularly An Post or your local Credit union may be a good options. Both of these come in at €60 a year in fees. However, An Post charge 60c per per withdrawal and your Credit Union will charge around around the same so this can mount up quickly if you head to the cash machine once a week.
In that case we would recommend PTSB’s current account. It’s slightly more pricey at €72 a month, but withdrawals are free.
Switching Saving Accounts – Ulster Bank Closure Ireland 2022
Deposit interest rates are at record lows of around 0.5% with inflation heading for 8% or more, you should probably look at talking to a financial advisor if you have €10K or more to invest.
Investments can yield 4% per annum or more depending on the risk level and can help take the edge of inflation.
If you still want the security of a guaranteed rate the best rates are to be found from banks outside of Ireland. You can access rates up to 1.15% from banks across Europe on raisin.ie or consider a state saving account with around 0.6% interest rates.
If you have less than €10,000 squirrelled away then you may be better off leaving it or transferring it to your current account. The Digital Banks offer the ability for you to separate from your daily account with ‘vaults’ or ‘money jar’ features on their apps.
Switching Mortgages – Ulster Bank Closure Ireland 2022
Ulster Bank have sold their existing mortgages to PTSB and KBC to Bank of Ireland. This means if you have a mortgage with either you and your mortgage will transfer.
PTSB and Bank of Ireland have the highest mortgage rates in the market so many Ulster and KBC customers are considering switching to a different lender. If you are in your fixed rate period then PTSB and Bank of Ireland will have to honour those rates, but after that they could choose to hike rates increasing your monthly repayments.
Ulster’s non tracker rates range from 3.5% to 3.9% which are already some of the highest in the market.
So a typical Ulster mortgage customer on their 3.5% variable rate, with €150,000 remaining over 15 years would save €106 a month by switching to the best deal on the market, that’s more than €19,000 over their remaining term and would avoid the risk of a future rate hike.
Avant Money are offering €1,500 upfront for anyone switching their mortgage from Ulster Bank or KBC. The offer is available until the 31st of March and targets customers thinking of switching from Ulster & KBC as both exit the Irish market this year.
Switching costs are usually around €1,500 for solicitor and valuation fees combined, so this offer will make switching from Ulster and KBC effectively free.
At moneysherpa for example we offer an all in legal package including all outlays for €1,200 including VAT, while estate agent valuation fees are typically around €200. So €1,400 all in.
The repayment calculation is based on switching to Avant Money’s 5 Year fixed rate and using the switching offer to cover their upfront costs.
If you are a tracker however, sit tight. Any new owner will have to honour your existing terms.
You can see how much higher PTSB and Bank of Ireland rates are in the table below.
[mortgage_rates_var_followon_ltv_compare]
Switching Next Steps – Ulster Bank Closure Ireland 2022
If you have an account with Ulster Bank you will have to switch it in the next month, so act now to beat the rush.
Best Current Account – Revolut
Best Savings Account – Raisin.ie
When it comes to mortgages Ulster didn’t have great rates to start with (3.5%-3.9%) and have now been bought out by one of the banks with the highest mortgage rates in the State, PTSB, so now is a good time to switch to save now and to avoid higher rates down the line.
This applies for anyone with with a variable rate around 50% of Ulster Bank mortgage holders. If you are still in your fixed rate period then sit tight until you are 3 months from the end then speak to a broker. If you are on a tracker don’t worry, the new owner will have to honour your existing terms.
Fiat 50 motors on! – Investing Ireland August 2021
Last month marked the 50th anniversary of the “Nixon Shock” of August, 1971, whereby the US dollar’s unpegging from its Gold Standard straitjacket served to liberate the fiat currency printing presses of the global financial system in a manner that has fuelled a debt-financed asset-inflation odyssey for three generations of investors.
Equity markets duly celebrated this landmark anniversary with their 7th consecutive month of gains, that Worry Wall of Delta variant, peak growth (for economies and earnings), inflation risk, Fed taper talk and now Afghanistan still being climbed in resolute fashion by a TINA investment community amply lubricated by the excess liquidity drip-feed of current central bank policy settings.
The MSCI World advanced by a further 2.5% in August, its recovery from the March, 2020 lows now exceeding 100% (dividends included).
Value indices once again lagged Growth on both sides of the Atlantic, although the gap narrowed from previous months, with financials extending their recovery back towards cycle peaks.
The S&P500 secured it’s 54th record close ytd above 4,500 by month’s-end, whilst the STOXX 600 enjoyed 10 straight gains, its longest run of consecutive daily advances since 2006. Equity markets were not without their mid-month swoon, however, this a recurring (and perhaps options-expiry related) feature of the past several months.
Some acute intra-month volatility across bond and commodity complexes also; US real yields rebounded sharply from fresh record lows (-1.22% in 10yr TIPS) as taper talk resurfaced, Gold endured a $115 flash crash to sub-$1700 early-August before recovering above its $1800 pivot point, and Brent crude tested both ends of a $65-75 range-trade as COVID uncertainties abounded.
By contrast, currency markets were an oasis of calm, with Eur/USD still engaged in a sideways meander above its perceived 1.1600 floor.
Equities – Investing Ireland August 2021
Another month of gains for global stock markets, their 7th straight advance, both S&P500 and STOXX 600 indices now reporting total returns of 20%+ on a ytd basis.
A stellar Q2 corporate earnings season remained the primary impulse, although the Delta variant did impact on sectoral performance, the more defensive Nasdaq (+4.1%) once again showing the way on Wall Street.
Emerging markets (+2.6%) enjoyed their best performance since January, courtesy of renewed liquidity support from the People’s Bank of China, while the US Senate’s passage of a $550bn bipartisan infrastructure package was a timely reminder that overall policy support for economies and markets is not yet sated, the Fed’s taper talk notwithstanding.
Bonds – Investing Ireland August 2021
On the surface, bond markets were becalmed in August, with US Treasuries reporting their smallest move (-0.2%) in either direction for more than a year. However, yields did gyrate materially intra-month, with investors torn between the impact of a globally spreading Delta variant and that potential policy pivot by the major central banks.
The key 10yr Treasury yield touched a low of 1.13% early in the month, before an avalanche of Fed taper talk forced an abrupt about-turn to a 1.37% high late in the period.
The sell-off in Treasuries was compounded by renewed weakness in European government bonds, where the region’s highest headline inflation rate (+3.0%) since November, 2011 raised the spectre of a PEPP (asset purchase) dial-back by the ECB.
Currencies – Investing Ireland August 2021
A late-Summer lull descended over the foreign exchange markets last month, with relatively modest changes on the major crosses, although the US Dollar Index did manage to eke out a further 0.5% gain, while Sterling lost some ground on both USD and Euro fronts.
The dominant Eur/USD cross had an interesting month, recovering steadily from 1.1660 lows mid-August to a 1.1810 close. This exchange rate is now tracking relative short-term interest rate movements quite closely, and it has been the firming up of Euribor quotes in the midst of strengthening Euroland data-flow and some quasi-hawkish soundings from certain ECB Governors that is now supporting a revival of investor interest in the single currency.
Commodities – Investing Ireland August 2021
Although the CRB index flatlined in August following its recent steady gains, the energy components suffered their first decline since March, with both WTI (-7.4%) and Brent crude (-4.4%) selling off on concerns over slowing demand in China and the Delta variant more generally.
Industrial metals prices were also softer for the same reasons, whilst Gold prices endured a rollercoaster month, rebounding from a $115 flash crash in early-August to close broadly unchanged, that $1800 valuation level still exhibiting a magnetic attraction, be it from above and below.
Asset Market Outlook – Investing Ireland August 2021
Equity markets now entering their seasonally most vulnerable period, with the build-up of more defensive investor positioning signalling correction concerns
A mild pullback is certainly overdue although, remarkably, stocks are already cheapening on standard valuation metrics (both absolute and relative to bonds), whilst the degree of overall policy support (monetary and fiscal) remains acute
Tentative indications of slowly declining Delta spread following two months of gains harbinger of a “Reopening Trade” revival to favour rotation back to cyclical stocks
Corrective rally in global bond markets has seemingly now run its course, the prospective dial-back of Fed and ECB asset purchases ensuring more adverse supply/demand conditions and a return to higher yields
USD rally finally running out of steam on fading relative interest-rate support, with Eur/USD eyeing a key 1.1950 retest, and scope for speculative longs to rebuild after a 3-mth flush-out
Gold prices still not straying too far away from their $1800 pivot, with ETF holdings now stabilised and Asian jewellery demand in recovery mode; needs to vault $1830 for breakout
Asset Allocation – Investing Ireland August 2021 Outlook
Equities Bonds Credit Forex/Euro
US +1 -2 -1 -1
Euroland +2 -2 -1 N/A
UK +2 -2 -1 0
Asia +1 -1 -1 -1
Code +3/-3 very attractive/ very unattractive
Financial Market Performance Data – Investing Ireland August 2021 Outlook [1]
If you are thinking about Investments Ireland 2021, you may be wondering how suitable bonds are as an asset class right now. Here’s the rundown on the latest trends in the bond market.
Traditionally, bonds have always accounted for a significant portion of a well-constructed investment portfolio. This fixed-income asset class provides additional diversification for the more turbulent market conditions when stocks falter.
Although bonds still warrant a place in a well balanced portfolio, ultra-low interest rates and general investment market conditions require investors to review their bond allocations, and assess whether they should be reduced.
German 10-year government bonds are currently yielding -0.49%, which means they will lose 4.9% of their value in a 10-year time period, and that is before any inflation considerations. The current ultra-low interest rate environment creates a challenging dynamic for bond investors.
Typically, bonds weaken in response to higher inflation, as inflation eats into the value of the regular fixed interest payments associated with bonds.
On the other side of the Atlantic, 10yr US Treasury notes have rallied since the beginning of April and this has been the source of much confusion for investors, as the pace of US inflation (CPI) continues to worry. These elevated inflation levels have challenged the FED’s view that high inflation during the US recovery will be temporary.
The consumer price index increased 0.5% in July, after climbing 0.9% in June. In the 12 months through July, the CPI advanced 5.4%, the fastest pace since August 2008. Although the CPI data for July decelerated, inflation still remains at significantly elevated levels.
US 10yr Treasury yields have continued to fall during this period, closing out July at 1.22%. Yields move inversely to the price of bonds.
Inflation and the Yield curve – Investments Ireland 2021
The June CPI inflation data initiated a counterintuitive trend within the US government bond market.
The rise of the COVID-19 delta variant and a surprise hawkish tilt from the FED in response to the inflation readings (prospect of “tapering”/reducing the bond buying program), surprisingly led to an increased demand for 10-year Treasury notes, even as the inflation readings were at levels last seen over a decade ago.
The surprise hawkish FED tilt also resulted in a spike in short-dated Treasury yields, resulting in a flatter US Treasury yield curve.
The shape of the yield curve portrays the state of the overall economy. A normal upward sloping yield curve implies stable economic conditions, as yields increase for bonds with higher maturity.
Investors want to get compensated for holding bonds with a longer duration in a normal economic landscape. The recent flattening of a yield curve suggests a more uncertain economic environment and easing inflation concerns, in the anticipation of tighter monetary policy.
Investors have been betting that an adjustment to short-term rates will have the ability to quash inflation concerns in the longer term, leading to the variation in movement between the front and back end of the curve.
Reduced summer trading volume coupled with weaker supply in recent Treasury auctions have also supported the downward trend of 10yr US Treasury yields.
Effect of bond yields on stock markets – Investments Ireland 2021
The negative relationship between US 10yr yields and the Nasdaq 100 (Tech) is evident in the chart below [1]:
The recent advance in tech stocks (defensive COVID strategy) came at a time when the price of Treasury bills has risen. The yield on the 10-year Treasury has since fallen nearly a half a percent since the end of March, while the Nasdaq 100 has gained 17% over that period, outperforming the S&P 500 Index by more than 4%.
Jackson Hole – Late August FED Meeting – Investments Ireland 2021
As FED policy makers prepare for another virtual Jackson Hole conference at the end of August, the meeting seems to hold more significance for the global investor community than usual. Any indication that the FED is going to taper the bond buying program is likely to steepen government bond curves, as longer maturity bonds are likely to sell off.
Longer-term interest rates have dominated equity markets over the past year. Investors that expect the 10-year yield to climb in in the latter part of 2021 and into 2022, should be reducing exposure to tech stocks – due to the risk of higher interest rates.
When the 10-year Treasury yield rose to 1.74% during the first quarter of 2021 (rise of 80 basis points), that period also coincided with a significant Growth to Value style rotation within equity markets. The MSCI World Value index rose by nearly 9% during that period, while the MSCI World Growth index barely moved.
This resulted in cheaper (undervalued) equity markets, such as Europe and the UK, outperforming the US. This trend has reversed over the past few months, as the 10-year US Treasury yield plunged to 1.17% by early August, as the fear over the Delta variant gripped global investment markets.
Delta concerns have supported renewed investment in the “stay at home” growth stocks, as they started to outperform again.
Where to invest right now? – Investments Ireland 2021
Investors should be focussing on sectors that are positioned to do well in an increasing yield curve environment, which is one that depicts economic reopening and recovery. The latest viral challenge should be viewed as yet another hurdle along the road to economic recovery, as opposed to a barrier, although the variant may cause a more uneven globally recovery.
Investment Outlook for bonds? – Investments Ireland 2021
According to a recent regulatory filing, Michael Burry, played by Chirstian Bale in the Big Short, has a large short position on long-term (20+ years) US Treasury bills. The options contracts will make money if the value of long-term Treasury bonds depreciate (yields go up). Burry, who was made famous by his very profitable bet against the US housing market, shares the same bearish outlook as many of Wall Street’s elite.
With the Federal Reserve inching ever closer to a “tapering” of its QE bond purchase program, all eyes are once again on the bond market.
The struggle against COVID-19 is proving to be a global endeavour of Olympian proportions, but now the marathon efforts of the past 18 months have turned into something of a sprint, being a straight run-off between Vaccination and (delta) Variant in the desperate pursuit of economic reopening and societal normalisation.
Although latest investor sentiment surveys portray the virus as a fading “tail risk” for economies and markets, it is also the case that crowded positioning in the “Reopening Trade” for undervalued cyclical stocks has suffered meaningful profit-taking pressures over the past 10 weeks.
In consequence, the MSCI World Value index, which outperformed its Growth equivalent by as much as 12 pps from the start of this year to mid-May, has now surrendered this outperformance amidst re-rotation out of cyclical names (energy, banks, industrials) into more defensive plays (tech, healthcare).
For all that, equity markets continue to find ways to move higher, extending 2021’s clear pattern of rolling corrections under the bonnet (to SPACS, Meme stocks, Crypto and now Cyclicals), whilst overall indices grind higher to successive all-time peaks.
The MSCI World rose by a further 1.7% in July, its 6th straight monthly gain, a feat shared by the S&P500 and Europe’s STOXX600 which, in the latter case, is the longest winning streak since Draghi’s “whatever it takes” rally of 2012/13.
Clearly, equity markets are beneficiaries of sustained policy and liquidity support, factors which are also sustaining bond market performance in the face of accelerating inflation rates globally.
Benchmark 10yr yields declined by 25bps on both sides of the Atlantic last month, their biggest one-month drop since the height of the Pandemic panic in March, 2020.
This decline in yields prompted a recovery in Gold prices above $1800, amidst renewed (if tentative) ETF inflows after more than 6 months of sales.
Equities – Investing in Ireland 2021
A sharp contrast in equity market returns last month between the developed and emerging economies, that 1.7% gain in the MSCI World compared with a 7.1% decline in the MSCI EM.
As China’s abrupt regulatory clampdown on its internet and technology companies weighed very heavily on both the Shanghai Composite (-5.4%) and Hang Seng (-9.9%) indices, leaving the EM index now barely in positive territory on a ytd basis.
Lack of contagion towards the US and European markets is perhaps best explained by the insulation provided by a robust corporate earnings season now in full flow. However, the FTSE100 did snap a 5-mth winning streak with a marginal (-0.1%) decline.
Bonds – Investing in Ireland 2021
The growing conundrum of declining bond yields in the midst of strengthening inflation rates globally continued to fixate last month, with 10yr benchmark Treasury yields falling by more than 25bps to a 1.22% close, low since mid-February.
Intriguingly, this decline in US yields was wholly attributable to the real yield component, whereas “breakeven” inflation was slightly higher on the month.
Sliding US bond yields were broadly matched in Europe, where 10yr benchmark Bund yields declined by 25bps to -0.46%, their biggest monthly drop since August, 2019.
Currencies – Investing in Ireland 2021
A traditional mid-Summer lull in trading conditions was most apparent in foreign exchange markets last month, with the major currency pairs confined to generally sideways moves within their well-defined ranges.
The USD trade-weighted index slipped marginally in July, the previous rebalancing of predominantly short USD positioning having now substantially run its course.
Eur/USD found solid support close to ytd lows at 1.1750, ending the month with a topside probe towards the 1.1900 area, whilst Sterling responded to a more hopeful COVID-19 trajectory in a fully-reopened UK economy, the Eur/Stg cross retesting its ytd low circa 85c.
Commodities – Investing in Ireland 2021
Commodity markets enjoyed further broad-based gains last month, the CRB Index rising by 2.2% for its 4th straight gain (and 8 of the last 9), this index now scaling 6-year peaks.
Whilst oil prices have been leading the charge for much of 2021, last month proved a more volatile affair, with Brent crude completing a $76-67-76 round-trip amidst swirling uncertainty over the latest OPEC+ production accord.
Industrial metals rebounded from recent corrective pressures, as indeed did precious metals, with Gold prices clawing their way back to the key $1830 resistance area in response to the renewed slippage of both real yields and the USD.
Asset Market Outlook – Investing in Ireland 2021
Equity markets still climbing a wall of worry (Delta variant, inflation, policy risks), testament to the potency of current macroeconomic, earnings and liquidity supports.
Stellar corporate earnings recovery mitigating equity overvaluation concerns, whilst renewed decline in bond yields reinforcing the relative valuation argument.
Significant investor positioning flush-out of “reflation trade” favourites (financials, energy, industrials) harbinger of renewed engagement as global growth jitters fade.
Conundrum of lower bond yields in the face of rising inflation risks perhaps best explained by the “financial repression” realities of central bank policymaking via zero interest rates and open-ended asset purchase programmes (QE).
Renewed decline in 10yr Treasury real yields to fresh record lows portending catch-up weakness for the US Dollar following last month’s disconnect; Eur/USD now targeting a 1.1950 vault for bullish continuation.
Gold ETF liquidations now seemingly having run their course, allowing prices to base-build above recent $1680 and $1760 lows; $1830 the next barrier to overcome ahead of a re-run to the $1900 area.
Asset Allocation – Investing in Ireland 2021 Outlook
Equities Bonds Credit Forex/Euro
US +1 -2 -1 -1
Euroland +2 -2 -1 N/A
UK +2 -2 -1 0
Asia 0 -1 -1 -1
Code +3/-3 very attractive/ very unattractive
Financial Market Performance Data – Investing in Ireland 2021 Outlook [1]
So what are the best investments Ireland July 2021?
It was a case of high fives all round for global stock markets last month, the major indices rounding off their half-term report with a fifth consecutive advance on both monthly and quarterly bases, and the broadest barometer of US stocks (Wilshire 5000) now doubled in value from its 2020 Pandemic trough [1].
Nonetheless, whilst equity markets ended June atop fresh record peaks, declining trading volumes and narrowing breadth flagged a more hesitant investor base, prompted by an abrupt sentiment shift from inflation concerns to growth jitters on the wall of worry front.
In consequence, the ubiquitous global reflation trade succumbed to profit-taking reflows from cyclical to secular growth plays, spurred both by the rise of the COVID-19 delta variant and a hawkish surprise from the Federal Reserve, its Dot Plot of prospective policy changes flagging possible “lift-off” for higher rates in 2022.
The MSCI World rose a further 1.5% in June, cementing ytd gains of 13.3%, and with both US and European indices posting their best H1 gains since 1998. US stocks outperformed last month, and the Nasdaq especially so (+5.5%), whilst the excess return of Russell 1000 Growth over its Value equivalent (+7.4%) almost matched the March, 2020 dysfunction.
Bond markets were mixed, a sell-off in shorter-dated maturities contrasting with longer-dated gains in a violent curve-flattening reposition.
In response, the US Dollar enjoyed its best month since November, 2016 (+2.9% per TWI), whilst Gold suffered its sharpest decline (-7.2%) since the same period.
Further weakness also for that Digital Gold disruptor Bitcoin (-5.7%), whereas Black Gold extended its stellar recovery amidst an ever-tightening physical market, with WTI crude revisiting 2018 peaks circa $75 for ytd gains of 51.4%.
Equity markets added to their 2021 gains last month, but performances varied amongst and between the major blocs, with profit-taking impulses unfolding in the “Global Reopening” trade following seven months of gains.
Although both the S&P500 and STOXX 600 scaled fresh record peaks in June, directional leadership now reverted to some of the more defensive plays (healthcare, technology), whilst COVID-sensitive stocks (travel and leisure, banks) lagged materially. In consequence, the Nasdaq enjoyed its best performance of 2021 to date (absolute and relative terms), whereas the more cyclically-attuned DJIA suffered its first monthly loss in five.
Bonds – Best Investments Ireland July 2021
A lively month in fixed income space, whereby a perceived hawkish pivot by the Federal Reserve regarding its ultra-accommodative policy stance prompted a spike in short-dated Treasury yields in tandem with declining yields for longer-dated bonds.
Investors have long positioned for steeper yield curves on the presumption of Fed tolerance for some inflation overshoot in a recovering US (and global) economy, but concern that policymakers may now be having some second thoughts on that score (given recent elevated inflation readings) triggered a sharp position unwind last month.
In consequence, 2yr Treasury yields surged by 13bps to 15-mth highs at 0.27%, alongside a commensurate decline in 10yr yields to 1.47%. European bond markets were more becalmed by comparison, given no change in the ECB’s dovish disposition.
Currencies – Best Investments Ireland July 2021
The US Dollar enjoyed its best monthly performance of the year to date, its trade-weighted index rising by 2.9%, with across-the-board gains against major and minor currencies alike.
Key to last month’s rebound was the spectre of an earlier than anticipated tightening of US monetary policy, with interest rate differentials now moving in support of the currency and eliciting a short squeeze of bearish USD positions in forex futures markets.
Eur/USD recoiled from 1.2255 peaks early-June to a 1.1845 end-month low, whilst Stg/USD also about-turned sharply from its 3-year highs above 1.4200, sentiment here also buffeted by the risks posed by a surging COVID-19 delta variant on UK economic reopening plans.
Commodities – Best Investments Ireland July 2021
The CRB index rose by a further 3.7% in June, but it proved a mixed bag, with strength in energy and soft commodities contrasting with weakness across the metals complex (both industrial and precious).
Shrinking inventories continue to support the rebound in oil prices, with spot WTI (+10.8%) securing ytd gains in excess of 50% at $75 a barrel. However, high-flying Copper prices endured their sharpest monthly decline since March, 2020 (-8.1%), duly trimming ytd gains to 22.1%, whilst Gold (-7.2%) reversed all of the previous month’s rise in response to that more hawkish tilt to Fed policy guidance.
Asset Market Outlook – Best Investments Ireland July 2021
Equity indices continue to probe fresh record peaks, and volatility has declined to post-Pandemic lows, but narrowing market breadth and fading volumes betray a certain bullish hesitancy at current fully-invested levels
COVID delta variant may prove a short-lived distraction, but a more durable concern is whether financial markets are now passing their peaks of policy support, liquidity, economic growth and earnings momentum
Post-peak environment (macro, policy) apt to remain highly supportive of further equity market gains, not least as EPS outpaces share-price growth and mitigates valuation constraints
Ostensible bond market pivot from inflation risk (bearish) to growth risk (bullish) looks decidedly premature; recent curve flattening is more corrective than trend-reversing, and a Fed late-Summer “taper” threat can reignite the steepening trend
Currency markets locked in historically tight ranges, the USD thusfar resistant to either bearish or bullish breakouts; Eur/USD revisiting lower echelons of a 1.17-1.23 meander, awaiting EU’s vaccination vs variant outturn before renewed topside test
Gold’s failed test of $1920 resistance and ensuing sell-off to $1760 lows jars with renewed weakness in real yields; recovery requires early foothold above $1830 area
With lockdowns limiting options for spending last year, legions of ‘accidental savers’ were created across the country. This has opened up the opportunity for many to make AVC pension contributions in Ireland.
Saving deposits nationally reached a record €126 Billion, up by €15 Billion. With 44% of people saving over €5,600 in that period.
All this means while the pandemic brought financial hardship to some, others have found themselves with an unexpected savings nest egg.
So if you need the lowdown on how increasing your AVC pension contributions compares to other investment options you have come to the right place!
Need for returns – AVC Pension Contributions Ireland
With banks looking to start charging savers to keep their money in the bank and inflation on the horizon, many Irish savers are looking for ways to protect and grow that nest egg.
Savers across Ireland have ploughed money into the old favourite residential property. This rush coupled with limited supply has pushed property rents and prices higher, up 3.7% this year. The new favourite seems to be crypto currencies, with Irish savers investing 92% more than savers in Britain, France and Spain.
Putting all your eggs into one basket is never wise, but especially when your basket swings wildly back and forth. Both property and crypto currencies are famously volatile. Even these risky options might not yield the mega returns investors are seeking as the revenue will take between 33% and 41% of your returns in tax.
The magic of investing is in the mathematical process of compounding. When applied to returns, 20% growth per year = doubling your money every 4 years.
Albert Einstein is reported to have said “The most powerful force in the universe is compound interest”.
Business Insider
Tax though acts like a handbrake on returns, slowing speed your savings take off. So what to do?
We have lift off – AVC Pension Contributions Ireland
What if I was to tell you that there is an investing vehicle that is fully regulated, 100% tax free and has delivered returns of 8.24% per year on average for the last 36 years.
Turning a €10,000 of savings into €60,000 of savings in that time. Even better, what if I was to tell you in many cases your employer will double your money turning your savings into €120,000.
Sound too good to be true? – AVC Pension Contributions Ireland
Well it’s not, because what I’ve just described is called a pension. Stay with me here, the humble pension is the most under appreciated investment opportunity ever. Getting a private pension or increasing your AVC pension contributions is the best way to maximise that opportunity.
It’s secret sauce is that because it’s sheltered from tax it can unleash the full force of compound interest, growing your wealth exponentially. It’s also not as complex as some like to make out.
As long as you are ok to commit your savings and returns until a certain age, which can be as early as 50 in some cases, the tax man will let you have 100% of the returns. That’s all a pension is, a committed tax free savings pot [1].
If you start up a private pension, you are creating your own private tax shelter, when you look at it like that why wouldn’t you maximise your AVC pension contributions?
What you invest in that savings pot: cash, gold, shares, property, crypto etc.. is entirely up to you, as is the level of risk.
What does that mean for you? – AVC Pension Contributions Ireland
If you have any savings, seriously consider starting a private pension, or if you have a pension through work increase your AVC pension contributions. There is a real opportunity for some coming out of lockdown to secure their financial future.
The good news is you don’t have to do all the financial planning yourself, initial financial advice from a financial advisor is usually free according to Brendan Nordon of DFP Pension & Investments.
“Getting financially fit is really important and now is a great opportunity to put yourself on the right path. We can help advise on what option is the right one for you.”
Brendan Nordon DFP Pensions & Investments
If you are one of the 44% of Irish people to have put extra money by during lockdown, don’t waste it. Talk to a financial advisor and they will help get you started today.
What’s next? – AVC Pension Contributions Ireland
If you want to know more about our saving and financial planning you can read our guides here.
Read on to get the best student money tips available to Irish teens. As a teen myself I spent hours looking for the best financial advice specifically for teenagers, both online and from people I know.
After investigating I have found that as a teen you are taught little about finance, this lack of knowledge can leave many teenagers strapped for cash and struggling to afford basic necessities. This article aims to help fill in the gaps for teens where the education system comes up short.
The really great news is it’s not as hard as you think to get into good money habits. With the right information and coaching, teen finance won’t be a problem.
Here’s the 5 financial tips to make you the teenage Elon Musk.
As a teen, you’ve probably heard this a thousand times, time is money. Literally, all you need is time to make money.
Just lump a bunch of money into a long term investment and watch your money grow. Teenagers don’t have much resources available to them but generally teens and older people alike don’t realise how valuable time is because of something called compound interest.
Most people don’t realise the power of compound interest where your returns in year 1 boost your returns in year 2 etc..
When your young is the perfect time to start long term investing, but you should always get help from parents or professionals before investing in things like crypto or the stock market as you could lose all your money. Stupidly putting your money in Dogecoin could mean being in severe debt by the time you hit college.
Short term investing is often compared to gambling because the stock market and crypto are extremely unpredictable. Famously a monkey was able to make more money from the stock market than 9 out of ten professional traders on the stock market.
Long term investing is much safer and has bigger rewards. It’s a win win.
2. Track your Spending – Student Money Tips
Although this might seem insignificant, believe me when I say keeping track of the stupid things you’ve impulse bought really helps you avoid dumb purchases in the future. Its also useful because in a lot of cases you don’t realise what’s draining your bank account, things like going out too much to a snickers addiction can make your money disappear without you even realising it.
Always remember how much you have in your bank account before buying non essential items, You don’t want to go without heat for a week because you decided to have a drunken pool noodle fight with your roommates.
3. Not all debt is bad debt – Student Money Tips
It should go without saying, being in debt to things like payday loans is just terrible, but debt like mortgages generally can’t be avoided and have a relatively low interest rate compared to other loans. If you go your whole life without debt like mortgages, chances are you’ll be homeless due to how expensive houses are nowadays.
This doesn’t mean you should welcome all debt with open arms, as taking out loans for luxury items will always come back to bite you due to high interest rates, but if you’re starting up a business or taking out a loan for investments, debt should be worth it.
4. Go to College/University – Student Money Tips
There is a lot of stigma about people not being able to afford College and Universities, but that generally comes from the States as their prices for University is about 40`000 a year whereas in Ireland its about 3000 a year. 3000 is still a lot of money and chances are to afford living and tuition fees you’ll need to be extremely money smart but the pros of going to college vastly outweigh the cons.
Non grads have almost twice the unemployment rate as people who have gone to college and make on average around 10000 less. You may have also heard of super rich business men like Mark Zuckerberg and Bill Gates dropping out of college as well but you must remember again that they’re American where the prices of college are much higher and most people who drop out will not make as much as people who went to college. They also left to start the businesses that made them the billionaires they are today.
5. Get a Summer Job – Student Money Tips
If you are a college student, a summer job is basically essential to afford tuition and living costs. Not have a nervous breakdown over being able to afford a sandwich for lunch is amazing and helps you focus more on your studies.
It also helps to have a diverse and full portfolio for your cv when you go into the world of work. Employers like to see that you have experience working no matter what the job is and they also like jobs that show you have a multitude of skills.
What’s next – Student Money Tips
So to summarize,
1. Don’t take your time for granted, it’s extremely valuable.
2. Always remember what you spend your money on, make a budget with this information.
3. Not all debt is bad, some debt just helps you make more money further down the road.
4. Going to college is basically essential to get high paying jobs
5. A summer job should really help with finances and getting a job in the future.
If you want more help with money saving and investing for the future check out our other money saving articles.
Financial literacy is crucial to having successful financial outcomes, yet only 55% of people in Ireland understand 3 out of the ‘big 4’ financial concepts [1]. This is almost 20% lower than in the UK, Germany, Denmark, Sweden and the Netherlands.
Drilling into the data for Ireland the new moneysherpa study has three main takeaways.
The 18-44 age group is 20% further behind the curve than older age groups
Dublin lags rest of the country for financial literacy
Unlike findings in most other countries Irish women are 15% ahead of men when it comes to financial savvy
Financial literacy matters more now than ever. According to a recent survey conducted by Laya healthcare, the single biggest source of worry for Irish people today is financial worry [2].
In an increasingly dog eat dog financial world where traditional safety nets like defined benefit pensions and jobs for life have fallen away, Irish consumers need to be able to financially fend for themselves.
Yet study after study has shown we are singularly unprepared for this task, with young people in particular lacking the basic skills and knowledge to make smart financial decisions.
Anne Richards, CEO of Fidelity International one of the largest financial providers in the world, believes real world money maths matters “Armies of people leave school knowing their SOHCAHTOA [trigonometry]” she said “perhaps teaching children and young students the building blocks of how mortgages, credit cards, insurance and pensions work … might be more useful.”
Financial Times
The good news is that these building blocks can be boiled down to just 4 fundamental concepts that are easy to learn and teach.
The ‘big four’ concepts you need to know
The 4 concepts behind financial literacy are very straightforward, yet over 66% of people worldwide failed to get 3 out 4 of them correct in the S&P Finlit survey.
Diversification, spreading risk to reduce the overall level of risk = “never put all your eggs in one basket.”
Inflation, the value of money isn’t fixed, it is simply a function of what you can buy with it.
Numeracy, 2 + 2 does equal 4, good basic arithmetic is the cost of entry for financial literacy
Compound Interest, is the interest you earn on your money, plus the interest it’s already accrued
The last one compound interest is a particularly slippery customer, because of the powerful mathematical process that lies behind it.
Albert Einstein is said to have called compounding “the most powerful force in the universe.”
“Compound interest is the eighth wonder of the world,” Einstein reportedly said. “He who understands it, earns it. He who doesn’t, pays it.”
The exponential growth curve that results from compounding is often hard for us to get our head around and the source of many financial mis steps.
Irish financial literacy survey deep dive findings
18-44 age group under prepared for financial decisions
The moneysherpa survey shows that the 18-44 age group are over 20% less financially literate than the 45-64 age group.
This is crucial as it is at this stage many of life’s critical financial decisions are made. Financial mistakes made before 44 are quite literally compounded as the years roll by.
By the time we reach our peak financially at 45+, the decisions we have made on our pensions and mortgage may have set us on a path that it is hard to break from.
Dublin lags the rest of the country in financial literacy
Generally financial literacy falls in line with economic development. As Ireland’s economic powerhouse you might expect Dublin to lead the country in financial literacy.
In fact Dublin financial literacy is 5% lower than in the rest of the country.
In a region with higher income levels and house prices, low levels of financial literacy could have long term consequences.
Irish women bucking world wide financial literacy trend
In countries rich and poor around the world financial literacy surveys have consistently shown women coming out around 15% lower than men in financial literacy.
This is usually attributed to cultural factors or access to education, reducing both financial confidence and knowledge.
Interestingly the Irish survey data shows women leading men in financial literacy by 15%. Turning the trend seen elsewhere completely on its head.
Maybe Brehon Law has something to do with it…
Test your own financial literacy
At this point you may be wondering how you would score for financial savvy. Our quickfire 5 question quiz tests you for the same concepts used in the survey and S&P Finlit report, gives you a score and will point you in the right direction if you get any answers wrong!
[formidable id=”28″]
In a nutshell – Financial Literacy
Financial literacy in Ireland is almost 20% lower than in other Northern European countries and is particularly low in Irish men aged 18-44.
Only 55% of people in Ireland understand 3 out of the ‘big 4’ financial concepts. Almost 20% lower than in the UK, Germany, Denmark, Sweden and the Netherlands.
The 18-44 age group is 20% further behind the curve than older age groups
Dublin lags rest of the country for financial literacy
Unlike findings in most other countries Irish women are 15% ahead of men when it comes to financial savvy
The moneysherpa financial literacy survey was conducted over 3 days from April 30th 2021. Using a statistically valid sample, weighted to align with Irish demographic data. The questions were based on the 2015 S&P finlit survey and various OECD reports. Irish data is given as comparative across segments only to allow for differences in data collection across the various finlit data sources used.
In our ultimate guide to how to buy shares in Ireland and what shares to buy, we will take you through the basics of what a share is, how to choose which shares are good value and how to buy them. Buying shares in Ireland is almost certainly easier than you think, you can use an Irish financial advisor/broker or through an international online broker.
A share is simply a slice of ownership in a company. Read on to see what this means for share prices.
The right shares to buy are obviously those that will grow in value. Based on fundamentals these should be shares that are cheaper than they should be right now when you forecast out their future profits.
In my view investors should always try to focus on company fundamentals when looking to invest in shares. Ignoring a company’s fundamentals is taking a shot in the dark and leaving everything up to chance, not an advisable strategy for your money.
Read on to see how you work out which shares to buy in Ireland right now.
What is a share anyway? How to buy shares in Ireland
The ownership of a publicly traded company is thinly sliced into equal shares on the stock exchange to make them easier for investors to buy and sell, hence the name for this split in ownership – shares.
Traditionally, companies are priced by each individual share, which leads to the question of what the price of a single share tells investors about the value of a company? Absolutely nothing…
A single share does not tell you anything about the value of a company. Instead, it is the number of shares in the company multiplied by the price per share that gives you the total market value of the company, or the market capitalisation.
A company can be thinly or thickly sliced, but investors should only be concerned by the overall value of a company.
A rookie mistake is to compare one company share price to another, as both companies are likely to each have a different number of shares outstanding. Looking for cheap stocks is similar to comparing the size of two loafs of bread, simply by comparing a slice from each loaf, which would be a strange method for picking out which loaf or indeed company that you would like to own a “share” of.
So if you can’t use the price of a share alone to work out if it is good value what can you use?
Read on to find the key tactics that investors use, to zero in on shares that offer the highest potential for returns.
How do I choose which shares to invest in? How to buy shares in Ireland
There are two text book tactics that investors use to determine the underlying value of a share, Relative Valuation and Discounted Cash Flow. Here’s how they work and the pro’s and pitfalls of each.
Relative Valuation
Relative Valuation methods are quick and easy. They represent a straight forward way to compare a stock to its own historical price, other companies or to the price of the overall market.
Relative valuations indicate whether a company is over or undervalued, but they do not give a fair market value for the stock. There are two ways to do this relative comparison, Dividend Yield and the Price-to-Earnings Ratios.
Dividend Yield is the amount of money a company pays shareholders as a dividend, as a percentage of its current stock price. The lower the dividend yield, the more expensive the stock.
Yields also depend on the industry the firms in or how mature the company is. Growth companies often decide not to pay any dividends, as the money is instead reinvested into the company to fuel growth. Indeed five of the seven largest S&P 500 members currently do not pay any dividends at all.
Price-to-Earnings (P/E) ratio is the other main relative valuation metric, which depicts a company’s value in terms of its earnings, allowing investors to compare companies of all different types and sizes. Simply put, the higher the P/E ratio, the more expensive the stock.
Determining a fair P/E ratio hinges on how fast you think a company’s earnings will grow. A fast-growing company will warrant a higher P/E ratio, as opposed to a company in decline.
An extreme recent example would be the high premium that investors are currently willing to pay for Tesla, which currently has with a P/E ratio of 998, compared to General Motors modest P/E ratio of 13.
Although you may hear Dividend Yield and P/E ratio bandied about by some on the internet and in social media. These relative valuation tactics are very blunt instruments.
Those looking for something more tethered to the underlying value of the shares often reach for some something known as the discounted cash flow model.
Discounted Cash Flow
The discounted cash flow model involves estimating the future earnings of the firm and then calculating how much the future earnings are worth today. The estimates of the company’s future earnings are discounted because of the uncertainty of the future.
Simply put, investors are willing to trade the promise of a larger sum tomorrow, for the certainty of a smaller sum today. The total value of the firm is equal to the discounted value of the company’s future earnings under this model.
The amount you discount the earnings is the combination of what an investor would be guaranteed by putting their money in a risk free investment (usually the current yield on a US 10-year government bond) plus a risk premium that is based on how probable the future returns are.
The future earnings plus the discount equals the total value of the firm (enterprise value). You then take away the balance if what the company owes in it’s accounts to get the company’s total value.
(Value = Enterprise value – Debt + Cash)
Dividing the total value of the company by the number of shares produces a value for one share. Using this logic, if you can buy the share cheaper than the calculated value it’s a good investment.
This approach provides a direct relationship between the value of a company’s share and its fundamental measure of success, its future earnings.
Momentum plays Fundamentals. How to buy shares in Ireland
Both absolute and relative valuation models rely heavily on the company’s earnings. Indeed how much should a company be worth if it does not have solid earnings? This approach is often called value or fundamental based investing, most famously used by Warren Buffet, the billionaire ‘sage of Omaha’.
In my view investors should always try to focus on company fundamentals when looking to invest in shares. Ignoring a company’s fundamentals is comparable to taking a shot in the dark that leaves everything up to chance, which is clearly not an advisable strategy when looking to invest.
In a nutshell. How to buy shares in Ireland
There are many ways for investors to buy shares in Ireland. It is possible to buy shares directly through one of the online brokerages operating in Ireland, such as DEGIRO or eToro. “Robo advisors” have also increased in popularity, as the digital advice provided requires with little human input.
Speaking to a dependable financial advisor still remains the most advisable approach to investing in stocks. Reviewing your finances with a financial advisor will allow you to see how investing in stocks can help you to achieve your financial goals.
I offer investment advice to Irish financial advisors, and my role is to help my clients make the right choices, at the right time, when looking to invest in Ireland. This article cuts through all the noise to give you the information you need to make better investment choices. If you’re Investing in Ireland here’s what you need to know in 2021.
Share valuations are at record highs versus company earnings and markets are jumpy with COVID-19 still at large. Yet given the potential risks, equity stocks must still be viewed as a sound investment in the current climate, as we look forward to multiple vaccine roll-outs, upgraded growth forecasts and continued central bank and government support.
A recent investor survey highlights a shift in investor sentiment, as investors look to move away from over owned US markets, driving an increased capital flow to value opportunities across Europe and other regional markets
In particular, UK stocks may offer the best value opportunity of all, as the market with a notable lack of technology stocks starts to play out a post-Brexit catch-up. Although the Brexit drama has resulted in a notable “skinny trade deal”, UK equities have a lot of ground to make up on Global markets performance since the referendum in mid-2016.
After a bit of a battering in recent months, gold has bounced back and is a good way to balance out your investment in shares. The need for diversification will drive continued demand for gold, amongst the unprecedented money printing by central banks at present.
Read on to get more Investing in Ireland insights including
Party like it’s 1921 – vaccine a shot in the arm for shares in 2021
The western world faces into the new year armed with 3 effective vaccines to control the COVID-19 pandemic.
Inoculation programmes cannot come at a moment too soon. COVID-19 is currently surfing its third major wave since the pandemic erupted. In Ireland, caseloads have exploded, with the fastest-growing infection rate across the EU. Straining the capacity of the healthcare system and prompting severe lockdown restrictions.
FIGURE 1: IRISH COVID-19 CASES
Ireland’s pattern of renewed societal restrictions is a broadening theme across the global economy. Lending even sharper focus to rapid vaccine deployment.
So far, 13m doses have been administered in 33 countries worldwide, of which 4.7m have occurred in the United States, 1.4% of the population. Remarkably, the Israeli government has already managed to administer double-doses to 14% of its people. China is also broadening distribution of it’s vaccine, with 4.5m doses already administered, 3m of which in the past 3 weeks alone.
Elsewhere, vaccine programmes will ramp-up over the next few months. All of the major economic blocs have pre-ordered sufficient doses to put herd immunity within reach by late-Summer, if not sooner, with all things going to plan.
This represents a massive shot in the arm for the global economy, whose historic 4.4% contraction in 2020 may now see a 6%+ springback. Demand for economic goods and services did not die last year, rather it was suspended. It is pent-up demand that informs more bullish outlook for the global economy in 2021/22.
Some more excitable commentary heralds the dawning of this century’s Roaring Twenties which followed WW1 and the Spanish Flu. Whilst this is simplistic, Irish investors could see roaring returns from the right investment selections.
Don’t fight the fed – why central bank policy will continue to prop up long term share valuations
Traditionally, working out whether a company’s shares were a good investment focussed heavily on dividing a company’s share price by the associated earnings of the firm. The higher this ratio, the less of a bargain you are getting, all else being equal. This guideline ratio is at a documented all-time high in the S&P500 (a composite index of the top 500 companies in the US), and this has been a source of caution for investors right now, and understandably so.
Yet, the current central bank policies that are stimulating the economy have altered this equation. The size of the stimulus is difficult to grasp, COVID-19 and its associated lockdowns triggered a vast $13trn fiscal stabilisation effort last year. Roughly 15% of global GDP.
FIGURE 2: US 10yr REAL YIELDS & “BREAKEVENS”
The lack of other viable investment options will continue to drive more investors into buying shares, driving up values above ratios that would have been considered as historically high. The reduction to US yields has however rendered any historical comparison to the time proven P/E ratio as obsolete. More specifically, the standard equity risk premium against current US Treasury yields allows for a higher P/E ratio.
Significantly, US Federal bank chair Jerome Powell saw fit to comment on this last month. “if you look at P/Es (price to earning ratio’s), they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward for taking equity risk, is what you’d look at”.
These conditions and the resulting premium is set to continue with Powell pledging that “we’re going to keep policy highly accommodative until the expansion is well down the tracks”.
Market commentators now appear to be singing off the same hymn sheet. Expecting stronger equity and commodity markets, flatlining bond yields and a weaker US dollar. This all points to share valuations holding up well compared to the assets that are traditionally perceived as lower risk such as bonds.
Sanity Clause – Brexit done, British shares to bounce back?
“You couldn’t have your cake and eat it, we were told; maybe it would be unduly provocative to say that this is a cake-ist treaty, but it is certainly from the patisserie department” (Boris Johnson, December, 2020)
The sealing of a 1246-page free trade agreement (FTA) between UK and EU negotiators at 14.44 CET on Christmas Eve, brought to an end 9 months of fractious and repetitive talks.
For all the obvious shortcomings of the deal, improvements across UK financial assets brought a difficult 2020 to a more optimistic close.
Sterling ended the year at its highest level versus the weakening USD since April, 2018. The FTSE100 outperformed its major stock market peers for the second consecutive month.
Brexit uncertainties have weighed heavily on the UK economy since mid-2016. Investors, both domestic and overseas, have abandoned UK stocks in the pursuit of richer pickings elsewhere. This condemned the UK market to wallow at record low valuations relative to US and global peers.
The FTSE100 has barely risen in the post Brexit referendum period. For those investing in Ireland and trading in Euro’s it has actually returned a cumulative 5.5% loss. This compares to a 67.5% gains for the US market S&P 500 and 51.2% for World market MSCI World.
FIGURE 3: POST-BREXIT REFERENDUM RETURNS (Eur)
Now, with the weight of Brexit uncertainty lifted, investors are likely to seek value in the UK stock market driving gains. Respondents to December’s BAML Global Fund Manager Survey were already turning less bearish (less downbeat) towards UK equities.
In a world where shares are still the value play, UK shares look like the best value of all.
In a nutshell – the vaccine, stimulus & Brexit triple booster
The year ended in festive financial mood.
Thanks to the initial vaccination roll-out for COVID-19 and a further $900bn stimulus deal on Capitol Hill. The MSCI World led a host of major equity indices to fresh record peaks by year-end. Up 14.3% across the full-year, with a 68.3% rebound from late-March lows. The S&P500 saw a 16.3% rise compared with average 11.8% gains over the previous ten years.
Other assets performed poorly. Bond markets remained close to historic lows. The Dollar remained weak closing at the lowest levels since April 2018. As a result, Gold rebounded to complete its biggest annual advance since 2010.
This points to shares in general still being a sound investment in 2021, whilst gold continues to provide a source of diversification amidst the unprecedented money printing by central banks at present. The commodity is a good way to provide balance to an increased equity exposure across a portfolio, particularly at time in which bonds yields are returning next to nothing.
UK stocks may indeed represent the best equity value opportunity at the moment, as they are playing catch-up with the other markets post-Brexit.
What next? – Further investing in Ireland insights
The challenge though is which financial advisor to choose?
As an industry insider, who helped run these services at one of Ireland’s leading banks, I saw this from the advisor’s angle. But as someone who actually used financial advisors for my own financial planning, I recognised this was also a big challenge for Irish consumers. Getting the right money advice is important.
Choosing the best financial advisor
The quality of advice you receive can make a big difference to your financial outcomes and therefore your life outcomes. So it is an important decision worth researching carefully.
The financial advice world in Ireland is quite murky, full of confusing and sometimes misleading terms, unclear commission arrangements and limited online pricing information. A recent survey said that over 50% of Irish people didn’t think their advisors had their best interests in mind and 61% thought their advice was commission driven. [1]
Although there are many great advisors in Ireland who deliver a great service for their clients, the light touch regulatory approach in Ireland, puts the weight of picking a great advisor firmly on your shoulders as an Irish consumer.
To help you make the right choice, in this article we will cover your financial planning needs, the types of financial advisor and their pro’s & con’s.
The type of advisor that’s best for you will depend on your particular advice needs. Not just the subject of the advice, retirement, investment, mortgage etc.. or the size or complexity of the advice.
Most agents are able to cover all of these bases successfully, the key to finding the right advisor is understanding how much of an active role you want to play in your financial decision making.
A recent study by Forrester split people seeking financial advice into three broad types [2]
DIY’er, confident in financial ability and happy to go it alone.
Validator, confident in overall financial direction, but want to check and fine tune with advice.
Delegator, less confident or time poor, but know financial planning is important so outsource it to someone they can trust.
Which type you are is probably the single most important factor in choosing the right type of financial advisor for you.
How to choose the best type of financial advisor for you
There are three main types of financial advice available in Ireland, each more or less suited to DIY’ers, Validators and Delegators.
Robo advice
Best fit for: DIY’ers who don’t need require one on one advice and like the low fees.
What is it: Automated data driven financial advice based using algorithms and artificial intelligence to assess client needs and recommend best financial strategies.
Pricing: Low/No cost advice fee model, typically less than 1%.
Providers: Growing quickly in US (betterment) and UK markets (mint), still limited choice in Irish market
Independent advice (whole market, fair analysis)
Best fit for: Validators with large or complex financial requirements, looking for once off upfront focussed advice.
What is it: One on one advice, based on needs and evaluation of all financial options in market.
Pricing: Varies, but mainly upfront fixed fees of €2,000- €5,000, not subsidised by commission on products sold.
Providers: Typically, specialised firms due to high cost of regulation and providing depth of advice.
Best fit:Validators and Delegators, with more mainstream financial advice needs.
What is it: One on one advice, based on needs and evaluation of financial options from a reduced set of products.
Pricing: Varies, but often 0%-1% of investment upfront and around 1.5% of funds managed per year.
Providers: Specialist local advice firms, Bank tied agents and Insurance tied agents.
4 key things to look out for in picking your financial advisor
Whatever type of advisor is right for you, there are some key things to look out for.
Are they competent?
Is the advice you are going to get any good. Although it’s by no means perfect, the best way to judge this is on their track record. For example, how have the funds they have invested current clients actually performed versus the market. What is the experience of the advisor and investment team.
Are they comprehensive?
If they are a multi, restricted or tied agency what range of options do they have available. Have they got access to a wide range of funds and how did they pick them? It might be that they are only restricted in products that aren’t relevant or that they have weak options where it matters to you.
Are they compromised?
In the UK the FCA have banned the practice of speaking up commissions to advisors to incentivise them to push particular products. In Ireland this practice is still allowed, but commission information has to be shared with clients. Does the commission your advisor receive potentially sway their advice or does it align with your interests as a customer?
Are they cheap?
Given the importance of getting good advice and its potential impact on your financial outcomes, this is the least important of the 4 factors. However, if the advisor is competent, comprehensive and not compromised why not drive a hard bargain before signing up? Often advisors have some flexibility on the pricing they first propose to you.
How do moneysherpa rate financial advisors?
At moneysherpa, we weight the 4 criteria above. plus some additional ‘hygiene’ factors to come up with an overall recommendation score for each advisor in your area.
Competence: Based on past performance and advisor experience. (40%)
Comprehensive: Based on access to the best funds and financial instruments. (30%)
Compromised: Based on the alignment between your interests and the advisor. (20%)
Cheap: Based on pricing data collected by the moneysherpa team. (10%)
Hygiene: Based on Authorisation, Indemnification, Complaints data and Qualifications.
To feature on our list of recommended advisors agents have to pass all of our ‘Hygiene’ tests and are then ranked out of 5 according to the weighting shown on the 4 C’s advisor rating criteria listed above.
Financial advisors, next steps
Whether you are a DIY’er, Validator or Delegator we hope this article helped you cut through the fog around financial advisors in Ireland and help you choose the right option for you.
Although there is no one size fits all solution, by presenting the facts and being transparent about the differences between providers we hope to make getting a great financial advisor a whole lot simpler.
We also have lots of other financial help, guides and resources. The sherpa’s 6 steps is a great place to start or our guides & tips area.
Worries about money are the single biggest cause of anxiety for people today. A third of all Irish adults say they have no savings, almost a half of us have no retirement savings. [1,2,3]
It doesn’t have to be this way. Our team of financial experts at moneysherpa, the Irish money guide, have developed a straightforward system to help you get money worry free. The sherpa’s 6 steps.
With the sherpa’s 6 steps we will get you on the right path to money zen. This means being able to afford what you need, having rainy day fund for emergencies and enough stashed away for retirement.
Which = no money worries.
Step 1 – The Irish money guide to picking your goals
Think about what might lie in your future that you need to set money aside for.
It might be a trip to the Bahamas, university for your kids, a dream wedding or a ‘forever’ home. Whatever these things are, list them out. Put them in order and put a money number on each, don’t over think it, a rough idea is fine.
This is your ‘sunny day’ goal, if you’re paying attention you may have already have guessed what’s coming next.
To banish those money worries you also need a ‘rainy day’ goal. This is a cash stash to help you deal with any unexpected financial downpours.
Finally you need to set your ‘play day’ goal. That’s how much you need to have a retirement that’s no work and all play.
These three goals are what achieving money zen means for you. Your personal money Everest.
You can make it to the top, with your own Irish money guide helping you at every step.
Step 2 – The Irish money guide to getting money fit
Congratulations, you’ve already done what the majority never do. You have picked your ‘mountain’. Let’s crack on helping you climb it.
Before we start climbing we need to get money fit.
This means getting more money in and letting less money out.
Getting more money in
There are more moves here than you might think.
As well as your main gig, have you thought about a side hustle? This can be doubly smart, as well as increasing your earning power, you can learn new skills and open up new career opportunities. There are a lot of online platforms such as upwork that make earning on the side easier than ever.
Finally, don’t forget to make sure you get all the tax reliefs you are entitled to. The average cash back on an Irish tax return is just under €1K. [4]
Letting less money out
There are just two ways to spend less, buy less and buy for less. To buy less, you simply have to reduce what you use. To buy for less, you need to shop around.
Check our Irish money guide 10 top money saving expert tips, which tells you how to save over €12,000 a year, even if you are on an average wage.
Step 3 – The Irish money guide to becoming debt free
Now we are money fit we should have more coming in than going out. Great, but before we start climbing our savings mountain, we need to get to our basecamp where we’re not ‘underwater’ with debt.
If you have no high interest debt, congratulations you are already there. Progress to step 4 of our programme, but if you have any personal loans, pay day loans or leave anything on your credit card at the end of the month, read on.
Saving whilst still having high interest debt is like climbing a mountain with a dead sheep on your back. Exhausting, uncomfortable and irritating, although hopefully a little less smelly. The first thing we need to do is ditch the debt and get that weight off your shoulders.
By taking the monthly surplus from step 2, we can start to pay down the debt. Start with the highest interest first, usually your credit cards. Starting with the highest interest debt first, creates a ‘snowball effect’ where you can use the interest rate payments saved to pay off the next highest rate of debt and so on.
Step 4 – The Irish money guide to ‘rainy day’ saving
So your fit, at basecamp and ready to climb, let’s go get our rainy day goal.
The sherpa recommends having at least three months of your net income tucked away for a rainy day. That way you can pay the rent and bills for a few months even if your income if cut short. Depending on how secure and zen like you want to feel, you might even make it six months.
Put this money away in a separate savings account that’s covered under the deposit guarantee scheme. It will get a lousy rate of return, but this is your emergency fund so we want to take no risks with it. The Irish scheme guarantees deposits up to €100K for each bank or credit union you have, EU banks have similar schemes, but you will have to check the rules for each state. [5]
Set up an automated transfer to move your savings each month from your current account to your rainy day fund. Keep saving this way until you have reached your goal and then move onto step 5.
Step 5 – The Irish money guide to ‘play day’ saving
Next up is having enough set aside for an active retirement, your ‘play day goal’.
This maybe surprising, but this is where the tax man helps you ‘level up’. Giving you back the tax you would have paid on your salary for every euro you save for your retirement.
If you are under 30, up to 15% of your income can be saved tax free. This gradually increases as you age, until you can save up to 40% of your income tax free at 60 or over. [6]
So if your income is taxed at 40%, every €1 of take home pay put into retirement savings is boosted to €1.67. This tax free boost makes savings via a pension a no brainer. Even if you just held cash in your pension, the tax benefit alone makes it a smart move.
With improved wellness and life expectancy, 65 is the new 45. Assuming you want to kick up your heels a little and do more than watch day time television, you need to put by around 15% of your income each year into a pension.
What you need to put by will depend on exactly how much working and how much playing you intend to do. If your plan is to retire to a mansion in Mayo and take up fly fishing, then you might need to up the 15%. If you want to keep your hand in at work past 65, you might need less.
For your play day goal you are saving over a long period, so there are lots of investment options from low risk to higher risk that should offer attractive growth. To set up a pension and work out what approach would best work for you, it usually makes sense talk to a qualified financial advisor. You can check out our recommended pension financial advisors near you here.
Step 6 – The Irish money guide to the final ascent
Congratulations! You are money fit, debt free and with emergencies and retirement sorted, money worry free.
Time to push for the summit, total money zen.
With your rainy day fund and play day fund already in place, you can use any remaining surplus for the final ascent.
How you use that surplus will depending on the size and timing of your Sunny day goal. If it’s a short term or small goal then popping it into a savings account might make perfect sense even though you will earn very little interest.
However, if it is a longer term goal like saving for your kids financial security it probably makes sense to invest to grow your money. You need to do this to combat inflation, the rate of reduction of how much you can actually purchase per euro.
You probably need to get a return of over 3% a year if you don’t want to lose money in real terms. As with a pension, the return will vary depending on the risk you are willing to take.
At this point you will need to consider investing to get returns. This usually means buying things that usually appreciate in value, known as ‘assets’. Investment assets include gold, bonds, shares and even rare collectables. Who knew a mountain of Grateful Dead t-shirts would end up being part of your financial strategy.
You probably need to buy a basket of different things to spread the risk, known as a ‘diversified investment portfolio’. There are lots of new digital platforms that now let you do this yourself. These platforms are attractive, because they don’t eat up much of your return in fees.
You may however simply want set your goals and appetite for risk, agree a plan with a financial advisor and let them manage the buying and selling of assets for you. The advisor usually charges around 1% of your fund per year, which if you are getting a return north of 5% or so might make sense due to the lower hassle factor. You can check out our recommended investment financial advisors near you here.
The Irish money guide to what’s next?
So you are at the summit of your own personal money Everest. You have achieved money zen. The feeling of having no money worries, with a huge sense of personal achievement and with the world at your feet.
To help you follow the sherpa’s 6 steps and reach money zen we have created a range of Irish money guide resources and tools.
If you have a Defined Benefit (DB) Pension then you might have been offered the option to transfer this into the more common type of pension (Defined Contribution). This is called a Defined Benefit transfer. This is a big decision and an irreversible one, so it’s important to understand exactly what this means, and what the pros and cons might be.
As a qualified actuary and someone who has been providing Irish private pension advice to clients in Ireland for over a decade I can help steer you in the right direction.
In this article we will explain some of the key details, explain why this transfer is more attractive than ever and also explain the downsides to consider. If after reading you have an interest in exploring a transfer further I’ll point you in the right direction.
What is a Final Salary/Defined Benefit Irish private pension scheme? Advice
A defined benefit or DB Pension (also known as final salary pension) is a type of workplace pension. Instead of building up a pension pot over time, it provides you with a guaranteed annual income for life, based on your final or average salary.
DB pensions are most often provided by the public sector and government employers. Some private sector employers do still offer them yet many the private sector schemes have ceased accruing benefits for future service. A DB Pension is sometimes seen as the most attractive pension arrangement for employees. Read on for Irish private pension advice on the pro’s and con’s of transfers.
What are the Key Benefits of a DB Irish private pension? Advice
DB pensions are often seen as more generous, because it would take an above average defined contribution (DC) pot to be able to pay the same regular amount.
What’s more, the payouts from a DB pension is guaranteed for the rest of your life. So long as the pension scheme remains funded, your pension income is paid no matter how long you live. There is also a spouses pension in the event of death.
What are the key Drawbacks of a Defined Benefit Irish private pension? Advice
Despite the attractions of a DB pension, in some ways it is not as flexible as a DC pension pot. You can’t vary the income you take from it, or draw out larger lump sums (with some exceptions).
The DB pension can’t be inherited by your beneficiaries. If you die prematurely, there will be a widow’s/widower’s pension for your spouse, but most of the benefits will be lost, and nothing passes to your estate.
Also, there is also a risk that your pension scheme may collapse at some future point, if it is no longer adequately funded (e.g. employer becomes insolvent).
What is a Transfer Value for an Irish private pension? Advice
You can ‘trade in’ a DB pension for a fixed-size pot of the kind found in defined contribution (DC) pension schemes. That ‘transfer value’ is calculated to estimate the monetary amount needed to provide the same guaranteed income, based on current market conditions.
Taking a transfer value involves giving up the certainty of income for life to directly take control of the investment behind the defined benefit pension. You would then use the fund under a defined contribution arrangement to provide an income over the course of retirement.
The transfer option offers greater flexibility on how you take your benefits at the expense of certainty.
There are significant risks, in particular, investment risk with taking the transfer value and professional advice should be sought before making this decision.
The key risks in transferring to a DC pension are:
· The value is subject to investment performance, so there is risk of capital loss
· The investment performance is worse than anticipated the value might not be enough to meet your needs.
· If you live longer than you provided for.
How are transfer values calculated for an Irish private pension? Advice
The transfer value’s being offered are based on the yield on long-term government bonds. These bond yields have fallen in recent times. This has resulted in a significant increase in the transfer value being offered to pension members.
That’s why members of existing defined benefit pensions now need to reassess whether transferring the DB pension, that was once seen as untouchable, is now a realistic option.
Why are current Transfer Values at record highs for Irish private pensions?
The defined benefit transfer value is calculated under guidance from Pensions Authority and Society of Actuaries in Ireland. A factor called the Market Value Adjustment (MVA) is used to reflect economic conditions at the time of calculation.
The MVA is calculated based on an agreed measure of long -term government bond yields. The graphic below shows how this yield has changed over the past 10 years and how the MVA adjusts for it.
The table shows that as the yields fell from 3.83% in December 2010 to -0.29% in December 2020. This has resulted in an increase in the MVA over the same period from 109% to 169% (up 56%).
Source: Society of Actuaries – MVA Factor. Data from 31st October 2010 to 31st October 2020
How long will Transfer Values be at this rate for Irish private pensions? Advice
Negative yielding government debt now amounts to a record E17.2trn, the vast majority of which in the Eurozone bond markets.
This is driven by the ECB rate policy and Quantitative Easing (QE), which involves Central Banks increasing the money supply. The thinking behind these policies is to stimulate the european economy.
With QE measures in place and forward guidance implying no change in interest rates for the next 3 years, it is clear that bond yields will remain ‘captive’ to these extraordinarily low levels for some time to come.
What are the key things I need to consider before transferring my Defined Benefit pension? Advice
As well as the transfer value on offer, these are the other things you need to consider:
· Does the flexibility of the transfer value meet your requirements in retirement?
· Do I want to manage my own wealth and the investment risk that this incurs?
· Do you want to pass on your wealth to your kids?
· How secure is your current Defined Benefit scheme?
· How does the decision fit in with your other non pension assets and income?
Transferring in a nutshell, Irish private pension advice
Transfer values are at record highs due to market conditions, even if it didn’t make sense to transfer before it may do now.
Defined benefit pensions have a number of major advantages, mainly that the benefits are in theory guaranteed, but that’s not always the case.
Defined contribution pensions are generally more flexible in how you can take your benefits, but offer no guarantees on return.
Now that transfer values are relatively high the decision around transferring centres on the priority of flexibility versus certainty for your individual circumstances. That’s why it makes sense to get Irish private pension advice if your are considering a transfer.
I may be interested, where can I get further Irish private pension advice?
You should take independent qualified financial advice before deciding to transfer. This advice is usually free. If after taking advice you decide to transfer Irish private pension advisors typically receive a commission from your new pension provider.
Based on months scouring the Irish market for savings and our inside knowledge of the Irish finance world we’ve narrowed down this list to the top money saving tips that will deliver bang for your buck in 2024. We’ve used all these tips ourselves and they made a huge difference to our own bank accounts.
The really great news is it’s not as hard as you think to save money in Ireland in 2024. With many businesses moving online and comparison sites that will do the heavy lifting for you, big savings are often only a click away.
Most of what you read online is focussed on pouring over spreadsheets and logging your spend daily.
With these money saving tips, you will be able to take control and get saving with no spreadsheets required.
Here’s each money saving tip and how much you will save on average.
Keep reading to find out how to save over €13,000 a year.
Tip 1. Money saving Ireland – Get All You’re Owed (save €1,880)
How do I know how much tax back I’m owed?
There’s a smorgasbord of different tax reliefs you are entitled to as an Irish citizen or resident. The citizen’s information board is always a good place to start (link at the end of this article), but cutting to the chase the big ones are,
Home carer tax credit – €1,800
Medical or dental tax relief – 20% on expenses incurred
Working for home relief – up to 30% of your broadband and heating costs
And, for 2023 the Rent (€750) or Mortgage credit (€1,250)
Example average tax relief saving Ireland 2024 = €1,880
The good news is there are lots of online services out there, with the biggest being taxback.com, that will file the tax paperwork for you in return for a cut of the refund. The average money saving refund received by Irish consumers in 2024 was €1,880. Due to budget 2024 that’s likely to be even bigger this year.
This doesn’t include any benefits you might be entitled to, such as energy credits, working family payment or the fuel allowance.
Workers are in demand right now so you could also consider maximise your income by considering asking for a pay rise, changing jobs or working longer hours.
Next, once you’ve super sized what’s coming in, the next step is super shrinking what’s going out. You can do this two ways.
Buy for less
Buy less
Let’s start with the easiest, buy for less. Switching suppliers usually does pay off as companies know most people don’t bother to make the effort. This allows them to keep prices high for existing customers whilst offering sweet introductory deals for new customers.
The next three tips will take you straight to where you can save the most money in Ireland by switching in 2024.
Tip 2. Money saving Ireland – Switch Your Mortgage (save €3,250)
Contrary to what many think mortgage rates in 2024 are likely to be even higher in 2024 than they were in 2023. With the latest ECB survey of forecasters expecting tracker rates to be 0.5% higher in 2024 than they were in 2023 at 4.25% on average across the year, making the average tracker mortgage rate 5.4%.
There’s even worse news for those on variable or short term fixed rates as those rates are still expected to rise by a whopping 2% to 6% in 2024 as lenders put through ‘catch up’ increases to cover their increased funding costs. Short term fixed rate customers will flip on to the higher variable rates unless they take action now.
The good news though is that you can still fix long term at 4% by switching to the best rates in the market, which would save the average tracker or variable rate customer over €3,000 a year.
Check with your current lender to see if you can now ‘break’ from your current fixed rate for free, due to recent rate increases this is very likely to be the case.
Then talk to a mortgage broker who will find you the best rate, they are usually free to use so it always makes sense to get them to run the numbers and see if it worth your while to switch.
Example average mortgage switching saving Ireland = €3,250 per year
The average tracker customer switching to 4% on the average outstanding balance and loan term will save €1,428. The average variable rate switching to 4% on the average outstanding balance and loan term will save €3,276.
Tip 3. Money saving Ireland – Switch Your Energy Provider (save €723)
How do I save money by switching my electricity or gas in Ireland 2024?
Your electricity or gas service is the same no matter who you buy it from, the key thing then is to simply get the best price.
Lots of new providers have entered the market tempting switching with some great money saving deals. It couldn’t be more straightforward to compare and switch using one the comparison sites like Bonkers.ie or Switcher.ie.
Example average electricity and gas saving Ireland 2024 = €723 per year
The average home in Ireland uses 11,000 kWh of gas (at an average of 14.6c per kWh) and 4.2K kWh electricity (at an average of 46c per kWh) per year.
This means the average gas bill is now €1,606 and electricity now €1,917, or a hefty €3,523 combined.
The good news though is much cheaper rates are still available, with gas as low as 12.7c kWh and electricity as low as 36c kWh.
Switching to these lower rates would bring your gas bill down to €1,393 and your electricity bill down to €1,510, saving you over €700 on current rates.
Tip 4. Money saving Ireland – Switch Your TV Provider (save €456)
How do I save money by switching my TV in Ireland 2024?
With streaming services now offering not just box sets, but live TV as well there are big money savings to be made by ‘cutting the cord’ from old school TV providers.
Providers like Sky or Virginmedia typically charge around €35 a month for their entry TV pack, even though there is the same content available elsewhere for free. Ditch your current provider and get your sports and live TV from a combination of free to air & streaming, you will save hundreds and still get the same shows.
Example average TV saving Ireland 2024 = €456
Replacing Sky’s entry and Sky Sports pack at €77 a month with free to air, whilst getting your Sky Sports straight from the NowTV streaming service for €39 will save you over €456 a year. [5]
Next up, there are whole industries and armies of people whose job it is to get you to part with your hard earned cash everyday. The next three top money saving tips will help you avoid the traps and buy less in Ireland in 2024.
Tip 5. Money saving Ireland – Don’t blow it, Avoid the Urge to Splurge (Save €1,270)
How do I save money by avoiding non essential spend in Ireland 2024?
The best way to avoid temptation? Don’t put yourself in the way of it in the first place. Why do companies spend millions to push their ads, email lists, get your data, offer you easy credit and offer ‘one click’ payment options?
Yep, so you will spend more. Dun & Bradstreet found We are 12-18% more likely to purchase using credit over cash. [6]
As a savvy money saving consumer cut this off at source, don’t sign up to marketing or to one click purchases. Delete your cards from your phone and move your money by standing order every month to a separate savings account where you can’t get at it easily.
Example average saving by hiding the credit card Ireland 2024 = €1,270
Around €11,000 per household per year is spent on credit cards in Ireland according to the Irish central bank [7]. So according to the Dun & Bradstreet study switching this spend to cash would reduce this by 12% at least, saving €1,270 a year.
Tip 6. Money Saving Ireland – Go German (save €660)
How do I save money by going own label or to Aldi & Lidll in Ireland 2024?
The average Irish household spends over €5,500 per year on groceries [8]. According to research in the UK [12] the German discounters were around 12% cheaper than other suportmarkets and just as good quality if not better.
Example average own label saving Ireland 2024 = €660
Even allowing for the odd luxury in your basket, knocking a third off your grocery bill by switching to own label or the German discounters is pretty easy. This would give a saving of €660 a year for the average Irish household.
Tip 7. Money Saving Ireland – Become a DIY Barista & Chef (save €1,521)
How do I save money by paying for less everyday in Ireland?
When you buy a sandwich, coffee or get a takeaway you’re not just paying for the ingredients, but the whole cost of the seller’s business plus the profit that business is making.
According to Irish coffee house 3fe of the €3.50 you pay for your regular Americano only 50c is actually spent on coffee and milk.The rest goes on staff, rent, rates etc.. [8]
That makes it a staggering 7 times cheaper for you to make your regular latte or macchiato at home. I’m not picking on coffee, the same is pretty much true of any takeaway or eat out you can think of, it’s just a great money saving opportunity.
Example average DIY saving Ireland 2024 = €1,521
Irish households spend just over €1K per year on takeaways and eating out [9]. Add to that €7.50 every working day for you to pop out and grab a sandwich and you get just over €3K per year spent on takeaway food and coffees.
We aren’t going to deny you a weekend takeaway or lunch time pick me up, but if you cut by half you are looking at a hefty money saving of €1,521 you would be able to pop in the piggy bank.
Tip 8. Money saving Ireland – Cut Out Cigarettes & Alcohol (save €3,232)
How do I save money by reducing smoking and drinking Ireland 2024?
Known to Irish finance ministers for decades as the ‘old dependables’, beer & fags are the first place to go to raise tax revenues.
This has made both prohibitively expensive and also a smart go to when you want to raise your own bit of revenue by saving money.
The average Irish smoker spends over €2200 a year on cigarettes [10] and the average Irish drinker almost €2K are year [11].
Example average ‘old reliables’ saving Ireland 2024 = €3,232
Based on the averages if you drink and smoke and halve the beer and cut out the fags you would save a whopping €3,232 a year on average. Not to mention the health benefits of cutting down on both.
Next let’s get those interest payments down, nailing money saving tips 1-9, will help you get what you’re owed, buy for less and buy less. This gives you a lot more financial firepower, blasting open the doors on the final money saving tip.
How do I save money by reducing my credit card and loan debts in Ireland 2024?
Outside of your mortgage or student loans which are typically low interest, debt is a money saving blackhole to be avoided at all costs.
Irish households owe €8k on average in credit card and loan debt, paying the 4th highest rate of interest in Europe at 10.3%. [12]
The solution is to start paying down your debt, starting with the most expensive first, almost certainly your credit cards. This is the ‘snowball ‘ effect, where the savings from the interest on one loan can help pay off the next and so on.
Example average credit card and loan saving Ireland 2024 = €900
With the money savings from tips 1-9 coming to over €12K and the average Irish household debt at €8K, you should hopefully be able to pay off all your credit card and consumer loans. At the average interest rate of 10.3% that’s a money saving of over €900. Plus a big weight off the shoulders.
Finally, totting all the savings up from tips 1-9 gives a saving of €12,837, reaching our savings goal target of €12,500 of €7,500 for our rainy day fund and €5,000 for our trip to see Mickey.That puts you on a sound financial footing and on a plane to Florida for the trip of a lifetime.
Money Saving Ireland 2024 – In a Nutshell
So it’s been a money saving whirlwind tour alright,
€1,880 saved, getting what you are owed
€4,429 saved, buying for less
€6,683 saved, buying less
€900 saved, going debt free
€13,892 Grand total saved
Remember, we did all this using only the average national wage of €2,500 after tax, a bit of will power and some money saving smarts.
Money Saving Ireland 2024 – what should I do now?
These money savings are based on averages for Ireland, you will have to take your own case and work out what saving it means for you. You should also chat with a professional financial advisor for any big decisions or one of the state’s financial advice support services if you need help.
If you want to delve deeper into what you can save and how to do it (and why wouldn’t you?). Our other guides and money saving tools including our inflation savings buster tool how to switch your mortgage can be found here.
Lastly, if you are struggling to make ends meet, you aren’t alone. More than half of all Irish adults say financial concerns are a threat to their mental health.
If you are struggling with debt, making ends meet or just need some free independent advice, you should check out the state’s Money Advice & Budgeting Service (MABS) for further help.
