Investments

The following are a number of key issues that are relevant to investment choice:

• Client's financial aims and objectives.
• Savings/investment period: short-term, medium-term, long-term. What amount of cash would you need to cover unexpected emergencies?
• Level of risk/Client attitude to risk: 100% capital security, medium level risk with the chance of earning an above average return, high risk with no upside or downside on the return or ultimate value of the initial investment e.g. stock market investments.
• Taxation implications: what is the most tax efficient choice?

Short-term Options

Interest rates are at 40-year lows. Nevertheless, you will earn a better rate by choosing periods of say 30, 45 or 60 days compared with using a demand deposit account.

Medium and Long-term Options

When comparing interest rates, it's important to check the Compound Annual Return (CAR). A 3-year return of 18 per cent is not the same as 6% per annum, because of the effects of compound interest.
If security is important, a Fixed Rate Bond can be a good choice as you will receive a fixed interest return, after an agreed number of years.

Tracker Bonds are popular medium term investment products that can provide 100 per cent security or at least a fixed percentage of the capital guaranteed. Trackers are generally based on the performance of one, or more international stock markets. The key issue with Trackers is the performance of the chosen markets and the lock-in of your investment for the agreed period.

In preference to investing directly in the stock market, there is the option of pooled investments via Unit Trust or Unit Linked Funds.

These investments can be in shares, State fixed-interest bonds and property. A certain number of units are purchased in the fund with your investment. A Fund Manager manages the fund which can go up or down in value, depending on the changes in the value the underlying assets. The principal difference between a Unit Linked Fund and a Unit Trust is that the Unit Linked Fund has a life insurance policy attached to it.
Depending on the degree of acceptable risk, an investment mix ranging from spectrum of a zero risk fixed interest fund to for example a high risk Japanese equities fund, with much to choose from in-between, can be recommended to the investor.

The 3 categories of Unit Trust and Unit Linked Funds are:

• Secure Funds (low risk) where investments have 100 per cent security (short of a collapse of the financial system).
• Balanced Funds (medium risk) these investments are made in a wide range of domestic and overseas assets, with the objective of achieving enhanced capital growth.
• Specialist Funds (higher risk) These investments are made in a specific asset, e.g. shares or property; or a specific region e.g. Ireland, UK, US, Ireland to achieve high long-term growth.

With Profits Bonds/Policies

The decline in equity returns is prompting life insurers to consider withdrawing from the 'with profits' product market. However, there are some Assurers still left offering reasonably good initial gurantees - most notably Hibernian Celebration Bond.

Investors in with-profits policies, such as lump sum with-profits bonds or regular payment endowments, receive two types of bonus. Once paid, an annual bonus cannot be taken away provided the policy is held to maturity. However, insurers are under no obligation to pay any terminal bonus, whatever the estimates that are given in annual policy statements. Some life companies have cut these bonuses four times in 2001 and the reductions are having a significant impact on maturity values. The penalties for surrendering policies early have also been increased.

The life insurers 'smooth out" bonuses in the good years so that payments can be made in bad return periods. However, the sharp decline in equity values has prompted the steep fall in bonus values. However, in the light of many of the poor current returns in equity unit-linked investment bonds the with profit bonds still appear good value. Here, the stronger the financial position of the with profit life company, the greater is its ability to weather the downturn in the investment market.

Contact us for a personal investment report.