“My wife and I retired nine months ago. We worked as primary school teachers and served for 35 and 40 years respectively. We are in our early sixties. We have reasonable pensions and three grown-up children, one of whom has just finished first year in university. The other two are working. We have no mortgage or loans. Through some cashed-in investments and pension lump sums we have about €200,000 sitting in a bank deposit account. I would like advice on what to do with it. Our investment strategy would be conservative, with minimum risk to capital.”?…… F Murphy
Yours is a common challenge in these days of zero to negative interest rates. The problem is especially acute among the growing community of retired people who find themselves with sizeable lump sums, which in the past would have earned a steady interest rate on deposit. To compound their difficulties, inflation has reappeared, eating away at the real value of cash. Moving from cash involves some degree of risk. The nominal value of your capital is no longer protected and any investments you make may turn out to be worth less than what you started with. That said, stock markets have shown time and again that even the worst losses are recoverable as long as you have time and you are sufficiently diversified.
Moving away from cash should be done with a minimum time horizon of three and preferably five years to allow for up and down movements in investment markets. In identifying how much you have to invest, allow for foreseeable expenditures over the next three years and make some allowance for unforeseen bills. Then a financial adviser can help you determine your risk profile and select funds.
You classify yourselves as low risk, so should limit your exposure to higher-risk assets such as equities and favour investments whose prices are less likely to fluctuate. All the larger fund managers offer what are generally termed multi-asset funds. These are managed to optimise exposure to the most attractive asset classes while also reflecting the risk profile of the underlying investor. It is likely that your investment solution will incorporate two or three funds as the backbone, if not the full allocation, of your portfolio.
Before committing to a fund, get as full an understanding as possible of the expected levels of return and potential risks. You should also get a full picture of the associated costs. The funds market is broad and there are options for everyone. It is vital to enter with your eyes open. The alternative — letting your cash erode in both nominal and real terms over the coming years — is extremely unlikely to deliver the best end result.
Terry Devitt – Head of Investments in Harvest
Originally featured in Sunday Times 22 May 2022.
This marketing information has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and/or capacity for loss of any particular person. It should not be relied upon to make investment decisions.