Having all our eggs in one basket is unlikely to prove a successful long term investment strategy. For the most part, a balanced portfolio responding to individual risk tolerance, is a better bet in laying solid foundations that will protect our wealth over time.

The risk-averse investor has limited options these days, with deposit rates down around 3% before tax. Tracker bonds and with-profits bonds offer a half-way house between low yielding deposits and pure equity funds, where the risk takers will absorb the shocks and tremors of this volatile environment. Many are comfortable with a mix and match approach.

Investment Commentary – Q1 2015


As 2015 kicks off, investors face a very difficult suite of investment choices. It is becoming increasingly hard to devise investment portfolios in traditional asset classes that will provide returns in line with investors’ expectations.

  • Deposit accounts are paying (best case) about 1% after DIRT
  • Government Bond yields are also on the floor and capital values are expected to fall as interest rates start rising. The bond bubble is getting bubblier.
  • Equities are at all-time highs and have started a period of volatility not seen in a few years
  • Property remains viable but it’s not as attractive as it was a couple of years ago when Moneywise suggested to anyone who’d listen to fill one’s boots with this under-valued asset class.

As a professional adviser, one is drawn to the low volatility of the Absolute Return investment world. If you’ll pardon the mixed metaphor, they’ll never set the world on fire but neither will they take the shirt off your back. A steady and boring 3% to 5% per annum satisfies many a prudent investor in these low yielding times. Clearly anyone looking for a 15% to 20% return in one financial year needs to look elsewhere. However we all now know that if an investment can grow by 20% in a year, it can also fall by the same amount.

Equities should remain the foundation of long-term capital growth strategies; that doesn’t mean I’d be necessarily ploughing new monies in now – after 5 + years of very strong growth. With a nod to Warren Buffet and others, buying in on the dips is an idea gaining traction with our customers.

Themes to watch out for in 2015 include the well-anticipated and long overdue Quantitative Easing programme from the European Central Bank. Informed commentators have been saying for some time now that Mario Draghi would win out against the German opposition to the move. Given its painful period of gestation, we wouldn’t be shocked if the market doesn’t react quite as favourably as might have been the expectation. Too little too late might be the view, but I guess we’ll have to wait and see. Euro investors in US and other foreign assets should benefit again in 2015 from the weaker currency that emerges.

The potential for interest rate increases in the US are also set to dominate the investment landscape. To what extent the economy and crucially the bond markets can withstand the upwards movement in the base rate is unclear at this stage. One can only assume that if the wheels start falling off the wagon, the Fed will carry out a quick about face.

A majority of investment firms are telling us that although we are likely to see heightened volatility in global equity markets in 2015, a strong 2015 lies in wait. To which our observation is: sure isn’t the customer investing in equities how they make their hefty salaries and bonuses. In other words, they would say that, wouldn’t they!

Here in Moneywise we are less convinced. Aside from a temporary blip in the summer of 2011, equities have been a one way bet since the market bottomed out in March 2009. Granted they fell too far by this time and granted valuations (as measure by the price-earnings ratios) are only at the historic 20 year norms. But the US market is up over 200% since March 2009 and the technology sector is beginning to smell like 2000 all over again. (We’re not saying we’ll see another 80% crash as experience in the 3 years from March 20001). Caution is advised.

Part of our reticence comes from an idea articulated well recently by Pramit Ghose of Davy, borrowed from a company called SG Cross Asset Research. Since 1875, the US stockmarket has never increased in value for 7 consecutive years. 2014 was the sixth consecutive year of gains. Of course 2015 could be the first. Significant flows of money from bonds to equities and property could boost share prices.

Moneywise Financial Planning Ltd. is Regulated By The Central Bank of Ireland

Investment Commentary – Q1 2015 (cont.)

So this all brings us back to the boring idea of diversification. No one has a crystal ball. Aside from cash, no-one really has a clue how assets will perform in 2015. One investment house in Dublin (who shall remain nameless) has been predicting 8% to 10% growth for global equities for each of the last 17 Januarys. Did they get it right once?

Moneywise believes that spreading your bets, buying equities on the drip, and involving some Absolute Return strategies and commercial property makes the most sense for 2015 and perhaps for a few years to come.

What else? Tax.

About half of the job of a competent financial adviser in Ireland post IMF/ EU bailout relates to tax. Because the taxman cometh – EVERYWHERE! On an Alan Moore (he of Tax magic fame) Diploma in Tax through DIT a couple of years ago the huge effect the present taxation system has on wealth creation was emphasised, as were legitimate strategies for avoiding same.

Moneywise holds no truck for those who don’t see the need to contribute their fair share. Schools and hospitals and roads and police need to be paid for. And to be honest this is a rare occurrence. But in a regime where almost half of the paltry deposit rates and almost half of the investment returns are paid to the State, it behoves each rational being to try and shelter some of one’s hard earned cash for one’s dotage years or the occasional luxury.

So what can be done? The easiest way is for those with an ability to carry out what they do for a living to do so within a trading company. And, crucially, for profits to be retained within the company. The marginal tax rate (i.e. tax on profit) for a sole trader earning a decent living is now a shocking 55%. A company pays 12.5%. So why would anyone with a facility to pay tax at 55% do so when 12.5% is available?

There are ways and means of extracting company funds is very tax efficient ways down the line, and not just from pension fund strategies. We are often amazed at the number of new customers we meet who do trade within companies who do not leave profits in the company. The word clearly isn’t getting out there with sufficient vigour.

The tax on growth in pooled investment funds of 25% (as opposed to 41% for an individual) makes them an ideal home for the build-up of company assets over time.

What else? There are a few simple things really but we don’t see much of it coming from the mouths of our competitors (with some notable and exemplary exceptions). Any investor with built up capital losses such as shareholders in the banks (and that covers most the 60 plus population of mean) should be going nowhere near pooled investment funds where the exit tax is set at 41% and there’s no off-set against former losses. And yet millions are leaving deposit accounts for these pooled investment funds every week. Assets that attract CGT are the only option here – property and direct equities.

Others tweaks of the tax code getting traction are: the €3,000 annual exemption from gift/ inheritance tax; and the 51% tax break on employer pension contributions as opposed to 40% for employee/ AVC/ personal contributions.

Please pick up the phone and make an appointment to discuss any of the above – 01 6788011

Alan Morton PhD QFA


15th January 2015

Need an Income?

The advantage of unit-linked funds over privately held shares portfolio is that the distinction between capital and income is blurred – allowing for an enhanced income yield. Gross roll-up” investment instruments are tax–efficient to the extent that all taxes are deferred until such time as monies are drawn down. This exit-tax currently stands at 28%. on the growth element. This tax is deducted on each 8th year anniversary or on exit. Among the attractions of this style is that regular transactions like switching within a “gross roll-up” wrapper in itself doesn’t trigger a tax-hit. And where a regular income stream is selected there is a modest tax retention (reflecting only the growth element within draw-down.) The upshot is that with dividend income automatically reinvested in the core funds, there is no distinguishing income and capital. And if growth in the fund (comprising capital appreciation and reinvested dividend income) should stack-up at say 6% p.a. , a draw-down of 5% p.a. is plausible – with capital values remaining intact.