A little risk may pay off
Some fund managers have of late decided to push the boat out and bring something new to Irish investors
WHILE INVESTORS remain rightly nervous about the ongoing European sovereign debt crisis, inflation is another threat that is getting less attention. Despite historically low interest rates in Europe, for many, soaring inflation is seen as a very real risk in the short term.
In Ireland, inflation is currently running at more than 2 per cent, thus meaning a deposit account earning 2.5 per cent is doing little better than breaking even. Indeed, a recent research report from State Street showed that investors who remained entirely in cash in the first half of 2012 saw the value of their investments decline in real terms.
The message coming out of the State Street report – unsurprisingly perhaps, for a fund manager, but one worth noting all the same – is that investors who are willing to take on a little risk through an allocation to the stock market are doing better than those who remain stuck in cash.
Unfortunately, however, if you are in the market to invest, you’ll find there aren’t many new options out there. Managers have shied away from launching new products due to limited interest, as investors seek out conservative, risk-free options in order not to repeat the mistakes of the past.
In addition, the market has seen some high-profile departures of late. AXA Financial, which had developed a decent product offering for Irish investors, decided to close its Irish operation to new business as it struggled to gain a foothold in the market.
Moreover, the market has further contracted due to mergers like that of Quinn Life, which has been subsumed into Irish Life – although thankfully for investors the larger entity has committed to maintaining the old fee structure of Quinn Life, at least in the short term. Nonetheless, a number of managers have of late decided to push the boat out and bring something new to Irish investors. And if there is a common theme among them, it could be diversification, as managers respond to investors looking to learn from the past by not over-investing in a small market like Ireland again.
Remember, if you are looking to invest money, you can expect your adviser to spend some time assessing your risk profile in order to comply with the new consumer protection guidelines emanating from the Central Bank. Given the number of complaints the Financial Ombudsman receives each year over risky investment products that were sold inappropriately to people, this is a timely development.