Clients advised to move some cash into equities

One of the country's biggest accountancy firms, BDO Simpson Xavier, is advising its clients to consider moving some of their funds out of cash and into equities. The accountants believe that that following euro convergence, wealth may be eroded if interest rates fall below the rate of inflation.

"Financial analysts are forecasting that deposit rates will fall to as 2.5 per cent even on large deposits, while the headline inflation rate could rise to 3.5 per cent by the end of the year.

This will mean that for the first time in modern Irish economic history, those holding deposits will see the value of their capital eroded in real terms.

"Despite the recent turbulence on the world's stock markets, we believe that equities are still a good investment. Over the last 20 years, equities have consistently beaten inflation while the rate of return on equities during the same period was almost three times higher than cash," said BDO Simpson Xavier managing partner Mr Anthuan Xavier.

He said that his firm in advising clients to consider reducing the amount of money on deposit to what is required for shorter-term projects. Those who have not done so should be introducing equities to get a better balance in their portfolio investments.

BDO is specifically recommending Bank of Ireland Asset Management's Eiri Equity Fund which invests solely in Irish and international equities and the Eiri Balanced Fund which invests in cash and gilts as well as equities. Both funds attract a 10 per cent tax rate and are obliged to hold at least 55 per cent in Irish equities

Meanwhile the head of treasury at Equity Bank, Mr Noel Griffin, has warned that the country could be heading for a potential catastrophe if the inflation rate exceeds base interest rates. "As we will shortly be unable to dictate our interest rate it is imperative we control our inflation. The prospect of an inflation rate of 4 per cent with interest rates of 3 per cent does not bear thinking about," he said.