Savings plans: investment options that match your appetite for risk
You’re never too young or old to start investing for your future, says David Murphy of KBC, as he outlines the investment options available to savers at KBC Bank
Savers are eager to find ways to generate a better return on their money. Investing in a managed fund is one option open to them. Photograph: iStock
We work hard for our money. It’s why the last thing we want to feel is that our money isn’t working hard for us. But with interest rates low for money on deposit, it can feel like we’re the ones putting in all the effort while our money is just lying there.
If that’s you then it’s time to make your savings work for you. There are alternative options to simply holding money in a demand account, and now might be a good time to consider them. This is because, while inflation has been low for some time, that might not always be the case.
As David Murphy, network investment manager, KBC Bank puts it, when inflation rates begin to rise above deposit rates, savers can struggle to keep up with the costs of living.
Here’s the science bit. “We’re in a situation in Ireland, and around Europe, where the European Central Bank is keeping interest rates at historic lows in order to try and push inflation towards their target rate of close to, but not above, 2 per cent,” he explains.
The ECB Quantitative Easing programme also contributes to forcing market interest rates lower via their bond purchasing programme.
“The real impact of this programme for Irish savers is that their money is generating 0.2 per cent or 0.3 per cent per annum, after you take Dirt Tax into account, so savers are only barely keeping pace with inflation rates and really are struggling to get a better return,” he says.
“When inflation begins to rise, what you are earning in interest is not going to be enough to preserve the purchasing power of your savings – in a situation like this, by keeping all of your money only in deposits, you could be effectively losing money,” he says.
If you’re keen to find alternative ways to generate a better return on your money, investing in a managed fund could be an option. And don’t be put off just because the talk has moved from saving to investing.
There is a common misconception that you must be very wealthy in order to invest, agrees Murphy, but it’s not true. Neither is anyone likely to be too young or old to start.
“Because deposit rates are so low at the moment, people are now asking about different options. We offer them the option to invest in globally diversified managed funds and make their money work harder,” says Murphy.
Mutual funds option
“Younger customers have mortgages and are less likely to have lump sum deposits so they gravitate towards our ‘Start 2 Invest’ regular investment plan,” he says. “As customers get towards retirement age, they tend to have more cash built up.”
KBC offer mutual funds with three distinctive management styles. They are called Open Balanced; Floor Protected and Momentum. All are open-ended, meaning they don’t have a maturity date and you can withdraw your money at any time.
“Our Open Balanced funds are actively managed mutual funds that contain a mix of bonds, cash and equities, all of which are well diversified so, depending on a customer’s investor profile they can choose from three options which are SIVEK Global Low, SIVEK Global Medium and SIVEK Global High,” he explains.
The Floor Protected options are for customers who like the idea of enhanced protection should market volatility emerge. The Privileged Portfolio Pro funds, while based on the same investment strategy as SIVEK, have a mechanism built in which aims to protect a pre-set floor and so limit potential losses in volatile markets during a given 12 month period. If volatility emerges and the fund begins to approach the pre-set floor, the fund will automatically reduce its risky assets and increase its cash holdings.
“The third strategy is our Momentum option. It seeks to deliver additional returns by constantly re-allocating the fund's assets between bonds and equities according to which asset class is showing the best ‘momentum’ at a given time. Known as our Flexible Portfolio Fund, this option is an ideal addition to a balanced investment which can deliver additional growth over time.”
Not sure what kind of appetite for risk you have? Don’t worry. An investor profile questionnaire is carried out with every KBC customer to ensure that the profile is correctly aligned to their attitude to risk.
We make sure that the customer is always comfortable with their investment decision
“The customer has final say with everything but the starting point is always the risk questionnaire, to help us ascertain what category the customer falls into. We have an in-depth conversation with all of our customers and from that we can make sure that the customer is always comfortable with their investment decision.”
Only then will KBC’s staff make a recommendation in relation to funds which may be suitable to you.
It tailors its advice for those customers new to investing too. “We are always conscious of helping customers who may not have experience with investments,” says Murphy.
“We allow regular investments anywhere from €125 and we’re seeing a big increase in people in their twenties who are beginning to save for a mortgage, for example. They’re starting to invest on a monthly basis in order to try to generate a return on those savings.”
The one thing that is really important for our customers is that we offer daily liquidity
Of course you shouldn’t be dipping into your nest egg willy nilly, there is a risk that the value of your investment may go down as well as up over time, but you don’t have to worry about having locked your funds away forever either.
“The one thing that is really important for our customers is that we offer daily liquidity. This gives you access to your investment. We recommend to our customers that they leave their money for a minimum of three years. But if they need access to their cash, they have the option to do that without penalty,” he says.
Sound good? Then give some thought to just how much work you want your money to do.
Murphy asks customers to think about how long they can be without the money, what they are looking for out of it and how much they are expecting in terms of a return.
“If it’s is a big return then obviously they need to look towards a more dynamic category, which comes with relatively greater risk. If it’s a return just over inflation would mean a more defensive option. It’s all about their expectations,” he says.
And if you expect more of your money, KBC has investment executives available in each KBC hub to offer advice.
For more, see kbc.ie
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