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11th June 2024
Hi,
This Blog edition coincides with episode 300 over on the Informed Decisions Personal Finance Podcast, and so doing something slightly different over there – check it out here if you fancy giving it a listen.
And in this weeks’ Blog I’m sharing a few nuggets on the following:
A mate of mine sold his house a few years ago, and parked the money in the bank while he started looking for a new home for himself and his family. At the time he wasn’t sure how long he’d be parking those funds in the bank, but did ask me if I had any ideas as to how to make a few quid on it over the short term. At the time, the options were;
The trouble in this type of a scenario, which is more common than one might think, is that you don’t know how long it’ll be until you need to access it to buy the next house/car/investment etc. When the time horizon is unknown or unknowable, it is a tricky one to square.
How have the different options panned out, and lets assume this is since January 2021, as it was in the scenario I’m talking about, and we’re now at June 2024. Firstly, lets look at what inflation has done to the money in that timeframe!
We have obviously seen higher inflation over recent years than we had in a few decades, so it’ll be no surprise to hear that CSO quote overall inflation is 19.8% in the period Jan 2021 to May 2024 (not exclusively property!).
So the purchasing power of €500,000 in Jan 2021 has fallen to €400,500 in that period of time – which might sound staggering. And it is quite a fall in real value over a relatively short period of time, had you got absolutely zero return on the funds sitting in the bank.
To put it another way, to have kept up with inflation during that high-inflationary period, you’d need to have €599,000 in the bank today, to be able to buy the same amount of ‘stuff’ as you could have in Jan 2021!
Check out the really useful CSO Inflation Calculator Tool here.
We’ve established that to stay apace with inflation, my mate would need to have turned his €500,000 into €599,000. Did Global Equities achieve it during this very specific timeframe?
As you’ll see below, €500k became €745k in the period 1st Jan 2021 to 30th April 2024. That’s a very pleasant 49% growth – far exceeding inflation. In fact it is 2.5 times better than inflation. Of course if this was via an Exit Tax investment, 41% tax is now due on the gains if he draws it down, seeing him Net c€644,000 or a cool 28% net gain over the 3.5 years. That’d be a good outcome!
Some of the above are fair and accurate – it does reduce your chances of success if you invest for the short term, and/or need to access all the funds at a set date in the future to buy a home or give it away etc. However, hindsight has shown us that in this specific period of time, it was a great time to do just that!
So the prudent principles are solid, and there to protect us as investors, but that doesn’t mean it can’t work out!
So what if you had taken a more conservative approach and invested in Money Market Funds?
It is probably being a bit rough on Money Market Funds here because they only really started doing anything in mid 2022, as the impact of interest rates rises pushed them upwards, but lets look at it anyway! And we wrote about Money Market Funds in Q4 2023 – see here for more info on what’s going on with them.
Over the period, BlackRock MMFs delivered a fairly paltry 3.8% Gross – which is of course better than zero, but not a lot better. The net returns would pay solicitors fees and buy some furniture for the new place, so not to be sniffed at.
And the above timeframe is a tad unfair to MMFs, as that same one has returned just under 4% in the past 12 months alone, but the timeframe we have to work with is Jan 21 to today, so that’s what it did!
Clearly, equity has been the place to be in the past 3.5 years, at least versus Money Market Funds but investing your €500k all in equity in January 2021 would have been a very volatile thing to do – you were potentially putting your future home purchase in jeopardy if markets had have fallen at a time you needed to get your funds. Would you have been able to sleep at night? If, on the other hand you know your time horizon is longer term, and that you won’t have to access all the capital at a given date in future you have full reign to get stuck into equity in a meaningful manner.
And the major point here is that we never know what will happen over the short term. Short term market movements are simply unknowable. Longer-term we do know where it is going, but the path it will take to get there is the bit that’d make us all billionaires if we could know! So if you have short term funds, by all means you CAN invest it, but your success is at the mercy of short-term market movements, good or bad!
I get asked fairly frequently about the number of listeners and downloads of the podcast – and my genuine answer in the past couple of years has been ‘I have no idea’! My measure of success with it, once it got up and running, was never about the number of downloads, it was about the feedback I hear directly from people, and whether it is helpful or not to them. It has also enabled me to meet and get to work and become friends clients (I was at a client/friends’ 25th wedding anniversary BBQ this past weekend – congrats David & Sue 🙂 – that’s where the gold is for me in all this.
I have loved, and continue to love the challenge and learning and growth I get from doing the podcast (most weeks!). It is always a challenge to make time, it is often a challenge to sit and write and edit and record, and thanks to Siun, to publish and put it out into the universe! But I love it, I love what it does for people who get value from it, and I love what is has meant for our business and our clients. Lots to love!
Anyway – I had to root out my log-in details to our audio hosting website – and here are the all-time downloads as of 10th June 2024; 481,060 – just shy of half a million. I have no idea if that is good or not, it doesn’t concern me, but that’s the number! I guess it is not bad considering we never advertise, have no sponsor (deliberately) and simply put it out into the universe and let fate take care of the rest!!
We’re keeping our eye out for a super-star Paraplanner to join the Team – does the below appeal to you??
From Day 1, I have said our priority is to ensure our existing clients are well looked after, planned-for and cared-for. Every time we take on a new client I first ensure that we can take them on, and look after them properly, while also continuing to give the high level of care we do for our existing clients. It is part of the reason why we have a waiting list for new clients, and have done so for the past couple of years – we are low volume and high-quality. We only work with nice people!
The time has come for me to find a super-star paraplanner to work directly with me to support our existing clients. They will not be handed a load of clients to look after – they will support me in looking after them.
Here is what the new Paraplanner in Informed Decisions will never be asked to do:
Here is what the new Paraplanner in Informed Decisions will be asked to do:
So, if you think you’d you’re the ideal candidate to join the Informed Decisions team and make a positive difference in the lives of our clients and in the broader world of financial planning, get in touch with me in utter confidence.
If you are listening to the podcast at all – you’ll now have to endure an interview with each of my kids – it was possibly the hardest interviews I’ve ever done!!
Thanks dear reader, I hope you found this a useful piece, and speak soon!
Paddy.
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Informed Decisions are one of Ireland’s only remaining independent financial advice firms. We specialise in retirement & investment planning for successful individuals, so that our clients only have to retire once.