If I had a cent for every time someone asked me for safe investment funds in Ireland that delivers good returns, I’d have enough to maybe buy a stamp! People often love ‘safe’ investments, not so much for the financial rewards they offer, but for the psychological safety they might believe they get from them.

However, ‘Safe’ Investment funds in Ireland are drowning in the past year, much to the surprise of many investors. In this short piece, you will learn:

• How ‘Safe’ and Conservative Investment Funds are performing
• Why ‘Safe’ Funds are suffering badly
• What you can do to improve things for yourself

What Are ‘Safe’ Funds in Ireland?

Let’s take a moment to remind ourselves of what Safe Investment Funds typically are and aren’t.

They aren’t:

• Bank Accounts or Deposit Accounts
• Guaranteed not to fall in value
• Expected to deliver much return, other than cover fees and possibly inflation
• a viable long-term investment

They Are:

• Bond and Fixed Income Heavy
• Volatile, above and below capital invested amount
• Usually made up of a small portion of equity, and a large portion of Bonds
• Typically sold to investors with the promise of giving you returns, without the risk!

How Are These Investment Funds Performing?

Medium/Long-Term View:

If you are investing in them, Safe Funds, like any investment that is not speculative, ought to be invested in for the long term. So, let’s look at the longest term we can with a random selection of Ireland’s most popular conservative investment funds (plus another less popular one, for comparison).

You will see that in the period from March 2014 to mid-end October 2022 (8.5 years), most of these conservative funds have delivered positive returns. Only the Friends First Fixed Income has given negative total return in that time frame (more on that later).

If you had invested in 2014 with the hope and expectation of a smooth investment journey, with potential for good returns with none of the risk – you were misled, unfortunately.

Since 2014, if you had invested in the New Ireland iFunds 3, for example, you got the following:

• 2% annualised return (18% over 8.5 years) before fees (so we can say close to 0% actual return)
• Multiple 12-month periods where your value fell by c5%
• Two 12-month periods where your values fell by 10% or more

When you consider that Inflation ran a total of 12% between 2014 and Oct 2022, after fees, you actually lost money in this ‘Safe’ Investment in Ireland.

You can see why, even in what was a decent spell for Conservative Investment Funds in Ireland, they don’t deliver real returns for investors.

I have included a non-standard example above for comparison, just to illustrate how hard these common investment products have to work to get things so wrong! Using a simple conservative portfolio of 40% passive equity index and 60% passive Bond Index, has delivered 45% in that same period.

So we can see that over the medium-long term, Safe Investment Funds in Ireland have delivered mostly positive returns, and some have delivered in excess of inflation and fees, so you have achieved even marginal actual real returns.

Short-Term View:

However, since the start of 2022, things have changed quite dramatically.

From the start of this year, bond funds saw a mass exodus, as investors anticipated interest rates being increased by Central Banks, in order to combat rising inflation data. And, of course, as Central Banks have raised these interest rates multiple times, the bond funds have piled up losses and continued their decline.

In an ideal world, if you are going to invest in Bonds, you buy them just as interest rates have stopped rising and sell them whenever interest rates are about to go up! Impossible to predict – so on the basis that you hold some portion of them in your portfolios, you do so for the longest term possible.

It is easy for everyone (including many advisors who recommended them for years!) to wash their hands of Bonds and say that they are useless and real investors should only buy equities. I disagree, and believe they still have a place in most people’s long-term planning. Just as annuities fell out of fashion – they too may be making a come-back (more on that in a week or two!).

Since the start of the year, the below is the performance we have seen on Conservative, Bond-Heavy funds:

Heavy losses currently across the board. And again, it is Friends First Bond-only fund that has suffered the greatest in the past year, due to the heavy losses faced by Bonds.

What One Can Do About Their Safe Investment Funds

‘Lifestyling’, where your funds are auto-switched from equity to Bonds, has resulted in a lot of people who are approaching retirement to be in Bond-heavy allocations within their pension funds. This is not working out well for them. Lifestyling has always been a busted-flush, and this year is really putting the nail in that particular coffin.

Some saw that interest rates are approaching their peak, and inflation may be coming under control. Nobody knows if that is true or not. However, if it is, then Bonds may have seen the worst of the storm, and could work out well over the coming few years. If it’s not true, then they might have more pain to come before they can get better.

Some say that now is a great time to be buying into Equity, seeing as it is ‘on sale’ by 20-25% of its January 2022 price. Does one sell their Bonds (at a low price/loss) and buy into Equity? If you are trying to time things, then my automatic response is ‘no’.

If it makes sense to your overall positioning and long-term strategy, then perhaps, but please don’t do it on the basis that you think you might know something that even the Central Bankers of this world don’t even know!

As with all long-term investing, patience is key. So, if you can’t or shouldn’t do something about your portfolio right now, perhaps go and do something fun & enjoyable that you can actually control!

Thanks for reading,

Paddy.