Why Invest?
Ireland is now firmly established as one of the European Union's
most vibrant economies. Rapid growth in our economy has given
the Irish investor substantial new found wealth. The significant
increase in property prices, continued low interest rate environment
and economic confidence has led to more Irish people enjoying the
benefits of the Celtic Tiger.
Investing money is an important part of your financial security planning. All too
often people adopt a product-led approach to investing rather than seeking and
adopting a ‘best advice’ approach to investment decisions. Where and how you
choose to invest will have an impact on the return generated.
In the current environment, the return on deposit accounts is barely beating
inflation so they are not an ideal vehicle for long-term investment or wealth
accumulation - to maximise returns you need to consider other investment options.
Your financial goals, current financial situation, investment experience, time
horizon and attitude towards risk all determine your investment “personality”
and the investment option that is best for you. The process of establishing attitude
to risk can be fairly subjective, but an investment recommendation cannot be
appropriate or robust without some attempt at assessing risk tolerance. Investment
advisors go through a process called a ‘fact-find’ before advising clients, which is
important in defining the investment characteristics of a person and relating this
to an investment proposal.
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Some things to consider before you invest.
There are a few things you should consider when choosing how and
where to invest your capital:
Risk
What level of risk are you comfortable with? Risk is linked to return and generally
the more risk with a particular investment, the greater the possible return. Some
people are very uncomfortable with sudden, short-term fluctuations in the value of
their investments. Others are more willing to accept short-term fluctuations with
the expectation that long-term returns may be higher.
Return Expectation
Investors will generally expect to get the best returns they can, for a given level
of risk. The key is to be realistic. On the basis of long-term historic performance
figures, the returns for each asset class will differ.
Time Horizon
What length of time do you want to invest for? Whether you have a short,
medium or long-term investment horizon will impact on the option you choose.
Often the investment objective will determine the duration e.g. investing for
education on behalf of young children is long-term, whereas investing for a
deposit on a house would typically be more short-term.
Access
What access do you require to your funds? A requirement for short-term
access to funds will also impact on your choice. Some products are best suited
to investors who do not require access to their funds, who can afford to leave
their funds invested for 5 years or more.
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What options are available to you as an investor?
As an investor there are numerous investment options open to you.
Direct Investments
You can choose to invest directly in stocks, currencies, bonds, property and cash.
However, to do this you need a good understanding of how investment markets
operate. You will also need to conduct in-depth research to gain an understanding
of the risk profile of each individual security in which you choose to invest. In addition,
you will need to track your portfolio’s performance, track your gains for tax purposes
and provide all the necessary documentation related to trading. The taxation of
gains may also be less efficient than investing through a unit-linked investment.
Deposit Accounts
Deposit accounts offer a guaranteed return over a set term, ensuring the security
of your investment. Lately, however, deposit returns are barely the same as inflation.
This means your investment is not growing in real terms.
Guaranteed Investments
Guaranteed investments generally take the form of tracker funds, guaranteed funds
or with profit funds.
Tracker Funds
These offer returns associated with assets such as indices, commodities or individual
shares, but don’t invest directly in them. They are a good choice if you wish to have
a high level of capital protection over a set term but still wish to participate in the
market upside. However, the cost of guaranteeing your capital is generally reflected
in a cap on the potential return offered and foregone dividends which do not accrue
to the tracker investor.
Guaranteed Funds
These operate in much the same way as tracker funds, guaranteeing your investment
over a certain term. However, unlike trackers, guaranteed funds generally hold assets
directly. This means the funds can be more actively managed and can benefit from
any dividends paid by the assets held.
With Profits
Unitised With Profits funds typically invest directly in equities, fixed interest,
property and cash. These funds generally provide guarantees plus regular bonuses.
Unit-Linked Investments
Unit-linked investments offer you one of the easiest and most tax-efficient ways
to invest. Such funds hold pools of assets, the ownership of which is pro-rata among
the unit holders. Unit-linked funds are pooled investments (covering many types of
asset) held by an investment manager. Unit-linked funds offer you:
- a choice of funds across different assets and geographic areas allowing you to
develop a well-diversified portfolio tailored to your specific needs;
- experienced investment professionals who are well-positioned to identify good
investment opportunities. Using professional investment managers allows you
access to stock markets without the expense and expertise needed for trading
shares directly;
- the flexibility to switch between a wide range of funds at any time during your
investment. This allows you to capitalise on market conditions or to change your
investment as your needs or circumstances change to ensure you always have
the most tailored investment possible;
- a tax efficient method of investment. Your investment in a unit-linked fund will
generally grow free of tax until you choose to encash your policy, or on other
events e.g. assignments, regular income etc. At this point we will automatically
deduct any tax applicable (currently the basic rate of income tax +3%) and
you will have no more tax liabilities.
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Ensuring diversification through unit-linking.
The key benefit behind unit-linked investments is the ability to create sophisticated
diversified portfolios, specific to your individual needs. Whether you are a cautious
investor or you prefer the volatilities of returns associated with pure equity
investments, you can develop a portfolio with a range of funds suitable for you.
This will ensure you maximise your potential returns whilst meeting your
investment objectives.
The Canada Life range of investment funds offers a broad range of diversification
which can be used to create individual portfolios appropriate to all investor’s needs.
Canada Life Investment Funds
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Life Insurance
