How to keep your money safe as the Greek crisis gets scary
IT was a hell of a week last week, with eurozone mayhem really kicking off again. There's the ongoing Grexit worry, tumbling stock markets and stagnant GDP everywhere with Germany, Spain slowly revealing how many bodies are buried in its Caja property bank cellars...
All this upheaval causes cascading contagion that affects the future of the euro, which affects us in Ireland. Bigtime.
In a refresh of a subject we've visited several times before, we look at what you can do to protect your pension, lump sum or savings from eurogeddon. And who better to ask than those who help high net worth types do just that.
As Smith & Williamson's Cedric Cruess Callaghan puts it, "The smart money left Ireland years ago -- just ask any wealth manager."
So we asked a few.
Here are six things they suggested for capital protection. This is flight to safety stuff, not high yield stuff. As Cruess Callaghan says, "Rule one is, don't lose money. Rule two is, don't forget rule one."
"One thing is certain," he adds, "Uncertainty is going to last."
'Nifty 50' shares
Shares in popular large cap companies at the top of the major stock exchanges are one refuge. "Companies that have a global franchise and brand power such as Unilever, Nestle, Procter & Gamble, British American Tobacco and Microsoft," Cruess Callaghan suggests. "Companies that don't make expensive acquisitions, have high growth margins and quality management."
But not just that old default refuge of the German sovereign bond -- there are other options.
"The ten-year German bond has a 1.47 per cent annual return at the moment," says Cruess Callaghan. That shows you people are not looking for a yield, but just for the return of their capital.
"We don't think that there's value there -- we prefer inflation-linked bonds and investment grade corporate bonds."
So what are they when they're at home?
Well, investment grade corporate bonds are big blue chip company bonds with multinationals whose balance sheets are stronger than some countries.
Inflation-linked bonds tie into countries that are doing Quantitative Easing. That can boost inflation, thus boosting your returns.
"It helps protects capital value from eroding against inflation," says Cruess Callaghan.
Bank outside Ireland
Helen Cahill of Irishdeposits.ie advises clients that want to explore options to protect their money outside Ireland or outside the euro. Lots of Cahill's clients have taken money out of euro. "Very conservative clients have taken their money and put it offshore," she reports.
"You could take euros and place them in a well-rated bank outside of Ireland or other periphery countries, such as Germany, the UK, France or Luxembourg," she says.
"The only cost of doing that is a fee to adviser to certify the documentation. However, you swap possible enhanced safety for earning power on your money." Lump sum deposits placed in Ireland yield a tasty 4 per cent or so.
A raft of her clients have done this in recent times. "Nobody has taken their money back from there, no one feels the problems have been resolved," she observes.
"But be aware that it's not giving people guaranteed immunity from a potential restructuring. Yes, it's one step you can take, doesn't cost a lot, but not a golden ticket to your money not being devalued in a euro collapse."
Get out of euro
If you're opting for a foreign currency account, then it's important to spread the risk.
"Our advice is, if you are going to do it, do it in diversified way," Cahill says. Don't just buy one currency that leaves you open to a speculative currency attack or a downturn in the local economy.
"Choose a basket of maybe four currencies," she advises. "For example, the Aussie dollar is very linked to the still strong China, the Canadian dollar is very insulated by the US economy. Scandinavian currencies like the Norwegian Krone are appealing as these countries are in Europe but outside the euro."
It can't be stressed enough, and Cahill does, that this is risky. Your currencies of choice could swing in value in double digits, netting you a big win, or nursing a big loss.
"Because the sovereign debt crisis has escalated over the last nine months the euro has weakened, and people have made money on the currencies mentioned above, but that's good luck in my view. The same percentage adverse move could happen."
Beware of hefty embedded margins when doing currency plays, Cahill cautions.
Treasury management advice
A good wealth manager or treasury management specialist can devise a whole strategy for currency management.
"Get good advice on potentially buying non-euro denominated assets such as equities, commodities, bonds with a percentage of your portfolio," says Cahill.
An advisor can also bargain better currency rates for you.
After a near decade-long winning streak, gold prices are weakening, and are currently around $1,550 an ounce. Nevertheless, "it could be sensible for an appropriate weighting of a portfolio," advises Cruess Callaghan.
Sunday Indo Business