Published 15/11/2012 | 05:00
LET'S be perfectly clear. There are few guaranteed safe havens for your cash these days.
In fact, the concept of a safe haven for any investment fund is a bit of an oxymoron.
With the onset of the sovereign debt crisis that exploded in Greece and has since spread to Ireland and Portugal, and now looks like consuming Spain as well, the once unquestioned security of government-issued bonds has gone out the window.
Even the cash we carry in our pockets and hold in our bank accounts, while often cited as one of the safest havens of all, is itself exposed to long-term risks that severely undermine it as a safe haven for future retirement needs.
In the case of cash, inflation is the greatest risk, and in recent months, signs are emerging that various events in the US and EU could cause inflation to accelerate in the months and years ahead.
Whether or not serious inflation materialises is purely speculative, according to Frank Conway of the Irish Financial Review (www.irishfinancialreview.ie), an independent website offering impartial advice.
"That said, risk is relative and you will still need to actually put it somewhere," he said.
Here Mr Conway provides some of the primary safe-haven options:
Under the mattress
Forget it. It will certainly make for a bad night's sleep.
Plus, it does not pay interest and you don't need the return of inflation to make that lumpy bundle a worthless bundle in 10 to 15 years' time.
National Solidarity Bond
This is probably one of the better options available in the market, according to Mr Conway.
Remember, you do have to lock your money away for a set period of time before you gain the full benefit of a 50pc return.
But it is government-backed and Mr Conway says he doesn't expect it to renege on its promise to pay when the time comes.
Fixed-term deposit accounts
Some banks are still paying a hefty premium of 3pc to 3.5pc, provided you lock your money away with them for a set period of time.
KBC Bank, EBS and Permanent TSB, Rabo Bank (its interest rates are lower as it presents a lower institutional risk), Investec and Nationwide UK are the primary competitors for your money, paying consistently in the region of 3.25pc on your hard-earned money.
It is worth noting that you will be liable for a hefty deposit interest retention tax (DIRT), which will reduce the return significantly.
Remember, the whole purpose for putting cash away to earn a return is to outperform the long-term level of inflation, Mr Conway said.
Otherwise, you will find your money becoming less and less valuable as time passes.
Government bonds, while being savaged by the markets in recent years, continue to offer a level of safety and have returned positively for those who have invested in them.
There are many funds that actively invest in various government bonds as their investment strategy.
In recent years, some top-performing countries (Canada, Germany and the US) have generated low returns while higher-risk countries (Italy and Spain) have returned relatively generously as a means of enticing investors to invest.
Gold has continued to rise in value in recent years as a hedge against both uncertainty in the stock market and rising concern that government-issued bonds carry elevated levels of risk, Mr Conway said.
Gold and other precious commodities carry a level of risk-insulation that has been attractive to many international investors.
However, like all cases in the past, gold carries an elevated level of risk that it could be abandoned as an investment as quickly as it was purchased, if general fears about the sovereign debt issued in Europe begin to abate.
One should invest in physical gold as opposed to through an exchange-traded fund.
Paying a small storage fee would be a wise investment, he added.
Prices in the US are beginning to show a strong recovery.
Here in Ireland, property is also showing the early signs of stabilising after a near five-year fall.
"Property as an investment category will probably remain outside of the grasp of a majority of people as bank lending for this sector is near non-existent," Mr Conway said.
In more recent days, there have been headline stories of quick returns being made on select property types in very select locations.
But property is an asset class that can be difficult to sell, especially in difficult market conditions, he added.
Pay for good advice
There is no substitute for proper independent advice and people should not be afraid to pay someone to take care of their financial well-being.
It is important, however, not to trust someone just because they have a nice suit or drive a nice car.
Understand what you are buying and review every aspect – such as fund choice, charges and performance – annually, is the advice of Mr Conway.
Irish Independent Supplement