A SILVER LINING
RISK-AVERSE OLDER PEOPLE WILL LOSE MONEY IF THEY ARE TOO CAUTIOUS WITH THEIR SSIA LUMP-SUM INVESTMENTS
DEPOSITS are the favoured option for older people who have an SSIA lump sum to invest, but their eagerness for deposits is costly.
This eagerness is confirmed in new research which shows that almost two-thirds of older people who plan to save their SSIA cash will put it into a deposit account.
As well, more than a third of them want an account where their money is instantly accessible, according to the research carried out by Millward Brown IMS for Bank of Ireland.
The reluctance of older people to put money into anything but deposits is losing them money. Half of all money on deposit is earning interest of less than 1pc.
When older people do invest in something other than a deposit fund it is usually a stock-market-related guaranteed investment, where the capital guarantee acts as a drag on performance.
Time is not always on the side of older people. The average Irish man lives to 81, while a woman nowadays lives to 86.
Liam Ferguson of Ratoath-based brokerage Ferguson and Association (www.ferga.com) says the appetite for risk diminishes as people get older.
"The whole idea of stock-market investing was not available when older people were in their 30s or 40s and it is not a concept they want to learn about at this stage of their life."
Older people are also understandably averse to risk because they have lived through periods of hyper-inflation and sky-high tax rates. But Mr Ferguson feels the arguments in favour of a medium-risk investment fund are as valid for older people as for younger people.
"Unless your life expectancy is less than five years, then the best returns are to be had from equity or shares-based funds."
He recommends anyone in their 60s or 70s who is in good health and does not need access to the money within five years to put money into a medium or high-risk fund.
He also recommends choosing a well-diversified fund - one invested in a selection of equities, bonds etc.
New Ireland's Evergreen Fund, Eagle Star's Balanced Managed Fund and Bloxham's High Yield Fund were singled out by Mr Ferguson.
The New Ireland Evergreen Fund is an actively managed fund which is well diversified. Property is one of its components.
The fund has been operating for more than 35 years and has never made a negative return in any five-year period, Mr Ferguson said.
Eagle Star has a good track record and its Balance Fund has some ?1bn invested. It includes equities, bonds and cash and is a medium-risk fund, he said.
A higher-risk option is the Bloxham High Yield Fund, which only invests in companies that pay a good dividend. This has been a good performer, Mr Ferguson said.
Authorised adviser John Geraghty (www.labrokers.ie) says the first and most important thing for older people is to enjoy life. "People should spend part of the proceeds of an SSIA on a well-earned holiday."
But he also recommends that people should continue the savings habit by drip-feeding regular amounts into an investment plan.
Saving regularly averages out the effects of large stock-market swings, and helps limit any losses if markets fall. But it limits the potential for gains if share prices surge.
"If you are considering staying with the company you invested your SSIA in, particularly if it's an equity-based product, then make sure they offer you a roll-over product where you can enjoy a charging structure that does not exceed what you currently enjoy," Mr Geraghty said.
The most popular investment bonds were Eagle Star's Matrix, Standard Life's Synergy and New Ireland's Smart Funds, he added.
For those who want a guarantee that, after a specific period, you get back at least your original investment even if the markets fall, guaranteed bonds are the option. They offer the chance of some gains if the market rises. Mr Geraghty mentioned Eagle Star's new Dynamic 100 Bond.
However, many older people are reluctant stock-market investors. For those who prefer a deposit account, RaboDirect has upped its rate on the first ?10,000 to 5pc. Amounts over ?10,000 earn interest of 3.75pc. The account is only available by using the internet.
Both Ulster Bank and National Irish Bank are paying 4.25pc (annual equivalent rate) for their accounts. Northern Rock has an internet account paying 4.3pc.
If using a branch rather than the internet is your preference, First Active has a 4.32pc rate for a minimum balance of ?15,000. A maximum of four withdrawals are allowed per quarter. Ulster Bank is offering 4.25pc on minimum balances of ?10,000.