Sunday 18 March 2018

Taking the risk

As interest rates remain low, people hoping to see a return on their savings need to look at some alternative options to invest their nest eggs in. Here are three of the best, writes John Geraghty

WITH interest rates at an all-time low -- and likely to remain so for at least the coming year -- people seeking a reasonable return on their savings will need to consider an alternative to the traditional bank account.

Investors looking at flat to negative returns (after charges) are being forced to embrace some risk in order to generate positive returns on their money.

In these recessionary times over 75pc of the adults in Ireland are now saving regularly.

Many products are broadly similar in most respects but a few differentiate themselves in the market and my personal three of the best worthy of an investors consideration are:

Aviva Regular Saver

The AVIVA regular saver is suitable for anyone who wants to save a regular monthly sum from €150 upwards for the medium to long term.

Savers also have the option of kick-starting their nest egg by investing a lump sum at the start of their plan.

So whether you are saving for yourself by ensuring you have a nest egg in the future, or if you are hoping to give your children or grandchildren a flying start in life, then this might be of interest to you.

Your money will be invested in one of Aviva's range of investment funds, either managed by Aviva or by one of its fund partners, such as Blackrock -- the world's largest fund manager.

Coinciding with the launch of the Regular Saver, Aviva has also launched a new type of fund. The Protected Growth Fund is for investors looking for exposure to the markets but who still want some protection.

This fund has what Aviva calls a "protected price promise", which aims to protect your money from falling below 80pc of its highest ever unit price.

The fund invests in a broad spread of equities, commodities and corporate bonds and cash. So, a diversified fund with downside protection could appeal to most investors.

The annual management charge varies according to the choice of funds. The majority of funds are managed by Aviva investors and have an annual management charge of 1.25pc.

There are some exceptions such as the UK Property fund or the Euro Financials fund and these attract a higher charge.

Funds managed by the likes of Blackrock also have a higher charge such as their World Gold fund and World Mining fund priced at 1.9pc a year.

Importantly there is no bid/offer spread and the policy fee is only €2.50 per month.

For investors paying up to €250 a month, the amount of the investment that goes into the product is 100pc but if commission is taken it can reduce it to between 98pc and 99.5pc.

If the amount you pay each month is greater than €250 then you can get better rates. Nil commission deals will get you 100pc to 101pc invested.

Financial strength: Aviva has a Standard & Poor's rating of AA and a Moody's rating of Aa3. The Aviva group is the fifth largest insurer in the world.

Irish Life's Signature Saver

Irish Life's signature product, which has a minimum monthly investment of €250, is one of the most transparent insurance savings products on the market.

The company brochures are all written to achieve the clear English standard. The recommended investment period is five years plus and your regular payment buys units in whichever fund or funds you choose from a wide range of leading managers run by Irish Life Investment managers, Fidelity and Bloxham.

They have a total of 24 funds ranging from low to high risk. A popular choice is their Consensus fund which, according to MoneyMate, has been in the top half of the performance table more often than any other managed fund.

It achieved returns of 26pc last year. Its aim is to appeal to investors seeking a half-way house between cash and equities without taking a high exposure to risk. Subject to certain conditions, you can change your savings amount by reducing or increasing contributions or you can stop paying in at any stage or decide to cash in all or part of your savings.

There are no early encashment penalties. The allocation rate (i.e. the percentage of the money you invest that actually goes into the fund) depends on how much you invest and the commission rate your intermediary takes.

If you start at €250 a month then 95pc goes into the fund. For amounts over €1,250 a month the entry charge drops to 96pc.

A broker who takes no commission can set up the same policy with 100pc invested. There is a policy fee of €4.39 a month. The annual management charge depends on the fund chosen. Most fund charges start at 1pc.

In considering a home for your savings I thought it important to look at the present financial strength of the company.

Looking at Irish Life Assurance (ILA) on a standalone basis, Standard & Poor's has emphasised that the company has a strong competitive position as leader in the Irish life and pensions market, it has a strong risk-based capital adequacy and is more resilient than its peers in the economic downturn. ILA is rated separately by Fitch with an A- as its financial strength rating.

  • John Geraghty is managing director of online discount brokers

Irish Independent

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