First investment/saving scheme

Mutant_Fruit

Basically, i have some money lying around in both the credit union and an AIB bank account, and i'd be interested in doing something with it that would earn me more money than just leaving it accumulating interest.

I was looking at AIB's saving schemes, but the return on those isn't great at all. The amount would be quite small, less than 6k. Whats the recommendation?

ck1

The returns that are quoted to you will more than likely be quoted on growth rates of 6% and 8%. These are industry standard quotation rates however, the acutal return that you get will be dependent on the value of the underlying assets, ie, property, equities, cash or bonds.

If you invest into a cash fund, the most that you would probably get is growth in the region of 3% per annum however this is considered low risk. 3% p.a. would not even combat inflation. Property would in general be low to medium (depending on the properties, areas, etc) most property funds have produced very good returns typically ranging between 10% to 18% over the past year. Equity funds range from low/medium to High risk depending on many factors and often return very good returns however they are much more volitile.

A fund where many people invest in is a typical managed fund whereby in general around 60 -70% is invested into equities (usually spread sector and geographically) 20% property and the remainder into cash and bonds. In general, the higher the equity content the higher the risk within the fund.

The fund/s selection really is down to yourself with help from your advisor. He should be advising you as to what risk catogry your fall into which is not only dependant on your attitude towards risk, but also the reason for the investment, your personal circumstances, your family circumstances, your age, the term of invetment, etc.

Ark life would definately not be my first choice, some of their investment returns leave a lot to be desired and they do not have much of a range of investment funds last time i looked. Check of the life companies such as New Ireland, Hibernian Life, Standard Life, Eagle Star, canada life.

You could also look at topping up your pension prior to 31st Oct and carry it back to 2004 tax year.

Best of Luck.

CCOVICH

For the lowest charges in the Irish market today, check out the unit linked funds offered by Quinn Life or Rabo Direct. I have no connection with either, but I do have money in Quinn Life funds.

Mutant_Fruit

Rightio, i'll check those out. I like the sound of government bonds (low risk :P) but i'll definately check the others out first. It'll be a few weeks and a lot of reading before i decide.

Thanks.

ck1

Government bonds mainly long dated bonds, presently are quite highly priced following a law on Occupational Pensions recently passed in the Netherlands. However there should be some more long term dated bonds issued over the coming months which should bring the prices down. Not the best time to be buying into long dated Government bond particularly if you are purchasing with a single premium.

One particular Government Bond Fund on the market grew by just over 30% in the past 12 months. The previous twelve months is grew at 12%. The chances of this fund doing this again in the future are slim to none, the fund in general probably would average around 7 - 9% per annum.

Short term bonds would not be so highly priced however the coupon value tend to be very low.

If you are looking for five year plus invetment term best options for low'ish to medium risk presently would be a non geared property fund. Some of the geared funds are still ok but you need to look at each fund individually to ascertain its risk profile. Also don't pick a fund just because it has a low management charge, content and management of the fund is important as is who is managing the fund and I don't just mean what company, who are the indivuduals involved, what is their history, track record, what is the companies history, what parameters are set by the company, there are lots of factors.

CCOVICH

ck1 wrote:

If you are looking for five year plus invetment term best options for low'ish to medium risk presently would be a non geared property fund.

Why?

ck1 wrote:

Also don't pick a fund just because it has a low management charge, content and management of the fund is important as is who is managing the fund and I don't just mean what company, who are the indivuduals involved, what is their history, track record, what is the companies history, what parameters are set by the company, there are lots of factors.

Of course there are lots of factors, and if you are serious about investment, you should take the time to research funds you are considering investing in, and CK1 has given some good aspects to consider above.. But remember, the better the management etc., the more charges you are likely to have to pay for the privlege of better management. I never suggested that investment decisions should be based on charging structure alone, but the fact is that fees and charges eat up a lot of investment returns earned in those funds that charge higher fees.

ck1

Geared property funds could be considered a higher risk as many have partial or full recourse to the investors. Additionally, as most of these funds contain mainly UK property with UK loans there is firstly a currency risk but also the lending is based on Central Bank rates (currently 4.5%) or LIBOR which currently is 4.72% not Euribor (which is 2.1%).

Just out of interest I looked at the Quinn Direct brochure for their Freeway investment, strange marketing and it does not give a true picture whatsoever. It is the type of marketing used in the UK by Equitable Life going on that there are virtually no charges – this is not the case. It indicates that there are no charges to switch funds, in fact they only give you two free switches per year all others are charged at €25 per switch, quite similar to many other contracts on the market. But the section which I thought was most interesting was the section on Exit Tax. They state that “If you cash your policy in or assign it, in certain circumstances, you will be liable for an exit tax on any gain that you make on your policy” The fact is that there are ony three way that you will not have an exit charges - 1) If you are a non resident, 2) If you don’t make any gains or 3) If you are dead.

Compare this contract to one particular very large companies investment bond, their annual management charges range from 1% to 1.8% however the 1.8% charge only relates to specialist funds from external fund managers such as Fidelity, etc. The 1% charge is on the majority of funds available of which they have in total 38. The same contract offers six free switches per year.

There are many other comments within Quinn Directs brochure which are also not strictly true, such as it states that “Other Investment Funds” have a bid/0ffer speed however this actually is not the case as many investment contract have got rid of the Bid/Offer spread.

I definitely would not call this a low charged contract particularly as it appears that most of the funds available are tracker funds which do not really need that much management and the American Equity Funds that may need a little bit more management is charged at 1.2% per annum.

CCOVICH

ck1 wrote:

Geared property funds could be considered a higher risk as many have partial or full recourse to the investors. Additionally, as most of these funds contain mainly UK property with UK loans there is firstly a currency risk but also the lending is based on Central Bank rates (currently 4.5%) or LIBOR which currently is 4.72% not Euribor (which is 2.1%).

I know why ungeared funds are less risky than geared property funds, I was asking why you would recommend property funds over any other form of investment?

ck1 wrote:

But the section which I thought was most interesting was the section on Exit Tax. They state that “If you cash your policy in or assign it, in certain circumstances, you will be liable for an exit tax on any gain that you make on your policy” The fact is that there are ony three way that you will not have an exit charges - 1) If you are a non resident, 2) If you don’t make any gains or 3) If you are dead.

Exit tax isn't a discretionary charge, it's a tax, but anyway. If you feel the brochure is misleading in this regard (i.e. with regard to when exit tax is payable) you can of course complain to IFSRA or the FSO.

ck1 wrote:

There are many other comments within Quinn Directs brochure which are also not strictly true, such as it states that “Other Investment Funds” have a bid/0ffer speed however this actually is not the case as many investment contract have got rid of the Bid/Offer spread.

You say that many have got rid of bid/offer spreads, but if not all of them have, so Quinn are prefectly entitled to say that other funds have these charges. Again, if it's misleading, a complaint could be made to the appropriate authorities.

ck1 wrote:

I definitely would not call this a low charged contract particularly as it appears that most of the funds available are tracker funds which do not really need that much management and the American Equity Funds that may need a little bit more management is charged at 1.2% per annum.

Each to their own I guess. I am not a chearleader for Quinn Life, but I don't know of many other funds that allow you to drip feed money on a monthly basis with a low minimums etc.

ck1

My comment with regards to Property was in response to the previous message from Mutant Fruit stating the interest in Bonds. The only real other low risk investment funds would be cash, which would not even combat inflation. As I stated Bond fund presently are highly priced thus presently increasing the risk. I therefore stated that Property was the next best option but a non-geared fund as Mutant Fruit stated his interest in Low risk. I do not recommend property over and above any other investment my comment was in direct response to Mutant Fruit.

I know exactly what Exit Tax is, in fact since 2002 we are very lucky in this country to have this particular regime. They are marketing this investment to Irish Residents and if they make any money on their contract they will be charged an Exit Tax on the growth and the brochure should clearly state this. My comments were stated for the benefit of Mutant Fruit just in case he did view their website and brochure. I have no interest in contacting IFSRA and have no idea who the FSO is. Quinn direct are a small player in the overall picture.

The majority of companies on the market have got rid of their Bid/Offer Spread or should I say the investor can choose with certain companies whether to opt for a contract with either Bid/Offer spread or no Bid/Offer Spread. There also are plenty of reasons why a contract with a Bid/Offer Spread would be recommended but it is always on a case-by-case basis. Their brochure is incorrect as it states that other investment fund do charge a bid/offer spread but as not all of them do their brochure should state some rather than just a yes. This point also is for a lot of other charges they state in their brochure as yes to other companies investment funds. Marketing like this gives people the wrong impression of the contract and of other investment houses. It fine for people like me who know these contracts and can spot this issues but for the layperson it is unfair.

Also there are many bonds on the market whereby you can withdraw a regular income generally up to 7.5% without incurring any penalties whatsoever and many savings contracts whereby there is no charge for withdrawals. When making investment such as these, the investor should take a minimum view of five year and they should leave an amount of their assets liquid to cover the potential that they may wish to have some cash in the near future to avoid dipping into their investments.

CCOVICH

ck1 wrote:

My comment with regards to Property was in response to the previous message from Mutant Fruit stating the interest in Bonds. The only real other low risk investment funds would be cash, which would not even combat inflation. As I stated Bond fund presently are highly priced thus presently increasing the risk. I therefore stated that Property was the next best option but a non-geared fund as Mutant Fruit stated his interest in Low risk. I do not recommend property over and above any other investment my comment was in direct response to Mutant Fruit.

I know exactly what Exit Tax is, in fact since 2002 we are very lucky in this country to have this particular regime. They are marketing this investment to Irish Residents and if they make any money on their contract they will be charged an Exit Tax on the growth and the brochure should clearly state this. My comments were stated for the benefit of Mutant Fruit just in case he did view their website and brochure. I have no interest in contacting IFSRA and have no idea who the FSO is. Quinn direct are a small player in the overall picture.

The majority of companies on the market have got rid of their Bid/Offer Spread or should I say the investor can choose with certain companies whether to opt for a contract with either Bid/Offer spread or no Bid/Offer Spread. There also are plenty of reasons why a contract with a Bid/Offer Spread would be recommended but it is always on a case-by-case basis. Their brochure is incorrect as it states that other investment fund do charge a bid/offer spread but as not all of them do their brochure should state some rather than just a yes. This point also is for a lot of other charges they state in their brochure as yes to other companies investment funds. Marketing like this gives people the wrong impression of the contract and of other investment houses. It fine for people like me who know these contracts and can spot this issues but for the layperson it is unfair.

Also there are many bonds on the market whereby you can withdraw a regular income generally up to 7.5% without incurring any penalties whatsoever and many savings contracts whereby there is no charge for withdrawals. When making investment such as these, the investor should take a minimum view of five year and they should leave an amount of their assets liquid to cover the potential that they may wish to have some cash in the near future to avoid dipping into their investments.

FYI: The FSO is the Financial Services Ombudsman.

I'm not really interested in defending Quinn Life, but I do think that you're accusing them of something which they are not gulity of, i.e. misleading advertising. If it's that bad, IFSRA or the FSO should be informed. But anyway, that's really only a side issue (or a non-issue in my view).

Rather than investing all the money in bonds, the OP could very easily spread their €6k over a number of instruments which will lower their risk, e.g. €1k in a high yielding deposit account (AIB, Northern Rock, or Rabo) and invest the rest in a unit linked fund, or indeed a property bond.

What I will say about property bonds, is that

(a) there are generally higher minmium investment amounts than unit linked funds
(b) if you wish to encash the bond early, you may have to give 6 months notice and there may be an encashment penalty

ck1

All I am accusing them is of being misleading and their literature definitely is and I don’t think that I am being unfair whatsoever. It is them who are being unfair giving an untrue picture. Its fine for people who are either in the industry or have knowledge of the industry however a lot of the Joe public don’t. It portrays them and their contract as being a low charged and low administration charged contract when if fact is it pretty similar to what is available through the majority of investment houses but what you are getting with the other investment houses is a much larger choice of fund and also Fund Managers with a great deal of experience. Quinn Direct only have six funds whereby the majority of investment houses have 40+. Also, compare their Low Risk Bond Fund with practically an identical fund totally invested in Long Term Government Bonds, theirs did 3.53% over 12 months whereby the other fund did 14%. You pay peanuts, you get monkeys!!!! But yeh, each to their own!! Personally I would prefer to utilise an investment manager with a good track record and history and pay a higher management charge then one with relative no track record, little experience with a low management fee.

RainyDay

ck1 wrote:

Quinn Direct only have six funds whereby the majority of investment houses have 40+. Also, compare their Low Risk Bond Fund with practically an identical fund totally invested in Long Term Government Bonds, theirs did 3.53% over 12 months whereby the other fund did 14%. You pay peanuts, you get monkeys!!!! But yeh, each to their own!! Personally I would prefer to utilise an investment manager with a good track record and history and pay a higher management charge then one with relative no track record, little experience with a low management fee.

Just want to be absolutely clear about QL - their funds (except the biotech)are passively managed, not actively managed. They don't have any investment managers. They simply track the relevant index in each case (e.g. top 20 shares on the ISE). I've never seen any research which shows that any fund manager will consistently beat the index. They all have their up years and their down years. So you can choose to pay for the expensive investment managers with little realistic chance of getting a higher return, or you can choose QL, which I'm pretty sure are the only index tracking funds available to Irish investors.

Of course, their funds are quite unpopular with brokers and commission-based advisors as they don't pay any commission to intermediaries. Do you fall into this category?

defiantshrimp

A lot of this discussion has been based on the relative merits of a Quinn Life fund but I have a good alternative to buying them if you want a passively managed fund. Given the following: All the Quinn Life funds (bar one) are passively managed. They also incur an exit tax of something like 25% i think on any gains (I'm not sure of the exact amount but it is higher than capital gains). The management fee is something like 1-1.5% also.

I suggest buying the underlying index that the Quinn Life funds are based on in the form of an Exchange Traded Fund. The management fees are lower (circa .4% for something like the iShares Euro STOXX 50 which is what the Euro Freeway fund is), while the tax on any capital gains is at the rate of capital gains. The major advantages of this are that capital gains is inflation adjusted (unlike Quinn Life’s exit tax) and there is a personal allowance for capital gains every year that means some gains can be tax free (a bit over €1000 at the moment I think). The disadvantages are that dividends are not reinvested and are taxed like normal dividends (i.e highly) and you need to go to a broker to buy the shares. Though the broker costs can be minimized if you pick a cheap one, you just need to do a bit of research. I think that this is a better idea than going with the Quinn Life fund, albeit significantly more hassle. So should you not want the hassle, Quinn Life is the way to go since they are genuinely providing a good service at a competitive price. But for avowed cheapskates like me, the EFT way is the way to go!

RainyDay

defiantshrimp wrote:

The major advantages of this are that capital gains is inflation adjusted (unlike Quinn Life’s exit tax) and there is a personal allowance for capital gains every year that means some gains can be tax free (a bit over €1000 at the moment I think).

While EFT's may be a sensible option, you're not giving the full story here.

Indexation of capital gains for inflation was eliminated a couple of budgets ago. This was a pretty sneaky move by McCreevy which has a major impact on small investors, but got very little attention at the time.

Your annual allowance only applies when a gain has been realised, so you have to actually sell your shares to use this allowance. The allowance can't be carried forward. You'll have broker charges eating into your gains if you have to sell each year, so you'd need to do the sums carefully to make sure this works for you.

CCOVICH

The OP had max €6k to invest. Some of the investment strategies that have been suggested in this thread are plain wrong for an amount of this size.

nesf

CCOVICH wrote:

The OP had max €6k to invest. Some of the investment strategies that have been suggested in this thread are plain wrong for an amount of this size.

I'd agree completely with you but I think the day trading part of this thread was a seperate issue. I think I'll split the thread actually.

CCOVICH

nesf wrote:

I'd agree completely with you but I think the day trading part of this thread was a seperate issue. I think I'll split the thread actually.

Yes, I reckon that's the best idea. The day trading 'debate' was/is of interest to me as well.

zokrez

You are probably long gone Mutant Fruit but how long are you planning to invest money for ? If it is less than 6 years stay away from insurance products, although I think Hibernian & New Ireland do a guaranteed get your money back product, not sure on the minimum premium though. Personally the whole talk about Quinn Life being cheapest doesnt wash with me. For the sake of about €240 commission, LABrokers will do it for less, you would be better going for a sexier fund be it property, geared or not, or equities. If you are planning on tracking funds go with Rabobank and 3 odd per cent return especially if you are not a risk taker. Cheapest is not best. There is a huge danger in taking advice from people who are know it alls on different forums - well at least from people who are not directly connected with investment business. Of course some will be in sales but those that are not in the investment business who give their twopence can provide a distorted picture especially if they are anti commission. There are plenty of brokers who would do such a small amount of money for little or no commission if that is an issue. If you are not going for the easy deposit option go and talk to 3 different sources.

RainyDay

Oooh seems like I touched a sensitive nerve there - You wouldn't happen to be in the business, would you Zakrze? If so, perhaps you could explain

- the risks involved in the 'guaranteed get your money back product', i.e. the reduced participation rates, the loss of dividend income, the lack of clarity around charges etc
- why any of the many funds which LAbrokers offer would be considered 'sexier' than QL, what charges will apply to the 'sexier' funds and why these funds will benefit the investors
- why you mention 'tracking funds with Rabobank and 3 odd percent return' when Rabobank don't offer tracking funds, and the 3% return relates to their deposit accounts, not their funds.


Of course, you're right - cheapest is not necessarily best. But there is no evidence that shows actively managed (or 'sexier') funds consistently beat index tracking funds.

zokrez

You haven't touched a nerve as I'm not involved in the investment business but I assume that you are. I have looked into these matters in the not too distant past for both myself and family members. I happen to know that commission is 4% for an investment. My point is that cheapest is not necessarily best (nor indeed worst) as per Indos cheap buys. Yes I was aware Rabobank is a deposit account and rereading post it could be taken up as tracking fund.

Sexier funds are available from many different sources and there are investment people who offer these at cheaper rates than the low cost suppliers. I am merely pointing out that there are many choices available and decisions should not be based on forum postings (I agree with your worries about Bulgarian property as an aside).

I have had many investments over the last number of years, savings certs, saving bonds and insurance bonds. Some have done well and others not so great. It is from this experience that I say buyer beware. Unless you are prepared to invest your money for the long term STICK with deposit account or buy a painting from the Oriel Gallery with a money back guarantee.

RainyDay

Zakrze wrote:

You haven't touched a nerve as I'm not involved in the investment business but I assume that you are.

Nope - definitely not involved in the business - just a keen amatuer observer.

Zakrze wrote:

I happen to know that commission is 4% for an investment. My point is that cheapest is not necessarily best (nor indeed worst) as per Indos cheap buys.

I've no idea where you get the 4% from - there is no single commission rate for all investments. I'm sure there are some investments which will cost more, and some which will cost less.

Zakrze wrote:

Sexier funds are available from many different sources and there are investment people who offer these at cheaper rates than the low cost suppliers. I am merely pointing out that there are many choices available and decisions should not be based on forum postings (I agree with your worries about Bulgarian property as an aside).

Can you give one specific example of a sexy fund available at cheaper rates than QL? Nice to see that we do agree on the Bulgarian issue, mind you. I'm not so sure I'd agree with your gallery recommendation as an investment. Art for Art's sake, and all that.

zokrez

Actual example that I looked at:

Name Product Allocation Mgmt Chg Bid/offer Funds
Quinn Freeway 100% 1% NIL 6
Eagle Matrix Inv 104% 1% Nil 15
Standard Moneywork 105.5% 0.75% 5% 13

There were at least 10 other companies/products which beat Quinn. Only other cost was €70. Projected values beat Quinn in every example.

madramor

i'm a big QL fan but it looks like using a discount broker can get you
a better deal with the other big insurers and with a better spread
of funds.

nesf

Zakrze wrote:

There is a huge danger in taking advice from people who are know it alls on different forums - well at least from people who are not directly connected with investment business.

When this forum was created I made it very clear that nothing on here should be considered financial advice. It's in a sticky at the top of this forum. All posts here should be taken with a grain of salt, no matter how knowledgeable the person posting might seem.


In short, the purpose of this forum is discuss investing and discuss investing ideas with others. Any advice given on here shouldn't be taken as the last word and I've always encouraged people to get professional financial advice before taking on any kind of investment that is suggested here.

The purpose of this forum is to give people ideas about what they can do, that is all.

CCOVICH

Zakrze wrote:

Actual example that I looked at:

Name Product Allocation Mgmt Chg Bid/offer Funds
Quinn Freeway 100% 1% NIL 6
Eagle Matrix Inv 104% 1% Nil 15
Standard Moneywork 105.5% 0.75% 5% 13

Can you drip feed money into these funds on a monthly basis? What are the minimum amounts you could invest?

Zakrze wrote:

Projected values beat Quinn in every example.

Surely you're not suggesting that people should compare funds based on the performance the fund manager themselves is projecting?

RainyDay

Zakrze wrote:

Actual example that I looked at:

Name Product Allocation Mgmt Chg Bid/offer Funds
Quinn Freeway 100% 1% NIL 6
Eagle Matrix Inv 104% 1% Nil 15
Standard Moneywork 105.5% 0.75% 5% 13

There were at least 10 other companies/products which beat Quinn. Only other cost was €70. Projected values beat Quinn in every example.

That Eagle Star Matric offer genuinely seems too good to be true! 104% allocation rates and no bid-offer spread. What's to stop me investing €10,000, getting €10,400 worth of units (due to the allocation rate), selling the next day and walking away with 3% (net of charges) profit in one day?

CCOVICH

RainyDay wrote:

That Eagle Star Matric offer genuinely seems too good to be true! 104% allocation rates and no bid-offer spread. What's to stop me investing €10,000, getting €10,400 worth of units (due to the allocation rate), selling the next day and walking away with 3% (net of charges) profit in one day?

An early encashment penalty maybe? I don't know anything about the Eagle Star product, but I'd imagine that extra allocation is only available through brokers, or for amounts invested over €xxxxx.

D'Peoples Voice

ck1 wrote:

There are many other comments within Quinn Directs brochure which are also not strictly true, such as it states that “Other Investment Funds” have a bid/0ffer speed however this actually is not the case as many investment contract have got rid of the Bid/Offer spread.

I used to work in the pricing of these products and the reason the bid/offer was removed was for marketing/illusion purposes.
You see the company must make the same money approx regardless of their charging structure because they still have the same overheads.
They estimate the average term of a policy, and work out how much of a mgt charge we would impose if we remove the bid-offer spread.
The fact is for most funds you are worse off if there is no bid-offer if and only if you stay in for several years.
A few years ago, the mgt charge was (99.9% of the time) 0.75%p.a and there was a 5% bid/offer.
Nowadays they talk of no bid/offer, but the mgt charge is now 99.9% at least 1%p.a.
what people don't realise is that when you are thinking of setting up a plan, you always say ah well I may only be in for a few years, therefore I'lll go for the fund which gives the best early values. More often than not, people get used to saving, and they save for longer than they expected, and they work out worse off for not going for the plan with the bid/offer and lower mgt charge.
Just something to bear in mind when investing!

waz

In relation to the QL freeway fund you pay the 20% capital gains tax - your personal allowance on any potential gains.... is this not the case with all funds / investments ??? also there is an additional 3% charge added... what is this all about??? is this not an exit charge that they say that you DO NOT PAY??? or is this added by Revenue dept.

ck1

The 23% exit tax is not a CGT tax, Exit Tax is basic rate tax plus 3%, your personal allowance does not come into it in anyway. Pre Gross Roll up in this country funds were taxed on an annual basis within the fund so you did not previously get compounded growth. The way we have it now is extremely beneficial, it is much better than pre Gross Roll Up.

In relation to charges, all contracts have various charges, but if you really want to make a true comparison you should look at the ROY figures on the illustration. Each company must quote illustrations on 6% and 8% growth apart from With Profits and Cash, which I think, is quoted at 3% and 5.25%. The ROY figure shows you the affect of the overall charges to the growth particularly in the first few years, which is when, any exit penalty exists.

Some companies have got rid of their Bid Offer Spread and increased their Annual Management Charges, whilst some have increased the Management Charges marginally but increased the policy fee or increased the redemption penalty, every contract is different there are so many variations.

In relation to what Wax said "is this not an exit charge that they say that you DO NOT PAY??? " all contract are subject to exit tax if taken out after 1st Jan 2002 if you are Irish resident, the only time that it cannot be charged is on death.

As D'Peoples Voice said, you are best taking a late value contract if you are intending staying with it, but anybody going into one of these should be taking a medium to long-term view.

This then raises the question as to why PRSA's are actually early value contacts. While yes you can move you fund to a new employers contract but why not just move the contract if you are happy that it can accommodate you and has plenty of investment funds for switching. Early values on PRSA AVC's can be good in certain circumstances but the effect of continuing moving a PRSA from contract to contract can be very detrimental unless counteracted by much improved growth rates.