FFGENERAL
Connections Autumn 2012
Welcome to our Autumn 2012 edition of Connections With schools re-opening, and the early signs of autumn arriving on our door steps, September tends to be a month for moving back in to daily and family routine. The important tax deadline of 31st October is fast approaching and reducing that tax bill is always a priority. With the abolishment and reduction of so many tax reliefs across the board, a contribution to a Personal Pension Plan still attracts relief at up to 41%. Over the next 20 years, the number of pensioners is set to double. In these circumstances it will be almost impossible for the state to maintain the state pension at current levels, in real terms. Therefore, even to meet the most basic needs, some form of private pension planning will need to be in place. Access to tax efficient cash is obviously of huge interest to us all and we are seeing an increasing number of clients accessing their pension benefits in order to draw down tax-free lump sums now. The importance of having a pension plan to reduce your tax liability coupled with the comfort of being able to draw down a tax free lump sum from age 60 is worth considering. At a time of continued economic uncertainty and the slowing down of consumer spending, it is interesting to note the increased uptake by our clients in Life Assurance, Serious Illness Cover and Income Protection. The importance of regularly reviewing your existing Protection needs based on your current circumstances has always been important but is now vital.
Whilst this Summer will be remembered by most for the wonderful Olympic games of London 2012 and 5 medals for Ireland, it has also seen somewhat of a baby boom here at CMCC! In July my colleague Mary Fitzpatrick and her husband Finn welcomed their daughter Ella to the world and in early August Conor Carey and his wife Danielle welcomed the arrival of their son Jamie. Congratulations to one and all and here’s wishing the Mums a good nights sleep in the very near future! Georgina O’Leary has joined our administration team in Sandyford and can be contacted on 01 2130733 or at goleary@cmcc.ie Georgina has put together an excellent piece on the forthcoming Gender Directive on Page 3. As always, thanks to you, our clients, for your on-going support and trust. If there is ever anything I can do to help you, please contact me. Conor Murray
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CMCC Financial Solutions
MARKET REVIEW & OUTLOOK by Conor Murray
They also agreed to provide the ESM (European Stability Mechanism) with the ability to recapitalise banks directly once established – breaking the “vicious circle” that had developed between banks and national government. There appears to be a significant shift in Germany’s stance that may have come about through France throwing its weight behind Italy and Spain. Ireland looks like it may come out quite well but we will have to wait and see what exactly this all means for us. Conor Murray
Review The strong market rally of late 2011 has so far continued into the first half of 2012, leaving the average managed fund in positive territory for the first 6 months of this year. Were it not for the losses many investors are still looking to recoup, I suspect a lot of money managers and investors would be happy to leave it at that and sit in cash for the remainder of the year. Perhaps even more encouragingly, market volatility – which spiked sharply in the second half of 2011, has come down considerably. It seems investors are no longer as quick to take fright at every piece of bad news or negative headline. Of course risks remain and the issues that led to all the market volatility in recent years have not gone away. When Mario Monti, the Italian Prime Minister, had declared in advance of yet another recent EU summit that there “was one week to save the Euro” expectations were low that anything meaningful would be achieved. Yet, when expectations were at their lowest, EU leaders surprised us by agreeing on a number of short-term measures designed to ensure the stability of the Euro area.
Markets reacted quite positively with Spanish and Italian bond yields falling sharply (as demand from investors for Spanish and Italian bonds increased). The immediate crisis appears to be once again averted, for now. Though there is a long road ahead to achieving any sort of lasting stability.
The Markets The Eurozone itself is in recession and is likely to remain there in the short term. This is in no small part driven by the lack of confidence in the region as a result of the ongoing debt crisis. Whilst the recent measures announced by the EU leaders are welcome, we will have to wait and see what impact these latest announcements have on confidence in the region. In contrast, the US remains in a solid recovery mode with occasional soft patches and growth spurts. US markets are positive by a couple of percent over the last year. The strengthening of the US dollar versus the Euro was positive for managed fund returns. The US dollar has appreciated by close to 13% over the period enhancing US equity stock returns for Euro investors. China has continued to slow down as policymakers there start to focus more
on growth, now that they appear to have inflation under control. China has been seeking to increase domestic consumption to offset the fall in global demand for its exports with limited success. Now that inflation appears under control, it is likely we will see continued monetary easing.
Diversification – it works When the credit crunch hit there was plenty of commentary how diversification did not work for typical managed funds. Typical Pension Managed Funds have returned on average 6% over the past 12 months against the backdrop of European equity indices falling quite significantly over that period of time as a result of the Eurozone debt crisis. Asian equity markets have also performed quite poorly and all of this was a drag on overall investment performance. However, in any diversified basket, when some assets perform poorly, you look for other assets to perform differently. US markets have held fairly steady. The poor European equity performance has been offset by the weakening Euro and the resulting positive currency returns from holding assets outside of the Euro, in particular US and UK equities. Markets have been a sometimes scary place over the last few years. However, despite the turmoil in global markets over the past couple of years, some managed funds have performed well and investors have experienced some very strong returns. As I have stated so many times in recent years – “Reviewing all of your investment arrangements every 6 months is vital”.
CMCC Financial Solutions
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MIND THE GAP CLOSING IN ON THE GENDER DIRECTIVE by Georgina O’Leary What does this mean for me? This directive does not generally mean any changes to existing policies. Although, as in most things in life, for every winner there is a loser! Below I have detailed some of the changes you might expect when taking out new policies after the 21st of December 2012:
Georgina O’Leary
This year the 21st of December is not just the shortest day of the year it is the day when ‘The Gender Directive’ comes into force. Before now, here in Ireland, many personal policies were weighted by the fact that the insured was either male or female. In some instances this meant premiums were substantially higher for one individual over another, depending on their gender. In 2004 the Council of the European Union introduced this new directive to ensure equal treatment for men and women. Since then a Belgian consumer group, Test Achats, brought a case challenging the right of the insurer to charge different premiums but in March 2011 the European Court of Justice decreed this case invalid.
• Life Cover – males win/females lose: The current male rates will not change too much but females premiums will increase. Now is the time for females needing life assurance to buy. • Serious Illness Cover: As age is also a factor in serious illness cover the lose and gains are harder to substantiate - for younger lives there will be a moderate increase male rates, moderate decrease in female rates - for older lives there will be a moderate decrease in male rates, moderate increase in female rates. • Cancer Cover – males lose/females win: In Ireland cancer is the highest cause for serious illness claims. As cancer claim cases in females are higher than males this caused higher pricing for women. From the 21st of December male rates will increase more in line with this. For males looking to purchase cancer cover now is the time to buy.
• Income Protection – females win/ males lose: As with serious illness cover gender is not the only thing factored in for pricing income protection but even with occupation, past times etc included female rates are still currently higher than males. This gap will be closed with the gender directive so any males interested in income protection should call us now. • Annuities – At the moment there is some uncertainty around whether there will be significant impact on annuities and further analysis will be required to resolve this.
In summary After 21st of December 2012 ‘The Gender Directive’ will mean an increase in rates for some and a slight decrease for others depending on your gender and the cover you require. Now is the time to think about the cover you already have in place and what you may need in the future. If you are unsure or would like a free review of your financial health please call us.
“Before now, here in Ireland, many policies were weighted by the fact that the insured was either male or female. In some instances this meant premiums were substantially higher for one individual over another, depending on their gender”
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CMCC Financial Solutions
ECB INTEREST RATE – SAVINGS OPPORTUNITIES by Stephen Cox
What does this mean in monetary terms? Assuming a mortgage of m300,000 with a remaining term of 25 years and a tracker variable of ECB + 0.70%, the annuity monthly repayment would be approx m108 cheaper and an interest only repayment would be m187 a month cheaper – with an additional m35 annuity and m62 interest only further reduction likely. Taking the interest only reduction of m187 a month, if you pay the higher rate of tax at 41%, this would equate to a retirement (pension) contribution of m317 a month. Assuming you have 20 years to retirement this could bolster your retirement fund by m136,122 – a noticeable amount and could provide the option of retiring a few years early…… Return
Stephen Cox
The following statement has never been more accurate
‘Every Penny Counts’ Some good news over the last 12 months has been the European Central Banks (ECB) reductions of their interest rate, 3 times since November 2011. The ECB interest rate was increased in July 2011 to 1.50%. In November 2011 the rate was reduced by 0.25% and by the same amount the following month, December 2011. This brought the ECB rate to an equal record low of 1%. All great news for anybody with a ‘tracker’ variable rate. Then in July 2012 the ECB reduced their rate by another 0.25% to a new record low of 0.75%, plus a number of experts are expecting another 0.25% reduction before the end of this year.
300,000 250,000 200,000 150,000 100,000 50,000 0
Monthly
Monthly + m100
Monthly + m200
Monthly + m317
It is important to mention that this makes more sense while ECB rates are low. There is complete flexibility in relation to monthly contributions i.e. can remain the same, be reduced or increased at any stage. With interest rates low many savers are looking at ways to make their money work harder. There are many different ways to invest in the stock market. Perhaps the most accessible way is through a regular savings scheme. Putting a little aside each month can soon add up to a sizeable pot of money, which would come in handy for supplementing times such as saving for children when finances are likely to be stretched, school fees, holidays etc. One of the advantages of regular saving, as opposed to investing a lump sum, is that it can produce better returns during volatile market conditions. The financial crash of 2008 knocked investor confidence and some people may feel more comfortable drip-feeding their money into the market rather than investing their savings in one go. In fact, recent research from the Association of Investment Companies (AIC) examining regular saving versus lump sum investment during cautious or ‘bear’ market conditions found that this view was justified. In the last bear market (30 September 2007 to 28 February 2009) a regular investment of m50 per month into the average investment company would have seen a 33% loss in share price total return terms. However, the equivalent lump sum investment would have lost 44% - some 11% more. Crucially, if regular investors had continued investing m50 per month to the end of 2009, thereby benefiting from the rally in markets in the second half of that year, regular investors’ losses would have turned into a 9% gain, whereas lump sum investors who stayed in the market until the end of December 2009 would still be nursing a 16% loss. We would be delighted to carry out a market check for any Personal Quotation you may have in mind.
CMCC Financial Solutions
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CANCER COVER A NEW INNOVATIVE PRODUCT FROM ZURICH LIFE by Marie McNamara While you may not like to think about cancer, you are probably aware of its medical implications and the dramatic impact it can have on your life. But have you ever considered the financial implications of living with cancer? It is estimated that 6 out of every 10 cancer sufferers experience an increase in household bills. Coupled with potential reductions in earnings due to long periods out of work, this can have a significant impact on your finances.
Marie McNamara
Here at CMCC Financial Solutions, we can help you find the protection cover that is right for you and your family. It is important to understand the need to have such cover in place and the benefits and peace of mind that you will have as a result.
“Cancer Cover could be a solution as it can provide financial peace of mind so you can focus on one thing – your recovery”
Cancer Cover could be a solution as it can provide financial peace of mind so you can focus on one thing – your recovery. Cancer Cover was launched by Zurich Life in May of this year. Zurich Life is the only company to offer this cover which is a new and innovative product and has not been available in the past. Cancer Cover pays out a lump sum if you are diagnosed with cancer during the term of the plan, as defined in the Policy Document. Types of cancer that would ordinarily be covered include: • Breast Cancer • Lung Cancer • Gynae Cancer • Malignant Melanoma Skin Cancer • Prostate Cancer • Bowel Cancer • Testicular Cancer • Stomach Cancer
The response to the product has been very positive, especially as the costs involved are much more affordable than that of serious illness insurance making it easier to alleviate financial worries. Male
Cancer Cover
25 35 45
m10.00 P/M m16.18 P/M m39.37 P/M
Female
Cancer Cover
25 35 45
m13.56 P/M m27.70 P/M m56.32 P/M
(age next birthday)
(age next birthday)
m100,000 Benefit
m100,000 Benefit
In 2011, Cancer accounted for: • 81% of female serious illness claims • 61% of male serious illness claims • 47% of death claims Cancer cover is available to anyone aged 18 to 60 with premiums starting at only m10 per month, making it an affordable way to protect your finances against the effects of cancer. Cancer is an illness that can affect anyone – talk to us and protect your financial future now!
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CMCC Financial Solutions
CURRENT INVESTMENT OPTIONS AVAILABLE FROM MARKET PLACE by Peadar Gardiner
Peadar Gardiner
The previous nine months have seen a strong growth in global equity markets. Improved investor sentiment towards Europe was one of the key drivers of the market gains. If you believe there is optimism in the air -- and you’re sitting on a wad of savings, now could be the time to dip your toe in the stock markets or other investments. Below I have recommended some investment products for an investor with m10,000 or m100,000 to invest.
m10,000 lump sum If you have m10,000 to invest and you don’t want to take any chances, a good home for it is the three-year savings bond from Ireland’s State Savings. This bond pays 3.23 per cent interest tax-free so if you invest m10,000 in the savings bond for three years, you’ll pocket m1,000 interest. There is also a five-and-a-half-year savings cert which pays 3.53 per cent interest a year taxfree -- or m2,100 interest on m10,000 after five-and-a-half years.
There are no investment charges on State Savings accounts -- although you have to pay DIRT (Deposit Interest Retention Tax -- tax on the interest earned on savings) on the National Solidarity Bonds.
I would also recommend some EBS deposit accounts for a cautious investor with m100,000 to invest. These accounts such as the High Yield Access Account pays 2.75 per cent interest on savings of m100,000 plus.
If you want to take an optimistic view on the stock market, Zurich Life has a Top Tech 100 fund which replicates the Nasdaq-100 index (a stock market index which includes a lot of US technology stocks). The investment return on that Top Tech 100 fund is up more than 20 per cent year to date!! New Ireland’s Protected Assets Fund is also worth considering. This fund invests your money in five stock market indices -- EuroStoxx 50, FTSE 100, S&P 500, Nikkei 225 and MSCI Emerging Markets. During times of market volatility, this fund increases its exposure to cash to protect the value of the fund. When markets are stable, the fund increases its exposure to the five stock market indices to increase the potential for growth.
If you are prepared to take a bit of risk with a m100,000 investment the Split Maturity Multi Asset Global11 provided by Wealth Options is a good option. This account offers investors a very attractive 10% gross return on 20% of their investment after 12 months and the balance of 80% of their investment is exposed to a multi-strategy absolute return index comprising of Equities, Commodities, Foreign Exchange and Bonds. You must invest your money for 3 years 11 months.
m100,000 lump sum BCP’s Split Deposit Growth account is for the risk averse. This is a capital protected deposit account where the interest earned on part of your savings is linked to the performance of a basket of 25 Blue-Chip Global Stocks. 33% of your funds are invested in a 12 month High Yield Deposit Account paying a fixed deposit rate of 6% AER. This portion is returned to investors after 12 months while the remaining 67% is invested in a 4 Year 3 Month Growth Bond, which tracks the performance of a basket of 25 Blue-Chip Global Stocks. The capital protection here is provided by Bank of Ireland.
So far, the market’s verdict is that we are muddling through. Even if we are muddling through, and if the time is right to invest in Europe or the stock markets, do your homework before you jump into an investment!!
CMCC Financial Solutions
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UNDERSTANDING INVESTMENT RISK by Conor Carey
ultimately may result in you needing to save more or having less to spend.
Long-term inflation is often the real risk While many investors focus on the risk that the value of their savings goes down next year (m100 becomes m90), often the real risk is inflation (i.e. m100 buys fewer goods).
Conor Carey
When you invest, you are putting your money ‘at risk’ even if you put it in a bank account. The challenge is to know what risks you face and to look to manage the consequences of those risks.
What is risk? In simple terms, risk is a measure of the chance that an investment will not be as good as you expected it to be, or were told it should be. It means you might not get back some or all of your money, you might not get as much income (e.g. interest) as you thought, or you might lose your purchasing power and not be able to buy what you need. It may also mean that the investment experience is unsettling.
Understanding risk Understanding the potential negative consequence of an event to an investment is important. If the consequence of an event happening is unacceptable, it is best that the risk is not taken or, if it is, is closely managed. Unmanaged risks present barriers to achieving the financial goals and
Inflation is the rate at which prices increase over time. The effect of this is to reduce the buying power of your money. For example, if you put m1,000 under your mattress today, it would only have the spending power of m781 in 10 years’ time, at 2.5% inflation each year.
Time horizon is important Your investment horizon is fundamental to the risk/reward tradeoff. The longer the investment horizon, the more short-term uncertainty you can expose yourself to i.e. the higher up the risk return curve you can go. However, you are never guaranteed to get a higher return by taking on investment risk and the “long-term” may require 30 to 40 years. If there is not a high level of confidence for the potential of a higher return, it may not be worthwhile taking on the risk.
Willingness to take on risk It is important to have the right level of risk. Taking on more risk than needed can be as bad as not taking on enough. Both can result in insufficient wealth and require a higher savings level. Choosing the right level of risk involves understanding your ability to take on risk (your risk tolerance) and your willingness to take more or less risk than is theoretically right for you, i.e.
your attitude to risk (or risk preference). Your attitude to risk generally determines the type of investments you will choose to invest in.
The investment process Investing is a process that starts with an investor’s current financial situation, determines their goals and establishes a plan to achieve them. The plan to achieve the goals will involve future savings levels, an investment strategy and a risk management policy. Because investment outcomes, particularly over the short-term, are uncertain, part of the plan must also be to periodically review progress towards the goals. For a given financial goal, there is a link between the required savings level and the different levels of investment return. The higher the investment return, the lower the required savings level and vice-versa. The outcome of the review will be to change the savings level and/or the investment strategy over time to increase the likelihood of achieving the financial goals. In most cases, the goals will be expressed as “achieving a particular level of assets at a future date (e.g. retirement)”. The investment strategy is therefore the mix of cash, bonds, property and shares to achieve the required income each year and the risk is a measure that this required income level is not achieved.
“It is important to have the right level of risk. Taking on more risk than needed can be as bad as not taking on enough.”
CMCC Financial Solutions
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MOST COMPETITIVE DEPOSIT RATES ACCOUNT TYPE
INTEREST RATE
A.E.R.
Demand
3.25%
3.25%
35 Day Notice
3.00%
3.00%
12 Month Fixed
3.8%
3.8%
3 Year Bond
9.25%
2.99%
5 Year Bond
16.00%
3.01%
INSTITUTION
All rates were correct at 12 September 2012
FREE FINANCIAL HEALTH CHECK At CMCC Financial Solutions we provide a free and confidential Financial Health Check covering areas such as Pensions, Life Cover, Income Protection, Mortgages and Savings & Investment Opportunities.
Benefits • • • • •
Completely free of charge and confidential Advice from a qualified financial adviser No obligation to purchase We’ll meet you when and where it suits you best It’s quick, a full review will take just one hour
TO BOOK AN APPOINTMENT
CONTACT Dublin Office: Arena House Arena Road Sandyford Dublin 18.
Galway Office: 2 The Friary Main Street Headford Co. Galway.
Tel: + 353 1 2130733
Tel: + 353 93 34033
Website: Email:
www.cmcc.ie info@cmcc.ie
CMCC Financial Solutions is regulated by the Central Bank of Ireland.
3837. Sept. ‘12