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Connections Autumn 2010

Welcome to our Autumn 2010 edition of Connections. With the summer drawing to a close and children returning to school, September can be an ideal time to review your existing financial arrangements.

how a pension contribution made before October 31st or November 16th (for those who file and pay online) can be used to reduce your income tax liability.

It is worth noting that the cost of Life Assurance, Mortgage and Income Protection has reduced in recent months. In some cases, these reductions can be as high as 15% and many of our customers have taken advantage of these reductions by reviewing existing arrangements during the summer months. Please contact Mary here in the office on 01 2130733 and she will be happy to provide you with information on any potential savings.

At CMCC, we are pleased to announce that Peadar Gardiner has joined our sales team as a Financial Advisor. Peadar is a welcome addition to our team and brings with him a wealth of experience in relation to wealth management and tax planning. Peadar can be contacted on 087 9845132 or at

October 31st has become a very important date for the self employed, and employees including proprietary directors, who wish to reduce their tax liability for 2009. In addition, with the development of the Revenue On-Line Service (ROS) in recent years, the 16th November 2010 is equally important for those with self employed earnings who file and pay online. On page 8, Stephen Cox takes a look at

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As always your comments and suggestions are welcome to I would like to wish every one of you continued luck in your efforts to get through these difficult times. We at CMCC Financial Solutions would be delighted to work with you in whatever way we can.

Conor Murray

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CMCC Financial Solutions

Many investors have emerged from the last three years with two things: a painfully earned understanding of risk and also a desire to recover the losses made in 2008 and early 2009.


Conor Murray

Equities After 4 consecutive quarters of growth, equity markets fell back a little in the second quarter of 2010. Investor sentiment is being pulled between strong fundamentals on one hand and worries about sovereign debt on the other. Generally, consumer confidence and business investment indicators have been positive. Over the quarter, there was a steady stream of good profit reports coming out of the major corporates. The recently published OECD outlook is predicting close to 3% growth in the OECD area (US, Japan and Europe) for each of 2010 and 2011 and emerging markets are expected to do better still. At home the CSO confirmed that Ireland has technically emerged from recession (albeit export led).

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However, much of the focus in the last quarter has been on governments rather than companies. Continuing fears about sovereign debt in the Eurozone has unsettled the markets. The European Union announced significant support initiatives which had a somewhat calming effect but confidence is still fragile. Governments in many countries (such as the UK) have moved swiftly to curtail spending in an effort to control debt. This is of course prudent but there are some fears that concerted austerity in a number of big economies will create a significant drag on fragile growth. There is also uncertainty around how economies such as the US will perform when the various components of the financial stimulus injected during 08/09 are gradually backed out.

Outlook In the short term it is likely that equity markets will continue to move up and down with news flow as the current macro-economic stories unfold. Employment figures will be a key area of focus in the coming months. So far, the recovery in world economies has failed to generate jobs in significant numbers. It is important for sustained growth that this changes. The depressed incomes from continued high unemployment would feed through to a reduction in confidence and depressed demand. The Consensus view of analysts is that the various central banks will continue to hold interest rates at the current

low levels through 2010. However, this benign monetary policy will be balanced by tighter spending policy by the large European governments. The world economy has emerged from recession but is not as yet in robust health and careful and concentrated management by governments and central banks will be required to see the economy through this period.

Leaving (part of ) the past behind Many investors have emerged from the last three years with two things: a painfully earned understanding of risk and also a desire to recover the losses made in 2008 and early 2009. The first is very valuable and should inform investment decisions for many years to come. The second however, although understandable is unhelpful and needs to be left behind. Keeping past losses in mind can lead investors to take higher risks than they would naturally take. At any time, investment decisions should be determined only by investors’ future plans for their money and the level of risk they are prepared to take with that money. In the search for suitable investments, the choice of funds available to investors is now wider than ever. In particular there are more funds available to investors who want their funds managed with a closer eye on risk – making it a little easier to find the right balance between delivering growth and managing risk.

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CMCC Financial Solutions


Without risk there would be no reward and we’d all be a lot less prosperous.


RISK: it’s a small word with a very big part to play in the world of finance. In many ways risk is arguably what drives the whole world of finance. Companies take a risk by funding the development and launch of new products and services, investors take a risk by investing in companies, banks take a risk by lending to companies, and traders take a risk by buying and selling shares, bonds, currencies, and commodities. When the average saver or investor dips a toe in the financial market, they too are taking some form of risk.

Peadar Gardiner

But risk is not necessarily something to be afraid of. Without risk there would be no reward and we’d all be a lot less prosperous. Even the most basic understanding of the nature of financial risk makes it easier to deal with and can help you identify the level of risk that you’re comfortable with as a saver and investor. Saving and investing involves three main types of risk: inflation risk, return risk and capital risk. Inflation risk is where there is a risk that the return you earn on the money you save or invest is outstripped by the effects of inflation. For instance, if you put money in a deposit account that earns 3% in a year, but inflation over the course of that year is running at 5%, then your money will in effect be worth less because the cost of living has risen higher than the buying power of your money. Return risk is where the actual returns earned by a savings or investment plan

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do not meet the expectation you had for it at the start. For instance, if you invested money in an investment fund which had achieved an average annual return of 10% over the previous 5 years, then you might reasonably expect a similar performance for the next 5 years. If it went on to only achieve an annual average return of 4%, you’d have suffered the negative effects of return risk. Capital risk is where the money you invest is exposed to risk and you could loose part or all of your original investment. For instance, if you purchased €1,000 worth of shares and the share price halved before you sold them, you would have lost 50% of your capital investment. Generally speaking, saving and deposit accounts are low risk, where your capital sum is usually protected and you should expect some degree of return, albeit a low one. Investments on the other hand, tend to be higher risk products but also have a higher potential for a good return. There are many degrees of risk and some investments will even provide some level of guarantee so no matter what level of risk you’re comfortable with, there will be a savings or investment product to suit you. Talk to us today to explore the balance between risk and reward that suits your circumstances and your financial goals. We can talk you through the full range of savings and investment products on the market and help you identify those that match your needs and risk profile.

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CMCC Financial Solutions

The most important thing is to ensure that you continue to make your monthly repayments.


Negative equity is a term that’s positively guaranteed to strike terror into the heart of many an Irish homeowner. With so much of people’s hopes, dreams and financial security locked into the value of their homes, it’s perfectly understandable that people get the jitters when the term is mentioned. But what exactly is negative equity, what does it mean for homeowners and what can be done about it?

Conor Carey

Basically, you are in negative equity if the value of your house is worth less than the outstanding balance of your mortgage. If you purchased a property at the height of the market in 2007 with a mortgage greater than 70% of the value then there’s a good chance that you are in or near negative equity. If you’re not looking to move house or raise money secured against your home and you can continue to make your monthly repayments negative equity probably won’t affect you in the shortterm. There are also things you can do now to help ensure that negative equity doesn’t affect your future financial freedom and security. The most important thing is to ensure that you continue to make your monthly repayments. If you are on an interestonly mortgage your repayments will have no effect on reducing the capital you owe on your property.

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So, as property values fall, your level of negative equity rises. Talk to us today to discuss the possibility and financial practicalities of switching to a capital and interest mortgage. By starting to repay part of the capital owing you will narrow the gap between your home’s value and the outstanding balance of your mortgage. It is vitally important that you have life assurance or mortgage protection in place to pay off any outstanding loan balance in the event of death. The cost of life assurance has decreased over the past couple of years, and so it is also important to review your life cover on an annual basis. Finally, our monthly mortgage repayments and mortgage protection/ life assurance payments are all funded from our earned income. While it is a requirement in Ireland to protect your mortgage repayments in the event of death, it is not a requirement to protect your income in the event of accident, illness or disability. If your income were to cease suddenly due to accident, illness or disability, the reality is that you would no longer be able to meet your mortgage repayments. Income protection is a vital part of any sound financial plan.

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CMCC Financial Solutions

How much Life Assurance do you need? As with anything else protection needs are individual and vary from person to person depending on your situation or circumstances. The amount of cover you might need depends on various factors like the size of your family, your income, your age etc. The objective of most types of protection is to replace income as shown in the table opposite. To calculate your need using the above table you should firstly decide what income you would need to protect, i.e. if you need to protect a monthly salary of say €2,000 for 31 years you should think about effecting a policy with €500,000 cover. Alternatively, you could decide on how much premium you can afford to pay and effect a policy with the cost as a guideline.

Capital Sum Required Income Required 1,500 pm

2,000 pm 3,000 pm

4,000 pm

6,000 pm

8,000 pm

10,000 pm


6 years

4 ½ years

2 ½ years

2 years

1 year

11 months

9 months


13 ½ years

9 ½ years

5 ½ years

4 ½ years

2 ½ years

2 years

1 ½ year


22 ½ years

15 ½ years

9 ½ years

6 ½ years

4 ½ years

3 years

2 ½ years


35 years

22 ½ years

13 years

9 ½ years

5 ½ years

4 ½ years

3 ½ years


55 ½ years

31 ½ years

17 ½ years

12 years

7 ½ years

5 ½ years

4 ½ years


108 ½ years

43 ½ years

22 ½ years

15 ½ years

9 ½ years

6 ½ years

5 years

Although it does not lessen the emotional blow of losing a loved one it helps combat any difficulties that their death may cause.

Health Insurance Savings Why Health insurance from Aviva is a better choice for you; • Access to more hospitals, treatment and scan centres than any other insurer • First to cover cervical cancer vaccination • Excellent range of maternity benefits • First and only insurer to cover cord blood stem cell preservation • Discounts on general insurance policies when you have more than one policy with Aviva When you switch from Vhi or Quinn healthcare plans with equivalent benefits, there will be no break in cover, no re-serving of waiting periods and no new exclusions. Talk to us today about reviewing your existing private health insurance plan.

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CMCC Financial Solutions

When the property market stalled in 2007 and then began its downward plunge, many property investors were left with assets that they simply couldn’t sell.

5 RECESSION LESSONS by Mary Fitzpatrick

It’s said that we learn more from our mistakes than from our successes. If that’s the case then smart investors and savers have a lot to learn from the trials and tribulations of the Irish economy over the last few years: Lesson 1: Property is not always the answer

Mary Fitzpatrick

The rapid expansion in the country’s prosperity and population in the late1990s drove the value of Irish property through the roof. Many people stopped seeing their houses as homes and began to view them as assets to be bought and sold in a bid to capitalise on rising values. ‘Unlocking the value’ became the buzzword along streets, avenues, estates, byways and boreens nationwide. Investors began to use whatever money they had available to snap up apartments and houses across the land, banking substantial profits on sales; profits which were fed back into the market to buy more properties. No longer was it enough to own the family home plus another property as a ‘nest egg’, people began to speak about their property portfolios. For many amateur investors there was quite simply no other show in town.

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But the show quite simply couldn’t go on. When the property market stalled in 2007 and then began its downward plunge, many property investors were left with assets that they simply couldn’t sell. Those that did sell were more often than not left nursing big losses. Seemingly bullet-proof and future-proof, Irish property as an investment asset quite simply proved not to be market-proof: in short, it has its up and downs just like any other asset.

Lesson 2: Diversify, diversify, diversify If the dramatic collapse of the Irish property market taught us anything, it taught us the value of diversification. Many Irish property investors appeared to focus their attentions and money on just the one asset: property. This left them over-exposed to the market’s 2007 collapse as they were unable to counter-balance the fall in values with a rise in the value of other investment assets and sectors. Even investing in Irish shares wasn’t a good diversification strategy, because construction and property-related stocks accounted for a sizeable proportion of the Irish stock market. These assets were heavily-correlated which meant that they would

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CMCC Financial Solutions


From householders re-mortgaging to ‘unlock the value’ of the homes to developers borrowing on the strength of rising land values, relatively easy access to credit was driving much of the economy.

experience their ups and downs at the same time. Effective diversification involves the selection of investment assets which are uncorrelated different assets types such as a mixture of stocks, currencies, bonds and property, and different territories such as Ireland, Europe, the Far East and emerging economies such as the BRIC countries of Brazil, Russia, India and China.

Lesson 3: Nothing is certain so protect what you’ve got For years the Irish economy and its citizens seemed certain to always be facing a bright future. Jobs and money were easy to come by and prosperity was more widespread than ever before. Many seemed convinced that things would stay like that forever. But as we saw with the economic downturn, life can sometimes take a turn for the worse. Like the savvy investor who keeps a lump sum of cash on deposit for a rainy day, the savvy citizen would be well advised to protect the things and people who are most valuable to them: their income with Income Protection, their loved-ones’ lifestyles with Critical Illness Cover and Life Assurance. Protection like this offers enormous financial peace of mind in these often stressful times.

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Lesson 4: Never, ever believe the hype Word of mouth is a dangerous thing. When an investment is going well for someone they are often eager to tell others about it, partly to share the news of their good fortune but also because it can work to increase the value of the investment itself by increasing demand for it. The same people will be less eager to share news of an under-performing investment, partly out of embarrassment but also because it can work to drive down its value by lowering demand for it. So many people invested in Irish property simply because its worth as an investment proposition was talked up so much, very often by those with vested interests. This is an example of why you should bypass any hype surrounding an investment proposition by going straight to your independent financial adviser and getting the real, honest facts before making any decisions.

to ‘unlock the value’ of the homes to developers borrowing on the strength of rising land values, relatively easy access to credit was driving much of the economy. With the supply of such easy credit at a standstill and unlikely to return to Celtic Tiger levels, saving and investing your money with the prospect of earning a real return is the smart and secure route to a sound financial future.

Lesson 5: Saving and investing is the way forward So much of the perceived wealth generated by the Celtic Tiger economy was actually money borrowed against the value of capital assets. From householders re-mortgaging

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CMCC Financial Solutions


This is the only day in the year when tax payers with pension plans get the chance to actually get money back from the government.


% of Annual Income

Under 30


30 - 39


40 – 49


50 – 54


55 – 59


Over 60


Tax relief on contributions are subject to an absolute contribution limit of €150,000 per annum from 2009.

Stephen Cox

If you’re a tax payer there is only one day in the year worth celebrating: October 31st. This is the only day in the year when tax payers with pension plans get the chance to actually get money back from the government.

How? Because pensions come with very generous tax relief and October 31st is your chance to maximise the tax relief you enjoy on your pension. Tax payers can claim full tax relief at their marginal rate on the contributions they make to their pension plan. For a 41% tax payer this means that every €1,000 they contribute to their pension actually costs just €590 after taking tax relief into account - for a 20% tax payer the real cost is just €800. For the purposes of tax relief, contributions made to a pension plan are subject to the following limits.

If, however, you have not reached your maximum threshold for pension contributions in a year, you can make a top up contribution to cover the difference for the current and the previous tax year. For example, if you have unused relief’s available in respect of the 2009 tax year, you can make a pension contribution before 31st October 2010 (or before the 16th of November 2010 if you file on-line) and you will receive tax relief in the current tax year. So, if you haven’t made the most of the pension tax reliefs open to you, October 31st is the date to remember. It is true to say that pension plans have received very bad press recently; however there has never been a better time to contribute to your pension plan.

by Stephen Cox

Yes values have taken a huge plunge during the global recession, but now is the best time to either build back up your fund or start a pension plan. Units are at their lowest prices in years and therefore the opportunity to purchase cheap units has never been greater. In addition to purchasing cheap units, the national pensions framework discussed in the previous edition of Connections set out a number of proposals for change in pension’s legislation in the next 4-5 years. One such proposal is the introduction of a single tax relief rate of 33% in respect of pension contributions. Currently, tax relief on pensions is provided at your marginal tax rate up to 41%. Higher income earners have the opportunity to maximise pension contributions and so take advantage of marginal rate relief’s until such time as the framework proposals are implemented. Finally, even if you have stopped contributing to your pension plan, it is important that you review the investment strategy regularly. Please contact us if you would like us to review the investment strategy on any paid up pension plans you may have.


CONTACT Dublin Office: Arena House, Arena Road Sandyford, Dublin 18. Tel: + 353 1 2130733

Galway Office: 2 The Friary, Main Street Headford, Co. Galway. Tel: + 353 93 34033

Website: Email:

CMCC Financial Solutions is regulated by The Financial Regulator

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Connections Autumn 2010  

Autumn 2010 Conor Murray CMCC newsletter Autumn 2010 Dublin.indd 1CMCCnewsletterAutumn2010Dublin.indd1 08/09/2010 17:2008/09/201017:20

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