FFGENERAL
Connections Autumn 2011
Welcome to our Autumn 2011 edition of Connections Since our last edition in Spring of this year, the investment markets have lived somewhat of a turbulent life. Reviewing your existing Pension and Investment plans is always important but now more so than ever to ensure your existing arrangements continue to match your attitude to investment risk and future financial aspirations. In Spring of 2011 we launched our “House View” in relation to investment planning. This has proved to be very popular with many of our clients and an update based on the current levels of volatility being experienced in investment markets is outlined on Page 3. The Insurance Market has become very competitive with regard to options for investing money over a 5-7 year period. Whether your attitude to investment risk is Cautious, Balanced or Adventurous, there are plenty of options available to you. Should you require some further information on this please contact the office.
The important tax deadline of October 31st is approaching and with changes to tax relief on Pension contributions on the horizon this is the last year that any payment made to a Pension Plan will attract relief at 41%. With so many of the tax loop holes now closed off, a pension plan remains an attractive option in reducing your tax bill. We will be in touch with you during the month of October to explain this in greater detail. At CMCC, I am pleased to announce that Marie McNamara has joined our administration team in our Headford office. Marie has put together an excellent piece on savings & investments which is well worth a read. Finally, don’t miss the opportunity to take part in our exciting competition on page 8! Conor Murray
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CMCC Financial Solutions
Many risks remain in the market. However, over the longer term I believe these will be resolved simply because they must.
Investment Review by Conor Murray
Background A number of issues have been weighing heavily on investment markets in recent times – fears of a slowdown in the US economy, troubles in the Eurozone as the sovereign debt crisis spreads from the so-called periphery to Spain and Italy, and the downgrading of US bonds from AAA. Markets have been turbulent for many months now and as I write fell sharply over the last month. Conor Murray
Bond markets have also been difficult, although interventions by the ECB have helped stabilise things somewhat further efforts are needed over the coming months to ensure this stability is not short lived. The bigger worry at the moment is around the strength of the global economy and renewed fears of a double-dip recession in the US. This combined with fear and uncertainty over both the Euro and the dollar has been driving equity markets lower.
What next? There have already been major interventions by the ECB, G7 and others to try and calm markets. Whether or not this will be enough to calm investor nerves is unclear. The short term, unpredictable at the best of times, is particularly uncertain right now. The long term is more positive. It’s clear that world leaders are taking the current problems very seriously and more concerted efforts are likely in the days ahead.
Short-term panic in stock markets inevitably leads to buying opportunities and investors willing to and able to take a long term view should be rewarded. For many customers, riding out the current market troubles is the best thing to do. The current level of market volatility is unusually high but should not take away from the expectation that equity-based funds will outperform over the long term. For some customers, recent volatility may be too much, particularly if it is combined with a change in financial circumstances. If lower risk funds are of interest to you, please talk to me.
Outlook Different fund managers will have different opinions on where equity markets will move in the short term. The short-term markets are notoriously difficult to call as the issues that affect the short-term markets movements change too quickly. Many risks remain in the market as outlined above that will make for turbulent markets in the short term. However, over the longer term I believe these will be resolved simply because they must. The key for us at times such as these it to maintain our focus on the longer term picture. History tells us that the markets do have the power to resolve serious issues given time.
CMCC Financial Solutions
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CMCC Financial Solutions – 2011 House View When building an Investment Portfolio it is helpful to know how correlated the funds you choose are. To get a smoother return on a Portfolio, it is normally recommended that you diversify your investment across a range of asset classes which have their ups and downs at different times. (i.e. uncorrelated assets) Different fund mixes will have lower and higher volatilities depending on the correlation of the funds together and the volatility of the funds individually. Combining different funds we have put together some sample asset mixes for those with either a Cautious, Balanced or Adventurous attitude to investment risk. 50%
CMCC Stable Strategy
14.5%
Fixed Interest/Bonds
Protected Equity
18.5%
Equities
14.5%
Fixed Interest/Bonds
6.5%
Currency
18.5%
Equities
8.5%
Absolute Return
Assets 50%
50%
Annualised Volatility:
14.5%
3.409%
6.5%
Protected Equity Fixed Interest/Bonds
Currency
2%
8.5% Absolute 18.5% Return Equities 2%
6.5% 8.5%
CMCC Growth Strategy
2%
Assets
Cash
Currency 50%
Cash
1.5%
50%
Protected Equity
3.5%
24% Fixed Interest/Bonds
24% 3.5% 5%
5.932%
Assets
Annualised Volatility: 8.272%
50% Protected Equity Protected50% Equity Protected Equity
Cash
24% Equities 24%
Cash Cash Equities Equities
5% Emerging Market Equities 5% Emerging Market Emerging Equities Market Equities
Equities Fixed Interest/Bonds
6.5%
1.5% 1.5%
Currency
6.5% 6.5%
Currency Currency
Emerging Market Equities
3.5% Absolute Return 3.5% Absolute Return Absolute Return 6% Property 24% Equities 6% Property 6% 3.5% Absolute Return Property 50% Protected Equity 5% Property 6% Emerging50% Market Protected Equities Equity Interest/Bonds 3.5% Fixed Protected Equity 50% 6.5% Currency 3.5% Fixed Interest/Bonds 1.5% Cash 1.5% Cash 3.5% Absolute 1.5% Return Cash 24% Equities 26.5% Equities 50% Protected Equity 6% Property 24% Equities 1.5%
6.5%
CMCC Opportunity Strategy
Cash
3.5% Fixed Interest/Bonds Absolute Return 3.5% Fixed Interest/Bonds 3.5% Fixed Interest/Bonds
Protected Equity 50% Cash 1.5% 5%
Annualised Volatility:
Protected Equity
Cash
Currency
3.5%
5% Emerging Market Equities Emerging Market Equities Emerging10.0% Market Equities
1.5% 50%
Cash Protected Equity
26.5%
Equities
5%
6.5% Currency12.0% 10.0% Emerging Market Equities 3.5% 26.5% Equities3.5% Absolute Return 12.0% Currency 6% 10.0% Emerging6% MarketProperty Equities
1.5%
12.0%
Cash
6.5%
Currency Currency Absolute Return Property
Currency
The Future is always an uncertain place. However, we believe that where care and knowledge are used to select the right mix of assets in a portfolio, these portfolios will survive and thrive in the ups and downs of the market in the future. As always, reviewing your Investment Portfolio regularly with one of our Financial Advisor’s is vital. Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment may go down as well as up. Warning: Funds may be affected by changes in currency exchange rates. *Also called a Risk Measure Annualised Volatility calculated from period 18/08/2008 - 18/08/2011 *Source MoneyMate Volatility measures the change in the value of an investment over time when compared to a market average. The greater the volatility of an investment, the more risky it is in the short term. Investing for a long period of time can help to smooth out the effect of swings in the value of an investment.
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CMCC Financial Solutions
5 Golden Rules for savers and investors by Marie McNamara
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Marie McNamara
Achieving our financial dreams and ambitions takes a long time and sometimes there are ups and downs along the way. There are 5 simple rules which will take much of the gamble out of your savings and investment plans:
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Save or invest little and often
Starting save or invest is perhaps the biggest step of all. Which is why starting with a little amount of money every month makes taking that first step so much easier. You can find your feet in the market, get used to seeing your money begin to stack up in a saving or investment account, and you’ll probably not notice much difference in the amount of day-to-day cash at your disposal either. Many prospective investors put off investing because they tell themselves that the market timing isn’t right, but investing little and often means that you benefit from buying more units when the market is low and get to experience stronger growth when the market is high.
S tick to what you know and understand
The investment market is just as prone to new fashions and trends as any high street. Like the high street many of these come and go within a season or two. In spring everyone might be talking up funds that invest in South American food companies, in summer it might be ethical stocks, and in autumn it might be property in the Baltic States. You’ll hear plenty of reasons why this season’s investment dead-cert is different, but if you don’t know or understand what you’re investing in then don’t bother. Instead, talk to us about investments that make sense to you.
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D on’t put all your eggs in the one basket - diversify
Every investment asset has its ups and downs but it’s very rare that all investments assets have their ups and down at the same time. So even when one asset type, say property or shares, is out-performing all the others, don’t be tempted to put too much of your money into that asset - because you can be sure it’s run will come to an end. Spreading your money across multiple assets means that you will gain when some of them are rising, and not lose too much when some of them are falling.
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Don’t always go with the flow
The investment market goes through phases when certain sectors rise and rise and rise. The Asian tiger of the mid-1990s, the dot-com bubble of 1999/2000, and the property bubble of the 2000s. Investors who bought into these phases would have seen their investments soar in value over the space of just a few years. Getting in was easy, but knowing when to get out was much, much harder and thousands of investors saw their gains and much of their capital evaporate in just a few weeks. Although it can take considerable willpower to resist jumping onto the latest ‘sure-fire bet’, playing safe with proven longer-term investments tends to deliver solid if not always spectacular returns over the medium to long term.
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Understanding the small print
Being an active investor or saver is a very good thing. But there is also such thing as an over-active investor and saver: one who is constantly moving money around in search of a better return or jumping from savings plan to savings plan for a better rate. This is where transaction and management charges can eat into the returns made by the investments or savings, so always read the small print and talk to us about the costs, charges and potential early surrender penalties that apply to the different products and plans you may be considering. Talk to us today to discuss putting a tailored strategy in place for your savings needs!
CMCC Financial Solutions
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What now for the Euro? by Stephen Cox
For the bailout three – Ireland, Greece and Portugal – less onerous repayment terms on rescue loans were granted. The cut in Ireland’s interest rate was doubly welcome. It lowers debt-servicing costs, and with it the risk of default. But it also signals the effective end of France’s campaign to have Ireland raise its corporation tax rate. President Nicolas Sarkozy said he supported better bailout terms for Ireland because it would have been “deeply unfair” to punish countries that had made “major efforts” and respected their rescue deal commitments. Stephen Cox
Well the cat is now well and truly out of the bag. Or rather the bailout is well and truly out of the bag. The single European currency is facing its biggest crisis since it was launched more than a decade ago. The severe debt problems facing its members, Ireland, Greece, Spain and Italy amongst others has intensified the debate about the future of the Euro, which binds together 17 members with some very different economic policies. In line with most peoples expectations the Eurozone leaders have recently bought themselves much more time for Greece to pay back its debts. By lowering interest rates on existing loans and providing a system of loans to businesses the idea is to not only decrease the amount of interest the country pays (which has been crippling) but also to create the growth necessary for Greece to stand alone and pay its debts themselves. The multiple positives in July’s package should be welcomed.
The interest rate concession should not be understated, whatever its size in cash terms. Ireland, and the other two recipients, will be given money at lower rates than can be raised by many Eurozone countries which have not been bailed out, including Spain and Italy. The reduction in interest payable to the International Monetary Fund will represent an annual saving next year of more than €1 billion for Ireland!! It is to be hoped sincerely that the measures agreed mark a permanent turning point. Unfortunately, this is unlikely to be the case. With the Eurozone crisis having since spread to both Spain and Italy, the single currency endgame is now being played out. With Irish bond yields and the cost of insuring Irish government debt back up at close to record levels, the market is betting against this country being part of a new, slimmed-down Eurozone. The sums now being spoken of to “fix” the Eurozone are truly mind-boggling. At the time of the first Greek bailout in May 2010, the EU established the €440bn European Financial Stability Fund (EFSF), aka the bailout fund.
When matching funds contributed by the International Monetary Fund (IMF) are added that gave the EFSF a lending capacity of €750bn. Although such an apparently huge sum was more than sufficient to finance the Irish, Portuguese and two Greek bailouts, it is hopelessly inadequate to fund either a Spanish or Italian bailout. Analysts now reckon that the combined EFSF/ IMF lending capacity will have to be massively increased. Figures ranging from “only” €2 trillion to as much as €3.5trn have been bandied about as being necessary in the event of any Spanish and Italian bailouts. A €3.5trn EFSF could only be funded by Germany and would represent a proto-Eurozone treasury, with the power to dictate national budgets, in all but name. Would Germany be prepared to pony up that sort of cash, which would, of course, threaten to tarnish its own Triple A credit rating? Even if it was, would the peripheral Eurozone countries be prepared to accept the loss of economic sovereignty implicit in such a move? The answer to both questions is almost certainly “no”.
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CMCC Financial Solutions
Eligible Liabilities Guarantee Scheme (ELG) by Mary Fitzpatrick
Participating Institutions are: Irish Life and Permanent plc
AIB Bank (CI) Limited
Irish Permanent (IOM) Limited
AIB Banks North America Inc
Bank of Ireland
Anglo Irish Bank Corporation Limited
Bank of Ireland Mortgage Bank
Anglo Irish Bank Corporation (International) plc
The ICS Building Society Bank of Ireland (IOM) Limited Allied Irish Banks plc AIB Group (UK) plc
EBS Building Society Irish Nationwide Building Society Irish Nationwide (IOM) Limited
Mary Fitzpatrick
Guarantees apply per account in each of the participating institutions as listed below: The ELG Scheme commenced on 9th December 2009. It is an unconditional and irrevocable guarantee, given by the state to institutions which joined the scheme. It covers all amounts over €100,000 on deposit with the participating institutions, as the first €100,000 of a deposit with an institution is cover by the Deposit Guarantee Scheme, which doesn’t have an expiry date. The current expiry date for the ELG Scheme is 31st of December 2011, and this date can be extended further to 30th June 2012 with EU state aid approval. Any announcements regarding an extension will be made before 31st of December 2011. The ELG Scheme is separate to the blanket guarantee granted to the Credit Institutions Financial Support Scheme 2008 (2008 CIFS Scheme), which expired on 29th September 2010.
emand Deposits and Current D Accounts Amounts over €100,000 guaranteed until 31st December 2011
Fixed Term Deposits Amounts over €100,000 are covered for up to five years as long as deposit is made before 31st December 2011. If deposit was made before the Institution joined the ELG Scheme it would be covered under the Credit Institutions Financial Support Scheme (CIFS) which expired 29th September 2010.
Notice Deposits Amounts over €100,000 guaranteed until 31st December 2011. If you have given notice, but it is not up until after 31st of December 2011 ELG will guarantee your deposit until end of the notice period.
Corporate Deposits All corporate deposits, of any duration up to five years, guaranteed until 31st December 2011.
Debt Securities Senior unsecured certificates of deposit, senior unsecured commercial paper, other senior unsecured bonds and notes guaranteed. In order to be an eligible liability a debt security must: • be incurred by the relevant institution between the joining date and 31st December 2011 • have a maturity date of less than 5 years • not contain an event of default • be a single currency denominated in either euro, sterling or US dollars, or any other currency approved by the Minister for Finance.
The future of the ELG Scheme is subject to six-monthly review and approval by the EU Commission in accordance with EU State aid rules, next review date is 31st December 2011.
CMCC Financial Solutions
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Ireland Inc - It’s not all bad! by Conor Carey
Indeed it is moving rapidly towards a sizeable current account surplus – in a range of 3 to 4 per cent of gross domestic product. Of course, recession has also played a role in turning external accounts around, but a steady uptrend in exports has been underway for some time.
Conor Carey
Markets and rating agencies, not to mention academics, often make glaring errors in judging country risk. All too often this is by failing to notice a change in macroeconomic fundamentals that really does matter. As the crisis moves through its nadir, one major error is almost certainly the market’s assessment of Ireland’s public debt. As a group, the troubled periphery economies have faced three challenges: achieving a leap in competitiveness that will restore growth; convincing markets that public debt is on a sustainable track; and normalising the access of banking systems to market funding. These three challenges have become inextricably linked. In Greece, deep-rooted fiscal problems have infected the financial system. In Ireland a banking debacle has swollen public debt. And without strong competitiveness to relaunch growth, this aggregate debt dynamic story can have no happy ending at all. So the first and most important thing about Ireland is that it is swiftly restoring its competitive edge.
The second element is that Ireland’s net public debt will probably peak at somewhere around 110 per cent of GDP. This is a steep challenge; but it is a magnitude that Ireland, among other advanced countries, has shown to be entirely scalable in the past. It is increasingly clear, too, that Ireland does not need to borrow from markets until 2014: that is the sort of borrower that markets can relearn to love. The third issue is Ireland’s banking saga. The Achilles heel of the economy lay in bad bank governance and supervision, and a subsequent hard landing that neither the authorities nor the International Monetary Fund saw coming. But today there is a growing recognition that this corner has been turned. Steps were finally taken at the end of March to draw a line under the problem with recapitalisation based on a tough set of stress tests and a sharp division of core from non-core assets in the two “pillar” banks that are left. The recent success in keeping Bank of Ireland in private hands is also a major psychological boost. Fundamentally, Ireland is also displaying an admirable social resilience. It takes little knowledge of history to place this in a perspective that has already seen the economy weather four dreadful economic crises in less than a century.
It matters too that emigration has yet again helped to contain unemployment to some degree – even though, at 14 per cent, it is worryingly high. As a result of all this, growth is starting to re-emerge, even though domestic demand is still contracting. As expansion accelerates, it will generate jobs only slowly. But with the speed and slope of correction in competitiveness that is under way, the feed-through to domestic demand and job creation will come. And over the next few years a socially more sustainable balance to the recovery will also end up swelling the tax base more strongly than the present pattern of export-led growth. For the beleaguered taxpayer, there is a glimmer at the end of the tunnel. In short, when looking at Ireland against sovereign spreads in the Eurozone, there is a mismatch. Either markets are persuaded that economic policies can never defeat contagion, or understandably – given pervasive crisis fatigue – they have dropped off to sleep at the wheel.
CMCC Financial Solutions
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Connections Competition CMCC Financial Solutions Ltd is delighted to offer Connections readers the chance to enter our competition to win one of the following prizes:
What we are looking for: To be in with a chance to win, send an e-mail to connections@cmcc.ie outlining areas where we can improve our service to you. Yes that’s right we are looking for your feedback!
For Example:
€500 €250 All 4 One VoucherS
nd 2PRIZE
All 4 One VoucherS
1st
PRIZE
Have you had a good experience with another service provider that you would like us to replicate?
€250 All 4 One VoucherS
3rd
PRIZE
Are your day to day queries handled better by another provider? If so, please provide an example. Closing date for all entries is the 31st of October 2011. All entries will be put into a draw and the winners will be the first three entries drawn.
The winners will be notified by the 30th November 2011 and will be announced in the Spring 2012 edition of Connections. Best of Luck!
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. 3437. Sept. ‘11