Deposit Guarantee Scheme extended

The Department of Finance has announced that the Credit Institutions (Eligible Liabilities Guarantee) Scheme (the ‘ELG Scheme’) has been extended from its original end date of 29th September 2010 to 31st December 2010.

It's important to note that there are two deposit guarantee schemes in operation - the Deposit Guarantee Scheme, which covers all deposits up to €100,000 and does not have an end date and this ELG scheme which covers deposits in excess of €100,000 and has been extended to 31/12/2010.

It's also important to make sure you know if your own bank is part of either or both schemes. Not all banks operating in Ireland are part of both schemes and some are part of neither, as they participate in their own country's deposit guarantee scheme.

See the Department's press release here.

Feel free to talk to us about your deposits and their security. We are authorised to arrange deposit accounts and have attractive rates for demand, notice and fixed rate accounts for individuals, corporate customers, charities and pension funds.

National Solidarity Bond - is it any good?

Details of the National Solidarity Bond were announced last week, the idea having first surfaced in the most recent Budget speech. The idea is that you invest an amount of money from €500 to €250,000 for a period of ten years, after which you get a State-guaranteed return of 50%, which is fixed from the outset.

In further detail, the return is 50% Gross over 10 years (AER 4.14%) consisting of 10% in 10 annual payments of 1% which are subject to DIRT at the prevailing rate (currently 25%) plus a 40% Tax free lump sum at the end of 10 years.

The net after tax return is 47.5% (AER 3.96%) assuming DIRT remains at 25%. Minimum investment is €500. Maximum individual investment is €250,000 (or €500,000 from 2 joint applicants or €750,000 from 3 joint applicants). If you do not have €500 to invest there is a facility to save through regular lodgements. You can access your money at any time by giving 7 days notice. There are no fees, charges or sales commissions.

The money will be used by the Irish Government. As the blurb says - "The Government of Ireland wants to make it easy for residents of Ireland to help to fund the Government’s capital investment programme, develop important infrastructure, stimulate economic recovery and create employment."

Looking at it purely as an investment option, I'd say it should only be considered by someone who is 100% sure they do not need access to their savings earlier than ten years as otherwise the rate of return will be just 0.75% per year after DIRT tax, which is paltry. If you are going to leave it for the 10 years, the return of 4.14% per year, before DIRT tax, isn't going to make you rich but it may be useful as a safe haven alternative to bank deposits for some long-term cash. This of course assumes you have confidence that a guarantee by the Irish State is a safe haven.

It is irritating that the 1% levy on other savings & investment products doesn't apply to this bond, which is an example of the Government using the tax laws to suit their own causes.

Further details available here.

(Note: This product is not available via brokers. The above article should be considered a personal opinion and not professional advice.)

Investment thoughts from Anthony Bolton

I was invited on to a conference call this week by Irish Life, featuring guest speaker Anthony Bolton, stock market commentator and President of Investments for Fidelity. For 28 years Anthony managed the Fidelity Special Situations Fund which became the UK's most successful mutual fund since its launch. He is a popular columnist for the Financial Times and his views regularly appear in investment media.

The conference call covered a wide range of topics but centred on Anthony's view on what sectors would lead the next bull market. His belief that we are entering into a multi-year bull market will be a welcome insight to existing investors who have experienced large losses over the last year and a half and investors sitting in cash who are looking to re-enter markets.

He also spoke about using a phased investment strategy over the next year to limit the volatility which will persist in stock markets.

If anyone wants to hear the recording, it's about half an hour long and the MP3 file can be accessed by clicking here. The slides to accompany the call can be accessed here.

Thanks to Irish Life.

Government-backed investing in Ireland Inc.

For those of you with a low tolerance for taking risks with your money, the options for investing your cash are thin on the ground. You can leave your money on deposit, but with interest rates falling, so are your anticipated returns. There are a handful of Tracker Bonds out there but you need to make sure you understand the participation rate, what's being tracked and the final year averaging clauses before parting with your hard-earned.

A new option has surfaced recently - investing in Government Bond funds. Such funds effectively loan money to the Irish Government on pre-arranged terms, i.e. at a fixed rate. As long as the Irish Government can honour their commitment, your money is secure.

Eagle Star were first to market with two such funds - the Irish Government Bond 2012 fund, which should return 12.1% on 5/3/2012 and the Irish Government Bond 2016 fund which should return 38.1% on 18/4/2016.

New Ireland followed with the 2014 Government Bond Fund paying a 4% coupon and maturing on 15 Jan 2014 and the 2016 Government Bond fund paying a 4.6% coupon and maturing on 18 April 2016.

All quoted returns are before deduction of charges and tax (if applicable) so make sure you buy from a broker who offers competitive deals on charges. (Like us!)

Investments can be made with lump sums or by way of a lump sum pension contribution or Approved Retirement Fund.

What will this Budget achieve?

I'm struggling to find too many positives about yesterday's Budget.

I do accept the need for tax increases and spending cuts in the current climate.

But the overall strategy of this budget baffles me. He reduces incentive to save money, by increasing DIRT tax, CGT and Exit Tax on investments. This at a time when interest rates are very low anyway and most other investments are going through a very volatile period.

So if he doesn't want us to save, maybe he wants us to go out and spend instead, thus putting much-needed money back into the economy, right?

Wrong - he increases levies and reduces reliefs so that people will have less money to spend.

So what does he really hope to achieve?

Standard Life rating upgrade

Standard Life has had its credit rating upgraded from A to A+ by rating agency Standard & Poors this week.

Such ratings are not infallible guides. For example, Enron's rating remained at investment grade four days before the company went bankrupt, despite the fact that credit rating agencies had been aware of the company's problems for months.

But nonetheless an upgrade is a positive endorsement and is welcome news.

Eagle Star Zurich - a good news story

In the current climate, I'm almost relieved to read some good news stories from time to time. Eagle Star / Zurich's new business in 2008 was actually up by 1% on 2007, despite the difficult year. This was largely driven by pension & PRSA sales which pulled the overall average up - other areas like Mortgage Protection life assurance were understandably down.

Credit where it's due - we've enjoyed a good working relationship with Eagle Star for many years and I'd suggest that their trend-bucking performance is largely attributable to consistently above-average fund performance, excellent online platform and a strong PRSA contract.

With hindsight, they have done themselves favours by steering clear of exotic and over-complex investments (e.g. ISTC) in favour of good old-fashioned stock picking.

More details can be read here.

Article by Warren Buffett on why he is investing now

Here's a link to read an article by Warren Buffett, originally published in the New York Times on Friday 17th October 2008. In it he details why he's actively buying US shares at present and if valuations continue at their current level, why he'll have 100% of his personal net worth invested in US equities shortly.

This is a man who has over 60 years' investing experience and who has accumulated a fortune that makes him the wealthiest man on the planet.

It might give some food for thought to anyone who's thinking about suspending their pension contributions or switching to cash due to the current market turbulence.

http://www.cnbc.com/id/27231171/

More investment wisdom from Anthony Bolton

Here's some more words of wisdom from Anthony Bolton, President - Investments at Fidelity.

"The events of this week will be remembered for a while. But I feel we are entering the final phase of the bear market. It started with the downturn in financials, then consumer cyclicals and the next stage was the industrial companies. The last stage will see commodities affected, a process which we have already started to see. I felt that until commodities got broken the bear market could not end. While commodities have suffered some retrenchment in the last few months, I believe they are still over-owned and that there is some way for them to fall before their valuations are justified.

While this is the second bear market of this decade, there are some key differences between them. The TMT boom was all about valuations but the one we have recently experienced was all about return on capital and earnings expectations. However, we are still in a phase where earnings expectations are too high and that has to change.

I believe that some of the most oversold areas of the market, financials and consumer cyclicals, could offer the most potential as the market recovers. However, a focus on balance sheets will remain vital. This year and next year it will be essential to own well financed companies; those companies which have a lot of debt will find it very difficult to renew their arrangements.

Unfortunately, investors tend to get sucked in when prices are high and shaken out when prices are low. If you are going to invest in equities, you have to be prepared to wait it out. I certainly do not believe investors should be selling in these conditions.

Finally, for investors who are thinking of entering the market I think it is important to remember that the market is likely to recover before the economic indicators improve. Therefore, if you wait for the economic indicators you may miss out on the strong rebound that often heralds the start of a new bull run."

Bolton’s opinions are not to be taken lightly. From 1979 to 2006, he ran Fidelity’s UK Special Situations Fund, which returned 20.3% per annum, versus the FTSE All-Share return of 7.7%.

There's a further piece by Bolton here.

A view on the stock-markets

This is an extract from a recent statement by Anthony Bolton, Managing Director of Investments at Fidelity. Anthony is someone for whom I would have huge respect as he's a very successful, very experienced and very level-headed investor.

“In my three decades of stock-market investing, I have experienced many economic cycles and extraordinary events. The circumstances behind the current volatility might be unique, but investors’ reactions to them have many parallels to those I have witnessed in the past. The market falls around the middle of 2007 were clearly prompted by concerns over financial liquidity in credit markets. Six months on, the credit crunch is now taking its toll on growth in the broader economy, in Europe, the United States, Japan, and other parts of the world.

The actions of central banks may help to restore stability to stock markets, and I remain optimistic about the long-term prospects for equity investing. Investors should be prepared to ride out these fluctuations and take a longer-term view. Today’s volatility comes at the end of a bull run for world stock markets that has lasted much longer than the average. There is no reason to suggest that another bull run won’t follow at some point.”

Changes to Exit Tax for policies sold after 1/1/2001

Irish tax is payable on any investment returns made on a life insurance policy. Tax is paid at the rate which applies for customers of life insurance companies (currently 23%). This tax rate is equal to the standard rate of income tax (currently 20%) plus 3%. Where the charge applies, the life insurance company deducts any tax due from the value of the policyholder’s investment and pays it to the Irish Revenue. The life insurance company then pays the policyholder the after tax amount.

So what has changed?

Before the new tax rules came into effect, Irish tax was payable on investment returns:
· if the policyholder made a withdrawal (full or partial) from their investment;
· if the policyholder took an income from their investment;
· if the death benefit was paid;
· if the policyholder transferred all or part of their investment to somebody else (although there were some exceptions to this).

After the new rules came into effect, Irish tax is now payable in all of the above circumstances and on every eighth anniversary of the policy.

This means that, from now on, tax will automatically be deducted from the value of the policy on each eighth anniversary. The tax paid on each eighth anniversary will reduce the amount invested in the fund from that date onwards.

Where tax is deducted from the policyholder’s fund on each eighth anniversary, this tax can be offset against any tax that is payable on a subsequent full encashment. Therefore if the policyholder decided to cash in their investment on, say, the ninth anniversary then the amount of tax due, based on investment returns over the nine years, would be reduced by the amount of tax they already automatically paid on the eighth anniversary.

The new rules affect all categories of life insurance, including savings, investment and linked protection.

These changes were brought into law as part of the 2006 Finance Act. They apply to all policies sold on or after January 1st 2001. This means that the first actual deduction of tax won’t take place until January 1st 2009.

Switch your equity SSIA to cash if you're getting out soon

The vast majority of SSIAs will be maturing in April 2007, the final month of the scheme. A portion of these (admittedly not a huge portion) are equity-based Managed Fund SSIAs. If too many of these equity-based SSIAs are actually cashed in at the same time, it may cause a dip in the funds or cause the fund manager to impose a Market Value Adjuster (MVA) - a sort of penalty for cashing in at that point. Some SSIA providers have already done so.

To avoid this possibility, I'd recommend that equity-based SSIA holders who intend to cash in during April 2007 should ask their provider if they can switch funds now to cash to avoid such a penalty. You may miss out on any fund growth during the final months, but you'll certainly miss the penalty.

Of course the alternative is to defer cashing in your SSIA for a few months.