For your investments and savings, big choices lie ahead
In a recent article in this newspaper, I referred to 2018 as a year of uncertainty for personal finances. I feel that 2019 will be the same.
The only thing I think that is certain this year is that there is not going to be a general election.
Here are my thoughts for investments in this new year.
For those of you looking to get on to the housing ladder in the next few years, my advice is to plan effectively and live frugally.
With the advent of more competition from lenders, such as Pepper coming more into the mortgage market, there should be a little bit more chance for potential borrowers to get on the property ladder and out of the rent trap.
It does pay to educate yourself on the options of fixing a mortgage, as I feel some of the options for long-term fixing are very attractive, given the likely increase in interest rates over the coming years.
If you don’t have the option of a deposit from a family member, building up a deposit will take time.
Taking control of your finances by first eliminating any expensive debt, such as credit cards, is the starting point.
Once that is done, save regularly by setting up a standing order into a savings account.
If you are serious about buying within the next three to five years, save with a bank. The savings rates are poor but it does pay to shop around, and my advice is to use comparison sites to look for the best available rates that suit you.
Some comparison sites are easy to navigate, and suggest that surprisingly high savings rates of 2.25% are achievable — but such elevated rates, of course, come with some strict conditions.
There are also financial tech companies gaining ground in Ireland which are app-based and which offer a wealth of technological advantages, including budgeting, bill-splitting, and the ability to immediately freeze credit cards if they are lost or stolen.
If you are looking at more than five years to build up your deposit, and are frustrated with the low return on savings, I would suggest a life assurance company savings account. These are offered by Zurich Life, Aviva, and New Ireland — to name just a few.
However, I would advise consumers to tread carefully and be wary of some products that look great on the surface but are laden with fees. Having worked in the industry for 20 years, I have seen savings plans in which up to 3% of the contribution is taken out while management fees of over 1.5% a year make it almost impossible to make any money.
In addition, I am increasingly coming across individuals who are saying they would tie money up for a long period. I think this is a mistake. We currently have historically low-interest rates which are going to rise in the coming year or two.
Higher ECB rates will affect tracker mortgages. It may also be a cost-effective opportunity for households with trackers to put some additional money to pay down their mortgages more quickly.
That said, tying up funds when savings interest rates are low doesn’t make sense.
For people with money in pensions and investments, or those looking to start long-term savings, I am reminded of my all-time favourite saying of the world’s most successful investor, Warren Buffett.
He referred to a period of a long stock market bull run — a bit like the one we have just experienced — and likened people’s behaviour to a good New Year’s Eve party.
“After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball.
They know that overstaying the festivities — that is, continuing to speculate — will eventually bring on pumpkins and mice.
“But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight.
"There’s a problem, though: They are dancing in a room in which the clocks have no hands,” he said.
The big issue this year is the effect of Brexit on investments. Brexit weighs heavily on Irish companies and the Irish stock market is deeply affected by the Brexit uncertainly.
It remains uncertain what is going to happen on March 29, and whether the UK leaves the EU with or without a transition deal.
The UK may hold another referendum on EU membership or secure some sort of last-gasp renegotiation of Theresa May’s withdrawal deal. I would suggest that 2019 is not the year to be taking chances.
Most people will painfully recall the effects of the last recession.
I don’t believe that a recession will occur any time soon, but it is as inevitable that some sort of downturn must follow.
I’ll leave you with another saying from Mr Buffett, the world’s greatest investor: “Be fearful when others are greedy, as only when the tide goes out do you discover who’s been swimming naked”.
