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5 Simple Investing Tips

1. Determine your risk level.

Irrespective of if you are investing through a pension or simply with your own after tax cash you must determine your level of risk. Your tolerance to risk should be based on a few simple guidelines
(a) What age are you, Younger – higher risk  – Closer to retirement – lower risk.
(b) Are you investing discretionary funds, ie can you afford to lose everything. ?. If you can you clearly can take greater risks. Is there debt involved ? – lower risk required.

2. Make sure the investment you pick is consistent with your risk level.

To do this you need to understand the basic investments on offer and the associated risk with these. For example, risk in investments can be broken down into many categories, here’s mine from High Risk down to Low Risk, ( I am only listing publicly traded / available investments )

High Risk
Equities    Portfolio with one or two companies in one country (eg Ireland )
Equities    Portfolio less than 10 companies in one country ( eg Ireland )

Equities    Portfolio less than 10 companies in USA and Europe in various sectors
Equities    Portfolio greater than 10 companies in USA and Europe in various sectors

Corporate Bonds    Higher the % return, higher the risk
Deposit / Savings Accounts    Government Guarantees required
Government Bonds    Higher the % return, higher the risk

Low Risk

Within these categories there are other considerations such as the strength of the companies, their balance sheet, debt position, cash position, earning capacity, profitability, dividend record, growth etc.

Far too many people in Ireland in recent times had a relatively low risk tolerance ( see 1 ) yet ended up making high risk investments, thinking the investment were low risk. Investing in a single company will always be high risk, even 10 years from now, irrespective of the company you are investing in.

3. If possible get a Tax break for investing.

Get a tax break but try to get it at the high tax rate.

Sole Traders should only invest in a pension product if they are getting a significant tax break by doing so. You can invest monthly and / or by single contribution once a year. The single contribution is typically done at tax filing date in order to minimise your tax liability.

Directors don’t have this concern as any amount contributed to a pension is used as a deduction from corporation taxation. Taking out a company pension is a very common tool used to extract cash from your business, provided you are close to retirement age.

4. Track your investment

This question and response is quite typical. How is your pension performing ?. Ahhh I don’t know I gave it to so and so and I presume its doing ok.  So and So maybe the worlds greatest investor but its still your money so you must track it in order to avoid nasty surprises.

Even if that simply means looking at the value ever three months, it’s better than simply hoping for a good outcome at the end of the investment life. Discuss your investment performance with your provider in a structured meeting once a year.

If you are unhappy with the performance, ask yourself one question, Would I invest in the product today at today’s prices ?  if the answer is No, then rethink No 2 and 3 above and change your investment.

The key is this, Invest on your own or with the assistance of an investment advisor such as ourselves but never stop tracking your investment as it will guide vital decision making.

5. In Summary

Always know,

How much risk you are willing to take
How much risk the investment is taking.

What amount you invested
Where its invested
How it is performing

Please send me an email or call to discuss any investment queries you have. There are a myriad of choices and many helpful tools.

Denis Breen is an Approved Investment Advisor with the Chartered Association of Certified Accountants.