Philip Collins is a Retirement & Investment manager at Cornmarket. He has over 12 years’ experience and is passionate about helping our customers make their savings go further. Here he breaks down what’s happening in Ireland when it comes to saving and what we all really need to know.
Let’s talk numbers. At present, there’s a staggering €157 billion sitting in deposit accounts across Ireland. To put this in perspective, back in 2004, this figure was just €58 billion, and by 2014, it had grown to €92 billion. We’re clearly a nation of diligent savers, and the upward trend shows that Irish people continue to prioritize putting money away.
But what’s happening to that money once it’s saved? Here’s where it gets interesting:
● €138 billion of those savings are in overnight deposit accounts, meaning the funds can be accessed immediately, but they’re earning little to no interest.
● The average return on those overnight deposits is just 0.13%.
In simpler terms, 88% of the savings held by Irish households are sitting in accounts earning close to nothing. Compare this to the EU average, where only 55% of savings are in similar low-return accounts, and it’s clear we’re missing out. While we’re saving more, we’re not putting those savings to work.
This is where inflation becomes a crucial factor in understanding the real value of our money.
Why Inflation Should Be on Your Radar
Inflation refers to the rising costs of goods and services over time. In other words, what you spend today will likely cost more in the future. We’re all feeling it, prices are climbing for essentials like groceries, utilities, and transport.
The challenge with inflation is that your money needs to grow at a rate higher than inflation to maintain its purchasing power. If it doesn’t, you’re effectively losing money over time. Even though the amount in your account remains the same, it won’t stretch as far when you go to spend it.
Let’s put this in perspective: Ireland’s average inflation rate since 1976 has been 4.4%* per year. If we take a more recent snapshot, €100 in 2019 is only worth €84.73 today, thanks to inflation. That’s a 15% drop in purchasing power in just a few short years. This silent erosion of your savings is why letting money sit in a low-interest account won’t help you reach your long-term goals.
It’s Time to Make Your Savings Work
At Cornmarket, we’re seeing more and more of our customers seek out options that provide a better return on their hard-earned cash, especially when planning for big milestones like their children’s education or retirement.
One solution we often recommend is Multi-Asset Investment Funds.
Multi-Asset Funds might sound complicated, but they’re a straightforward way to spread your investment across a range of asset types such as cash, bonds, property, and equities… all within a single fund! The goal is to diversify your investment, so it has the potential to grow over time, ideally outpacing inflation and increasing your wealth in the process.
What many people don’t realise is that they may already be invested in these types of funds, particularly through their pensions or Additional Voluntary Contributions (AVC). Multi-Asset Funds are a popular choice because they balance risk across different asset classes, helping you achieve growth without relying too heavily on any one sector.
Understanding Risk: Time and Diversification
It’s natural to associate investing with risk, and there’s always the possibility that the value of your investment could fluctuate. But there are two important factors that can help manage this risk: time and diversification.
- Time: When investing, it’s crucial to think long term. The longer your money stays invested, the more opportunity it has to recover from short-term dips and grow. We recommend a minimum investment horizon of 5 years, as this gives your portfolio the best chance of weathering market ups and downs.
- Diversification: This simply means not putting all your eggs in one basket. By spreading your investment across different asset classes, like property, bonds, and equities you reduce the risk of being hit too hard by a downturn in any one sector. Multi-Asset Funds do this for you by bundling several asset classes together into a single, balanced package.
Of course, you should also keep enough money aside in an easy-access account for emergencies. A good rule of thumb is to have at least 3-6 months’ worth of expenses in a rainy day fund.
Finding the Right Fund for You
When it comes to choosing the best investment plan, it’s important to sit down with one of Cornmarket’s Financial Advisors. They’ll help you understand the details, like fees, time horizons, access to your money, and whether you’ll contribute a lump sum or make regular payments.
Once you’ve chosen a plan, you can begin putting your savings to work. While we can’t guarantee future returns based on past performance, it’s worth looking at how different funds have performed historically. For example, while inflation might have reduced your money’s purchasing power by 15.27% over the past five years, a fund like Zurich’s Prisma 4 grew by 41.04% in the same period!
It’s not too late to make that valuable change
If you’re saving for the future, whether that’s your children’s education, retirement, or another long-term goal, don’t let inflation eat away at your hard-earned savings! Instead, consider speaking to one of our expert investment consultants today! We’ll help you find the investment plan that’s right for you and ensure your money is working as hard as you are.
*Source: Sunday Business post, 15 September 2024. All remaining statistics used in this article are sourced from: European Central Bank, 2024
Cornmarket Group Financial Services Ltd. is regulated by the Central Bank of Ireland.
