In our latest guest blog, Susan O’Mara of Milestone Advisory offers guidance on pension contributions and investments.
Almost a year after Covid-19 first reached our shores, we continue to live under the spectre of the pandemic. We now have a greater understanding of the impact to humans who contract the virus and the impact on our public and personal finances. Having passed the second wave and as we now live through the third wave, we know that the vaccine is our best hope in this fight and getting this rolled out is our main priority.
In 2020, Global stock markets ended the year in positive territory, having made an incredible come back from lows of over -32%. However, that recovery only tells us part of the story.
Within the “global market”, there were sectors that suffered more than others. In 2020, there was wide sector divergence with for example, the MSCI Technology index up over 30% for the year, while the energy stocks were down over 30%.
The same story is true for individuals. While we know that 2020 was a tough year for employees in sectors such as hospitality and the Arts, many people continued to earn their salary as normal. Without an outlet to spend disposable income, savings have increased globally. In Ireland, during 2020, Irish households put around €13Billion on deposit.
With deposit interest rates less than 0.5% AER, keeping this money on deposit means that it is not working hard for those holding it there.
What should I do with my money in 2021?
It may make sense to consider investing more into your pension right now, if your income is stable and you have some savings. You should consider bumping up your pension contributions, by way of a regular additional voluntary contribution (AVC) or a lump sum AVC for 2020 (an option until the end 2021).
The resulting benefit is the generous tax relief on your contribution. This tax relief supercharges your savings. For example, if you make a €5,000 contribution into your pension, and you are paying tax at 40% the actual cost of that contribution after tax relief is €3,000. In other words, €5,000 gets invested and you only contributed €3,000.
If you already have a pension in place and funded at a comfortable level, you may consider investing in an Investment Bond. Within a Bond, you can choose from a range of funds and asset classes to suit your personal risk profile. If you are happy to invest for five years plus typically, then this might be an option for you.
Investing in Bonds allows you to access stock market returns that can increase your financial returns more than you can on deposit. That does not mean you need to start picking stocks and day trading. There is a broad range of funds that are managed by large well-known organisations enabling you to maximise growth potential and invest in a way that suits you.
How “Craic” can save our economy
The economy is relying on those with savings to spend once the country is open, within the “Craic Economy” (a term coined by economist David McWilliams), to include “bars, restaurants, hotels, comedy clubs, the performing arts, theatre, conferences, festivals, gigs, nightclubs and so on”. This is something that many people will be looking forward to doing once the vaccines have been rolled out and lockdowns are a thing of the past. However, by doing a bit of planning now, those with savings may be able to make decisions now that benefit them both for their future and at the end of pandemic when it is time to have a bit of fun!
If you are concerned about the performance of your fund or investment, you should contact your financial advisor.
Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.