Thursday, December 4, 2008

Financial Myths

I have life cover through work so I don't need any more - The 'Death-In-Service' benefit through work can be as little as 1 X Basic Salary. If you have dependents, this level of cover would be paltry.

A policy that combines life cover and savings is a good idea - The charging structure on these policies is penal, so it is better to keep your 'protection' and 'savings' products separate.

10%pa of income is enough to save
- It probably might be if a) you achieve a very healthy annual return on your investment b) your lifestyle needs are modest and c) you have a good few years to go before you stop 'earning' an income.

Jewellery is an investment - It is not a good idea to buy jewellery primarily as an investment. The retail margin plus VAT will make it extremely difficult to recover your costs, when selling. The chances of finding a piece of FABERGÉ, at a knock-down price, is very remote.

Property always goes up in value - Recent events will have put paid to that notion but you will still have the die hards that refuse to diversify away from residential property is one location.

Rental property is a great investment - It might be if a) there is the potential for capital growth b) interest rates are low c) you have more than one type of property in more than one country/location d) it is occupied and e) repairs/maintenance/agents fees etc. are kept under control.

I don't need a pension, I have an investment property - Hitching your 'retirement wagon' to a single property in one market would not make financial sense to me, as there would be no diversification of assets.

Saving for the kids education is more important than saving for retirement - Look after your retirement planning first as it is unlikely that your kids will fund it for you. I am au fait with 'Student Loans' but not 'Retirement Loans'.

You cannot lose money in a deposit account - If the rate of interest (less DIRT) is less than the rate of inflation, your money is being devalued.

I need to earn more money before I can start saving - If the SSIA Scheme was available again tomorrow, how many of the people that did not take part because they 'could not afford to' would, in hindsight, now be able to 'afford' the minimum €12.70 per month?

I need a relatively large amount of money to start investing - You can gain access to unit-linked investment funds for as little as €50 per month.

Tracker Bonds are equity investments with no risk - While you may have capital 'security', there may be a limit to the return you receive from the investment.

Fund performance is THE deciding factor on which pension/investment to choose - What's gone before has no bearing on what may happen in the future. The charging structure of the product is a more beneficial starting point: the leaner it is the better.

I am too young to start a pension - The earlier you start in your working life, the more likely it will be that you will have an adequate pension 'pot' at retirement.

You can time the market to get a better return - If your are reading this statement and you agree with it, please post your future predictions below.

By dealing directly with an investment company, I will get better value for money - You will get better terms from a Discount-Broker.

Life Insurance does not cover suicide - It covers this event once the policy has been in force for a period of 12/13 months.

I can only have one pension - Depending on your employment status, it is possible to have more than one pension. For example; i) a company director or sole trader can take out different pensions with as many product providers as they like ii) a person with more than one source of earned income can have a pension for each source iii) an employee can make their AVC contributions to a product provider of their own choice.

I am sure that there are may others that could be added to the list, so feel free to add them.


Brendan Burgess said...

Hi Gerard

Good myths.

Add "art" to the list with Jewellery as lots of people "invest" in art.

What about the greatest myth of all? That buying a foreign property is a good investment. I know loads of people who have bought foreign properties.

I disagree strongly with you on the pension issue. The truth is that you can be too young to start a pension. You can't be too young to start saving though. But a pension is the wrong vehicle for young people and it is getting worse for many with the upcoming changes in the law.


Gerard said...

Hi Brendan,

I don't think that buying *all* foreign property is a bad investment, my own personal experiences have been positive. If someone is making an informed decision to buy a residential or commercial property, as part of their diversification of assets, I would have no issue with this.

I do take your point though. I feel that we are only seeing the tip of the iceberg, at the moment, regarding the extent of foreign property 'deals' that have gone dramatically wrong for those that were sold a dream.

Saving through a pension from an early age as your *only* method of saving would be folly. I'm not disappointed that I was part of an occupational pension scheme from an early age. If an employer is going to match your pension contribution with an equivalent amount I see no reason why you should not avail of it.

The main issue for me is access to the pension fund. Our pension legislators need to consider some defined criteria whereby part of our pension plans can be accessed early to buy a first home, start a business or prevent financial ruin.