Planning for College Costs

Financial Planning for your kids college education is an investment in the future. Whether you have kids now or plan to have them in the future, it is never too early to start saving for their education. Even though education in Ireland is free, there are many additional costs going to college from college admin fees to the cost of education if your kids have to travel to attend the course that they dream of. A recent article from the Irish Independent estimated the cost in 2021/2022 if your child moves away for college is €14,000. Financial planning for your kids’ education is a big responsibility, and we want to make it easy for you.

Contact Alan or Sarah if you want private financial advice

Alan and Sarah MBC Financial Advisors

Let us know how we can help you.

What is Financial Wellbeing?

You may have heard some radio ads or seen some TV ads about Financial Wellbeing. So what is Financial Wellbeing?

Financial wellbeing is the state of being able to live comfortably within your means. Financial wellbeing can be measured through one’s net worth, income, available assets, and debt.

Financial wellbeing is essential for achieving success in other aspects of your life. Achieving financial wellbeing is about finding the right balance of money, time and priorities in your life to create a sense of security, control and freedom.

Financial Wellbeing Steps

Step 1 to becoming financially well is to get an idea of your financial situation.

It is important to know how much money you make to determine if you have enough to live comfortably. Your net worth is the difference between what you own and what you owe. If your net worth is greater than zero, then you are considered financially well off.

Know what your income is, what your expenses are, what your savings are and what your credit score is. These include things like bank accounts, stocks, bonds, mutual funds, and money market accounts. It is also important to have assets. Assets can be anything that can be converted to cash.  It is important to have a plan for emergencies. This is why it’s important to have savings that are not part of your regular monthly income.

When you have a savings account, withdrawals should only be for an emergency such as a car repair. You should also have investments that are risky. This way, you can make more money. You can also have investments that are less risky. This way, you can make less money but not lose it.

It is important to have debt because debt is a form of leverage that allows you to buy things that you cannot afford. However, you should only buy things that will help you earn you more money or allow you to make more money than you spend.

Step 2 is to reflect on your priorities.

What are your financial goals? How does your spending affect your goals?

Step 3 is to take action.

What actions can you take to improve your financial situation?
Are there actions you can take to reduce your spending? Are there actions you can take to increase your income?

By following these steps you will be able to improve your financial situation and feel confident that you are on the path to financial well-being.

Got questions on Financial Wellbeing?

Let us know how we can help you.

Financial Wellbeing Frequently Asked Questions

What is financial wellbeing?

Financial wellness is the state of being able to manage your money effectively. It means you can pay all your bills and debts on time, save for the future , and make good financial decisions.

Why financial wellbeing is important?

Good financial wellbeing is important to your future. It helps you live a good life now and in the future. It can also help you as a business owner. You can invest in your business, expand and succeed.

How can you create positive financial wellbeing?

By living within your means now, saving money regularly so that you can invest it and building a healthy financial future.

How do you measure financial wellbeing?

How do I measure financial well-being? I am glad you asked me this question, Damien. There are many ways of measuring financial well-being. One way is to look at your regular income and spending. Another way is to calculate how much money you have saved for the future.

What is a financial health check?

A financial health check is a way of thinking about your financial situation and making sure you’re on the right track. It’s a way of looking at your income, spending and savings. This is a good time to have a financial health check.

How can financial issues impact on wellbeing?

If you have a lot of debts, for example, it can make you feel stressed and unhappy. It’s important to find out how much debt you have and how easy it will be to pay it off.

How much money do you need to feel secure?

I think it’s different for everyone, but I don’t think you need a lot of money to feel secure. It’s more about how you feel about yourself and your life.

How much money do you need to be financially free?

Again, it’s different for everyone. I think it’s important to be happy with what you have rather than constantly wanting more.

How do I become self sufficient financially?

If you’re struggling financially, I would recommend getting a part time job to help you get out of debt.

What are the three levels of financial wellbeing?

Level 1: Paying your bills on time. Level 2: Saving money. Level 3: Being financially free.

How can I be financially free in 5 years?

You can start by making a budget and tracking your expenses.

What are some examples of financial wellness?

Being able to pay your bills on time and avoid debt.

What are financial habits?

Having a steady income and budgeting.

How do I become self sufficient financially?

You should always have a plan B. It’s important to have a financial safety net and you should always have a fallback strategy. You also need to be able to manage your finances before you start building wealth.

How To Move From Ulster Bank

Ulster Bank are one of Ireland’s biggest banks and have been operating here for over 160 years but they have struggled to remain profitable. The banks parent company, NatWest, made the announcement that Ulster Bank will be closing down its business in the Republic of Ireland, leaving all 1.1million Irish customers confused. Although changes aren’t expected to happen for another year or so, with any changes expected to be brought in gradually, it would be wise if you are a customer with Ulster Bank to start preparing for a move now. In this post we will be covering what is actually happening, when it could be happening and what you should do if you are currently with Ulster Bank.

It will be bad for business that Ulster Bank are leaving Ireland.

Ulster Bank are a big player in the savings market. For the current circumstances with banks and interest rates on savings they still offer the best of a bad bunch compared to competitors AIB & Bank of Ireland who offer a zero return on investment. Whenever competitors leave the market it is always going to be bad for business. With a major player like Ulster Bank out of the equation, AIB & Bank of Ireland could impose the negative rates that seem to be destined to come at a quicker rate at lower levels instead of the wealthiest accounts only.

I have a current account with Ulster Bank, what can I do?

If you have a current account with Ulster Bank there is no need to worry about your money. You are in a completely safe position and the switch from Ulster Bank to one of your choice will be simple whilst your funds will be safe until you decide to switch. You will be given 2 months notice when the bank does eventually close and even at that point the money would be sent in a cheque if the bank closes and you have not switched, so there’s no need to panic.

There are more options now than ever for current accounts. There are still the giants of the market such as AIB & BOI for people to choose from. There is 9 overall current account providers in Ireland. Interestingly, N26 & Revolut along with KBC offer a completely different alternative by where you can do it all from the comfort of your home on a mobile app, allowing you plenty of options to fit your needs.

I have a mortgage with Ulster Bank, what should I do?

Mortgage holders with Ulster Bank are protected. The current terms will stay the same. Ulster Banks loan books will be purchased by another group with AIB rumoured to be in discussions for the purchase. However, any mortgage holders without a tracker rate with the bank should seek expert advice from a broker.

I have a savings account with Ulster Bank, what should I do?

There is no need to worry, but you will have to make your own choice on what to do with the savings. If you sit back and let the time ride out, Ulster Banks deposit book could be signed off to another bank, leaving your savings in there hands. With the current situation, it may be best to look at putting your savings into An Post and their state savings product offerings. You can earn almost 1% a year on its 10 year term. These rates are quite good in current circumstances and you have the option of withdrawing your money at any time.

 In conclusion..

There is no need to panic, all of your funds and services will be safe and any changes will be gradually brought in over years. You have plenty of time to consider all your options.





Apple Pay, Google Pay and FitBit Pay Charges.

Contactless payment methods have been getting more popular as the years go on as its quick and secure. The only complaint it seemed was that there was a lack of acceptance of these methods for awhile. Apple, Google & FitBit all now offer their own version of contactless payment with phones and smart watches alike. Payments have never been quicker and easier. With the outbreak of COVID-19, there has been ever greater encouragement for contactless payment with the limits constantly rising. In this article we will examine which bank supports which payment type & whether or not there are charges that come with contactless payment through Apple, Google & FitBit Pay.

Which banks support these payments?

AIB and KBC are both front runners as they support all 3 of these payment types. Bank of Ireland are yet to introduce FitBit Pay whilst Permanent TSB have just Apple Pay for the time being but they have announced Google Pay in coming in 2021. EBS are far behind as they do not support any of the 3.

Are there charges?

Bankers in Ireland get charged enough fees as it is with banks so it will be refreshing to hear that these payment methods offer a far cheaper way of payment. Apple don’t charge any fees, no annual or over the limit charges or foreign transactions. Google Pay & FitBit Pay also don’t have any charges for transactions and offer a cost effective method or purchasing.


Shopping Around – Bank Charges

Different providers charge different levels of bank charges and often these can be the trigger for people to move around banks. Especially if you’re with Ulster Bank who are shutting operations in the next few years, you will be looking for alternatives and bank charges will be a big factor in the one you should choose. Each bank have difference pros and cons with different features which are sure to suit everyone’s needs. We will also add in whether they support contactless payment methods as they are ways of avoiding charges when using card. In this post, we will provide a rundown of each banks charges to give you the best understanding and the ultimate guide to help you make your next choice.


AIB charge less than others for maintence fees for the account but have many other bank charges for withdrawals and direct debits that add up. They charge a €4.50 quarterly maintenance fee, a €0.35 fee for every ATM withdrawal and €0.20 for chip and pin transactions as well as self service lodgements, online transactions and direct debits. Contactless transactions are free though and AIB support Apple, Google & FitBit Pay. AIB’s student, graduate and over 66 accounts all offer free banking.


Permanent TSB’s Explore Account is the only account on the market that will pay you to use your card. There is a €6 montly maintenance fee though. Your day to day banking is free and you’ll also earn €0.10 every time you use your debit card to pay for something in store on online. You can earn up to €5 a month with this feature, meaning you could almost pay the montly fee with the money you get back from the bank, which is nice! PTSB also have acquired Apple Pay in the last year and are promising Google Pay this coming year.

Bank of Ireland

BOI charge a flat €6 montly fee like Permanent TSB do for maintenance of the account. They are behind AIB when it comes to their app and online service but they do support Apple and Google Pay.


KBC holds a commitment to providing a customer-centric and digital-first strategy to their banking. KBC offer free banking once €2,000 has been deposited into the account each month. This is a lot simpler than it sounds as this can be achieved by simply moving money in and out or from other accounts to make up the €2,000 deposit. They are up to date with their technology which allows for payments without charges via Apple & Google Pay whilst also supporting many others such as FitBit Pay, Garmin Pay and Sony’s Wena Pay. KBC are however a cashless bank and they do not offer cash facilities.


EBS’s MoneyManager Account has no monthly account maintenance fees and also no charge for day-to-day banking. There is no minimum monthly lodgement requirement either. But they really lag behind in terms of their service online and they are yet to support Apple, Google or FitBit Pay & they are without a mobile app. EBS seem years behind with technology also as if you change your phone/phone number they post you a new code which is a slow way of doing things in this day and age. Their sign up process is also very slow as it requires two visits to a branch.

New players in the market


N26 is a very popular and digital alternative to banking. It is a licensed bank and operates all across the EU. N26 has a fantastic mobile app that supports Google and Apple Pay which helps for free of fee transactions. They do not charge a monthly fee and day-to-day transactions are completely free too. ATM withdrawals are limited though as you get 3 free a month and after that there is a hefty €2 charge per withdrawal. N26 cards are free from foreign exchange fees so you won’t be charged €1.50 – 3.00% foreign exchange rate when spending in the UK or the States. They don’t have branches so if you need to make a lodgement in person or cash in a cheque you’ll be stuck.


Revolut is similar to N26 with it being a digital based banking service. Revolut also offer free day to day banking. They don’t charge a monthly or maintenance fee as well as no charge for pin or contactless payment. Revolut allows you to withdraw €200 a month or make 5 withdrawals, after that there’ll be a €1 or a 2% charge, whatever is higher. Revolut also don’t charge foreign fees like N26, which make it a great option when abroad.

Foreign Bank Charges

As this article is being written, nobody can travel abroad on holidays but those days will come again so we think it is important to highlight the amazing features of N26 & Revolut as a form of paying whilst in the UK or the States and so on. Here’s what it would cost with each bank if you were to spend €500 in London to show the benefit of N26 & Revolut.

To use this table in an example, if you were in London for the weekend and were banking with AIB, each time you buy something over there on debit card you will get charged 1.75% of the euro cost, and when you withdraw from the ATM over there you will get charged 2.5% of the withdrawal, with both at a max of €11.43. Compare this to N26 & Revolut where there’s no charges at all for withdrawing or buying with card, showing these are the best options for foreign charges.



Of course choosing a bank isn’t solely based on the charges, but it is certainly one of the reasons. Each bank will carry their own charges so it is up to you to decide upon which one based on your needs. If you are someone that cashes cheques and deposits cash, than picking a free service like N26 just because it is free wouldn’t make sense. We hope this guide has helped you decide what’s best for you, with all things considered!

The Importance of Staying Invested in Volatile Times Don’t flee the market in a panic, but rather embrace the turmoil as an investment opportunity–you’ll be better off in the long run.

Market volatility is one of the most reliable things that you can predict. You don’t know what prices are going to do next month, next year. The one thing we know is that prices are going to move around, and what we see is that prices often move around more than fundamentals, more than the underlying cash flows. And that means at times, you’ll have these volatile periods where market prices will fall a lot, where stocks’ share prices will fall, and maybe even residential property prices will fall. And often people get scared. People feel the pain of losses more than they enjoy the pleasure of gains. One of the most important things is that you don’t overreact and sell stocks when they’re down or sell shares when they’re down. That’s the worst thing that people can do. We think that what you want to be able to do is be prepared for the periods of market volatility by buying assets that you think are worth more than the price that you’re paying for them.

At times, that means being willing to hold more cash. We view market volatility as an investment opportunity. Warren Buffett always says that he likes his stocks the way he likes his socks: on sale. So, often market volatility means lower prices. It’s a funny thing that in the stock market or the share market, people actually want more of something when the price goes up, and they want less of something when the price goes down. We think that’s exactly the opposite of how you should think about it. So, generally when prices fall, it means you’re able to buy stocks or shares, fractional ownerships of companies, at better prices. We view it as a positive, not a negative. And so we prepare for the volatility by demanding good prices before we invest, and that allows us to have capital or cash available to take advantage of the market opportunity.

So, it’s really important during periods of market volatility that you don’t overreact, that you don’t sell out your investment at the bottom. That’s the worst thing that people can do. Research shows that those that sell out at the bottom and then buy back in, say a year later when they feel more comfortable, do much worse than those that stay invested. So, we think the most important thing is to actually not do anything and to talk to your financial advisor or your financial planner and really stick to the plan. That’s what the plan’s there for. In the short term, markets are going to move around a lot, and it’s very important that you take a long-term approach to investing. Our view is that when we have periods of market volatility or where prices fall, it’s often a time where you should be adding more to your investments rather than taking them away.

Irish Life Investment Outlook 2020

Three main themes we believe investors should focus on;

1. Seek diversification at a reasonable price: look for opportunities to add diversification to portfolios to help offset potential higher volatility within traditional assets. In particular, attractive opportunities to add diversification through emerging market debt, Alternatives strategies and allocations to residential and European property.

2. Risk-proof portfolios: while we remain broadly positive on equities over the medium term, we believe valuations across bonds and equities leave markets susceptible to higher volatility going forward. As such, we see a strong rationale for incorporating risk-control strategies into growth portfolios.

3. Sustainability: we expect the focus on sustainability to continue to grow,  with potential regulatory and policy responses having wide-ranging  investment implications. We have already begun to actively integrate Environmental, Social and Governance (ESG) factors into our investment processes. We are firstly focusing on global equities and property, and will extend to fixed income mandates in 2020. We believe integrating ESG factors into our investment processes helps to mitigate risk and supports long-term sustainable investment returns for investors.

Inheritance/Estate Tax Planning


Estate Planning Flyer

Can you learn from the “rebalancing” trick used by professional investors? Schroders

For investors to achieve – and retain – healthy long-term returns, we think an active re-balancing policy is essential.

It can be hard to hold your nerve when investing in the stock market. Share price gyrations, sudden market drops and fear of missing out can unsettle the steeliest investor.

Such tribulations can undermine the discipline needed to make the regular savings needed to build a nest egg for the future. So how should the long-term investor gain and retain the returns they need?

We think no serious investor can ignore diversification. By building a portfolio of several types of assets, such as equities and bonds, you can increase the odds that at least one of them will be working hard when the others aren’t. But maintaining the necessary diversity of assets is not something that can be left to chance. Our research suggests that the successful investor needs to intervene occasionally to keep the right balance between the different assets they have chosen.

Why is balance so important?

Professionals realised years ago that high returns are often won only at the expense of high risk. In other words, risk is as important as return or, as billionaire investor Warren Buffett put it, “Rule number 1: never lose money. Rule number 2: never forget rule number 1.”

In effect, investors should be prepared to accept lower returns if those returns are more reliable. The problem is that many investors often fail to appreciate the risks they have taken to achieve higher returns. Attaining good “risk-adjusted” returns means maintaining the right proportion of those assets that provide growth, balanced against the right proportion that will provide security.

What happens when there is no rebalancing?

The next step is realise the importance of tweaking a diversified portfolio, known as rebalancing. Say equities make up 75% of a portfolio but then have a good run while other assets languish. That equities portion may end up making up 80% of the portfolio. The idea of rebalancing is that you sell until the equities are back to a 75% portion.

You end up selling assets that have performed well and buying ones that haven’t, which would seem prudent.

We decided to run some scenarios to find out how rebalancing, and not rebalancing, would have affected outcomes – the returns achieved versus the risks taken. We used one of the simplest of diversified portfolios split 60% in shares – to provide the growth – and 40% in bonds – to provide the security. While an investor might start with this division, stockmarket movements mean that it will almost certainly move away from the original “60/40” allocation. We looked at how it would have fared in two 10-year periods, 1990-2000 and 2000-2010, with no intervention.

We found that a 60/40 portfolio in 1990 would have ended up divided 75/25 by 2000. On the other hand, a 60/40 allocation in 2000 would have become 45% equities and 55% bonds by the end of the decade. In both cases, the better-performing asset class came to dominate the portfolio. That may well have worked well in terms of returns, but it would have shifted the risks drastically compared to the original asset allocation.

Why is an unbalanced portfolio more risky?

Seduced by high returns, an investor might be tempted to leave a portfolio of high-performing shares or equity funds to grow. The problem is that they may also end up dangerously exposed. The results can be both painful and swift.

Perhaps the most traumatic illustration was in 1974, when the FTSE All-Share Index fell by more than 70% – very bad news for anyone holding a UK share portfolio. Black Monday in October 1987 wasn’t that great either: by the end of the month, the US Dow Jones Industrial Average was down by 22% and the UK market was off by 26%. In 2008, the year when the credit crunch kicked in, the FTSE 100 index fell by 31%. And although they are more secure than equities, bonds can suffer too: in 1994 unexpected interest rate rises by the US Federal Reserve helped to wipe a cool $1.5 trillion from world bond markets.

It is true that markets do come back from such losses, but it often requires a strong stomach to last the journey. For an investor, not having all your eggs in one basket can both protect your wealth and give you the confidence to stay aboard.

How does rebalancing work?

The main rebalancing approaches are either “periodic”, based on set time intervals such as every quarter, or when differences in performance cause the asset allocation to drift away from its target by more than a certain percentage. This is known as “band” or “range” rebalancing.

To see how these strategies affect long-term returns, we tested our 60/40 portfolio over the nearly 80-year period since 1940 using different rebalancing strategies and none at all. (This was the longest set of reliable data we could find.)

We tested nine rebalancing portfolios and one with none, our “drift” portfolio. In terms of absolute returns, the drift portfolio performed best, with a 10% annual return. However in risk-adjusted terms, which we defined as annualised returns divided by annualised volatility, it performed the worst. Indeed, every portfolio which used a rebalancing policy, be it periodic or range based, outperformed the drift portfolio in risk-adjusted terms (see chart).

There is a “rebalancing premium”, at least in risk-adjusted terms

Doesn’t regular rebalancing incur costs?

It is true that regularly buying and selling assets is a more costly strategy than leaving a portfolio alone. As well as commissions paid to brokers, there is generally a spread between selling and buying prices that works against the frequent trader.

For the purposes of our illustration, we have ignored such costs, but we acknowledge that they can be substantial enough to outweigh the benefits of rebalancing. Choosing the optimum rebalancing strategy therefore involves a trade-off between the best risk-adjusted returns and the lowest level of costs consistent with achieving those returns.

Is rebalancing just an automatic process?

In short, no. Our research shows clearly that, while a rebalancing strategy should follow set rules, it also necessarily requires judgement. Not only do investors have to decide whether to rebalance or not, but also how frequently, the target allocation and the way the strategy should be implemented, among other things. Having the expertise to time rebalancing strategies based on economic environments is more difficult, but our experience suggests that having such a policy in place should help greatly during times of market stress.

We conclude that, even when markets are doing well, rebalancing produces superior risk-adjusted returns compared with doing nothing. As an integral part of the investment process, rebalancing should therefore bring rigour and discipline to the construction of the portfolio, while providing free long-run risk management. This is a combination that should commend itself to all investors, allowing them to sleep that bit easier at night and perhaps giving them the confidence to continue to build their savings.

Source: 07/08/2018 Clement Yong, Analyst, Multi-asset: Schroders

Will – Intestate – Power of Attorney

We maintain that the starting point for the proper organisation of your assets and your succession plan is the consideration of:

  • A Will
  • Power of Attorney
  • Enduring Power of Attorney

What is a Will?

A will is a witnessed document that sets out in writing the deceased’s wishes for his or her possessions, (called his or her ‘estate’), after death.

Reasons for making a will

It is important for you to make a will because if you do not, and die without a will, the law on intestacy decides what happens to your property. A will can ensure that proper arrangements are made for your dependents and that your property is distributed in the way you wish after you die, subject to certain rights of spouses/civil partners and children.

It is also advisable to complete and keep updated a list of your assets. It will make it easier to identify and trace your assets after you die. You should keep the list in a safe place (home safe, Solicitors office etc.).

What happens if you die having made a will?

A person who dies having made a valid will is said to have died ‘testate‘.

If you die testate, then all your possessions will be distributed in the way you set out in your will. It is the job of the executor or executors you named in your will to make sure this happens. An executor can also be a beneficiary under the will.

After you die, somebody will organise your estate, by identifying your assets and possessions, paying any debts you owe and then distributing what is left to the people who are entitled to it. If you have arranged a will before you die, one or more of the executors you named in your will usually has to get legal permission from the Probate Office or the District Probate Registry for the area in which you lived at the time of death to do this. Permission comes in the form of a document called a Grant of Representation.

If you did not name any executors in your will or if the executors are unable or unwilling to apply for a Grant of Representation, documents called Letters of Administration (With Will) are issued. When your estate is distributed, the legal rights of your spouse/civil partner and children, if any, will be fulfilled first after any debts are paid before any other gifts are considered.

What happens if you die without a will or your will is invalid?

A person who dies without a will is said to have died ‘intestate‘. If you die intestate, this means your estate, is distributed in accordance with the law by an administrator. To do this, the administrator needs permission in the form of a Grant of Representation. When a person dies without a will or when their will is invalid, this Grant is issued as Letters of Administration by the Probate Office or the District Probate Registry for the area in which the person lived at the time of death.

It is therefore highly advisable that you organise your Will if you have not done so already.

Power of Attorney and Enduring Power of Attorney

Power of attorney is a legal device in Ireland that can be set up by a person (the donor) during his/her life when he/she is in good mental health. It allows another specially appointed person (the attorney) to take actions on the donor’s behalf if he/she is absent, abroad or incapacitated through illness.

If someone in Ireland is mentally incapacitated (for example, because of illness, disability or a progressive degenerative illness), all of their assets and property are normally frozen and cannot be used by anyone else unless they are jointly owned or, someone has power of attorney to deal with their property or money.

In a larger sense, power of attorney is just one of the legal arrangements that you can make during your lifetime, in the event you become incapacitated or unable to deal with your affairs.

Types of power of attorney:

There are two types of power of attorney allowed under Irish law:

  • Power of attorney which gives either a specific or a general power and ceases as soon as the donor becomes incapacitated;
  • Enduring power of attorney which takes effect on the incapacity of the donor.

A power of attorney can be specific (limited to a particular purpose, for example, sale of your house in your absence) or general (entitling the attorney to do almost everything that you yourself could do). For example, it may allow the attorney to take a wide range of actions on the donor’s behalf in relation to property, business, and financial affairs. He/she may make payments from specified accounts, make appropriate provision for any specified person’s needs, and make appropriate gifts to the donor’s relations or friends.

An enduring power of attorney (EPA) also allows the attorney to make “personal care decisions” on the donor’s behalf once he/she is no longer fully mentally capable of taking decisions themselves. Personal care decisions may include deciding where and with whom the donor will live, who he/she should see or not see and what training or rehabilitation he/she should get. However, if the donor wants, he/she can specifically exclude any of these powers when setting up the power of attorney or can make the attorney’s powers subject to any reasonable conditions and restrictions.

Both cease on the death of the donor.

The setting up of legal solutions can be complex at times. Therefore detailed legal advice should be sought in advance. The sooner you act to organise your affairs, the better it will be for your dependents / family in due course.

Disclaimer: All data and information provided within this article are for informational purposes only. MBC Financial Limited makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages arising from its use. Please seek independent professional legal advice.


How reinvesting dividends has affected returns over 25 years – Schroders

By David Brett – Investment Writer – Schroders

‘Compounding’ can have a dramatic effect on returns. We highlight the difference it has made for major stock markets.

Reinvesting dividends is one of the most powerful tools available for boosting returns over time. Investors in the MSCI World would certainly have noticed the difference over the last 25 years.

For instance, if you had invested $1,000 on 01 January 1993 in the MSCI World, the capital growth would have produced a notional return of $3,231 (by 7 March 2018). Annually, that represents a growth rate of 5.9%.

But the picture changes again once dividends, the regular payments made by companies to their shareholders, and the miracle effects of “compounding” are included.

By reinvesting all dividends, the same $1,000 investment in the MSCI World would have produced a notional return of $6,416, representing annualised growth of 8.3%.

In percentage terms, it’s the difference between your money growing by 323%, without dividends reinvested, or 640% with dividends reinvested, nearly twice as much.

The reason for this stark difference in returns is the compounding effect, where you earn returns on your returns. This can snowball over time to produce far more than you might expect.

The same story has been repeated across many stockmarkets in the past 25 years.

As the table below shows, if you invested in the FTSE 100 you could have almost doubled your returns by reinvesting dividends. In China reinvesting dividends might have been the difference between making a profit and a loss.

Each index would have returned more if you reinvested dividends.

Overall, the average annual growth across eight markets without dividend reinvestment was 4.3%. Including dividend reinvestment increased the average to 7.1%.

However, returns have fluctuated for each index year-on-year in much the same way as the MSCI World Index illustrated in the chart above. Stockmarket investing carries a high degree of risk and past performance is no guide to future performance and may not be repeated.

IndexAnnual return excluding dividendsAnnual return including dividend reinvestment
Hang Seng (Hong Kong)7.0%10.7%
S&P 500 (US)7.5%9.7%
MSCI World5.9%8.3%
MSCI Emerging Markets5.3%8.0%
FTSE 100 (UK)4.1%7.8%
CAC 40 (France)4.3%7.6%
MSCI Japan1.3%2.8%
MSCI China-0.5%2.0%

Please remember past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Source: Schroders. Thomson Reuters data correct as at 07 March 2018. Returns based on local currency.

The importance of dividends in the age of low rates

Low interest rates, part of the measures deployed by central banks to revive flagging Western economies following the global financial crisis, have driven down yields on more traditional sources of income such as government bonds (gilts) and savings accounts.

Interest rates, and government bond yields, across much of the developed world remain near historic lows.

For example, yields on 10-year benchmark government debt in the UK, Germany, and Japan are 1.54%, 0.67% and 0.03% respectively, according to Thomson Reuters data. The yield on US government debt is a little higher at 2.88%.

But compare that with 25 years ago, the starting point of our dividend data, and it’s starkly different: all four bonds were yielding more than 4.5% in 1993.

By comparison, the dividend yield on the FTSE 100 is now 4.1%. In the US it is 3% and in Japan it is 2%. This is why income-hungry investors have turned their attention to stockmarket dividends.

The chart below shows global government bond returns over the last 25 years.

If you had invested $1,000 on 01 January 1993 in government bonds, as measured by the BofAML Global Government Total Return Index (including interest payments), the capital growth would have produced a notional return of $2,548 (by 7 March 2018). Annually, that represents a growth rate of 5.1%.

Please remember past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Why could dividend reinvestment be effective?

When purchasing a share, investors can elect how they will receive any future dividends. They can choose to receive cash, referred to as income, or use that money to repurchase more company shares.

Investors must elect to repurchase more shares to trigger the start of a process Albert Einstein called “the eighth wonder of the world”: the miracle effect of compounding.

Compound interest, put simply, is interest on interest and it can help an investment grow at a faster rate. By reinvesting dividends, you give your stock holding the potential to earn even more dividends in the future.

Of course, the value of compounding increases over time, accelerating shareholder value, especially when share prices increase.

Beware of the dividend trap

It is important to remember companies do not have to pay dividends and dividends can be cut or cancelled at any time.

Some companies even borrow money to pay dividends, to keep investors happy. This is not always a sustainable approach.

Borrowing money to pay a dividend could be a symptom of a company with a weak balance sheet. It is advised that investors do their due diligence before they make any investment.

Nick Kirrage, Fund Manager, Equity Value, said:

“Dividend reinvestment is one of the most powerful investment tools available. As our research shows, the potential difference to the rate of return dividend reinvestment makes could be substantial.

“In an era where interest rates are so low investors need to be aware of relatively simple investment techniques that can help them build up their returns. Dividend reinvestment is a simple technique.

“Over time, those seemingly small amounts reinvested can grow into much bigger sums if you use them to buy even more shares that pay dividends in turn.

“Investors need to do their research and make sure the company they are investing in can afford to pay their dividends on a sustainable basis. Your original capital is also at risk, so it pays to be picky.

“As a way of building up your investments dividend reinvestment can be powerful.”


Schroders’ monthly markets review – February 2018

A look back at markets in February 2018 when global equity markets retreated as volatility returned.


Please click on the link above.

How rising interest rates have affected returns from bonds

Schroders research, covering four decades of data, shows how different types of bond have performed when rates were rising.


Clement Yong

Clement Yong – Strategist, Research and Analytics

Rising interest rates and tighter monetary policies are firmly on the agenda globally.

The US Federal Reserve in particular has been paving the path for hiking interest rates and many investors expect at least three further rate hikes this year.

In the UK, the Bank of England raised its interest rates for the first time in a decade back in November. In other parts of the world, the European Central Bank and Bank of Japan have begun gradually withdrawing from their respective quantitative easing (QE) programmes.

Many are therefore expecting government bond yields to rise and due to the inverse relationship between yields and prices (as yields increase, prices fall), investors have become nervous about fixed income investments, including credit assets. But these fears may be overblown.

When we talk about credit, we refer to the likes of investment grade bonds (issued by more creditworthy companies), high yield bonds (issued by less creditworthy companies, but offering more return and income in exchange), and emerging market bonds.

In September last year, we looked into past episodes of rising rates in the period between 1970 and early 2017 and how returns were affected. We focused on the US and emerging markets, measuring returns for bonds priced in dollars and in local currencies.

Our research suggested rising rates do not necessarily spell doom for income assets, including credit. The main findings were:

  1. Income assets produced positive returns, on average, in rising rate environments, with the exception of government and corporate bonds.
  2. Government bonds, such as US Treasuries, and investment grade corporate bonds have performed far worse when yields have been rising than when they have been falling.
  3. Many other assets typically included in income portfolios have held up well, and some have actually performed better, when yields have been rising.

Rising interest rates are not necessarily bad news for all bond investments

Past performance is not a guide to future performance and may not be repeated.

These conclusions should provide comfort for credit investors. As interest rates tends to rise in anticipation of stronger economic growth, assets which are more sensitive to economic growth (such as high yield debt) can still perform well. As corporate fundamentals usually also improve, this provides a boost to company profits and improves the creditworthiness of borrowers, supporting their corporate bonds.

The variation in performance of these assets, combined with the fact that most returns have been positive during rising yield environments, underlines the importance of asset allocation during times of rising rates. If investors can combine savvy asset allocation with an awareness of credit assets’ behaviour when rates rise, then they may be able to add value even when the going looks tough and the temptation might otherwise be to sell.

Investors should also remind themselves about the purpose of holding credit as part of their portfolio. If it is solely for returns, then shrewd asset allocation is needed when rates are rising.

If it is to generate a level of income, which has been the case over the last few years, due to low interest rates, then investors need not necessarily panic as the impact of rising interest rates on income levels has been minimal.

Companies are loath to cut dividends, given the negative signal that it sends to the market, while coupons on bonds are one of the first claims on a company’s income, ranking above other demands.

Past performance is not a guide to future performance and may not be repeated.

In all this it is important to remember that, like any other asset class, investing in bonds requires an adequate time horizon. Being patient and not panicking when interest rates go up is integral to this strategy.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

3 Charts from Schroders – Bond Yields, the Dollar & Trump’s Tax Cuts

Bond yields on the up

US Treasury (UST) yields have risen 30 basis points (bps) since the start of 2018, across different maturity levels. We have to go back to 2014 for the last time 10-year yields were at these levels (see chart below).

This has led to suggestions, including from veteran bond investor Bill Gross, that a near 30-year bull market in government bonds may be over.

Prior to January’s developments, the UST curve had undergone a significant flattening in Q4 2017. In other words, the difference in yields on bonds of shorter and longer-dated maturities fell, and quite markedly. Two-year yields increased from 1.48% to 1.89% over the final three months of last year.

This would likely reflect higher growth and inflation expectations, and expectations of faster rate hikes, following the US tax reform bill. The US Tax Cuts and Jobs Act 2017 passed in December and economists estimate it could boost US GDP in 2018 by 0.4%-0.8%. It appears markets had been pricing too low a probability of a tax bill and as a result underestimating the trajectory of US interest rates.

James Molony

Dollar down

The US dollar index, which measures the dollar’s strength against a basket of six other major currencies, lost around 9.1% in 2017. Having seen some stabilisation in the fourth quarter, it has resumed this weakening trend in January 2018.

Recent comments from US officials regarding trade are a likely factor behind this. So too the pick-up in activity outside of the US, and increasing expectations for a tightening in monetary policy in the eurozone and Japan.

The US tax legislation might have been expected to propel the dollar higher. However, as Schroders’ Economics team argues, “tighter monetary policy from the Federal Reserve is not a sufficient condition for a stronger dollar.”

The Economics team has noted previously that currencies tend to move ahead of interest rates as investors adjust their expected returns. Seen in this light, the current US dollar weakness could be viewed as an unwinding of the period of strength seen between 2014-2016.

While the currency no longer trades near the top of its range, as it did 12-months ago, it remains above its long-term average. Other measures such as purchasing power parity (PPP), which compares different currencies against a basket of goods, also suggest that the dollar may continue to weaken.

Andrew Rymer

Past performance is not a guide to future performance and may not be repeated.

Trump’s tax cuts

Much has been made of the drastic reductions to corporate tax that President Donald Trump signed into law in December last year, particularly the potential positive impact on growth.

Indeed, already-buoyant markets rose further on the news reflecting more optimistic growth assumptions. But research by Penn Wharton University suggests that over the longer-term, the implications of the tax reform may not be as drastic as they first appear.

The existing statutory US corporate tax rate is 35% but due to various deductions, credits and deferrals the current “effective tax rate”, or ETR, is much lower – closer to 23% on average. Trump’s new tax regime takes the statutory corporate rate down to 21%, and with some provisions of his own the ETR falls to just 9% in 2018.

However, as the chart below shows, much of the effect – more than half – is undone within 10 years. By 2027, the ETR doubles in value to 18%, mostly due to these initial provisions expiring.

Andrew Lacey

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.


Outlook 2018: Another good year for investors?

As investors look ahead to a new year, they could be forgiven for wondering whether they will be as pleasantly surprised in 2018 as they were in 2017.

A number of political worries on the horizon this time last year signally failed to materialise, including the likely shape of President Trump’s trade policies, the rise of populism in Europe and fears over North Korea. As it turned out, the market shrugged all these aside, with both interest rates and market volatility remaining close to historic lows, while stockmarkets hit new highs.

Nearly a year on, the same worries remain, compounded by the question of how markets will react to the gradual withdrawal of quantitative easing (QE).

Investors may well ask whether these problems have been deferred or whether markets will again take them in their stride. We have gathered together the collective wisdom of our investment teams on these questions. A number of themes emerge:

  • Valuations are stretched nearly everywhere, underpinned by low inflation and minimal interest rates. Japan stands out as one of the few attractively valued equity markets. In both Japan and Europe, stock prices should benefit from expanding profit margins which have room to catch up with other parts of the world.
  • While both inflation and interest rates should rise in 2018, few foresee them getting out of hand. However, several of our investors suggest that the market consensus is too sanguine about inflation.
  • One area of the equity market likely to stand out is value (cheaply-valued stocks). After the longest period of underperformance in over 40 years, the catalyst for a turnaround could be a rise in inflation and therefore interest rates.
  • Assuming policymakers can successfully juggle sustaining the recovery with controlling inflation, global bonds should not experience much downside. A keen eye will need to be kept on inflation, though.
  • In emerging markets, attractive yields for both dollar and local currency debt should be supported by continuing strong growth and relatively low inflation, alongside a stable dollar. Investors still need to beware of political developments though. In China, valuations look stretched, while growth may slow, dragged by debt reduction, particularly in the property market, and rising raw material costs, which may squeeze margins. However, domestic consumption and investment should hold firm, with selected sectors growing earnings.
  • The overall background should be good for active managers, given a likely pick-up in both volatility and dispersion (the differences between individual stock returns), alongside a fall in correlations (the extent to which stocks move together).
  • The challenges of managing businesses sustainably continue to grow, including the globalisation of policy, the increasing costs of misjudging technology and the ever-present background of climate change. Addressing them successfully will require an active approach.

If our forecasts prove accurate, GDP growth of 3.3% in 2018 will mark the strongest period for the global economy since 2011. More important will be whether policymakers can maintain the “Goldilocks” combination of strong growth and low inflation as QE is withdrawn in the US and Europe.

The main risk we see lies in reflation, as governments turn to lower taxes and higher infrastructure spending to stimulate economies, which could lead to overheating and unexpected rises in inflation and interest rates.

Overall, we carry a spirit of cautious optimism into 2018, albeit that caution may start to overwhelm optimism as the year wears on. It is certainly an approach we are adopting in our multi-asset portfolios, which go into 2018 with a pro-cyclical tilt in favour of equities, but with a readiness to ratchet down risk should circumstances demand it.

By Peter Harrison – Group Chief Executive – Schroders

How can investors find sustainable income?

Demand for income remains strong but investors may be taking on more risk than they realise. We look at how to generate a sustainable income yield across asset classes.

A decade on from the start of the global financial crisis, the search for yield continues unabated. Our 2016 Global Investor Survey found that 41% of respondents were seeking an income yield of at least 8% and over half were seeking at least 6%.

Yet such demands look increasingly hard to meet. One particular problem is that an increasing proportion of income yield is being generated by a shrinking pool of both shares and bonds.

Fixed income: yields are not always what they seem

Take bonds. Many offer “running” yields of more than 4%, on the assumption that the investor will receive back at least what they paid for the bond. Yet many – if not most – are trading above their repayment value, which means any investor who holds the bond to redemption will be guaranteed a capital loss.

For example, anyone buying a bond for $105 will receive coupon payments which may equate to a 4% yield on that value, but then get back only $100 when the bond matures. So, although headline income levels (or running yield) may seem attractive, it is probably more important to focus on the “yield to redemption” that takes into account this $5 loss and is almost certain to be a lot lower.

It may be possible to trade out at a better price but, even so, avoiding such losses is now much more dependent on market timing and security selection than in the past.

A changing universe

As well as a change in price, there has also been a change in the quality of the bonds available. A historical comparison of the US dollar investment grade1 bond market makes this clear. Almost half of the universe rated by credit rating agencies (which help determine the creditworthiness of borrowers) is now rated at the lower end of the spectrum (BBB), up sharply from less than 30% in the late 1990s.

These changing dynamics have pushed investors towards higher yielding securities. While these are likely to be less sensitive to rising interest rates, they may be more sensitive to anticipated default rates and financing conditions as they offer less protection in the form of the lender’s financial strength.

The reach for yield also leads to sector concentration. Amongst US investment grade bonds, for instance, investors who want a yield of 3.5% or higher are forced into buying commodities and subordinated financial debt2. Similar patterns can be seen in other global markets.

Fundamentals are deteriorating

The dependence of investors on an ever-decreasing pool of higher-yielding securities comes at a time when corporate fundamentals are beginning to look vulnerable. While most corporate borrowers can cover their interest payments relatively comfortably, the total stock of debt outstanding has been growing for a number of years. This means that the market may be vulnerable to even small moves in either global interest rates or central bank liquidity.

Equities: concentration risk

Over the long term, dividends have provided more than two-thirds of real (i.e. inflation-adjusted) returns for US equities, and nearly 90% for UK equities. Up to now, dividend yields have held up well in most regions. With similar yields hard to find elsewhere, investors have sought out high dividend equities. Developed market companies have responded by generally maintaining their support for dividends.

However, the degree of concentration in high dividend benchmarks is striking. For example, 50% of the market value of the MSCI Europe High Dividend Yield Index is accounted for by its top ten constituents.

This degree of concentration is also apparent from a sector perspective, with a fifth of the yield of the global MSCI High Dividend Yield Index coming from financials alone. Worryingly, as we saw with credit, the key contributors are again financials and commodity-related. This means that investors may be unwittingly concentrating their exposures in the same areas on both the equity and the credit side.


There are ways to generate a high income, but they come at a cost:

  • a likely trade-off in fixed income markets between higher income today and a guarantee of less capital tomorrow (if a bond is held until it matures);
  • an increase in credit risk in corporate bond markets, exposing investors to additional risk of loss;
  • over-exposure to certain potentially vulnerable sectors and companies in both fixed income and equity markets.

Our belief is that, rather than focusing on the alluring mirage of a high headline income yield, investors would be better served focusing on a more sustainable level of income. The more diversified these sources of income, the more resilient the portfolio will be to shocks.

While such a focus may well result in a lower level of immediate income than is available elsewhere, the long-term prospects for both income and total returns are likely to be greater.

1. Investment grade bonds are the highest quality bonds as assessed by a credit ratings agency. High yield bonds are more speculative, with a credit rating below investment grade. Generally, the higher the risk of default by the bond issuer, the greater the interest or coupon.

2. In the event of borrower default, owners of subordinated debt will not be paid out until owners of higher-ranking debt are paid in full.

By Dorian Carrell – Fund Manager – Schroders

Lessons from 2017’s surprises

Freedom Z / Shutterstock
Freedom Z / Shutterstock

Richard draws lessons from a year that saw surprisingly large returns, falling inflation and flat long-term bond yields.

The past year turned out to be more bullish than we anticipated. Consensus growth expectations caught up to ours and global earnings jumped—but the magnitude of asset returns surprised us. Most asset classes have performed well, with many delivering double-digit returns, as shown in the chart below.


The events many worried about in early 2017—including the election of a far-right government in France and aggressive U.S. trade policy—didn’t materialize. The MSCI ACWI closed at a record high 61 times, and 30-day realized volatility of the S&P 500 Index hit its lowest level since the early 1960s. Other surprises: Inflation fell and long-term bond yields were flat even as the economy improved, while cryptocurrencies posted huge returns.

Five lessons from the past year

The big stock market winners in 2017 include emerging market and Asian equities, the momentum style factor (stocks trending strongly higher in price) and the technology sector. The lesson here: Sustained, above-trend economic growth has helped companies deliver on earnings, fueling strong equity returns. All major regions increased earnings at a clip faster than 10%, Thomson Reuters data show. We expect more good things in 2018, but 2017 earnings performance will be a harder act to follow.

Two other lessons: First, low volatility can be sustained for longer than many expect. Our research shows that equity market volatility tends to stay low in steady economic expansions, provided systemic financial vulnerabilities remain in check. We see no such risks on the horizon at present, notwithstanding pockets of froth in the credit markets. Second, geopolitical risks are not all created equal. It’s worth taking the time to look through what may be excessive market fears. This was our approach to Europe. The French presidential election result put fears of a eurozone breakup to rest, a “soft Brexit” appears to be emerging, and the eurozone has managed to eke out the fastest growth since March 2011. But a tougher U.S. stance to trade still looms as a major threat to the global free-trade regime.

The final lessons? Low bond yields are not just about the Federal Reserve (Fed), and currencies can be wildcards. U.S. 10-year yields are broadly flat, 30-year yields lower, and the U.S. dollar down for the year—even as the economy improved, and the Fed raised rates and announced it would start shrinking its balance sheet. A soft patch in inflation is partly why. We see this dynamic reversing in 2018 as U.S. core inflation rises back above 2%. Yet we also see structural factors, including a post-crisis rise in global savings, as capping long-term rates as the Fed presses ahead with further rate rises in 2018. The bottom line: 2017 was a near-perfect year for risk assets. What’s ahead? Check out our 2018 Global Investment Outlook, and read more market insights in my Weekly Commentary.

Richard Turnill is BlackRock’s global chief investment strategist. He is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

The stage is set for more volatility in 2018 – Rick Rieder: Blackrock Chief Investment Officer of Global Fixed Income


Rick Rieder and Russ Brownback examine the more volatile cyclical dynamics we’re likely to encounter in 2018, even as the secular risk-asset bull market remains in place.

Sir John Templeton famously stated that “bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria.” While this thesis is often cited by investment professionals, it is also frequently used incorrectly to make a diagnosis of the contemporary investment landscape. In contrast, we apply the thesis to secular bull markets, which are multi-decade phenomena that begin with overt societal apathy and deep intrinsic value. They peak with significant societal obsession and asset overvaluation. To us, it is critically important to view every cyclical investment landscape through this secular lens. Secular investment trends are durable and tend to pull financial markets through the ups and downs of numerous smaller cycles that are embedded within them.

As we enter 2018, we are firmly entrenched in a virtuous, wealth-creating secular bull market for risk that began in earnest in late 2012. It was born of the severe pessimism surrounding the existential European debt crisis, the burdensome U.S. regulatory paradigm and the demonstrable hangover from the 2008 financial crisis. But the combination of generationally low valuations, asymmetrically easy global monetary policy and ubiquitous disruptive innovation provided the thematic underpinnings. When this secular bull ultimately peaks is anyone’s guess, but that terminal point is not close in our estimation.

Follow Rick on Twitter.

A more difficult environment in 2018

In the meantime, an ongoing cyclical ebb and flow will cause sentiment to gyrate between optimistic and pessimistic extremes. In 2015 we entered a cyclical bear phase that evolved sequentially into the current robust risk-on cycle. Ever since, accelerating economic and earnings growth alongside dormant inflation has forced valuations to chase solid fundamental realities.

However, we think 2018 is going to be a more difficult environment. Risk assets are now more fully valued, and buoyant market sentiment is more widespread. Also, the output gap has recently closed for the first time in 10 years and with no economic slack to spare, the economy is bracing for tax reform that will catalyze enhanced corporate investment. Finally, there is good evidence that wage growth is accelerating, as the economy resides near full employment.

We see respectable growth next year

This backdrop would seem primed for the onset of nefarious inflation, but there are several powerful influences that may somewhat mitigate historical drivers of price increases. First, for the more than half the world’s population that is now online, there is effectively perfect information about economic value for nearly every imaginable good and service. Thus, with little economy-wide pricing power, nascent wage increases come mostly at the expense of profit margins. And, while new fiscal incentives will drive more capital expenditure, the traditional multiplier effect will be dampened as a portion of this is diverted into research and development.

Boiling it all down, we see respectable 2018 U.S. nominal gross domestic product growth of 4.5% to 5%, with the rest of the world enjoying a synchronous growth paradigm. At the same time, visibility is murky about how a series of looming fundamental transitions may unfold. Will organic private sector growth drivers and budding fiscal policy take the baton from heretofore gushing central bank policy liquidity? Will China trade off high, but volatile, growth for slower, more stable growth while the U.S. does the opposite? In our view, simply expecting that 2017 investment themes will continue alongside of a decent growth paradigm is a precarious assumption. With the benefit of hindsight, history will judge the 2018 vintage of investment opportunities based on whether or not a new risk-off market cycle commences next year. The combination of less attractive trade entry points now, with an inherently more volatile fundamental forward environment, gives us pause.

The need for a more cautious posture

We’re opportunistically repositioning heading into 2018. For credit markets, default rates are low, but extraordinarily tight credit spreads largely already reflect that fact. Credit markets in Europe offer an especially poor risk/reward profile, as a result of omnipresent European Central Bank quantitative easing. At the same time, the recent back up at the front end of the U.S. Treasury curve has enhanced the attractiveness of shorter-dated, higher quality assets. Today, 38% of the Barclays Global Aggregate Index meets a 2% yield bogey, up from 13% last year, with most of it in the three- to seven-year bucket. Accordingly, we are migrating some of our duration exposures to the shorter part of the curve and layering in partially (or fully) rate-hedged investment-grade and municipal bonds out the curve to capture higher-quality spread.

Simultaneously, with inflation likely to accelerate modestly in the first quarter of 2018, short- to medium-term inflation breakevens offer compelling upside. With leveraged credit looking especially full, we favor emerging markets (EM) debt and certain parts of the securitized markets instead. EM fundamentals remain in a disinflationary growth sweet spot, which is likely to facilitate further EM-developed market rate compression. Finally, we still see a place for equity in portfolios today, albeit in smaller allocations and mostly in expressions that take advantage of inexpensive right-tail convexity.

As 2017 comes to a close a long secular bull cycle for risk is firmly entrenched, but it may be interrupted in 2018 by a healthy cyclical correction. The combination of full valuations, rising fundamental uncertainty and central banks that are proactively removing accommodation dictates the need for a more cautious posture next year.

Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Global Fixed Income and is a regular contributor to The BlogRussell Brownback, Managing Director, is a member of the Corporate Credit Group within BlackRock Fundamental Fixed Income and contributed to this post.

Investing involves risks including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 2017 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader


David Miller, Investment Director, Quilter Cheviot

The pace of significant political and economic events seems to have picked up over the past couple of years, and there is every indication that this will continue next year too. Without a doubt, these events can be seen as aftershocks of the financial crisis, and it is therefore quite reasonable to expect these will continue into next year.

In the US, President Trump’s appointment of Jerome Powell to replace Janet Yellen as Chair of the Federal Reserve was greeted with relief all round. In response, US Treasuries went up, despite strong economic growth and a higher than expected proposed tax cut of $1.5 trillion. With net debt of $16 trillion, what’s another trillion more? So far as US interest rate policy is concerned, it now looks like one more increase this year and three or four next, returning rates to a more normal 2.5%, if all goes to plan.

In late October, the European Central Bank decided to extend quantitative easing for a few more months than expected, despite respectable growth and signs of inflation. The President of the Bundesbank expressed his concerns about too much support having adverse consequences in the longer term, but was ignored by investors, who sold the euro and bought both equities and bonds. It is interesting to note that monetary policy outweighs political strife in Spain, although perhaps it is early days for this particular crisis.

The US, China and Japan, together with the EU, are all moving ahead helped by supportive monetary and fiscal policies. But what next? We might start to suffer from too much of a good thing at some stage during 2018, and see inflation driven higher by too much demand and not enough supply. If this happens, we will look back at 0.25% interest rate rises with wistful affection. For now, however, the present seems good enough.

In the UK, despite doubts about the stability of the British Government at a time of mounting Brexit uncertainty, a survey of UK recruitment consultants reported both an increase in permanent placements, and also that these recruits were able to secure higher pay. A Bank of England survey concurred: it seems that those with the right qualifications are in short supply and so can ask for higher pay. As employers look to hold onto their staff, so pay increases are being considered ahead of an expected rise in inflation.

Over the decades, we have become used to making decisions based on a western framework. Since the financial crisis, this has become an increasingly risky assumption. The centre of gravity of the global economy is shifting and, as it does, we can see the growing influence of non-western money, where decisions are being made using a different rule book. Unsurprisingly, perhaps, the top two performing asset classes so far this year are the MSCI Frontier Markets (26.7%) and MSCI Emerging Markets (23.4%) (source: Datastream, YTD as at 9th November 2017), with the growth forecasts for Emerging Markets and China outstripping all other regions.

In the Far East, North Korea’s missile rattling continues to grab the headlines, while its neighbours go about their business. In China, we have seen President Xi Jinping confirmed in power for the foreseeable future, while managing a transformation of the country’s prospects. The mandate from on high is now for ‘balanced growth’, rather than ‘growth’, which suggests that economic policy will now be directed towards achieving sustainability rather than debt-fuelled growth at any price. It is what the Chinese are good at: combining change with stability. Japan continues its corporate renaissance, so that 60% of earnings now come from abroad and innovation has been brought in. Earnings growth is largely responsible for the market re-rating that we are now seeing in Japan.

In the Middle East, the long-simmering tension between Saudi Arabia and Iran, the two key players in the region, has suddenly escalated. Saudi Crown Prince Mohammad bin Salman has locked up senior members of the establishment, disturbing the carefully cultivated equilibrium we have come to expect of the kingdom. He has also forced the resignation of Lebanese Prime Minister Saad Hariri, for reasons not declared but likely related to the proxy wars going on in Syria, Lebanon and Yemen between Sunni (Saudi backed) and Shia (Iran backed) forces.

The importance of these dramatic developments is that approximately 20% of global oil production is transported through the Persian Gulf, which separates Saudi Arabia and Iran. As yet, it seems the markets have ignored the increased geopolitical risk that these events represent, though this could now more easily change, with real implications for the global economy.

Barring a political shock, monetary policy error, investor over-confidence or a credit event, the outlook for 2018 can be regarded as positive. The bull market scenario is based on economic fundamentals that still look supportive; corporate valuations and profitability are reasonable; and, with equities attractive relative to other assets classes, investor confidence is increasing modestly.

At some stage, economic growth with low inflation might be too much of a good thing. As the end of 2017 comes in to sight, against a backdrop of relatively high stock valuations, rising interest rates and innovation disrupting established business models, due regard must be given to the basics of investment life: with deposit rates still close to zero, not being invested is bad for your income; innovation creates winners and losers, even if index volatility is low; and, most importantly, long-term investment success comes from having the flexibility to meet the challenges of a changing world.

Investors should remember that the value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest. Past performance is no guarantee of future results.

 Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.

3 questions to ask yourself before you build your investment/pension portfolio

Your financial future is not something to be left to chance. It demands a well-constructed, goal-oriented investment portfolio.

In a world of increased market risk, policy uncertainty and an outlook for lower long-term returns across asset classes, how well you build your investment portfolio matters like never before. It can mean the difference between a comfortable or a compromised retirement.

Contrary to common belief, portfolio construction is not a simple matter of choosing asset classes/securities—stocks for growth, bonds for income—and assigning some mix of the two. It’s important to understand how the various components work together, how they might be expected to perform over a given time horizon, the correlation between them and what risks might be embedded in them.

3 questions you should ask yourself before you start on the process of constructing a portfolio that can address your financial needs and goals.

  1. What am I investing for?

This statement may seem obvious, but many investors fail to orient their investments by objective.

To begin, assess: (1) how much you have, (2) how much you need at some point in the future, and (3) how much your investments need to earn.

The tougher question: Is my objective actually achievable? In other words, is that required rate of return possible given the timeframe and expected market conditions you are working under? Consider: How probable (or improbable) is it, and how much risk might you need to take in order to pursue that return. Ultimately, the answers to these questions will help you understand if your goal is a reasonable one, or if your timeframe or expectations may need to be adjusted.

  1. What type of risk am I able and willing to accept in pursuit of those goals?

In the industry, we often quantify risk as a mathematical concept, such as standard deviation. But we are keenly aware that, for investors, risk is emotional. And that can be hard to plan for.

Often, the framing of risk can make all the difference. Imagine that a €100,000 investment in an asset with an annualised level of volatility of 10% could easily undergo a drawdown of €10,000 in any given year. Assessing your tolerance for risk and capacity for loss, if any, is probably not about whether 10% volatility feels OK to you. It’s about the more tangible question: Can I bear a loss of €10,000 in value of my investment at any moment in time?

Equally important: Know the risks you are taking. Nothing removes the emotion from investing, but having confidence in what you have built can sometimes help you to stay the course and not let stressful periods derail the pursuit of your goals.

  1. What am I willing to pay in this pursuit?

Portfolio costs come in two categories: fees (transaction costs or management fees) and taxes. Each of these eat into the returns a portfolio generates. That drag is intensified in times of low returns. Being wise about your cost budget means considering how low-cost exchange-traded funds (ETFs) might work together with high-conviction active strategies. In short: You want to consider where it makes sense to pay more for manager skill and high-conviction ideas vs. gaining broad market exposure with index-tracking investments.

For example, if an active manager has displayed an ability to outperform the benchmark by 1% over time, and you only pay 0.5% extra in fees and taxes in order to achieve that return, then that trade off might be worth making if you believe the manager can continue to deliver at that rate. If you can’t identify a manager offering this kind of benefit, then it may make more sense to opt for the broad market exposure at a low cost.

While these are three seemingly simple questions, they require hard thought to arrive at meaningful answers around which a productive investment portfolio can be built and oriented. Working with a Certified Financial Planner can bring objectivity and expertise to the conversation. It might also bring some peace of mind. Research shows that investors who work with a Certified Financial Planner feel more confident and better prepared for their financial future. Your life goals deserve that much. No questions asked.

Investing involves risks, including possible loss of your capital. The value of your investment can fall as well as rise and you may receive back less than your original investment.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any products or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. As such, no guarantee of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions is accepted. Reliance upon information in this post is at the sole discretion of the reader.

10 Rules for Investing

All of us have worked hard to build capital and are looking to preserve and grow the real value of our assets, but when it comes to investing that money we often fall foul of simple mistakes that impact our ability to invest wisely. When markets are rising, it is easy to get carried away, but the longer we move on from the last downturn the more we tend to forget the mistakes of the past.





Risks Associated with Pensions and Investments

Pension Risk

Each investor is responsible for making all of the investment decisions in relation to his or her pension. These decisions may not be correct. As a result, there is a risk that the pension may be under funded by the investor and/or the value may be insufficient at retirement so that the investor’s long-term retirement needs may not be met. It is important that each investor seeks independent professional advice prior to making any decisions which have tax, legal or other financial implications.


Bomb Out Risk

One of the major potential dangers to an ARF is what is known as Bomb out risk: there are various descriptions of Bomb out risk but the most prevalent description is that an investor who takes regular withdrawals and/or imputed distributions over the life of their potentially run the risk that your income needs may no longer be met by the value of your ARF.  This product is not suitable for regular large income withdrawals which can deplete the fund.


No Assurance of Investment Return

The value of the investment may go down as well as up. Investors may lose some or all of the money invested. There is no guarantee that the ARF will meet its objectives of long-term capital appreciation or the level of income required. Unit values may fall as well as rise. There is no guaranteed investment return.


Market Risk

Past performance is not a reliable guide to future performance. The ARF may be invested in particular securities, such as stocks or bonds, which can fall in value at any time due to the value in global stock markets.


Currency Risk

The ARF may have exposure either directly or indirectly to non Euro currencies. Currency movements may impact negatively on the overall performance of the pension product.


Credit Risk

Investments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties (default).


Liquidity Risks

The ARF may be invested in securities which cannot be easily sold in the market at a fair value and therefore cash may not be available to the investor when needed.

Inflation Risk

ARF’s are a long term investment and the effect of inflation can erode any ‘real’ investment returns over time.


Counterparty Risk

Losses may occur if an organisation with which the fund transacts becomes insolvent or fails to meet its obligations. This risk may be reduced by obtaining assets as collateral from these organisations. These losses will be passed on to the investor.


Investment Management Risk

The ARF and/ or any underlying investments in funds can be subject to investment management risk, whereby there is a risk that there will be a financial loss due to the investment manager making the wrong investment decisions. The investment manager may choose the wrong asset allocation or specific stock selection or overall investment strategy.


Tax Risks 

Tax laws and regulations are constantly changing, and they may be changed with retrospective effect which may have a negative impact on pensions or underlying investments. No assurance can be given regarding the actual level of taxation that may be imposed upon pension schemes or underlying investments. Any tax information that may be provided for Irish resident clients is based on our current understanding of the tax legislation in Ireland and the Revenue interpretation thereof. It is provided by way of general guidance only and is neither exhaustive nor definitive and is subject to change without notice.

Dealing with Volatile Investment Markets

For long-term investors, dealing with volatile markets can be taxing and at times quite frightening.

The accumulation of Pension & Non Pension Capital has taken time and effort to accumulate with a desire to ensure positive as opposed to negative growth is achieved on same. Here are some points you may want to consider in such Market conditions. None of these should be new to you, but they are particularly important in a turbulent environment, which is where their true value is realised.


  1. Don’t panic — When Investment markets become volatile, the gut reaction for most of us is to panic — to buy when everyone else is buying (and when prices are high) — and panic sell on the downside (when prices are depressed). Panic selling also runs the risk of missing the market’s best-performing days. Consider, for example, an investor missing the top 20 performing days of the S&P 500 in the last 20 years would have reduced the average annual return from 9.79% to 3.58%. Whilst not advocating 100% allocation to Equity, this point highlights the necessity to ensure correct Assets and Allocations are held within a Portfolio and also an understanding that returns WILL be both positive and negative over time.
  2. Pay attention to asset allocation During volatile times, riskier asset classes such as Equities tend to fluctuate more, while lower-risk assets such as Fixed Interest Bonds or Cash tend to be more stable. Ensuring a balanced and risk adjusted structure to your Portfolio will entail a greater ability to ‘weather ‘volatile market conditions. The necessity for regular reviews of your holdings will ensure a clear and transparent understanding of the risks being undertaken.
  3. Diversify, diversify, diversify In addition to diversifying your portfolio by asset class, you should also diversify by sector, size (market cap), and style (e.g., growth versus value). Why? Because different sectors, sizes, and styles take turns outperforming one another. By diversifying your holdings according to these parameters, you can potentially smooth out short-term performance fluctuations and mitigate the impact of shifting economic conditions on your portfolio.
  4. Keep a long-term perspective It is all too easy to get caught up in investment market’s daily roller coaster ride — especially when markets turn choppy and its effect on your Investment Portfolio can reflect such movement. This type of behaviour is natural, but can easily lead to bad decisions. Instead, focus on whether you continue to be comfortable with your long-term performance objectives based upon informed and current commentary.
  5. Consult with your advisor(s) — They can help you develop a long-term investment strategy and can help you put short-term events in perspective. No one is certain what impact current drivers of volatility will ultimately have on the economy and financial markets. But

as an investor, time may be your best ally. Consider using it to your advantage by sticking to your goals and ensuring your plan is constantly current.


We hope the above gives some element of direction on how invested Capital should be assessed in volatile conditions. The message we hope to convey is the need for regular review and assessment to ensure Invested Capital is working for you.

Don’t ignore the power of Dividends

For investors with a medium to long-term investment horizon, investing in high-yield equities (high dividend paying stocks) is certainly something to be considered.

For investors with a medium to long-term investment horizon, investing in high-yield equities (high dividend paying stocks) is certainly something to be considered. For those of us that invest in global stock markets, we do so with the expectation that we will make money in the medium to long term. A global approach gives portfolio managers the flexibility to pursue what they believe to be the best investment opportunities in the world and provides an important source of portfolio diversification in the process. Dividends can also have a significant impact on returns and the reinvestment of these dividends within a fund structure can be of benefit to a portfolio.
The Zurich Dividend Growth fund was launched in July 2005, to meet client demand for an equity strategy with a focus on dividends. Performance has been strong for the fund, with an annualised performance of more than 15% over the last five years and the fund has also outperformed its
Financial Express sector over 1, 3, 5 and 10 years.*

Under the Bonnet – Screen, Select & Construct
The fund goes through a rigorous screening and stock identification process. The initial screening covers over 6,000 global companies and identifies those with a higher than average dividend yield amongst their peer group in their regional market. It is crucial to identify and exclude companies where the dividend yield is inflated due to a falling share price as a result of poor fundamentals. Thus, the
focus of the fund is not necessarily on very high dividend paying companies, rather it is on those with an above average yield plus the capacity to pay and sustain a higher dividend yield over time. The Dividend Growth Fund is focused on identifying sustainable dividend paying shares with the ability
to grow that dividend in the future.
The stock screening process was developed by Zurich, in conjunction with an independent quantitative investment house. The fund manager looks for opportunities worldwide, searching for companies with the following characteristics:
• A higher than average dividend yield amongst their peer group in their regional market
• Payout ratios that have the ability to grow, and the capacity to sustain higher dividend yields over time
• High and stable return on shareholder equity.
This process reduces the number of stocks down to less than 300, and the risk overlay narrows it further to approximately 170. The risk overlay from the Fund Manager is an important step in the process, identifying stocks that may need to be excluded for qualitative reasons. The model is consistently applied to ensure stability; however, it has been assessed and refined at several points since the fund’s inception.
The screening process takes place on a monthly basis. In order to reduce unnecessary turnover in the fund, the criteria are set such that it is more difficult to get into the fund initially than it is to remain within the fund once previously selected for inclusion. The initial stock screening takes place on the global universe (focusing on points above). The exposure in the sector also has a wide geographical spread; however the sector components are generally highly correlated, particularly in times of weakness.

Dividend Growth into the future
Zurich’s model helps identify stocks that have the potential to grow their dividend, and is not focussed on only equities that are considered ‘defensive’. It is important to note that not all dividend stocks are defensive by nature, and dividend growers tend to be more cyclical. By having a model that uses a number of different metrics, and an active manager overlay, the fund is well-positioned to identify stocks that have the potential to participate further in the global economic recovery.
The outlook for the fund continues to be positive; the robust nature of the model – combined with the manager overlay – has produced above average returns. Whilst the long-term downward trend in bond yields appears to be coming to an end, investors looking for an investment with an income stream may not be satisfied with bond yields that are still currently well below historical norms.
Stocks providing a dividend yield continue to offer an opportunity to provide this income stream.
As part of a wider portfolio the Dividend Growth Fund aims to help provide better investment outcomes.

Financial Planning Standards Board

Financial Planning Standards Board

Financial Brokers

Certified Financial Planner

Certified Financial Planner