askpaul - EPISODE 7! Investment Tips For Your Pension in Ireland

Hi and welcome to episode seven of Ask Paul. Today is our third episode in relation to pensions. We're going to discuss investments and how to invest your pension the best way. Before I get into the nitty-gritty of investing your pension, I just wanna say that everyone's gonna be different, and that's a really big important message to come across from investments, is that everyone's gonna be different under different, unique circumstances. So not one size portfolio, one sort of investment plan will suit everybody. So it's important if you are speaking with a financial advisor to get the best advice that's for you. And first of all is we'll typically take what you would call the risk profile questionnaire to try and get your appetite for risk. What does that mean? Well it basically means how you feel with risk and how you associate your money increase and decrease and with your personal and kind of professional view. So are you comfortable with your money increasing and then decreasing? Are you happy with your money just being safe all the time? And that's what those type of risk profile questions are there to pull out. One thing I will say though, is what I've heard as well over the years from a lot of other clients is that, " My dad lost all his pension," or, " My mom lost all her pension," or, " A friend of a friend lost all their pension " 'cause of the markets." You don't actually have to risk your money. You don't have to invest your money in equities or shares or property. It can simply sit in the cash account, and that means your money will be 100% safe. If you're doing that, the real thing you miss now is the opportunity to get compound interest on growth, so typically if you invest your money you're gonna get more growth than if you just sit in cash. But if that's important to you, make sure your financial advisors are aware of that. And there's no harm of sitting in cash. One way to look at your pensions that you're obviously gonna get tax relief from the government as we discussed in the first two videos. You're gonna get tax relief, so that means if you get a 40% tax rate for a 20% tax relief, it's viewed as your growth. Let's say we're getting 40 to 20% back from the revenue, so that's enough, we're gonna sit in cash and not worry about investing markets going up and down and that kind of stuff. Obviously you'll have a bit less in your pension, but the journey is the most important for you with your pension plan. Making sure you're comfortable and making sure you're not losing sleep at night, not losing sleep at night to make sure that your pensions get invested in the correct way. So that's the first thing. Second thing, if you're gonna go into the market, is you're gonna have to discuss around what type, I'm gonna go into investments, what type of investment strategies are there for you. So there's different asset classes, and the asset classes mean equities, which are stocks and shares, property, commodities and bonds and cash. Again touching on the cash thing again, you could go into cash. If you're gonna go in to the other asset classes, it's probably best that you diversify, if you pick a bit of each asset class. And this is a bit of a typical don't put all your eggs in one basket. The reason why you do that is that if one part of the structure falls, so if equities have a bad year, property might have a better year, so therefore you're not all down with your inequities purely and you lose a lot of money on it, well then that's gonna happen to your whole portfolio if equities are down a lot. So diversification is the key thing. The other thing we're gonna look at is the risk in your pension over time. What I mean by that is again, if you're gonna retire at age 65, well 10 years before that, and this is a common kind of advice you get from a lot of financial advisors, is take 10% a year away from a risk strategy and put it into cash. So if, say, at age 55 if you have four categories, and you have, say, equities, bonds, property and commodities in a portfolio, take 10% a year out and put it in cash. That means by the time you get to 60, you'll have 50% of your money invested and 50% in cash. So if anything kind of a really badly goes wrong like it did in 2007 and 2008 with the financial crisis, at least 50% of your money is safe. And then obviously as you along the years, you get to 64, 90% will be safe and 10% will be in the markets. So that's a good thing, and it's called lifestyle and strategies with most of the life insurance companies in Ireland.