Investments -Asset Classes
(What type of investments can I put my money into?)

By : Joe Daly,
Daly Investment Planning Ltd,
Ballinrobe,
Co Mayo. ( 094 952-0921 or e-mail: info@dip.ie )

In a previous article I discussed Risk/reward, what it means, and the types of risk for example: Risk against inflation, Risk of non- performance and Risk of capital loss.
What is important is that you must balance your risk and reward requirements and find the investment/product that most closely matches your needs not forgetting that the money you have for investment can be split between different risk rated products and funds.

What type of investments can I put my money into?
This week we are going to look at the asset classes money can be invested in and explain the risks involved.
As with all investment you must decide what risk you are willing to take to achieve your target return.

Deposit accounts, Government Securities and Bonds (issued by Governments and large companies)
These are investment products of Banks, Credit Unions, Building Societies, Post Office, Governments and corporate companies.

These types of investments do not really offer investors protection against inflation in the long run. That said they are still important in that they can offer higher income than shares or rental income from properties. So fixed income bonds and deposit accounts are useful for those seeking income and as a home for everyone's emergency money.

Best returns vary and the larger the figure the better the rate normally. Investors should consider how long they wish to invest for, their tax position and the state of the interest rate market before deciding whether to invest in gilts or deposits long term.

Gilts are generally safer than really speculative shares but different sorts of gilts are suitable to different types of investors.

Property
This is by far the most talked about asset class in Ireland. Property as we have seen in the last number of years has increased in value enormously. It has always been part of the Irish culture and we have the highest home ownership in the world.

Property in the past has not kept up with investment in equity although it has performed better in many years. People buy property to live in rather than pay rent and those that invest do so to get rent and hopefully capital growth (that is sell for more than they paid).

It is important to note that property values can go down as well as up and when you do invest be prepared for a period where you may not be able to sell it at a higher price.

Foreign property has been attractive to Irish investors BUT you need to do your own footwork as well when buying a property. Would you buy a car without looking around or driving and asking questions? You spend a lot of time doing this but few research bigger investments to the same degree!

Equities/Shares
In a nutshell equity is a share in ownership in a company. You own part of that company. Companies issue shares to raise funds for expansion. Individuals then buy and sell the shares in the open market directly or through pension funds, insurance companies or unit trusts. Companies are very different from each other so to compare like with like shares are grouped together into sectors of similar businesses for example the food sector, the banking sector, pharmaceutical sector, construction sector etc.

Share prices rise and fall daily, even hourly and can be extremely volatile over the short term. Some such as technology and Internet shares, are more likely to be volatile.

Historically good quality shares have tended to outperform other investment classes however this return does come at a price in that they tend to go up and down in value more often than the other asset classes. The history of the last few decades has shown that quality shares have out performed property. There is also the risk of getting back less than you invested in the company.

I mentioned that most investment experts recommend diversifying your portfolio and that this offsets some of the risks. By diversifying I mean varying the assets your money is invested in. As the old saying goes ëíDo not put all your eggs in one basket.

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