5 Top Questions About – Market Volatility

    It’s all over the headlines. The markets are going through a period of unprecedented volatility. It is, of course, a time that may cause worry to many investors. Here, Anne O’Doherty, our Head of Life & Pensions answer the most commonly asked questions we have received and shares our view on how investors should react.

    What is market volatility?

    Market volatility is an investment term which is used to describe periods of unpredictable and sharp price movements in the stock market. It covers when prices fall but can also refer to sudden price rises. Understanding market volatility and being aware of it is an important part of investing.

    What makes markets volatile?

    There are many factors that can affect the markets. Volatility is usually caused by political and economic factors, industry or sector changes or even individual company news.

    The current market volatility that we are experiencing is being driven by the war in Ukraine, pending interest rate increases, fears around new Coronavirus variants and sudden rise in inflation among other factors.

    What does a “bear market” mean?

    A bear market is a prolonged period of decline in the stock market, usually a decline of at least 20%. It’s an indicator of low investor confidence and a sluggish economy. A bear market is usually followed by a bull market. This is when securities are once again on the rise and tends to last longer than the preceding low. 

    What impact will this have on my investment?

    While it can be difficult to witness any declines in your portfolio, it is important to apply logic and not act out of emotion. The most important thing for an investor to do is hold their course.

    History has shown that those who have stayed invested during previous periods of market volatility have achieved their original investment objectives.

    I’m not sure what to do, where can I get help?

    Investing is a long-term commitment. A well-balanced, diversified portfolio would be built taking into account the ups and downs of the market. Although volatility is a typical part of investing, it’s not unusual to be concerned by periods of it. If you have any questions or concerns in relation to your own investment, please don’t hesitate to get in touch with us at Quintas Wealth Management.

    Why you need to have a financial plan

    Anyone who has a source of income and out-going expenses should have a structured financial plan. The objective of this is to help you achieve your financial goals. But really what it does is to help you live the life you want to live. It can be as simple as paying the mortgage off early, saving for education expenses, putting a sum aside for a “rainy day” or planning for a comfortable retirement.

    Your life is your story

    At Quintas Wealth Management, we like to think that your life story is like a book. As the pages turn, your story is told. Each chapter is a different stage of your life. At each stage, you will have different challenges, opportunities, and choices. You probably have plans in place for what you wish to achieve in each chapter. So why would you not have a plan in place to financially support these plans?

    What is financial planning?

    Financial planning is a straightforward way of creating a roadmap that will help you as you journey through your story. Creating a roadmap for your financial future is for everyone. It provides a step-by-step approach to meeting your life goals. It puts you in control of your income, expenses, and investments so you can manage your money to deliver the best outcome for you. Financial planning is an ongoing process that will reduce your stress about money. It will support your current needs and help you be prepared for what you want in the future.

    Benefits of financial planning

    1. Puts you in control

    By understanding clearly what your income and outgoings are and setting out your goals you are firmly in control. Without a plan in place, it can be hard to budget properly on a day-to-day basis, let alone plan for the future or the unexpected. A financial plan puts you in control, so you know not only where you want to get to but how you are going to get there and when.

    • Peace of mind

    A financial plan helps you manage your money efficiently. It considers many factors including your life stage and risk profile as well as your family situation. That way you can not only cover your ongoing regular expenses, but you are safe in the knowledge that future and unexpected expenses have been planned for too.

    • Cover all eventualities

    Your financial plan will be unique to you. It will incorporate the right mix of protection, investing and saving for what you want to achieve. A part of any good plan will create an emergency fund. This is a critical aspect of financial planning to ensure that your plan delivers what is right for you regardless of what happens.

    Our 4-step approach

    At Quintas Wealth Management we offer a simple 4-step approach to financial planning. This allows us to work together with you to put a robust plan in place to get you where you want to be. Our belief at Quintas is that the most constructive way of establishing a client’s financial goals and putting solutions in place to achieve them is through our financial review process. This allows us to work with you to assess where you are at in financial terms and where you are trying to get to. We consider many factors including your life stage and risk profile as well as family situation.

    We also build-in security against any unforeseen circumstances that may happen. And most importantly we review your plan regularly to make sure that it is delivering what you need and to take into account any changes you may require.

    So, if you’re ready to talk to us about your story, just get in touch.

    Pension Auto-Enrolment and Your Retirement Planning

    The Government has announced that the long-awaited Auto-Enrolment Retirement Savings scheme is set to be rolled-out from 2024. It is targeted at approximately 750,000 workers across the country. The aim is to ensure these people have made provision for their retirement if they do not have an occupational or other pension scheme in place.

    We have a lot of details on the proposed way the scheme will work but like anything there will be post-implementation issues to iron out. Anne O’Doherty, Head of Life & Pensions gives us an overview of the scheme and what we believe it means for your retirement planning.

    Anne O'Doherty, Head of Life and Pensions, Quintas Wealth Management
    Anne O’Doherty

    What is Auto-Enrolment?

    Quite simply it is a new system to try to encourage people to make adequate provision for their income at retirement. It will work by having employers automatically enrol their employees into a workplace pension scheme.

    Who is it aimed at?

    It is aimed at those people who currently are not in a company pension scheme. The Government has estimated this number to be around 750k between the ages of 23 and 60 (earning more than €20,000).

    How does it work?

    The scheme is being set up so that contributions paid by employees will be matched by their employers. This will be as a percentage of the employee’s gross income. The State will then also add a top-up to the money in the pension pot. The contribution rates are going to be phased in over a 10-year period. They will start at 1.5% for both employee and employer in 2024.

    Can I opt out?

    The scheme is opt-out rather than opt-in. This means that people who do not have another arrangement in place will not have to do anything to start paying into their pension fund.

    But employees who do not want to pay into the scheme can opt-out but only after an initial 6-month period. The opt-out is also not indefinite and they will be automatically opted-in again after 2 years.

    Will there still be a state pension?

    Yes, it has been confirmed that there will still be a state pension scheme in place. But as we know this does not function as a direct replacement for a salary. There is a short-fall – the “pension gap” which may well continue to increase due to increasing life expectancy and demographics. The idea is to bridge this gap, by auto-enrolling those that do not have an additional pension plan (company/personal/PRSA) in place into the scheme.

    Financial Market Commentaries

    The Russian invasion of Ukraine sent investment markets into freefall. For a number of weeks leading up to this we were receiving client queries regarding what the impact on their investments would be, should this happen. Now that it has, our response remains the same as events unfold.

    There is understandable concern as there always is during turbulent periods in the stockmarket. It is important to remember that these periods are part and parcel of stockmarket investing. For those invested in diversified portfolios for the medium to longer term, it is a case of let the stockmarket readjust. Historical data indicates that declines tends to be temporary.

    To assist you in understanding the impact and implications of the current situation we have included links to a number of commentaries from our investment partners. We will add to this over the coming days as the situation continues to be assessed.

    Implications of the Russian Invasion of Ukraine – New Ireland

    Possible economic and financial implications of Ukraine situation – Aviva

    Investment markets roiled by Russian invasion – Zurich

    Markets Update: Russia-Ukraine Crisis – Irish Life Investment Managers

    Navigating geopolitical events – Dimensional

    Trade & Economic Impacts of Ukraine invasion – IBEC

    First reaction to the Ukraine crisis – Davy

    Which is better Serious Illness cover or Income Protection?

    There is no single right answer to this question. As with many areas of financial planning, it depends on your own individual circumstances. What is your occupation, your financial situation, your life stage and what are your financial goals? You need to understand some key differences between Income Protection and Serious Illness.

    The main difference is that Serious Illness cover pays a once off lump sum when you claim. Whereas Income Protection pays a regular income. There are a number of other differences as well. To help you understand these better, we have highlighted the main ones below.

    What's the difference between Serious Illness and Income Protection?

    The Finance Act 2021 is now law – what does this mean for your retirement?

    The Finance Act 2021 was signed into law at the end of last year. There are a number of important changes for consumers brought about by this. We’ve received several questions specifically in relation to retirement options from our clients and have summarised the new position below.

    For many years, at retirement you may have had the option to transfer some or all of your retirement fund to an Approved Minimum Retirement Fund (AMRF) or an Approved Retirement Fund (ARF). These are post-retirement investment plans. They allowed you to continue to invest your pension fund in retirement and draw down money as you need it, rather than buying an annuity.

    The is one main difference between the two options. This is if you were under 75, you could not transfer to an ARF unless you could demonstrate a guaranteed income of €12,700 a year (including State pensions). If you were unable to meet this minimum, you had to do one of two things. Either transfer €63,500 to an Approved Minimum Retirement Fund (AMRF) or purchase an annuity. Bringing up your level of guaranteed income to the minimum amount.

    This specified income requirement has now been removed.

    In effect, this means that there is no longer a need to have an AMRF product available. The entire pension fund can be transferred into an ARF with no limits to the amount drawn down every year. There are specific rules associated with ARFs in relation to drawing down money and the tax implications of this.

    What are the choices now?

    There are now two specific choices when it comes to your retirement options. You can invest in an annuity or investing in an ARF. Different criteria apply to both options and your pension must meet certain eligibility requirements.

    What happens to my existing AMRF?

    Where you already made a decision in relation to your retirement funds you may have an AMRF. If that is the case then this will automatically be converted to an ARF. Your product provider will be in contact with you to confirm the new arrangements.

    Having spend time and effort to build your pension, how to use that to fund your retirement is an important decision. There is no single right way. You need to assess the options available and your own financial needs.

    We are happy to help if you have any further questions in relation to this important change or need guidance on your options as retirement approaches. Just get in touch for a chat.

    How to make the most of your pension with maximum funding

    The focus on pensions for the self-employed with the tax deadline has passed for another year. But that doesn’t mean that the conversation around pensions should stop. Many companies offer occupational pension schemes with regular contributions. But the majority of people do not benefit from the savings they can make by maximum funding their pension.

    An occupational pension scheme is one of the most tax efficient ways of providing pension benefits for company directors and employees.

    Employers get tax relief on any contributions they make to a pension arrangement. Employer contributions to pension arrangements are fully deductible for corporation tax purposes up to certain limits. The treatment of employer contributions for tax purposes depends on the type of arrangement you may have.

    Any contributions paid by employers to occupational pension schemes are not treated as a benefit-in-kind. These can be paid in addition to the contribution limits for employee contributions.

    Getting to know your allowable maximum annual contribution will help you with retirement planning as well as saving you money.

    Women and Pensions: What you should know

    It’s important for everyone to have a plan in place so that their standard of living doesn’t fall when they retire. A pension is the best way to do this. How you approach your pension planning can depend on many factors.

    While women generally live longer than men, they are less likely to have adequate income in retirement. Did you know that women generally end up with smaller pensions than men?

    One of the reasons for this is because women often face challenges during their working lives not experienced by men.
    Their career paths are more likely to alter course to allow for temporary or permanent leave to mind children, take care of loved ones or even take a career break. And while this pattern is changing with more men taking on the role of carer, the vast majority of women still undertake this role.

    If you take time away from work, this can have a significant impact on your pension savings and ultimately on the type of lifestyle you will be able to afford in retirement.

    Find out what type of things you need to consider and the various options open to you in this easy to follow guide.

    For help on planning your financial future just get in touch.

    The 1,2,3 of ESG – What you need to know

    There’s a huge amount of talk about the environment. This is in every aspect of our lives from how we heat our homes to the food we eat and the packaging it comes in. We are increasingly conscious of how the decisions we make and the actions we take impact the world around us. An environmental focus has long been considered by investors. However, the now widely known ESG investing goes far beyond being purely about “Green” funds. Here is our 1,2,3 of ESG or the What you need to know guide!

    1. What is ESG?

    The world of investments and investment terms can be confusing. A term that we should all know and understand is ESG. ESG investing or Environmental, Social and Governance investing, put simply, is a type of investment approach that uses these 3 criteria to assess potential companies that they may wish to invest in. As a philosophy, it has become increasingly popular over the past couple of years. This is largely down to the fact that people are increasingly looking to invest in options that are akin to where their values lie.

    ESG | Environmental, Social & Governance Factors (source New Ireland)

    ESG investing is also referred to as sustainable or socially responsible investing. It is broader than the existing ethical investment approach as it doesn’t just take into account environmental factors. It’s about aligning people, politics and the planet with profit. . It underpins a responsible investment approach, and allows investors to better manage risk and generate sustainable, long-term returns. This short video explains it in simple terms.

    Why is ESG investing gaining traction (source Aviva)

    2. Why consider ESG?

    Demand for ESG investments has gained significant momentum. Recent research has pointed to over two-thirds of consumers surveyed believing that it is important to consider ESG factors before investing. This rises to over 70% for those with a pension with many of these people stating the reasons are to do with aligning their actions with their beliefs. Many companies that adhere to ESG criteria have been shown to provide better long-term returns to investors.

    This simply means that on an individual basis we can do good through our investment choices. The Covid-19 pandemic has accelerated this thinking. Very few companies have benefited from the crisis however the way they reacted to it and emerge from it could largely dictate their future. Transparency is a crucial part of this. How a company responds in a crisis tells you a lot about its motivation and whether it has a moral compass that guides its purpose.

    As an emerging model there has been some critique, saying ESG investments are too passive and not delivering on returns. So far research has shown positive and consistent returns when ESG is part of a multi-asset portfolio. With investing a basic tip is never to put all your eggs in one basket – diversify.

    Responsible Investment Podcast (source Zurich)

    Creating Opportunities in a Negative Space

    Like many of our peers we’ve highlighted the impact of negative interest rates on client returns. We recently looked at some solutions to the problems faced by investors. It’s interesting to see that there have been opportunities that have been created in this negative space. But how can we best engage with you in an understanding and taking advantage of these? This question prompted us to look at the factors driving an individual’s decision-making process. specially at the current time as well as how financial decisions are made.

    The decision-making process

    Decision-making process, customer journey, sales funnels, these are all variations on the same theme. The decision-making process is a psychological one. We assume from a behaviour or action taken that a decision has been made. It shows a commitment to an action. What is often referred to as the customer buying process, is itself a decision-making process. This is where we see the journey a customer goes through before purchasing a product. The easiest way to look at it is using the AIDA structure.

    • Awareness: Recognition of a need or problem
    • Interest: Seeking information on the various options available to solve the problem
    • Desire: Evaluation of options and a preference develops
    • Action: Reaching of a decision and the purchase is completed

    We are all consumers and are more informed than ever before. That is why our job as financial advisers is not to sell a product to you. It is to understand the process you go through to reach a decision. It is also to recognise the need you are trying to fulfil, whether this is protecting your family or planning for your retirement. We must work with you through this process to assist you in defining the need and to provide the best advice on the solutions available.

    The role of behavioural finance

    So, what does behavioural finance have to do with anything? We should recognise that not everyone is approaching a financial purchase from the same starting point. Traditional theories were very functional. They assume financial decisions were made against a rational background – both for internal and external factors.

    Behavioural finance goes against this by asserting that financial decisions are often based on emotional responses. For example, you purchase protection on your own life to protect your loved ones. This holds true also for investments where investors may hold losing positions rather than feel the pain of taking a loss or the emotional instinct to move with the herd may explain why investors buy in bull markets and sell in bear markets.

    Understanding how this impacts financial decisions around things like investments, risk, protection, and personal debt is critical to being able to provide a better service to our clients. Human emotion plays an incredibly influential role in these decisions. We have come through a time of crisis and while there is still much uncertainty there are opportunities.

    What is the opportunity?

    It is a time of negative interest rates. The Covid-19 pandemic shocked the world and is continuing to do so. We will be dealing with the fall-out for many years to come. Following our lives being put on hold, there is a huge amount of money on deposit earning no return but there are opportunities for those to make their money work harder. This is true too for those who wish to continue the savings habit they have now started. By combining an understanding of buying processes with the concept that financial decisions are emotionally based allows us to work with our clients in helping them make more rational decision in their financial matters. This is particularly relevant at the current time.

    With negative interest rates, investors are faced with a choice. This choice is between a sure loss or exposure to a possible greater loss by choosing stocks. What is the best course of action? By following a well- thought-out strategy for gradually drip feeding into the markets to benefit from potentially greater returns can be an excellent route to follow. This type of unit cost averaging may dampen volatility and is applicable regardless of overall risk attitude.

    If you’re not sure what direction to follow with your financial decisions, we’re here to help. Just get in touch for an initial chat.  

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