Quinnlife or Anglo Irish Bank for Child benefit savings?

[Janman07]

OP:

Hi,
I intend to build up a savings of my child's child benefit and was wondering whether now is a good time to invest in Quinnlife Freeway Funds or to start off with the Anglo Irish Bank Regular Savers A/c at 8%, considering the current economic climate?

While I tend to agree with Clubman in that the top or bottom of market movements are only obvious in hindsight, investing in the stockmarket (for long term investors) must be a better bet today than it was 12 months ago. Short term, things will no doubt get worse before they get better and the volatility is enough to make anyone nervous.

Money invested for the long term is better off invested in equities as normal deposit rates mean that your money loses value in real terms (after inflation). However, the banks are currently offering high regular saver rates because they need to show deposit inflows on their balance sheets. This will not last forever and neither will they allow you to build up substantial funds at those rates. In my opinion, 8% risk free is too good to pass up in the current climate. When they pull the rate in 6/12/18 months markets may be more stable and returns may offer an acceptable risk premium over cash deposits.

 

[PMU]

Hi, intend to build up a savings of my child's child benefit and was wondering whether now is a good time to invest in Quinnlife Freeway Funds or to start off with the Anglo Irish Bank Regular Savers A/c at 8%, considering the current economic climate? Thanks.

It’s unlikely the current relatively high interest rates will be of long term duration. Historic returns for cash in Ireland were on average about 4% [I think] and since we joined the euro it’s 2.4%. The long-term historic annualized return on equities is about 9.8%. Equities win hands down in the long term, so you should invest the child benefit for the long term in euro-denominated equities, such as via the QL Eurostoxx50 tracker. You can feed the benefit payment in each month and forget about it until the benefit ceases when your sprog is 16 or 19. Alternatively, if you have some spare cash available now, you could calculate the net present value of the future stream of child benefit payments and invest such an amount as a one-off lump sum in a euro equity tracker. This would get around some of the performance problems relating to cost averaging, highlighted by other posters.

" Yeah. Proof " Huh !! What does that mean ?

In your post of 30 July 5:08 pm, you made three hypotheses that imply stock price movements do not follow a random walk. So you should be able to offer some proof, based on stock market prices (easily downloadable from Yahoo! Finance), that what you say will give an investor some edge over chance. Otherwise, a naive investor could follow your advice and lose money. So let’s see some proof.

 

[Scanner]

PMU,
Firstly, I did not imply, nor intend to imply that stock price movements do not follow a random walk.
There are many economists that agree that the Random Walk theory is not the only show in town, I would leave that debate to the experts.
I, like yourself, cannot predict the rise or fall in share prices, but what you can do is try and minimise your losses by trying to ascertain when would be the best time to buy into a market.
For example, anyone who would suggest buying into the ISEQ at the moment would need their head examined as it has been in freefall for the last year.
You do not need a degree in economics to know that you can afford to wait if you see the market falling.
You can use the ISEQ over the last week as proof if you need it that waiting in a falling market is worth the wait.
You can take a chance and hope it increases or you can give yourself the edge that your talking about and hold off for another week and see if it goes lower before deciding to buy in.
QUOTE
"Otherwise, a naive investor could follow your advice and lose money."
A bit cutting that remark, apart from the fact that any so called naive investor would have saved money if they had followed my advice.

Rgds
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