Liam Croke: Get full story before judging an investment

Liam Croke


Liam Croke

Liam Croke: Get full story before judging an investment

Never mind the percentage gain on your investment, find out the real return

I met a gentleman last week, who asked me if an investment he made last year, which yielded a return of 1.5% was a good one.

He was looking for a quick yes or no, and I guess he wanted to compare himself against others, and also find out if there were any other investments that could do better.

But there’s a little bit more to it when deciding whether a return was good or not, than just basing it on the percentage achieved. Before you can carry out that analysis on any investment, it’s important to first know what the real return was. What I mean by that is: what was added to your account at the end of the investment term, because that’s the real benchmark you need to judge your return against.

Your return isn’t 1.5%, if you have to pay tax, charges or if you don't account for inflation.

If, for example, you invested €100,000 and the return was 1.5%, unless €1,500 is sitting in your account in 12 months’ time, you didn't earn 1.5% at all.

Let’s assume there were no charges, but DIRT at 37% was applied to the interest earned, then the amount in your account would have been €945, so your return was really, just 0.945%. And when you factor in inflation (it averaged 0.40% last year) the return was more like 0.545%.

You must understand the implications of inflation on your investments because it can and will work against you. Some people think that even though their money isn’t earning anything on deposit, at least it’s safe and they are preserving their capital, but they’re not, because if your investment grows less than inflation, you are losing money.

You may not see your account balance reduce, but you will see the effect if, and when, you withdraw money from your account in the years ahead, because it will buy less than you thought it would.

Back to the gentleman, who asked me about his return. The investment he made was into prize bonds and the return wasn’t bad, but I can only say that, knowing how important it was to him that he preserved his entire capital, it trumped everything else.

As long as his return was keeping up with inflation, that was fine with him and anything above was just a bonus. That was the measure of how good his investment was.

Everyone will have different criteria to judge their annual return against. Some people would be happy with a return of 1.5%, and others disappointed with 8%, it depends on what their goals are, and what return they need to achieve. Some may not be able to accept 1.5% because they need to accumulate a certain amount of money at a particular point in time, and only a return of 8% will make that happen.

We’ve all heard stories about people making 20% returns and we look at our 2% or whatever it is, and think what are we doing wrong. But it could be a real case of apples and oranges because the likelihood is that we just aren’t comparing like with like.

The 20% return might have come with the risk of your entire capital being wiped out, and any investment that has annual returns in the double digits is likely to come with some form of risk to the capital. But that is lost on some people and through naivety, greed or very poor advice, people chase returns that are not aligned with their risk profile and end up losing vast sums.

Don’t get blindsided by the return others may be getting, because it was likely to have been hard earned in the first place, involved some risk taking and sometimes people just get lucky with an investment and it can be nothing more than that.

People win the lottery every week, but I still would never advise my clients to buy lottery tickets either.

Your time horizon, your willingness to take risk, your previous investment experiences, all influence the type of product you should invest in, and the corresponding return you are likely to achieve. Only once you factor them all in, can you compare your return and decide whether it was good or not.

Finally, don’t become complacent and think you can’t get a better return than what’s on offer, because you can. I encountered someone like this two years ago. She had €20,000 matured from an An Post account and didn’t know what to do with it.

Capital guarantees were important to her and believing there was nothing that suited her, she was going to leave it on deposit earning nothing. She advised me the parameters she would judge success in an investment were (a) the majority of her capital being guaranteed and (b) a net return of 2% per year.

Knowing both, I recommended an account I thought would suit her which had a 95% capital guarantee and two years on, her account has increased in value by 16%, which is 32 times more than she would have received if she left it on deposit.

Liam Croke is MD of Harmonics Financial Ltd,

based in Plassey. He can be contacted at or