Looking for a high dividend? Then have a read of Liam's advice
There’s a saying that “people in hell want ice water” which means, just because you want something doesn’t mean you can have it.
The same applies to getting a good return for money on deposit. You might want to get 5% every year without any risk, but that’s highly unlikely in today’s environment, but it’s not impossible either. If you are willing to take some risk, you could get returns that far exceed what you can get on deposit, but it comes with a caveat - you are putting some or all, of your capital at risk, and your investment can go down as well as up. There’s no escaping this, and it’s something you just have, to accept. You have, to decide whether the risk is worth the reward,
If you feel it is, I’m going to give you 6 strategies that could generate those double digit returns you are looking for.
1. Peer to Peer lending
Using platforms like Linked Finance, you can offer to lend money to companies in exchange for a rate you are both agreeable to. There are multiple companies looking for funding who are involved in a variety of different sectors, with loans being offered at 8% right up to 12.5%. And some of the companies looking for finance appear to be very strong and look great value at the terms being offered. Your capital is not protected but the default rate is low so worth a look.
Investing in property can be an excellent investment, which is why cash buyers account for about 50% of all property purchases. Some investors are seeing annual rental income returns of between 6% and 7% and property values are sky rocketing in certain locations around the country. In Dublin City Centre, for example they have increased by 17.4% over the past 12 months. In Limerick City, prices have increased year on year by 8.6%.
3. REITS - Real Estate Investment Trusts
If you don’t have enough cash to buy a property, you can still invest indirectly in property via a Real Estate Investment Trust which is basically a property investment company.
Companies in Ireland, like Hibernia REIT focus primarily on investing in commercial property in good locations, with excellent tenants producing strong rental income.
REITS by law are required to distribute, a majority, of their earnings (85%) to their shareholders in the form of dividends. And because the growth and demand for commercial property is very strong, along with low entry levels, it makes this an attractive investment for those looking at trying to achieve a 10% return.
Investing in equities (buying a share in a company) can also be very rewarding but it's not for the faint hearted, especially if you're investing for a short period of time i.e. less than 1 or 2 years.
It can be a great investment nonetheless, but timing and luck are probably as much a factor on your return, as is your market knowledge.
I invested €1,000 in a Chinese fund last year, and I know very little about their market, but I read a lot about it, and listened to people I respect and liked what they were saying. After 12 months, the fund has risen by +14.94%. I would like to tell you I knew this was going to happen, but I was brought up to tell the truth, so I can't.
I invested another €1,000 in an emerging markets fund and that has done even better, it has increased by +28.50% over the past year. And I invested another €1,000 at the same time, in a Eurozone fund but that is -3.76%.
Overall my investment in each fund has increased at an average of 13.26% in 12 months, but the €3,000 investment doesn't keep me awake at night. if I lost it all, we would still eat, so only ever invest an amount you can afford to lose.
5. Pay off debt
Sometimes, paying off debt is a great investment.
If you have debt that is costing you anything in excess, of what you can get on deposit, then it makes sense to clear it off, provided, you are not exhausting all, of your savings and or you had that money earmarked for something else in the future.
If you have credit card debt being charged at a rate of 20%, by repaying some or all of it in full, you are effectively getting that return on your investment of paying it off.
6. Invest in your pension
You can claim tax relief on pension contributions, and if you are paying tax at the higher rate of tax i.e. 40%, for every €100 you invest it is only costing you €60. That’s an instant 67% return before the fund returns anything. And even if it reduces, you still have a buffer of 40% which means it has, to drop that amount in any one month, before you reach breakeven.
And if you had an employer who matched your €100, then there is €200 going into your fund at a cost to you of €60 – that’s an increase of 233%.
So, if you want a return far in excess, of 10%, you don’t have to look far past your pension.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at firstname.lastname@example.org or www.harmonics.ie