The Greater The Risk, The Greater The Reward

24 March 2021

Irish savers are currently holding record amounts of money on deposit with banks and Credit Unions. This has increased over the past 12 months, despite, or maybe because of, the Coronavirus pandemic. Unfortunately, banks can now borrow easily and cheaply so they no longer need to attract new savings and bizarrely, banks do not want your money. The result is historically low interest rates, and if you have a substantial amount on deposit then you will already be aware that this low interest rate environment means that you are getting next to zero return on your savings. Yes, your savings will be protected by the State Deposit Guarantee scheme but realistically the value of your savings is being eroded over time by inflation.

To achieve any kind of return on your savings, you need to expose them to some element of investment risk. “Risk” has become a scary word in recent years and Irish people seem to have become particularly risk averse. However, investment risk does not mean money will disappear overnight if your investment struggles to immediately generate growth. Risk really means that there is no capital guarantee provided and the value of your savings is affected by volatility.

Volatility is the rate at which the price of an asset increases or decreases. A higher volatility means the value of your investment can change dramatically, in either direction, over a short time period. A lower volatility means that the value of the funds should not fluctuate as dramatically.

During times of high volatility when savings values are falling quickly, investors can get spooked and may be tempted to pull out of the investment completely, waiting until it seems safe to invest again. However, it is important to understand that market volatility is inevitable. It is the nature of investments to move up and down over the short-term and trying to time the market is extremely difficult, if not impossible.

When investing your money during times of heightened volatility you must be in a position to take a long-term view with your savings; however, you should also carefully consider savings that may be required over a shorter timescale. If you have a longer-term savings outlook of between 5 to 7 years volatility should even itself out; however, if you have earmarked money for a specific short-term purpose you should consider investment risk but remember, the lower the risk the lower the gains.

Diversification could be key to reducing risk by spreading money across a variety of high and low risk funds which should react differently to the same volatility triggers. Another way to reduce risk is by investing a fixed amount each month on a long-term basis. This would allow you to benefit greatly from heightened market volatility because when markets fall, your monthly contribution will buy more units with the same amount because units are cheaper and when markets rise, you will buy fewer units but all units already purchased will go up in value.

If you are frustrated by the current offers from banks and are keen to see your savings grow over the long term you should seek professional investment advice and “Risk” need not be so scary if you do! A financial advisor will assess the risk you are happy to take on your investments initially and explain carefully the level of risk involved in whatever your choice may be so that you are fully informed and absolutely comfortable in what you are doing.

Rob Downes, QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on

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