Life Insurance

Q: Why do I need Life Insurance?

A: A Life Protection Policy can provide an asset to replace the income or to pay for the services to the household lost through the death of a family member.

The question rises of how much life cover is recommended, and this is an area that your financial planner Servatus will examine with you and will advise on the amount of cover and type of protection plan that best suits your needs and means. If, due to illness you cannot work or have major medical bills, Specified Illness cover or Income Protection can provide you with an asset to pay those bills and to live on a day to day basis.

The distinction:

Serious Illness: pays a tax free lump sum in the event of a successful claim.

Income Protection: pays a regular income up to a maximum of 75% of salary till 65 years of age. The income is liable to income tax as a normal salary would, however the premiums you pay attract tax relief at your marginal rate.

Life Assurance: pays a tax free lump sum.

Self Directed Pension Funds or Small Self Administered Schemes

Traditionally, most pension plans have invested in managed funds which pool investor’s monies and invest in shares, property, bonds and cash. Some clients, however, wish to have more control over their investment in terms of the assets their monies are invested in so Self-Directed Pensions were introduced to allow the client invest in direct assets like property, shares, bonds or deposit accounts of their choice.

For example, a client could decide to invest their money in a pension fund which would, in turn, purchase a property by way of a combination of a deposit from the pension fund and a mortgage. The client makes their regular contribution to the pension plan to cover the cost of managing the property and the mortgage repayments. The rental income received will go into the pension fund.

All costs including stamp duty, conveyance, property management costs, etc., are met by the pension fund, making purchasing and owning the property very tax efficient. There are, however, strict revenue guidelines around the purchase and the holding of a property within the pension fund.

Some clients who are already exposed to property may wish to use their pension fund to purchase shares of their choice. It is also possible for clients to invest their regular contributions into their pension fund and get a stockbroker to act on their behalf in terms or purchasing, holding and selling the shares, with transaction costs met by the pension fund.

For further information about the Self-Directed or Self Administered Schemes and to discuss weather it is the right option for you, call Servatus on (01) 8280013 or Email Us

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Executive Pensions –company owners/directors

As a company director or owner, you may view your share in the business as your pension when you retire.  While this is one way of providing a source of income when you retire, there is no guarantee that it will provide you with the standard of living you are currently accustomed to throughout your retirement years. An Executive Pension Plan allows you to provide for your retirement fund independently of the company assets and its future profitability. And is designed specifically to take full advantage of the generous tax relief that is granted to company pension arrangements.

Description: This type of scheme is suited to a company owner or director who controls +5% of the shares in a company. This type of pension scheme has become more appealing to company directors in recent years due to the introduction of the ARF Approved Retirement Fund. This makes pension funding a useful wealth management vehicle.  Company pension schemes allow a director to extract wealth from his company while (legally) avoiding paying tax.

 

By making personal contributions to your executive pension, you can minimise your personal taxes. The Government offer generous tax relief on your contributions at an individual’s personal rate.

Contributions: A minimum of 10% of contributions must come directly from the company, and the reliefs are very generous. A director with the appropriate wage level and years of service can accumulate a fund up to €2.3M.

Company contributions to your plan: In the years when your company can afford to do so, can make large contributions to a director’s pension plan (within certain funding limits), without the director incurring any tax liability.

Personal contributions: The Government will give policyholders tax relief on contributions, at the highest marginal rate of tax they pay, for contributions from 15 to 40% of earnings (age dependent).

 

Benefits: At retirement a director has the option of taking his benefit like an employee or as a self employed individual. Dependent of years of service a tax free lump sum and life annuity (income for life) or taking 25% of the accumulated fund (to a maximum €200,000) and the balance to an ARF Approved Retirement Fund.  Please see ARF for the details on this option.  Where sums are taken in excess of €200,000 there is still scope to receive such monies tax efficiently. The legislation provides for a flat rate 20% tax on sums over €200,000 up to 25% of the standard funds threshold €2.3m (i.e. €575,000). Any amounts in excess of €575,000 will be taxed at the individual’s marginal rate.

For example, an individual with a pension fund of €2m could take a lump sum on retirement of €500,000, €200,000 of which would be exempt from tax with the remainder, €300,000, being taxed at a flat rate of 20%, giving an overall effective rate of just 12%.

This means that a director’s pension is a great source of wealth creation.

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Group Pension Schemes

 

Servatus – Group Pension Schemes

 

By employing a combination of superior financial advice, technology and an independent offering – we aim too:

 

We can address some of the shortcomings in the way group schemes are currently organised.

 

Recently, new legislation requires trustees attend regular training for pension schemes.  This time off work is an obvious cost and burden for employers – however, what is a bigger concern for trustees is the realisation of the full extent of their responsibilities. And are learning of their exposure of legal action.  Much of the treat comes from their responsibilities for fund investment. This is despite their not being investment professionals.

Trustees are increasingly taking out Liability Insurance to protect themselves against this threat, this again is a cost which has to be borne by somebody.  As is the requirement to report on the value of the fund on an annual basis.

Through our structure we can remove the responsibility of fund performance from the trustee and give it to the individual members, this will allow the members to control what they are invested in thereby tailor an investment that suits their specific needs.  They of course are not investment professionals, however, Servatus will sit down with each member and recommend a mix of funds that meet their preferences and needs, a meeting with an advisor will also help them to understand how much of their salary will be replaced in retirement by their scheme and will identify any shortfalls, thereby giving members the knowledge and opportunity to address it.

 

Rather than report on the position of the scheme on an annual basis we do it in real time.  Every member receives a personal ‘log in’ to our ROOT system, and provides real time information on their scheme.

The root system also provides a trustee access which provides an overview of the scheme.

 

At Servatus, along with our partners Source we can provide a superior alternative, that will address many of the concerns of those involved in pension administration. While providing a better service to scheme members.

Group Pension Schemes

As trustees you appoint professional advisers, but it is important that you understand the nature of your relationship with these advisers and be prepared to question them critically. Guidance on this important aspect of your responsibilities is also provided in the handbook.

Employers will be obliged to arrange training for trustees of schemes and Trust RACs.

There has been much talk about pension schemes and the problems they are currently facing, many DB and DC scheme are underfunded or aren’t performing.  In the case of DB schemes this is technically the employer’s problem although you can’t get blood out of a stone, if a scheme bombs out, runs out of funds – younger members of the scheme will be the ones to suffer.

DC scheme members are also struggling with investment returns not providing what they expected.  Another problem with DC scheme is that members don’t get the info they need to properly plan for their retirement.

An example of this is that a 40 year old may have no previous private pension – he starts a new job and the company has a scheme whereby they contribute 5% and the employee is obliged to pay 5% as well.  I commonly hear people say to me that they have a pension but in this instance a 10% of annually salary until 65 yrs of age will probably replace 8k pa so combined with the state pension this would replace 21% of their salary. People often express dissatisfaction with pensions however, it’s not reasonable to presume that you can put 10% of your salary away for 25 years and presume that it will fully replace your 5 full salary for 25 years the other side of your retirement.

With a DC scheme, PP or PRSA, what you put in is what you’ll get out. Fund performance / what you invest in will affect its value, therefore you need to do 2 things – stop procrastinating about starting and give it the love it deserves. You don’t need to be an investment professional just consult an advisor and review it regularly perhaps on an annual basis.

At Servatus, we wish to advise you on the pension product that’s right for you.  We want to advise & coach you throughout your lifetime to make sure your finances support your desired lifestyle.

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Approved Retirement Funds (ARF)

An ARF enables you to control your pension fund's assets at retirement and to direct future investment strategy through a Qualifying Fund Manager. You can make withdrawals from your ARF at any time. Your ARF will avail of tax free growth, however any withdrawals will be subject to PAYE.

 

An attractive feature of an ARF is that, on death the value of your ARF would be transferred to your spouse tax free. Any subsequent withdrawals would be liable to PAYE. On death, if there’s no spouse to receive the funds in the AFR, the value of the ARF passes to the estate and is liable to inheritance tax CAT in the hands of the beneficiary. This enables an ARF to help preserve wealth through generations and is a wealth preservation tool in the hands of those who have accumulated a lot of wealth through their lives (this is in contrast to and Annuity, which ceases paying and has no value upon death).

In order to avail the ARF options you must have at retirement a guaranteed income for life of €12,700 per year. If not, you must invest €63,500 in an Approved Minimum Retirement Fund (AMRF). An AMRF is similar to an ARF, however you cannot access your fund until age 75.

A minimum of 3% of the ARF fund value must be taken per annum, or that amount is viewed as an imputed distribution and is taxed as if it had been taken.

To discuss your retirement options, call Servatus on (01) 8280013 or Email us

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Buy Out Bonds

A Buy Out Bond is a single premium defined contribution Pension Plan effected by the trustees of an occupational pension scheme on behalf of a scheme member who is leaving service or on wind up of the scheme, in lieu of providing a preserved retirement benefit under the scheme for that member. In certain circumstances, the member can opt to have a 'transfer value' (i.e. a lump sum), representing the value of a preserved retirement benefit, paid into a Buy Out Bond. In other circumstances (e.g. wind up of scheme) the trustees have the power to make the transfer to the Buy Out Bond.

 

However, in either case, only the following can be transferred into a Buy Out Bond:

• A transfer value from an occupational pension scheme

• A transfer value from a UK pension arrangement, if the relevant arrangement allows such transfers

• A transfer from another Buy Out Bond held by the same individual

 

 

If you have an existing occupational pension scheme(s) and want to discuss your options around managing them, call Servatus on (01) 8280013 or Email Us

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Personal Pensions

 

A Personal Pension Plan is another name used to describe a retirement annuity contract (RAC) or policy issued by a life assurance company to an individual.

 

Description: Personal pensions allow you to build up a pension fund to provide an income at any time between the ages of 60 and 75 and are available to self-employed people and employees who are in non-pensionable employment. They can make a regular contribution, normally on a monthly basis, or single contributions at any time.

Contributions: Tax relief is available on contributions at the highest rate. However, depending on your age, there is a limit to the percentage of your earnings that can be invested in the pension and tax relief obtained.

AGE

% income of tax relief available

Under 30

15%

30-39

20%

40-49

25%

50-54

30%

55-59

35%

60 +

40%

 

Benefits: 25% of the accumulated fund can be taken as a tax free lump sum, up to a maximum €115,000. The balance of the fund can be used to purchase an annuity or income for life.  Alternatively, the fund can be taken as cash or invested in an ARF (Approved Retirement Fund).

 

 

There is a wide range of products available in the market place with different fund choices and charging structures. Professional advice should be sought as to which product may suit you best.  Call Servatus at (01) 8280013 or Email Us

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PRSA

PRSA Description:

PRSAs - Personal Retirement Savings Accounts are designed to be a cost effective and transparent way for individuals to save for their retirement. PRSA’s are available to individuals regardless of their employment status and are available to contract, part-time workers, self-employed and unemployed people. Legislation provides for two different types of PRSA– a standard PRSA and a non-standard PRSA. They are differentiated by their charges which are expressed as a % of contributions, a % of assets or both.
Standard PRSA
There are two charges applicable to a standard PRSA contract – a maximum of 5% of each contribution received and an annual fund management fee of 1% of the value of the funds. These products usually have a limited choice of funds available in which to invest.

Non Standard PRSA
There is no ceiling on the charging structure in a non-standard PRSA and it will usually be higher than on the standard product. They generally offer a wider range of fund choices than the standard product. It is important to seek professional advice as to what is the most suitable product to suit your individual circumstances.

Contributions: Tax relief is available on contributions at your higher rate. However, depending on your age, there is a limit to the percentage of your earnings that can be invested in the pension and tax relief obtained.

AGE

% income of tax relief available

Under 30

15%

30-39

20%

40-49

25%

50-54

30%

55-59

35%

60 +

40%

 

Contribution Limits: Max €115,000

 

Benefits: 25% of the accumulated fund can be taken as a tax free lump sum, up to a maximum €115,000.  The balance of the fund can be used to purchase an annuity or income for life. Alternatively, the fund can be taken as cash or invested in an ARF (Approved Retirement Fund).

 

 

There is a wide range of products available in the market place with different fund choices and charging structures. Professional advice should be sought as to which product may suit you best.  Call Servatus at (01) 68280013 or Email Us.

Employer Obligation
Employers who do not have a pension scheme in place are legally obliged to offer at least one standard PRSA product to their staff. They must inform their staff of its availability and allow them speak to an advisor on the matter. They are obliged to allow a payroll deduction facility for this but are not obliged to contribute to the PRSA. Employers who do not comply with the legislation - Pensions Amendment (Act) 2002 – face stiff penalties.

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Asset Allocation & Diversification

Choosing What to Investment In!

When it comes to choosing an investment, your goal should be to get the maximum return while reducing the level of risk you take on in doing so. Everybody wants the highest return possible, but you need to consider your personal Risk V Return trade off. This is the concept that in order to get a higher return you must be willing to live with a higher risk of losing money. You need to sleep at night and live comfortably with a knowledge of how much your investments may rise or fall. You may be an experienced investor and want to decide on your own investments or, you may not have any interest in or knowledge of investments and want to take a passive approach.

Either way, we can recommend the right products for you. We take into consideration that charges, commissions, and broker fees from regular trading will all take their toll on your returns. We will take you through risk reduction methods of trading like hedging and diversification .

Both terms are explained below:

Diversification as the proverb says, ‘is not putting all your eggs in one basket’. In investments, it’s a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within a portfolio.

Diversification will smooth out non market related risk events in a portfolio, so that the positive performance of some investments will neutralize the negative performance of others. The benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated, in that their value will not increase or decrease in synchrony. Using mathematical models of Standard Deviation have shown that maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost effective level of risk reduction. Investing in more securities will still yield further diversification benefits, albeit at a drastically smaller rate.

Private investors and those with personal pension funds will have a limited budget and may find it difficult to create a diversified portfolio. This is one reason why many choose mutual funds. This is an inexpensive way to diversify. Another way is to buy a number of ETF’s in uncorrelated assets, in different industries or countries.
Your investment strategy aims to balance risk and reward by apportioning a portfolio's assets according to your goals, risk tolerance, and investment time horizon. At Servatus we will help you to develop an investment strategy that suits your risk return profile. We will monitor it regularly to ensure it's performing as anticipated and if not, we will take steps to put it right.

Hedging, on the other hand, means taking a position in a market in order to offset the potential exposure to loss in another investment. It is usually achieved through an insurance policy, or use of derivatives like forwards, futures, swaps or options. If an investor decides to ‘bet’ on a particular investment it may be wise to hedge against a potential loss if things do not turn out as expected. Similarly, if a business is overly exposed to a particular treat it may be wise to explore options to hedge that risk.

At Servatus and as part of our getting to know you, our customer, we will try and identify any exposures to financial risks and if possible explore options to negate or reduce them.

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There are 4 Pillars in Retirement Planning:

1. Work in Retirement

2. State Pension

3. Personal Assets you have built up or work longer acquired over your life time.

4. Pensions

 

First, working in retirement is an option. Many people enjoy their jobs and may not want to stop working. However, as a caution, not everybody does want to work longer than they have too. As you get older you run the risk of not being able to work due to old age and ill health.

The State pension is currently € 12,000 pa & € 10,700 for another qualifying adult.  The average industrial wage is about €33,000, so Government are paying around 1/3 of the average salary as a state pension. So, you need to ask yourself, can I bear this drop in income at retirement? And if you earn over the average salary, are you prepared to take a bigger hit at retirement?

Another worry with the state pension, is that demographics and the reality of an aging population do not support the argument that the state pension will survive into the future – or at least not at its current level.  Personally, I’m not relying on it, but you need to make a personal decision on whether to plan with or without it.

It’s important that you build up assets during your working life, to provide yourself with a comfortable retirement. It’s wise to make investments or to save.  If you are not an investment professional you can get advice from one. A good adviser will not just sell you a product, but will advise on suitable products that suit your needs and minimise your exposure to risks.

Pensions provided by either your employer, by yourself, or by a combination of both make up the 4th pillar.  A pension is an asset, it will be your income in retirement. People often mistakenly view it as a cost.  A pension is just an asset that you build up over your working life.  Within your pension you can make most of the same investments as you can outside of it, but with some restrictions.  The benefits of the pension arrangement is that you can get tax relief on the contributions, tax relief on the growth and interest within the fund. You will pay tax when you drawdown your pension, however, you may be in a position to exercise some control over this and minimise this exposure. We have a crazy situation in Ireland that so many people do not have private pension arrangements and are on a course for financial hardship in the future.  This is astounding, considering our tax reliefs and incentives are so generous.

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Why Start Early? Human Capital Concept.

Human Capital is your potential to earn in the future, this is in contrast to your financial capital,which is the wealth you have created and includes your current financial arrangements.

Financial planning accesses both your Human and Financial Capital in order to best utilise both and increase your wealth. An understanding of these will provide you with the understanding of your financial potential and inform the decisions you make in order to best fund your lifestyle.

 

Some individuals in an economy are earning more than they require, or choose to spend. Others are spending more than they earn, for example, retirees or those experiencing unemployment. Investing or storing your wealth in financial assets is a way you can shift your purchasing power from high earning periods to low earning periods.

So Why Start Early?

As you can see from the diagram, as time goes by, the opportunity to
provide for your retirement diminishes. As a rule of thumb; the cost of providing for your
retirement doubles every 7 years.

Come and talk to us about your retirement, call Servatus (01) 8280013 or email us

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Mortgages

Servatus can guide you through the cluttered marketplace to help you find the right mortgage for you and your circumstance. Attaining a mortgage is much more than a form filling exercise. Our extensive knowledge, market comparison technology and established relationships with Irelands mortgage lenders means you are in the best possible hands.

Our mortgage advisers are dedicated to offering quality advice and exceed the minimum competency requirements as set out by the Central Bank of Ireland, details of which are available upon request.

To arrange a no obligation confidential mortgage consultation please contact our Dublin office on (01)6177986 or Email Us.

 

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Loans

Geoff Whelan of Servatus is the Ireland and UK agent for Partners Financier, who are
independent business consultants, specializing in the arena of Private Funding and Banking. PF introduce clients to sources of loans, equity, Joint Venture Partners, private funding organizations and other financial institutions & intermediaries, who can assist our clients finance their company or project. We are independent consultants, not the end lenders. We are not regulated loan brokers or originators. We deal with licensed and private sources of funds and capital for your needs.

Our expertise enables us to source funding from outside of the normal main bank channels, or indeed, inside these channels, which companies would not normally have access to. In times of economic downturn, financing existing companies or new projects becomes harder as banks reject requests for finance. This is our forte, providing access to loans and funding when others say no.

We look forward to discussing your business plans with you, and assisting you to find the money you need for the future. Our lenders and funders have a proven track record of arranging loans for clients around the world, from Asia to America.

Partners Financier are registered brokers for a Swiss Private Banking Institution.

Please note that the provisions of this product or service does not require licensing,
authorization, or registration with the Financial Regulator and, as a result, it is not covered by the Financial Regulator’s requirements designed to protect consumers or by a statutory compensation scheme.

INTERNATIONAL PROJECT FUNDING

Loans
We have a funding pool actively seeking high quality applications from the Energy Sector - Oil & Gas, Solar, Wind, Hydro, Wave Energy & Waste to Energy. Also of interest is the Transportation Sector - Trucking; Shipping and Air Freight. Student Accommodations, Hospitals, Clinics, Senior-Citizen Accommodations, Manufacturing, New Business Products; Company Expansions; Basic Consumer Services e.g. Repair and Maintenance. Food Production and Manufacturing.

SOLID FINANCIALS & PROFITS ARE KEY.

Rates & Terms will vary from loan to loan depending on the Country, the quality of the sponsor or applicant, loan size, cash available, credit rating, corporate experience, company or personal records, the local economy, market strength, loan to value ratio, loan to collateral ratio, whether the loan is for company expansion, new or existing property development, manufacturing, recycling, energy, or new enterprises.

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Life Insurance

Q: Why do I need Life Insurance?

A: A Life Protection Policy can provide an asset to replace the income or to pay for the services to the household lost through the death of a family member.

The question rises of how much life cover is recommended, and this is an area that your financial planner Servatus will examine with you and will advise on the amount of cover and type of protection plan that best suits your needs and means. If, due to illness you cannot work or have major medical bills, Specified Illness cover or Income Protection can provide you with an asset to pay those bills and to live on a day to day basis.

The distinction:

Serious Illness: pays a tax free lump sum in the event of a successful claim.

Income Protection: pays a regular income up to a maximum of 75% of salary till 65 years of age. The income is liable to income tax as a normal salary would, however the premiums you pay attract tax relief at your marginal rate.

Life Assurance: pays a tax free lump sum.

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Income Protection

Q: How would you or your family’s standard of living be effected if an income earner or
the family’s homemaker could no longer contribute to the family’s well being through
unexpected death or illness?

A: Having an asset that replaces that income ensures that financial strains don’t make the situation worse.

Life protection can provide an asset to replace the income or to pay for the services to thehousehold lost through the death of a family member.The question rises of how much life cover is recommended, this is an area that your financial planner will examine with you and will advise on the amount of cover and type of protection plan that best suits your needs and means. If, due to illness you cannot work or have major medical bills, Specified Illness cover or Income Protection can provide you with an asset to pay those bills and to live on a day to day basis.

The distinction:

Serious Illness: pays a tax free lump sum in the event of a successful claim.

Income Protection: pays a regular income up to a maximum of 75% of salary till 65 years of age. The income is liable to income tax as a normal salary would, however the premiums you pay attract tax relief at your marginal rate.

Life Assurance: pays a tax free lump sum.

At Servatus we will examine your circumstances and will recommend a tailored protection plan. Call (01) 6177986 or Email Us

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Investment Opportunity

Please note that the provisions of this product or service does not require licensing, authorisation, or registration with the Financial Regulator and, as a result, is not covered by the Financial Regulator’s requirements designed to protect consumers or by a statutory compensation scheme.

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Tracker Bonds

Tracker Bonds are usually issued by Life and Investment Companies and sold through there sales channels, Banks and Building Societies.

Structure of deposit Tracker Bond:

Investments made by an investor in a deposit Tracker Bond is split into three components:

1. Most of the deposit is placed with the company issuing the Bond at a fixed interest rate for the term of the Bond, to provide the level of capital guarantee promised.

For example, a Bank is willing to offer a fixed rate term deposit at, say, 3% pa over the term of the Bond, then it will need to place the following % of the investment amount in the fixed rate term deposit to fund the level of guarantee promised to the investor:

90% capital guarantee after 6 years 75%

100% capital guarantee after 6 years 84%

2. The remaining portion of the investment is used by the Investment Company to purchase a derivative from an investment bank, who in return undertakes to pay the Tracker Bond bonus amount, if any, to the Investment Company at the end of the Bond term. Let's say this option costs 12.5% of the sum invested. The actual cost will vary from time to time and according to the nature of the bonus, i.e. what index or indices it is linked to, the participation rate, the maximum bonus payable. Most Tracker Bonds terms provide that, if the provider of this bonus defaults on payment of the bonus to the Bank or Building Society issuing the Bond, then the bonus is not payable to the investor by the Investment Company and hence the investor would  only get the capital guarantee. This risk is sometimes referred to as counter party risk, in that
the risk that the institution providing the bonus, if any, to the Investment Company, will default on payment of the bonus.

3. The balance of the investment amount is taken as initial charges, part of which may be used by the Investment Company to pay commission to deposit brokers.

So a Tracker Bond issued by an Investment Company is essentially a fixed rate term deposit, as usually over 80% of the investment is invested in a fixed interest term deposit, for the term of the Bond.

You could ask yourself, why don’t I just invest a large portion of my investable assets in a deposit and personally make the investment with the smaller portion of my investment?

Would this save fees and not tie me into a term without access to my money?

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Exchange Traded Funds - ETF

An ETF is a portfolio investment product that is traded on a regulated Stock Exchange. An ETF can be bought and sold during normal trading hours through a Stockbroker, in the same way as any other share. An ETF provides investors with exposure to a diversified basket of securities making up the relevant Index, through the purchase of one share. ETFs aim to replicate the performance of a specific index of securities and typically incur far lower fees than actively managed funds or other index tracking funds. They are a form of index tracking funds, i.e. an investment fund designed to match or track a particular index, so that if the relevant index goes up by 10% in a year and paid out, say, 3% dividend yield, then the ETF should also increase over that year by about 13% (taxes and charges ignored). ETFs were first introduced in the early 1990s in the United States and Canada and since then the number of ETFs traded worldwide and the value of funds invested in ETFs has increased substantially. There are an
increasing number of ETFs covering all the main Stock Market Indices.

ETF’s provide a benefit to non professional investors, and that is knowledge. It’s difficult for the average person to know exactly how a company will perform in the near future. Examples like Enron show that you never know what’s happening behind its doors. Enron is an extreme example, but you may have confidence that Apple's new innovation will be a resounding success but you are only at best guessing. You cannot account for industrial action or a change in law that takes competitive advantage from a company. And what effect the Deepwater Horizon oil slick had on BP shares? An ETF gives an investor who doesn’t have inside knowledge on a company to make a judgement call on things he does have knowledge on, like
trends in markets. Anybody can have an opinion on a rise in commodity prices, in certain markets or industries. ETF’s remove the reliance on 1 organisation to perform.

Advantages V Disadvantages

The advantages for the investor of investing in an ETF:

• It provides an instant exposure to a relevant index comprising many different underlying securities, though one quoted security providing diversification
.• Liquidity; as the ETF is a quoted security which can be sold on the Stock Market at any time, it is highly liquid.
• Tracking of the relevant Index: the fund is likely to track very closely the movement in the
relevant Index.
• Low costs; because there is no active investment management involved, total expense ratios (TERs) of ETFs are typically as low as 0.2% pa. This compares with typical annual management charges of 1.5%-2% pa for actively managed funds. The Total Expense Ratio (TER) of a fund is the total annual costs of operating the fund, expressed as a % of the value of the fund, which includes not just the fund management charge, but also legal, auditing, trading
and custodian fees. It is a more accurate measure of the costs of a fund, than the fund
management charge only.
• Investors benefit from both capital growth and income. As the ETF actually holds a basket of securities representing the relevant Index, it collects dividends from the shares and/or income from the bonds it holds. Investors therefore get the benefit of both income and gains / losses of the underlying securities, unlike investors in Tracker Bonds who only benefit from the movement in the share or index value over a period of time and do not benefit from dividend income.
• Where the ETF is structured as a collective investment scheme, it may offer taxation
advantages to consumers compared with holding the underlying shares directly.

Some disadvantages of investing in ETFs are:

• The Index the ETF is tracking may be dominated by a small number of securities. For
example, in relation to the ISEQ Overall Index, CRH makes up about 1/3rd of the index value. So in the case of some ETFs, the investment may be over exposed to a small number of securities.
• The ETF may be based totally on securities quoted on a particular Stock Market or a particular basket of securities, meaning that it may lacks geographical or currency Diversification .
• There is an element of double costs where the investor pays Stock Broker charges to buy and sell the ETF, while the ETF then also pays a Stock Broker charges when investing in or selling the underlying shares in the ETF portfolio.
• There is no capital guarantee provided. The ETF will go up and down in value in line with changes in the underlying securities that make up the index the ETF is tracking.

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Property

A property investment is in bricks and mortar, or the underlying land and is therefore a real asset. Property investment can be either residential or commercial in nature. You can invest in Ireland or abroad. Property has to date been a popular investment in Ireland, this is propped up by high home ownership rates. Property is current experiencing a fall from grace as an investment; a key reason for this was inexperienced investors getting involved and buying at a time when these assets were overpriced. Inexperienced property investors applied no valuation methodology to their investment decisions and have been ‘badly burnt’ as a result. Looking at
the upshot of the property crash we can see that many even forgot the 3 most important factors with property buying: Location, Location, Location.

At Servatus we believe that we are currently experiencing a fantastic buying opportunity for property in the Irish, Spanish, US and UK markets. As investor Warren Buffet said “we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Most investors and potential homebuyers are currently fearful of property.

The term 'property' usually covers investing:

One of the main problems with property is that it is not very liquid, as it takes time to sell. Particularly large commercial properties may be sold at a substantial discount to its market value if liquidity is required.

Property provides returns in 2 ways, the rent which is the equivalent of a share paying a dividend and capital appreciation. In many markets the rent or yield, which is expressed as a percentage of the purchase price provides a guide to the capital value. A ‘better’ property will usually produce a lower yield, as investors will accept a lower yield as the property will have more prestige and be more liquid.

 

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Cash & Bonds / Fixed Income Securities

Bonds are a form of borrowing by the issuer of the Bond, usually a Government, a public body or a large company. They are like an IOU that provides a specified stream of income, usually a fixed % of the investment, although this can be variable based on interest rates or inflation.This is coupled with the repayment of capital when the bond matures.

The risk factor in these investments depend on the strength of the issuer. These issuers can be governments, states or corporate agencies. Government securities are obviously considered less risky than that of corporate entities. The lenders or investors can be insurance companies, banks, pension funds or private individuals. Interest rates are a significant factor influencing the value of bonds. Generally, bonds issued by Governments are very liquid and can be sold easily and rapidly to raise cash, if required. Corporate bonds may be less liquid, particularly where the
credit worthiness of the issuer is poor or the issuer has gone into receivership.

Bonds can be purchased directly or through a stockbroker. An investor can also access these investments through mutual funds and ETF’s (Exchange Traded Funds).

Cash does not just include cash deposits but money market type investments which could be considered to be ‘almost’ cash, in that they have a capital guarantee and can be turned into cash instantly or within a very short period. Some suggest that cash is not itself a true investment 'asset class' as it is not seen as a long-term 'investment' because of its likely long-term low or negative returns against inflation. It is viewed more as a means of holding liquidity in an investment portfolio pending future investment in other assets. Or to be held as an alternative in times of falling asset prices.

(In the long-term, cash will probably lose purchasing power against inflation).

Cash deposits can be open directly through a bank or other financial institution, like the post office or credit union. An investor can also access these investments through mutual funds and ETF’s (Exchange Traded Funds).

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Company Shares or Equities

The term Shares, or Equity, refers to part ownership of a limited company. The shareholders are those who own shares in the company and that entitles those individuals to a share of the profits and losses of that company.

For example: Ownership of 1,000 shares in a company with 100,000 shares issued, meansownership of 1% of the value of that company.

Ownership entitles them to dividends paid out and prorated ownership of the real assets of the company. The level of dividend and value of the share in the company are related to its success and is therefore usually a higher risk investment. Obviously some companies are a greater risk than others.

Shares in a private company are not easily transferable, except with the permission of the other shareholders. This means there may be a problem with Liquidity. However, shares in a public limited company (plc) are generally transferable from one person to another without the permission of the other shareholders, and a Stock Exchange provides a mechanism to match buyers and sellers of such shares, making them a very Liquid investment as they are easily sold.

These can be purchased directly through a stockbroker, or to easily diversify and reduce risk, through mutual funds or ETF’s (Exchange Traded Funds).

Assessing share values - The return can come from one or both of the following:

1. Dividend Income, if the company pays dividends.

The dividend payments will be influenced by the progress of the relevant company's profits. If the company has a good year, it may increase the dividend payout. If it has a bad year, it may cut the dividend payment or maintain it at the previous year's level. A company will not payout all its profits, as it will have to retain some profits within the company to fund the expansion of the business. Some companies in industries like exploration and technology, may not payout a dividend for many years, until the profits start to flow. Companies are not obliged to payout a dividend at all, and may do. Ryanair, for example, is a highly profitable company but has a policy of reinvesting profits and not paying dividends. In the exploration and technology sector,
many start-up type companies have never paid out a dividend to shareholders.

2. Capital Growth, if the shares are subsequently sold at a higher price than paid originally.

Of course 'growth' can be negative if the shares fall in value. And it might surprise you but historically over the long time, research shows that dividend payouts provide about 75% of the total return provided by shares, leaving 25% to come from capital growth. The value of a share in a quoted company at any particular time, is the price someone else is willing to pay for it, at that time in the marketplace. So there is a risk of capital loss, the company could crash and the shareholders could lose all their money, or even if the company didn't crash its share price could fall sharply if it ran into trouble.

For example, Anglo Irish Bank shareholders have lost their entire capital following its
nationalisation by the Irish Government. And shareholders in AIB and Bank of Ireland suffered huge losses when their share value fell by over 95% during the 2008/09 period. While these may be extreme examples of risk or volatility of returns, they are a salutary lesson for investors who shares even in what were felt to be 'blue chip,' top quality companies, can be subject to sudden and substantial fall in value.

Tax treatment

Dividends from Irish resident companies are generally subject to Dividend Withholding Tax (DWT) at standard rate on payment, and an individual investor may be liable to marginal rate income tax on the gross dividend, with a credit for the DWT deducted at source. Pension funds Company Shares or Equities and ARFs are exempt from DWT and so receive the gross dividend payment.

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Types of Funds

Collective Investment Schemes (CIS) or Mutual Funds can invest in different asset classes. Funds usually invest in a particular asset type, like equities, and may distinguish themselves by choosing a geographical location or market i.e. US Equities Fund. If you want exposure to those assets a mutual fund will provide a vehicle. It is an easy way of achieving diversity from the effects of the non performance of a single company. However a fund like US Equities will not diversify you from a general downturn in the US economy. So it is wise to choose a combination
of such funds. Mutual funds will invest in assets like Cash/Deposits, Government or Corporate Bonds, Equities, Commodities, Property or in an investment strategy like currency.

Investment Management Styles

Mutual funds are managed by professional investment managers. There are a number of different investment management styles:

Active management - This is the usual investment management style. The investment manager decides, based on their own analysis of the investment markets, what assets to invest in and which individual stocks and shares to buy. The objective of active investment management is to produce a return in excess of the overall market return, so that, for example, if the UK equities grow by 15% during a period, the investment would be striving to achieve a return in excess of the market.

Passive management - This alternative method of managing an investment fund is based on the opinion that most investment managers don't, in fact, consistently outperform stock markets over the long-term and that many actually underperform the markets. Passive investment management aims to achieve average market returns but at a lower cost than that of active management funds. One method of passive investment management is index tracking, where the fund aims to track a particular stock market index. So if the NASDAQ increases by 20% over a period, the unit fund price should also increase by roughly this same amount. On the other hand, if the NASDAQ falls by 20% over a period, the fund price should also fall by roughly
the same amount. This method can also be applied to the asset & geographical allocation of the fund. A fixed split of the fund may be decided by the manager at the outset, based on historical research of the returns earned by each asset class over the long term, i.e. equities, gilts, property, etc. This split is not continuously changed, as it is in the case of an actively managed fund, but may be reviewed from time to time. The geographical allocation may be made by reference to some world Stock Market index.

An advantage of funds managed through a passive approach should have lower fund
management charges than those of active funds, as no investment manager has to be paid. These funds should also have lower trading costs as stocks and shares are not being bought and sold continuously but rather held for the long term.

Examples of Funds:
Cautiously Managed: these funds have a lower investment content in equities and a higher investment in more secure assets like fixed interest securities. For example, the equity content might be only 25%-30%.

Growth Managed: this is the 'normal' managed with a broad spread of investments in equities,property and fixed interest securities. For example the equity content might be about 35%-50%.

Aggressively Managed: these funds have a much higher % invested in equities and will therefore be the most risky of the managed funds. For example, the equity content might be 65%-70%.

Consensus: This approach is a form of passive investment management for Managed Funds where the objective is to match the asset & geographical allocations of competing funds of a similar type, so as to produce a return in line with the average fund performance for these funds types. Hence the term 'consensus' referring to matching the 'consensus' investment allocation decisions being made by competing active investment managers.

Consensus funds mirror the average asset allocation between equities, fixed interest, property and cash, and geographical allocation within these asset classes. Individual stock selection within geographical asset allocation may be performed using an index fund, for equities.

A consensus managed fund will not be a top performer, but will not be a bottom performer either, as its performance will mirror the overall average returns.

Technology Fund: which invests in shares of technology companies. These types of funds are sometimes referred to as specialist funds, and would be deemed to be higher risk than funds which invest in a broader range of assets.

Hedge Funds: are funds which aim to produce returns principally by speculating on differences or anomalies in investment markets (arbitrage), and aim to produce a return not directly linked to overall stock market returns. A hedge fund will aim to achieve a positive return even in falling investment markets. Hedge funds therefore generally hope to achieve a return uncorrelated to market returns. Hedge Funds are sometimes referred to as absolute return funds as they strive to achieve an absolute positive return, and not a relative return (e.g. to outperform a stock market index). However the term 'Hedge Fund' can cover a wide variety of different investment styles and asset classes.

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Investments We Like

Investment Opportunities in Private Company's Please note that the provisions of
this product or service does not require licensing, authorisation, or registration with the
Financial Regulator and, as a result, it is not covered by the Financial Regulator’s
requirements designed to protect consumers or by a statutory compensation scheme.

Investment Opportunity: Irish Company providing Wi-Fi transport companies

-Semi State Companies

This company is currently securing contracts for the provision of Wi-Fi services to transport companies like Iarnrod Eireann. In the absence of normal credit facilities from banks, the company seeks an investor to provide funds for the purchase of the equipment, which will immediately create a rental income. The total funding required is €600,000, or part thereof, and the company will provide a bond to pay 10% coupon over 3 years.

Investment: Example €100,000

Capital will be returned at the end of each year as follows:

Yr1 €20k

Yr2 €40K

Yr3 €40k

Interest payments are:

Yr1 €10k

Yr2 €8k

Yr3 €4k

ROI comes to 22% over 3 year period. All contracts obtained with clients are for an initial 3 year period and investors' funds will only be drawn down when purchase order is received from the customer. A full business plan is available to potential investors.

Investment Opportunity: Florida Property Section 8 Federal Governments Social
Housing

Avoiding the typical holiday home market that dominates residential property
investment in Florida, we target Tampa residents. The US Federal Government has a social housing scheme called Section 8, whereby they pay for the accommodations of qualifying tenants. It’s not guaranteed but S8 leases run for an average of 7 years in Florida and the government pays the rent directly to the landlord. The management ESCROW money from the rent every month for annual buildings insurance and a sinking fund so that in the event you get a shock expense, the money is already put aside to cover it. When they quote a 12% yield on your investment, they are quoting it NET of US property tax and funds put aside for the property sinking fund and insurance, so that the yield is dependable. This investment is also structured in
a tax efficient manner through the use of an LLC. We buy distressed bank owned property and renovate them to S8 standards then rent them to S8 qualifying tenants. We target 4Bed, 3Bath homes as they attract the optimum rent - $1,200 pm which will provide a 12-14% net yield on the $75,000 buy price. These homes promise Capital Appreciation in the medium to long term.

Investment:
Buy Price ·········································· -$75,000

Additional 1
st
year costs······················ -$3,265
Annual Income···································· $14,400 – Annual Exps (inc tax) $6,792 = Min $7,608
Net PA

Notes:

Inspection trips can be arranged.

This is not a packaged product or fund, you are buying an actual property. This is service based which includes a comprehensive management service for foreign landlords.

Investment Opportunity: Irish Medicare Centre Requires Mezzanine Finance

An opportunity to provide finance to a medical care facility with a HSE contract in place. The total investment is €5M, and we require a minimum €500k to €1M to release the 80% bank finance. The HSE (Irish Medical Health Service) contracts are already signed and the planning permission is in place. There will be a further opportunity to provide finance to a Nursing Home on the same site as a second phase.

Full Business Plan available.

Investment Opportunity: ASIAN Biomass Facility

The promoter is a well established expert in Green Energy and an advisor to the government of Singapore. With 2 Biomass facilities already established, Malaysia now has plans to build up to 8 Biomass plants using the same waste materials. The project has a 3 year payback period, which will reduce to 1 ½ years if a market for derivatives can be utilised. The overall investment for each plant is €50m, for which a financial institution will provide €45m. The promoter requires Mezzanine finance of 10%
(€5m), for which they will offer 15% equity.

Investment: €5M or 10% finance for 15% Equity.

Estimate 3 yr payback period.
Will suit a passive investor or an investor with the capacity to utilise the derivative products i.e. carbon credits and waste products which include briquettes.

Investors wishing to gain exposure to either green investments or to gain exposure to Asian markets.

Investment Opportunity: Irish Online Content Company 

Have developed a content distribution network. This Irish company has spent the last 3 years going through the Enterprise Ireland (Irelands State Company Incubation Program) program, to develop and market the service. To date 2 VC funds
have expressed an interest in investing in the company. One for 80% and another for 50%. A mezzanine financier is required or an investor with confidence in the sector who is willing to back the project.

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Derivatives

Financial assets like Options, Futures, Forwards and Swap contracts are instruments that derive their value from other assets like bond or stock prices. A derivative is a financial instrument (or, more simply, an agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linked, referred to as the underlying asset, such as a share or a currency.

Examples of Derivatives are:

The use of Derivatives is best suited for experienced investors who have a good understanding of their different uses. A financial advisor may recommend them as part of a portfolio, with the purpose of reducing risk or gaining access to an asset type to diversify an investment portfolio.

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