Low Risk Investment

adriant900

I need to start moving my stock portfolio into low risk investments as I will be spending it in a few months and out of principle I do not want to put it in a bank deposit account as they are paying such low rates. I was reading about Money Market Funds which would be linked to the ECB financing rate however I can not find them on Degiro who is the broker that I use.

One option is https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P00015I6I&InvestmentType=FE

I am sure that there are other options that would give a few % return, what do you think / suggest?

Nody

You want to invest in a fund that got negligible returns ytd (and negative long term) because bank accounts give you to litte return while planning to spend it in a "couple of months". Sorry; but your requirements don't line up at all here; either you want low risk which is get out of the stock market (as you should if you plan to spend it); or you want a return but you don't get both. Pick a bank account of suitable length to lock it in and claim 3%+ interest rate for the time period which is more than the fund has done and give you a higher return.

adriant900

So your don't think there is anything suitable other than a bank deposit account for around 12 month?

Nody

https://www.boards.ie/discussion/comment/121298096#Comment_121298096

Rule of thumb for stocks is 5 years or more investment horizon; speaking on the current market in general it's not exactly booming nor do I see it turn up suddenly with no real potential good world news. If anything I'd say it is more likely for worse news coming out (Ukraine/Russia war, Israel vs. Hamas which may pull in Iran and widen the issues in middle east, China's economy walking on it's knees with the housing market in free fall which has been the core for decades, continued increase in central bank interest rates driving down existing bond values etc.). Hence, with a stock market that's in decline / staggering side ways as best, no real good news likely to change that in the next 12 months I'd say that yes, a bank account with high(ish) interest rate is your best option.

If you want to hedge the rates then split it up in 3/6/12 month lock ins so your first two can benefit from being locked in at a potential higher interest rate based on future increases. It locks in your money to minimize your potential losses at lowest possible risk; the alternatives are high risk options (speculation on crypto, keep owning stock etc.) which goes against what you asked for. It's not sexy; it's not a long term investment but as a short term deposit in your case I'd say it's your best bet. As a secondary benefit you know you're not going to lose any money on it. Hence while more money is better it fulfills the key requirement of an investor; minimize your loss risk and you know exactly how much money you'll have in 12 months allowing you to not worry if the value of the investment suddenly drops. Depending on amount you may find bonds via a an investment firm or similar that will offer higher interest rates but once again the 12 months would limit the market of options (as you'd need a bond that would mature in 12 months to avoid potential value depriciation with a company you'd trust not renegade on their payments).

adriant900

Nody pointed out how the ETF of bonds has a poor past performance, I assume due to the changing interest rate environment over the last few years? I understand how rising interest rates mean that mid term bonds loss value but thought with an ETF with short maturity bonds would be protected from it but looking at their past performance it does not look that way.

For a low risk investment as an alternative would directly into government bonds maturing around the time I need the money make since? There are Irish government bonds trading slightly less than par paying 3.4%p.a. maturing various times next year. They are as good as no risk and even with income taxes around 50% it would be slightly better than bank deposit minus DIRT. Nody or anyone else have any comment?

Nody

On bonds the answer is yes; think of them as issued with a central bank interest rate of 0% + 4 percentage points are valued at 100% as 4% above base rate is the risk vs. reward valuation. If the central bank rate goes up the value of the bond goes down because the return is no longer as good as previously from a risk vs. reward basis and hence the value of the bond falls to compensate (since interest rate is locked). This impacts all bond EFTs even short term because they don't buy and sell all bonds at the same time; hence they all need to rotate through their now lower value bonds at a loss.

In regards to irish bonds the answer is yes if you find a good fit but watch out for the cost of buying them depending on your broker as highlighted in this thread.

adriant900

https://www.boards.ie/discussion/comment/121304140#Comment_121304140

Thank you for all the info Nody.

I have a new idea, Money Market Funds, which was actually the first idea I had but I could not find them on Degiro because their search function is poor. I found them thanks to a reddit thread: https://www.reddit.com/r/interactivebrokers/comments/14z9h7o/euro_money_market_funds/?onetap_auto=true

They are tracking the overnight Euro rate which is currently 3.9%, extremely low risk, ETFs so taxed with 41% exit tax.

Comparing them to directly buying government bonds maturing at various times next year, I would have one product so lower fees, slightly higher returns and lower tax than the income tax on the government bonds.

Comparing them to deposit account, no deposit guarantee scheme from the government but very low risk, variable return but higher than bank.

Is there anything that I have missed?

Nody

Higher interest rate with deposit guarantee and no downside on risk; only saying :) But yes, you'd need to go outside of Ireland via Raisin.ie or similar to use them (I have no connection with Raisin or the banks themselves; only grabbed the first site on google).

Jim2007

https://www.boards.ie/discussion/comment/121306349#Comment_121306349

Have you missed anything? Probably unless you know what a synthetic is and understand it role in MMF trackers... Because of their limited issue and because they are regularly used as the underlying in other financial products they come with a different profile to equities, but not necessarily a lower risk one especially in funds where the manager may play by a different set of rules. You already got the right advice on this, but if you are determined to take on risk....

https://www.boards.ie/discussion/comment/121294308#Comment_121294308