Analysis: Getting more for your money in the era of zero returns

Explaining the difference between a regulated and an unregulated investment is not so difficult. A regulated investment is one which is regulated by the Central Bank, which acts as a policing body for clients who are sold investments by banks, insurance brokers and their intermediaries. Regulated investments essentially provide the investor with an additional layer of protection.

For example, an elderly person sold an unsuitable high-risk investment, where the money is locked in for 10 years, can reach out for recourse under the Investor Compensation Scheme, and also from the Financial Services and Pensions Ombudsman. Investors in unregulated products are not covered by either.

However, there are a wide variety of unregulated investment funds sold by intermediaries, including many sold through very reputable large brokers. An unregulated fund oras I call them ‘buyer beware investment’ may invest not only in shares but also in other assets, such as property, precious metals, art, and fine wines. Some of the more rewarding investments in recent years have been in these areas.

There are also investment structures where investors effectively advance loans to businesses in Ireland as part of a private equity fund. Examples of these investments include funds for hotels or nursing homes to help finance lenders or owners of the hotels or nursing homes. Renewable energy has become popular in recent years, with funds in the all-Ireland energy market covering the North and Ireland.

However, if something looks too good to be true, it generally is. Remember that all investments carry different risks and expected returns. Over the years I have had a number of clients who put their faith in ‘guaranteed per annum returns’ of 10% on their money. No investment gives a guaranteed return anywhere near those levels, at a time when cash savings are returning, at best, almost zero returns.

Take for example the government tax-back scheme called the Employment Investment Incentive scheme. This is a four-year investment that allows higher rate taxpayers the chance to geta 40% tax reduction on an investment in a qualifying developing company. There are some very good companies vying for Employment Investment Incentive funds, but also some very poor ones.

On investments in the likes of forestry, wind farms, and alternative energy investments, I can see why people are attracted to these opportunities, given the grants and returns.

However, investors need to be wary: These are all high risk, regardless of what the brochure may say, and as we all know paper never refuses ink, and would-be-investors tend to only look at past performance.

Peer-to-peer investing has also become more popular and can be a way of accessing higher returns at relatively low levels of investment but again people must consider the risks and rewards for each opportunity. The area I would strongly warn against is currency speculation, especially if leverage is required, meaning you are using borrowed money.

The sharp movements in sterling, for example, are causing headaches for many seasoned professionals, never mind amateur internet traders.

*Nick Charalambous is an independent financial adviser with Alpha Wealth, based in Cork