A bugbear of mine is the notion that people at work, and especially those starting out, have to be enticed and encouraged to start up savings or pension plans that allow them create a pool of wealth to fund quality of life as they get older.
The effective abolition of defined benefit schemes has created a void for those joining the workforce compared to previous generations.
In decades past you were usually automatically included in a scheme when starting work so bothering about it was not a priority. It was simpler then to focus on how the rest of your take-home pay was allocated between mortgages, cars, holidays or whatever takes your fancy.
The trend currently is to ignore the concept of pensions and all the fuddy duddy connotations that term entails.
As a result, a dangerous vacuum is evolving whereby worthwhile savings are not being created. When you compound that pattern over a number of decades it leaves an individual with a paltry sum incapable of funding inflation-adjusted living when they want to either retire or change tack in their work/life balance.
Cracking this challenge is a real hurdle but a new phenomenon surfacing in Australia and in the UK may help to provide a solution.
Micro-investing taps into technology capabilities to allow individuals simply invest in small or large amounts to funds that build value over time.
Here is how it works.
The payment system is akin to that used by Apple or Amazon to facilitate varied amounts of money. Detail your credit or debit card details once and Apple allows you to buy a single song for a euro using a quick password to allow payment via mobiles or other devices.
Now, imagine that system working around a series of investment funds. Acorn in Australia and Money Box in the UK are offering just such a service.
You can, at any time, invest any sum of cash via your mobile device which is directed to a small group of funds that provide low cost access to equity and bond markets.
So, while having a coffee you could decide to put a fiver into these funds with a swipe of your mobile.
This system may help convince the tech-savvy generation to put aside money for investment purposes, even if in small amounts initially. If they can see the benefits of compounding and the tax breaks attached to pensions it should help develop a habit of saving that grows over time.
Countless studies show that regular and persistent investing is the optimal way to create a valuable nest egg.
Committing to, say, a monthly contribution irrespective of financial market conditions tends to build up a pot of savings.
With dividends being reinvested alongside the regular payments it would surprise you how fast these savings accumulate.
In a world where mobiles and on-screen graphics are developing in leaps and bounds those providing financial advisory services will have to think outside the box if they want to stay relevant.
So-called ‘robo advisers’ are part of that response. These are computer-based, low-cost services that allow individuals to self-select investment options.
While these are making steady progress, especially in the US, I suspect they will have to advance much faster and with greater innovation if they are to tap into Irish needs.
Micro-investing should be part of that strategy.
Given the growing pool of IT entrepreneurs
in Ireland I wonder how long it will be before one of them devises and implements a micro-investor app that is commercialised in Ireland and internationalised subsequently.
There is no reason why Irish companies cannot be at the forefront of this developing trend.
Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.
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