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Business MattersOptions to get more bang for the investment buck

February 15, 2011

By Staff Reporter

By Kevin Fitzgerald

Questions I have about _10,000 in a bank deposit account in Ireland. It’s on a fixed-term rate but I am still concerned about the current low interest rates. I do not want to close the account because I use it when on vacation in Ireland. What should I do?

– G.M., Queens

Answer This puzzling question is being faced by many who travel frequently or have family in Ireland. The interest rate issue is being compounded by the prospect of the European Monetary Union and its impact.

The first suggestion is to develop an expected vacation budget you feel you will need during the next year or two. Assuming that not all the money is needed in the near future, numerous options are available that may potentially produce higher returns than fixed bank deposits. However, you have to remember that with higher potential returns comes some increase in risk. To achieve potentially higher returns, you will have to accept the loss of a “guarantee” by a bank.

Before considering the various investment possibilities, take a close look in the mirror – what kind of investor are you? Do you have any investment experience? How well do you weather negative pullbacks in the markets? The answers to these types of questions will help you determine how far to venture from the fixed bank deposit.

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I recently spoke with John Forde, equity manager of the Irish Investment fund that is managed by the Bank of Ireland Asset Management in Dublin. John explained that the impact of EMU is already being felt in Ireland’s financial markets. The long-term government bond is currently yielding about 5 percent, which has fallen in line with Germany’s long-term bond rate. Short-term money market rates, however, are still about 6 percent. Over the next few months, John felt that these will fall more in line with Germany’s short-term rates, which are now about 3 1/2 percent. With the current unusual situation where short-term rates are higher than longer-term rates, you can potentially collect a more attractive return by staying in the money market.

Beyond money markets and bonds, there is the Irish stock market. Although there are fewer total numbers of mutual funds in Ireland compared with the U.S., the full complement of types are available: money markets, bond funds, growth funds and funds that combine both stocks and bonds (mutual funds are sold by prospectus only). Which is best for you? The answer depends on the caveats I listed above. Computerized asset allocation programs can assist in measuring your tolerance for risk against a combination of various mutual funds. In Ireland, mutual funds are available from a number of sources, including banks and insurance companies. One key element will be time. Since no one can predict the direction of any financial market, you must be able to withstand the rough periods that any market will experience from time to time. One answer to this may be the availability of money on this side of the Atlantic which could be used if Irish markets are not at their best just when you plan to visit.

Expanding your investment horizons beyond Ireland to the U.S. is certainly a potential option – just remember that the foreign exchange rates add another element of risk into your plans.

Kevin Fitzgerald is first vice president -Investments at Paine Webber. He focuses on the areas of professional money management, asset allocation and retirement planning. His office is at 1251 Avenue of the Americas (at 50th Street). He can be reached at (212) 626-8634.

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