The €1m question

Q&A:Your questions answered by Dominic Coyle.

Q MY WIFE and I will be 60 next year and, through the sale of our business, we will have approximately €1 million to invest to provide a pension.

We have also put some savings into pensions during the previous years, but the projected payments from these do not seem to be substantial.  I would like some advice as to how best to invest the €1 million, so as to maintain its value and also provide a monthly pension.

Mr T O'C, e-mail

A Given that pension funds have dropped by 20 per cent in the past year, I imagine you are quite happy that this sum will not be available for investing until some time next year. While there is no guarantee that markets will have returned to a more predictable trading path by then, it is hard to see things getting more volatile than they are now.

Having shed nearly half its value in the past year, the Irish Stock Exchange must be somewhat hopeful that they must be near a floor on valuations.

This is a once-off opportunity to plan your retirement finances and you will be looking to protect the capital while yielding pension income. With this sort of investment, you need to get independent financial advice - preferably fee-based.

Most people with significant wealth are taking no chances in the current environment and are generally instructing their advisers to keep them in cash.

For those content to stay in cash, current interest rates are attractive by recent standards and, given the recent European Central Bank rate rise, look likely to keep rising for the time being.

At 5 per cent and above, your investment pot would yield a risk- free €40,000 a year after deposit interest retention tax (Dirt).

With shares currently losing their shirt and property in the doldrums, it's safe.

Q I have some money invested in Eagle Star. I have just discovered from its monthly review that some of this money is invested in Halliburton. I am horrified to discover this and am withdrawing my investment.

When I originally placed this investment with Eagle Star, there was no reference to Halliburton - or indeed to British American Tobacco, which is also referenced in its newsletter. Are strictly ethical investments the only way to avoid becoming embroiled with such companies?

CC, Dublin

A I don't want to further alarm you but, even with ethical funds, you need to check on the parameters employed by each in stock selection. Some ethical funds permit stocks that others in the same sector would have nothing to do with. I'm not saying which approach is right, only that significant variations exist from fund to fund and fund manager to fund manager.

I am not surprised that either Halliburton or British American Tobacco are numbered among the holdings of Eagle Star's funds. You indicate that you had invested in one of the "managed balanced" funds. These are commonly marketed by all fund managers and probably account for the largest single portion of money in unit funds.

A managed balanced fund is supposed to run along the centre of the risk profile. As such, it is unlikely to avoid sectors such as energy, tobacco, pharmaceuticals etc, where a number of companies in which you personally might not wish to invest operate.

I am sure that Eagle Star probably did not mention its stockholdings at the time. In the first place, there is no guarantee that at the time you invested your money, the fund was invested in these companies. Indeed, even the newsletter you enclose says only that "the following stocks are included (at the time of going to print) in the Eagle Star funds . . .".

There is no certainty that they are constituents of all the funds, although it wouldn't surprise me.

You have probably noticed that the Eagle Star managed balanced fund, despite its losses so far this year, was, at the time of this newsletter, outperforming its peer group average.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irish- times.ie. This is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.