Dominic Coyleanswers your questions.
Investing in safe bet
Is there any safe investment with a rate of interest equivalent to the rate of inflation for the higher rate taxpayer - eg, which will give back the true value of the investment in real terms after a certain period?
Mr M.M., e-mail
"Safe" is a relative term when it comes to investing. The basic rule is that, in general, the rate of return runs in inverse proportion to the security of the investment. In other words, risk tends to be better rewarded over time.
However, as the recent stock exchange debacle shows, that higher return over time can be interrupted by unwelcome volatility.
If you are looking for "safe" investments, you are generally referring to deposit accounts, Government bonds and "guaranteed" funds. And the price of this safety is a relatively low return.
The best Irish deposit rates run to around 5 per cent at First Active and Rabobank. Allowing for Deposit Interest Retention Tax (DIRT) of 20 per cent, that leaves you with an effective return of 4 per cent per annum - bear in mind that DIRT is levied at 20 per cent on deposit interest, regardless of your income tax bracket and no further tax is due from higher paying taxpayers.
The most recent consumer price data shows that inflation is currently running at 4.8 per cent in the economy.
If you are looking at Government bonds, the most recent issue - which will be redeemed by the National Treasury Management Agency in October 2018 - is paying interest of 4.5 per cent.
Guaranteed funds are a trickier prospect. In general, in return for a guarantee on your capital invested, you benefit from only a portion of the investment gain made by the fund.
Naturally, the fund sponsors are not particularly interested in underwriting losses on those guarantees, so the investment strategy of these funds tends to be conservative - restricting the prospect for investment gain. Again, any fund relying on equity market performance would have taken a bath this year, with few stock markets yielding returns in excess of Irish inflation to date in 2007.
Another possibility that you might consider is investing in high-yield shares. There are a number of companies on the Irish Stock Exchange and elsewhere that are paying a dividend yield ahead of inflation. Of course, dividends are taxed as income, so you would face a 41 per cent charge on any such income, to say nothing of the risk to the capital evident this year in the market.
After that, there is the gamut of managed funds that adopt widely differing attitudes to risk.
You can invest in anything from cash funds to equity-based offerings and even more arcane products but, inevitably, you will struggle to find a "safe" option that will match inflation after tax. If it were that easy, everyone would do it.
Non-resident banking
May an Irish national working abroad and who is non-resident in the Republic open a bank account here?
Mr J. O'B., e-mail
There is nothing to stop an Irish citizen who is currently non-resident opening a bank account in Ireland. In fact, there is nothing stopping any EU citizen establishing a bank account in another EU jurisdiction. Of course, opening an account is no longer as simple a matter as it once was.
Anyone opening a bank account will have to abide by the EU directive on money laundering. In practice, in Irish banks, this means providing evidence of identity and residence - normally a passport/driving licence and a utility bill.
As an Irishman looking to open a non-resident account in Ireland, any bank here is going to want to be certain of your foreign residence before opening a non-resident account given the very public recent scandal over the widespread use of bogus non-resident accounts by Irish citizens.
The one other thing to note is that, under the EU savings directive, any interest accruing on a non-resident account held in Ireland will be passed on to the revenue, which will, in turn, pass the information on to your local tax authority.
Of course, on the upside, you will not be liable to deposit Interest Retention Tax (Dirt) on a non-resident savings account.
Waterford speculation
I'd appreciate your opinion on Waterford Wedgwood. With the share price at about two cent and much less in sterling, is this company bordering on liquidation and is my shareholding almost worthless?
Mr P.O'B., Dublin
Having covered Waterford Wedgwood as a business journalist, I am all too well aware of the frustration of shareholders with the company's performance in recent times.
The value of your shareholding depends largely on when it was acquired, but even those who bought into the company a couple of years ago are nursing significant losses.
Are they worthless? Well, that is largely in the hands of the dominant shareholders - Sir Anthony O'Reilly and his brother-in-law, Peter Goulandris.Ultimately, they have been bankrolling the company in recent times and if they chose to withdraw this support, it is unlikely the company could survive.
Having said that, Sir Anthony and Peter Goulandris have invested well in excess of the company's current value and, being sound businessmen, they would hardly have done so only to walk away. Certainly, as of now, the company is not "bordering on liquidation".
Still, the best bet for a return on at least some of your investment would be a takeover, which would at least put a bid premium into the current share price.
Waterford Wedgwood may be a case study of a corporate basket case and it is certainly a serial underperformer, but it does contain some very valuable brands.
