Many people have done well out of the recent economic boom, but with the markets in a state of flux prospects for wealth expansion in the future are less certain. Those with a nest-egg to protect are facing hard decisions. Today The Irish Times begins a week-long series highlighting the options available to people with spare cash to invest. Una McCaffrey takes stock
For a while there, it looked like the good times would never end. We had paper millionaires, tiger-style growth and stock markets happily outpacing previous records, all of it washed down with a few decaf lattes or a shot of designer vodka if you were that way inclined.
It all added up to great fun, with much of the Republic's population seeing unprecedented prosperity. The economic growth trickled down into everyday lives in a number of ways, the most obvious being that almost everybody who wanted one could find a job.
For a time at the beginning of 2001, the number of people out of work fell as low as 3.6 per cent of the labour force, an unthinkable level for those more familiar with the bad old days of double-digit unemployment just four years previously. Since then, the rate has been slowly climbing again, but there is still a long way to go before reaching crisis levels.
It did not take long for people to get used to their new-found prosperity, with figures from the Central Statistics Office showing that our everyday expenditure rose along with employment levels. As the century turned, we were spending 46 per cent more on weekly shopping compared to five years earlier. We were also spending an increasing amount on luxury purchases such as alcohol and tobacco.
Luckily, household income grew by 53 per cent over the same period, leaving the average household with a clear margin of 7 per cent in which they could call themselves better off.
The numbers of microwave ovens, television sets and video recorders in our homes ballooned. Last year Irish consumers bought more than 4,000 BMWs and about the same number of Mercedes cars. Just three years earlier, we struggled to register 5,000 between the two luxury makes.
Fast forward to now, however, and things look a little less certain. Stock markets around the world seem to want to go nowhere but down and, closer to home, we have the admission by the Minister for Finance that he will have to borrow to fund this year's public spending commitments.
The latest edition of the Consumer Sentiment Index, as measured by IIB Bank in conjunction with the Economic and Social Research Institute (ESRI), showed that consumers are beginning to feel the chill of economic uncertainty, even before winter and its prospects for a financially damaging war in Iraq really kick in.
Results for September show that consumers' feelings on their current financial situation are at their lowest ebb since the index began almost seven years ago. The economists compiling the index acknowledge with characteristic understatement that consumers are "becoming more negative" about their economic position.
Still, as with unemployment levels, the picture on the street is hardly frightening. The Republic's overall economy is the shining light of the euro zone, putting former powerhouses such as Germany in the shade. The ESRI foresees an overall picture for 2002 where the robust income growth seen by Irish workers in 2001 is likely to slow sharply, but still to reach 6.7 per cent GDP per capita, a respected measure of a state's economic strength, is still rising, rather than falling.
In this kind of environment, where the backdrop is provided by seemingly never-ending scares about the state of the public finances, those who did well out of the last few years are placed in an odd position. Their everyday income may, if they are lucky, be the same as or better than it was at the height of the boom, but their prospects for wealth expansion in the future are likely to be less robust.
Even in a situation where Mr McCreevy is happy to hand out the so-called free money to 1.2 million of us under the special savings incentive scheme, the outlook for the next five years does not provide as much reason for financial glee as the previous five may have done.
Coupled with this situation, where income protection may be more of a priority than watching a salary spiral into the stratosphere, we have a situation where consumers are adopting a new attitude to financial risk. This theory of a "new paradigm" in the investment markets is not an original one.
Ever since the infamous Wall Street Crash of 1929, market-watchers (not all, but some) have been quick to jump to the conclusion that a major stock market correction is the harbinger of a new era for money, and that life will never be the same again.
Whether that theory finally proves its worth this time remains to be seen, but the undeniable truth is that markets around the world are nervous and, crucially, lacking confidence.
In the year to date, the US-based S&P index of 500 leading shares has plummeted by about 30 per cent, following a decline of 13 per cent last year and 6 per cent the year before. The pattern has been repeated closer to home, with the modest 1 per cent growth seen on the Irish Stock Exchange last year totally wiped out this year with a similar 30 per cent plunge.
In such a situation, asset performance becomes even more unpredictable than usual, leaving the average person with a few bob to protect facing some hard decisions. What might make the best home for their money, and why?
One company which has recently arrived in town to take advantage of this kind of atmosphere and answer such questions is Towry Law, a British chain of financial advisers that is now taking on the Irish market from a Dublin office. Towry Law's managing director, Mr Ian Mitchell, says (with great enthusiasm) that the Republic is "an exciting personal finance market to be in".
Mr Mitchell says that the Irish investor has in recent years become a sophisticated animal, moving on from the traditional investment practice of property-buying to equities (via Eircom) and even high-risk, high-return products such as hedge funds.
At the moment however, Mr Mitchell is noting a conservative trend among his clients, many of whom fit into the 30- to 50-year-old age bracket, exactly the group that benefited most from the boom. These are people, says Mr Mitchell, "who have done well and are seeing what they've done heading in the other direction", seeking a safe home for their money along the way.
The conservatism is easy to understand when you hear that some clients have seen a 60 per cent reduction in the value of their investment portfolio within the last few months.
"It's a time when people who have dealt in certainties are having to rewrite their whole world view," says Mr Mitchell. As for the beleaguered consumer, the best thing to do in a market such as this is set the scene in your own mind, asking yourself how you personally feel about your money and how much risk you are prepared to take with it.
Monday: Is it still worth taking a punt on the stock market? Plus investing in the antiques market