I have been saving to buy a house now for several years but the rise in house prices keeps putting it out of my reach. As a result, I have a reasonably large deposit account in a building society for which I am earning next to nothing in interest, so in effect my savings are losing value as the interest earned is not keeping up with inflation. Can you advise me on the best place to invest my money until I am ready to buy a house - probably in one to two years?
Mr P.E., email
Your predicament is a growing one among aspiring first-time buyers given the continuing strength of house prices. There is nothing more galling than to reach your savings target only to find that the goal posts have moved 1525 per cent ahead in a rapidly rising market.
Despite the constant admonishment from economists and central bankers, from a position such as yours, the present rising trend must appear inexorable. However, it is inevitable that rate of increase in prices must slow; the perennial conundrum is to predict exactly when that will happen.
From a savings point of view, the most important element in your letter is the proposed timescale. You say you are looking for investments which will allow your money to grow but will give you access in one or two years time. In savings terms, that is the very short term and limits your options considerably. Tracker funds, PIPs and PEPs are geared towards the medium-term investor, prepared to set the money aside for about five years. For the shorter-term investor, deposits, savings bonds and equities provide the easiest access but with widely varying degrees of security. Equities are the riskiest of all these types of investments. Although, historically, they have outperformed all competing forms of investment, they are prone to short-term hiccups. At times like the present, where the worries over the stability of Asian currencies and economies are prevalent, stock markets get nervous as we have seen in the last couple of weeks. That would not bode well for short-term investors in equities, especially as the current uncertainty follows a sustained bull, or rising, market.
Looking at deposits, you do not say in which building society your savings are held. However, in the current low-interest rate environment, the few remaining mutually-owned societies have been making efforts to reward their members with higher savings rates than their publicly-quoted rivals. In addition, given the competition among banks and building societies and between them, there are a wide range of savings accounts available with competitive rates of interest. Some are more easily accessible than others and certain ones have minimum amounts which can be invested, but it should certainly be possible to inflation-proof your savings at the very least.
For anything more complex, you should look at obtaining professional advice, preferably on a fee rather than a commission basis given the short-term nature of your perceived saving needs.
I have a substantial portion of savings in US dollars and I have been considering converting to Irish pounds at the prevailing dollar/pound exchange rates. Would this be wise or should I wait until Ireland's entry to EMU in the expectation that the dollar/ euro rate might be more favourable? I am an Irish resident.
Mr L.B., Dublin
If it were as easy as that to predict currency exchange rates, a whole section of the financial services industry would be superfluous. In some ways, speculating on exchange rates is little more than a form of gambling. Certainly currency traders go to great lengths to inform themselves of the economic and other factors underpinning any given currency and its relationship with others, but it is by no means a science.
The Irish currency is currently strong on the back, primarily, of our still strong relationship with sterling in the eyes of the currency markets. Certainly the economic strength of the State and its high interest rates help, but it appears the sterling link is still the strongest factor in most analysts' minds.
What will happen when that link is stretched still further by the pound's metamorphosis to the euro and sterling's go-it-alone approach remains to be seen. Certainly, the Germans especially are determined that the euro will be perceived as a strong currency - which is essential given the reluctance of the German voters to surrender the deutschmark, the traditional bastion of European currencies. The odds appear to be that they will err on the side of caution initially and treat it as being at the weaker end of the spectrum, despite talk of keeping interest rates higher than they might otherwise be to boost the currency at first. As far as the dollar goes, it has traditionally been viewed as one of the safe haven currencies and, given the current concern over an exacerbation of the Asian crisis and over the prospects for the nascent euro, it might well get stronger. There again, the spreading of the Asian crisis to Japan - the world's second-largest economy - could well have a deflationary effect on economies worldwide which would also impact on the dollar.
In addition, although you tell me you are an Irish resident, it is not clear from your letter where the savings are currently based. That, in itself, would have implications both for the conversion and for any tax issues.
In cases like this the best way of maximising your odds and taking the most beneficial route is to take proper professional advice. The expertise could well pay for itself.
Send your queries to Q&A, Business This Week, 10-15 D'Olier St, Dublin 2, or email to dcoyle@irish-times.ie.
