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Chapter 1: What is the main topic discussed in this episode?
Hello and welcome to the Ask About Wealth podcast. Today I want to talk about the best place to invest a lump sum. If the best place means where would I get the best return? What we can all do is look at history.
History will tell us what's likely to happen, not guaranteed to happen, but likely to happen.
Chapter 2: What should I consider when investing a lump sum?
So let's say instead of asking what's the best place to invest a lump sum in 2026, we're able to go back in time and ask that question 10 years ago. If we look at the history, now there are many different asset classes. There are commodities like orange juice and there are stocks and shares, there are gold bullion and other precious metals, etc, etc.
But there are four predominant asset classes that are available across investments that are on the high street and easily accessible. And those asset classes are stocks and shares, mature equity markets, bonds, sovereign bonds, money loaned to and borrowed by sovereign countries for which they pay a guaranteed return. They've got cash, which is deposit accounts, and we've got property.
And the Irish have a love affair with property. And as these figures are about to tell you, there is a good reason for that, especially in the last decade. So, ask the question, in 2016, if I wanted the best return out of all of these asset classes, what should I have invested in? Number one answer is property.
Over the last 10 years, property has delivered an average annual rate of return of 12.1%. Included in that number is not only the capital gain, but the rental yield on the same asset. If we look at the World Stock Index as represented by a thing called the MSCI, The annualised return over the same decade was 11.3%, so slightly lower than property.
The annualised return from the sovereign bond market, and here I've used the Irish sovereign bond market, was 1.28%, and the average annual return on cash was 0.55%. That tells you the headlines, doesn't it? That tells you the return on a gross basis. Those returns deliberately do not include taxation, they do not include inflation, and they do not include costs.
But each of these would have to be taken into account for you to be able to make the proper decision for you and your money. Tax is ultimately the largest cost. Across the Irish market, we've got capital gains tax, we've got deemed disposal tax, we've got income tax on dividends, etc., etc. We've got stamp duty as you buy it. These are the taxes that are levied.
across various, all of the asset classes indeed, bar cash. Costs, you know, there are many different ways of getting an exposure to the world's stock markets. There's different ways of getting exposure to property markets, be it direct property, commercial property, residential property, industrial property, property funds, etc.,
There's different ways of getting exposure to the bonds through funds or direct purchase. And of course, there are multiple different deposit offerings available, including those wider offerings now available through platforms like the one, for example, Raisin, where we've had them on our podcast before. So costs will also figure.
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Chapter 3: Which asset classes have performed best over the last decade?
in the calculation of which of these asset classes makes you the most money. The final thing is inflation. Now that's equal across the board, isn't it? We're talking from an Irish perspective. So Irish inflation rates, which are broadly EU inflation rates, will matter when we look at the real returns in a decade's time.
But as I say, that inflation deduction will be the same across these four categories. But I suppose it's worth pointing out that if we look back at inflation rates over the last decade, that both the bond return I quoted earlier at 1.28% and the cash return I quoted at 0.55%, they were less than inflation.
That means that even though the investment amount in the fund, in the product, was greater at the end of the decade than it was at the start of the decade, the buying power of that money had fallen away. This is why I caution people about keeping long term money on deposit. I understand how safe it feels.
I understand, for example, if you've less than 100 grand per institution, per account, you have the capital guarantee underwritten by the Irish state. And that is valuable. I'm not saying it's not. But if that guarantees you losses... one would have to question how valuable it really is.
So, in broad terms, what the history tells us, and what is therefore most likely to be repeated, because investment and financial history tends to repeat itself, is that the stock markets and the property market will be the best performers over the next decade, and the bond market and the cash market will be the worst performers.
But when people ask that question, they're often not asking only that question. The question should be, on an individual basis, not what is the best investment to make, but you add two words to the end of that sentence. Because the sentence should be, what is the best investment to make for me? Because that can be a completely different answer.
That depends on the use you want to put the money to. That depends on how long it is before you're going to spend this money, so what liquidity you need. That depends on your own tolerance for risk. So if you look back over that 10-year history I've quoted, there were times, and we look at the stock markets as an example, In 2022, that market, that world market fell by over 20%.
Now, that didn't happen in the bond market. That didn't happen in the cash market. It happened in this example, the stock market. So anybody who made that investment in 2016, six years later, would have had a report from their product provider that there was a major loss in the previous 12 months. they have to be able to tolerate that loss.
The actual value is only important on one day, or two days indeed, the day you buy it and the day you sell it. So even though in the middle of those numbers I've told you, we had a market that had a minus 22% return in a year, the same market still did close to 12% a year over the decade. The property market in the same 10 years hasn't seen such a decline.
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