26


East Cork


Business


by GERARD O’BRIEN Clearly, having all


of


your money in one asset is a risky strategy. You have probably heard of the phrase “Don’t put all of your eggs in one basket,”? If you have, you will then hopefully understand the idea of diversification and why it is so important for protecting your assets over time. Diversification is simply ensuring that your assets are varied and not all in the one basket. Asset and financial diversification helps reduce the risk you take in your finances and is an important part of mak- ing sure that your financial goals aren’t disrupted by the unforeseen. Why diversify my invest-


ments? When you start to build


your portfolio, you have a number of different asset classes that you can con- sider, such as property, cash, equities and bonds as examples. At this point, within those various as- set classes, you have even more options to choose from. For example, you could invest in European equities or US property and within the bond and fixed income sector, you could introduce a blend of corporate bonds (say, is- sued by Nestle, BMW etc.) or sovereign bonds (such as UK government gilts, Irish government bonds). By diversifying and in-


vesting in more than one asset, you reduce the risk that you will deplete your funds and your portfolio’s overall investment returns should have a smoother, more consistent journey. If one asset category’s invest- ment return is volatile, the hope is that you can offset


dramatically re- duce the burden on


lies and business owners is being proposed.


scheme is based on an assessment of all your income


by KAREN WALSH


lobbying farming


ies, who


claimed that the existing Fair Deal system was far from fair for farming


lies and was a major obstacle to young people taking over the family business, an overhaul of the scheme to


fami-


After years of from bod- have


assets in order to work out what your contribution to your care will be. The HSE will then pay the balance of your cost of the care.


Currently, the calculation for pay- ment used is 80% of a person’s annu- al income such as pay entitlements or pension, and 7.5 % of the value of the assets such as your farm or principal private


In respect of the residence. and The Fair Deal farm fami-


The Importance of Asset Diversification


the losses in that category with better investment re- turns in another asset cat- egory. What is asset allocation? Asset allocation is the


process of dividing your investments across various different


kinds of assets,


based on an individual’s personal situation and short, medium and longer term goals. Ensuring that you have a suitable asset allocation strategy in- place is key to ensuring the success of your money management and financial planning.


appropriate


Determining the most asset


alloca-


tion model for your finan- cial


goal (for example,


creating an education plan for your children, retiring early etc.) is a reasona- bly complicated task. Es- sentially, you’re trying to choose a mix of various assets that have the high-


principal private residence, the max- imum contribution that can apply is 7.5% of the value of the residence for the first three years of care. Under the cur- rent


families and small business owners are required to set aside 7.5% of the value of their land annu- ally to fund a place in a nursing home. This means it does not have to be paid during your lifetime and will be collected from your estate.


ter for Older People Jim Daly is propos- ing that this should be capped at three years. This will give farmland and busi- ness assets the same status as the family


However, Minis- regime, farm


est probability of meeting your goal at a level of risk you can live with. As you get closer to


achieving your goal, you’ll need to be able to adjust the mix of assets to reduce the risk and preserve as much of the gain as you can.


Why Asset Allocation is so important? You can protect


your


portfolio against significant losses by including various asset types with investment returns that move up and down under


different


market conditions. Tradi- tionally, the returns of the main asset classes (bonds, equities and property) have not moved up and down at the same time. Market conditions that cause one asset to do well, might often cause another asset category to have me- diocre or poor returns. How does rebalancing a


portfolio help?


home. It


The process of ‘rebal-


ancing’ is the act of bring- ing your portfolio back to your original asset alloca- tion mix. This is necessary because over time some of your investments may become out of alignment with your initial invest- ment goals and you will need to re-assess the un- derlying asset mix. For example, you might


find that some of your in- vestments will grow faster than others. By rebalanc- ing, you can try to ensure that your portfolio does not exaggerate one or more asset class, and you can re- turn your portfolio to your chosen level of risk. I have found that I rebal-


ance my clients’ portfolios with 3 main approaches: 1. We


certain over-weighted asset can sell


investments from class-


es and use the earnings to purchase investments for under-weighted asset class-


that a number of safeguards will be put in place to pre- vent abuse of


scheme. The limit will only apply if the land is farmed by a close relative. Land that


to third parties will be


is leased


normal asset. It will only apply to land that is being farmed by a close relative.


be


mechanism, which means that farm or business assets sold or leased within six years of a person entering a nursing home will be subject to the annual 7.5% charge.


Tel: 021 463 8000 • Email: info@eastcorkjournal.ie • Web: www.eastcorkjournal.ie counted as a the is proposed


residents who have been in care more


Nursing home for


chase new investments for under-weighted


can pur- asset


categories – for example, we might feel that we are currently


Finally, if we


property, we need to pur- chase more property assets across the portfolio; 3.


are


monthly / annual contri- butions to the


making continuous portfolio,


we can alter the client’s contributions so that more investments go to un- der-weighted asset catego- ries, until the portfolio is back into balance and in- line with their risk profile and target return. Reviewing your portfo-


lio is a key strategic activ- ity that should happen on a regular basis between a


years will not be able to recoup con- tributions they have made beyond that period.


There will also a ‘clawback’


changes will be backdated so that once introduced the cap will benefit any- body who has been in care for less than three years. Forcing somebody


However, the than three


that farmers are as- set rich but income poor.


cerned that They are


children will be burdened with con- siderable home


their death. Ultimately, the in most


existing Fair Deal scheme


to pay 7.5% of the farm’s market value indefinitely affects the ability of young people to take over the family business.


Many farmers in Ireland struggle


obtain a viable in- come from farming, and it often the case


to bills after nursing


con- their


client and their advisor, principally because


it is


es - for example, we might feel that the equity element is currently too risky and we want to purchase more fixed income assets to re- duce the risk; 2. We


under-weight


governed by a variety of factors like your age, in- come requirements and risk tolerance. There is no doubt that spending the time to determine which asset allocation strategy best meets your require- ments will stand to you over time. Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Plan- ner and the Owner of Heritage Wealth Manage- ment, a Financial Planning practice based at 27 Cook Street, Cork. For more in- formation, contact Gerard at


gerard@heritage-


wealth.ie www.heritage- wealth.ie


Disclaimer: All data


and information provided within this article is for in- formational purposes only. Heritage Wealth agement


Limited


Man- makes


no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages aris- ing from its use.


an asset


been transferred a few years previously is causing huge diffi- culty and hardship.


cases does not ac- curately reflect a farmer’s ability to pay nursing home fees, and if a part of the farm is forced to be sold to repay nursing home fees, it can render the remainder


farm unviable, and can force a sale of the entire holding. In addition, the fact that


can be assessed on eastcorkjournal an applicant of the


farms are often held in the same fami- ly for generations, and farms are either transferred to oth- er family members on death or during the lifetime of the existing owner of the land. But there are


that


of some farms are being undermined or lost while trying to meet the cost of care. This will come as a huge relief for farming families and indeed anyone with a business, if signed into law.


@eastcorkjournal / #eastcorkjournal


real concerns the viability


Traditionally, that had


info@eastcorkjournal.ie


Thursday, 9th


August 2018


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