As the old adage goes, they don't ring a bell at the top. If you want to know – in any market – when prices are peaking out, you have to work it out for yourself. It's not easy. If it were, everyone would be doing it. But there are often signals you shouldn't ignore.
Worrying signs are appearing in several markets right now. Some of the most concerning, though, are showing up in 'junk' bonds.
Yes, they've done very nicely of late. But this is one market that could be heading for a pile-up.
Why are junk bonds so popular?
Junk bonds are officially known as 'speculative grade credit'. In essence, they're lower-grade IOUs issued by companies to raise cash.
Junk bonds yield more than top-notch issues, reflecting the higher risk you take when you buy them. But junk bond investors still rank higher in the pecking order than ordinary shareholders. So junk bonds could still get repaid even if a company's equity capital goes up in smoke.
When the overall market mood was ultra-grim, junk bonds' extra security compared with shares was a big draw. Investors could snap up very tasty yields without the risk of buying high dividend-paying stocks. Even if the ordinary share dividend was cut and the share price fell, bondholders often still got their income payments in full.
Then the world's central banks started pumping lots of money into the system. The aim was to boost economic growth. But it hasn't worked out that way. Instead, much of this money has ended up in the financial markets. And as investors wanted higher yields than government bonds were paying, a fair chunk has gone into the junk bond market.
In fact, ever more cash is being ploughed in worldwide. Almost $100bn-worth of junk bonds has been sold by corporate borrowers in the last three months, says Bloomberg. That's a new record level of issuance – but clearly, plenty of people are still buying.
What's more, there's lots of hype. "A tremendous yield hunger that isn't satisfied is pushing up prices in all the bottom-tier names," says Margaret Patel at Wells Fargo. "If you want capital appreciation, there's only an ever-shrinking universe to get that sort of yield."
Three reasons why junk bonds have reached their top
So why do I suspect that if the 'market top' bell existed, it'd be ringing around now for junk bonds? Here are three reasons.
First, as we should all know by now, when everyone piles into a market, it's time to start getting very wary. This junk bond mania is now developing all the signs of a fast-inflating bubble.
In the two years to the end of June, investors poured a staggering $480bn into debt mutual funds – the US equivalent of unit trusts – according to the Washington-based Investment Company Institute. That's more than went into equity funds during the dotcom bubble.
Add in all the extra money that's gone into those mutual funds since the start of July, and there's yet more riding on the junk bond market.
Second, all the value has gone from the junk bond market. What do I mean? Junk bond investors have done well in 2010. Including reinvested interest, European junk bonds have returned 16% this year, says Bank of America Merrill Lynch index data.
But don't be fooled. Although the junk bond market's cheerleaders pretend otherwise, investors and borrowers aren't on the same side. What's good for investors – e.g. a higher yield – means more cost for borrowers and vice versa.
When companies churn out extra IOUs in record amounts as fast as they can, like now, they reckon they're onto a good thing. And they are – the average yield for junk-rated European debt has now fallen to 7.62%. That's the lowest since July 2007, i.e. before the financial crisis kicked off. So investors are getting a much worse deal now than before.
"This is a case of too much money chasing too few good bonds," says Don Ross at Titanium Asset Management. "It's just money changing hands and corporations being gainers by being able to issue cheaper [bonds]".
Neither of these concerns would matter quite so much, though, without the third reason – the amount of future supply. It's massive.
In Europe, $316bn of junk-rated corporate debt needs refinancing before the end of 2014, says Moody's Investors Service. It's a "wall of maturities" that's much bigger than the historic ability of the market to find the cash. In the States, despite recent junk bond sales, the amounts needing refinancing over that timeframe are even bigger.
"The wall of maturities raises questions," says Moody's Chetan Modi. "How's the market going to get this increased capacity and what does that mean for pricing and for other conditions?"
To put that another way, companies will only be able to raise sums as big as these by paying much more for the cash. So yields will be forced higher – and junk bond prices will drop.
A daring play on falling junk bond prices
Of course, calling the precise top isn't easy. But avoiding junk bonds seems a sensible course of action. And if you're really feeling adventurous, there's a way to play potential falls in junk bond prices.
The iTraxx Crossover Five-year Total Return Index gauges the default risk of 50 of the most liquid European high-yield corporate bonds. As investors' fear of default falls, junk bond prices rise. So the index climbs – it's at its highest since Bloomberg data began in 2006.
Now there's an exchange-traded fund (ETF) that's the inverse of the index. It's the db x-trackers iTraxx Crossover Five-year Short Total Return Index ETF (GY: XTC5). If junk bond prices drop, the underlying index falls. As a result, this ETF rises because it's effectively selling the crossover index 'short'.
It isn't without risk. You lose money if the index increases. Nor is it a straightforward structure – you can read about it here. And it's listed in Frankfurt and quoted in euros, so there's currency risk if the pound moves up. But if the junk bond boom is ending, this could be one of the easiest ways for you to profit.
Our recommended article for today
Is commercial property making a comeback?
Commercial property prices in Britain have recovered somewhat since last September. So is it time to buy back in or are there better prospects elsewhere? David Stevenson investigates, and tips the best bet in a bombed-out sector.
Thursday, October 14, 2010
Monday, July 19, 2010
Investment trust round-up: Friday 16 July 2010
A survey of independent financial advisers (IFAs) by JPMorgan discovered that 40 per cent of respondents did not recommend the products because their knowledge needed refreshing.
The survey also found that a third of the respondents were not recommending the funds because they did not earn commission or trail fees from them.
Jasper Beren, head of UK retail sales at JPMorgan Asset Management, said advisers would need to include investment trusts to clients ahead of upcoming regulatory changes that will ban IFAs from earning commission.
He said, ‘Investors are clearly expressing an interest in investment trusts but it is a concern that their IFAs do not have a sufficient understanding of the investment vehicle.
The survey also found that a third of the respondents were not recommending the funds because they did not earn commission or trail fees from them.
Jasper Beren, head of UK retail sales at JPMorgan Asset Management, said advisers would need to include investment trusts to clients ahead of upcoming regulatory changes that will ban IFAs from earning commission.
He said, ‘Investors are clearly expressing an interest in investment trusts but it is a concern that their IFAs do not have a sufficient understanding of the investment vehicle.
Wednesday, June 23, 2010
Forget switching and relax with a long-term credit card...
Many people reading this website are keen to get the best deal in every circumstance. It’s natural to want your money to work hard for you, and that often means being a so-called ‘rate tart’, constantly moving your money around to ensure you are always beating the banks.
Loyalty is for losers according to many rate tarts, and good for them. If we all sat back and took what the banks dished out to us, the financial services market would be a far less competitive place than it is now.
But thankfully we are not all the same and plenty of borrowers don’t want to chase their tail constantly for the best rates. Some would call these people ‘lazy’, since they have neither the time nor the inclination to ensure they are always taking advantage of the best deals, whether on their credit card, savings, mortgages or anything else.
But they would argue they simply don’t want to dedicate much of their time to finding the absolute best deal, although they still want good value. Some people just have better things to do than to keep abreast of new credit card launches and diarise their optimum switching dates.
It takes all sorts of course, and I’ll be the first to say that while those who don't switch are certainly not lazy, serial rate tarts definitely do have a life!
But if you are in the camp that wants good long-term value without needing to switch, there’s some great news on the credit card front.
Cheap and easy
Barclaycard Platinum Simplicity Visa is a credit card that is designed for those who want one low rate that they can hang on to for some time. And that low rate has just got lower with the provider announcing it has reduced its APR from 7.8% to 6.8%. We have also heard reports from lovemoney.com readers that it is relatively easy to get accepted for this card, compared to other cards.
Rachel Robson takes a look at why you might be better off using a low interest credit card.
But hang on, aren’t there plenty of credit cards around that charge 0% interest. Why would you want to pay any interest at all, even if it is low?
The reason is that the 0% credit card offers, available for balance transfers, new purchases or sometimes both, are short-term deals, usually available for around a year. They are absolutely brilliant for many borrowers and extremely popular. But they do not suit everyone, and long-term low rate cards can be a better option for some.
Who doesn’t suit a 0% APR card?
If you are the sort of borrower who doesn’t want to keep chasing rates a 0% balance transfer or purchase deal will be all well and good until the initial 0% rate runs out.
Then you will revert to the lender’s APR which will typically be around 17%. If you still have a hefty balance on your credit card you will start to incur large interest charges, which could spiral quickly if you can only afford to pay the minimum required repayment each month.
It’s also worth remembering that, although you may have every intention of switching to another 0% deal at the end of your introductory period, what you forget, or worse, there are fewer 0% deals around to switch to? The number of 0% balance transfer deals has dwindled in the last year and is expected to fall further.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalPlus, with card companies lending criteria especially strict in the current environment, you might find that your applications are not accepted, leaving you stuck on your lender’s expensive APR. No one is suggesting that there will be no 0% cards at all in a year’s time, but realistically your choice will be more limited, which is not great if you don’t have a squeaky clean credit record for example.
It’s also worth knowing that you are only able to switch a balance over to a card provided by a different issuer, and many brands actually come from the same issuer -- Virgin and MBNA, two of the best providers for introductory deals, for example are both issued by MBNA so you cannot move balance from one to the other. This could limit your switching choices further.
Benefits of a long-term low rate
Frankly, a long-term low rate card allows you to get off the credit card merry-go-round and stop worrying about switching cards. When you get 10 months into a deal you won’t have to start looking for another deal. You can just relax and work on repaying your debt.
Remember, every 0% balance transfer deal comes with a one-off balance transfer fee anyway, so if you switch every year you will still end up paying something, even if it’s not strictly interest. If you know your debt will take a few years to pay off, a long-term credit card could be perfect.
Also, if you have a large purchase to make and you are considering a loan, a low rate credit card could be a much cheaper alternative, especially if the amount you want to borrow is less than £10,000 (loans tend to get cheaper above this level, although the low-rate credit cards still pip them!)
I think long-term low rate credit cards are a useful alternative for those people with a fair old sum to transfer, or a chunky purchase to make, who don’t want to keep on switching. They offer the chance to forget about finding the best deal or fretting over where you can shunt your money to next. Whether or not that’s lazy doesn’t matter, it sounds like a good option to me
Loyalty is for losers according to many rate tarts, and good for them. If we all sat back and took what the banks dished out to us, the financial services market would be a far less competitive place than it is now.
But thankfully we are not all the same and plenty of borrowers don’t want to chase their tail constantly for the best rates. Some would call these people ‘lazy’, since they have neither the time nor the inclination to ensure they are always taking advantage of the best deals, whether on their credit card, savings, mortgages or anything else.
But they would argue they simply don’t want to dedicate much of their time to finding the absolute best deal, although they still want good value. Some people just have better things to do than to keep abreast of new credit card launches and diarise their optimum switching dates.
It takes all sorts of course, and I’ll be the first to say that while those who don't switch are certainly not lazy, serial rate tarts definitely do have a life!
But if you are in the camp that wants good long-term value without needing to switch, there’s some great news on the credit card front.
Cheap and easy
Barclaycard Platinum Simplicity Visa is a credit card that is designed for those who want one low rate that they can hang on to for some time. And that low rate has just got lower with the provider announcing it has reduced its APR from 7.8% to 6.8%. We have also heard reports from lovemoney.com readers that it is relatively easy to get accepted for this card, compared to other cards.
Rachel Robson takes a look at why you might be better off using a low interest credit card.
But hang on, aren’t there plenty of credit cards around that charge 0% interest. Why would you want to pay any interest at all, even if it is low?
The reason is that the 0% credit card offers, available for balance transfers, new purchases or sometimes both, are short-term deals, usually available for around a year. They are absolutely brilliant for many borrowers and extremely popular. But they do not suit everyone, and long-term low rate cards can be a better option for some.
Who doesn’t suit a 0% APR card?
If you are the sort of borrower who doesn’t want to keep chasing rates a 0% balance transfer or purchase deal will be all well and good until the initial 0% rate runs out.
Then you will revert to the lender’s APR which will typically be around 17%. If you still have a hefty balance on your credit card you will start to incur large interest charges, which could spiral quickly if you can only afford to pay the minimum required repayment each month.
It’s also worth remembering that, although you may have every intention of switching to another 0% deal at the end of your introductory period, what you forget, or worse, there are fewer 0% deals around to switch to? The number of 0% balance transfer deals has dwindled in the last year and is expected to fall further.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalPlus, with card companies lending criteria especially strict in the current environment, you might find that your applications are not accepted, leaving you stuck on your lender’s expensive APR. No one is suggesting that there will be no 0% cards at all in a year’s time, but realistically your choice will be more limited, which is not great if you don’t have a squeaky clean credit record for example.
It’s also worth knowing that you are only able to switch a balance over to a card provided by a different issuer, and many brands actually come from the same issuer -- Virgin and MBNA, two of the best providers for introductory deals, for example are both issued by MBNA so you cannot move balance from one to the other. This could limit your switching choices further.
Benefits of a long-term low rate
Frankly, a long-term low rate card allows you to get off the credit card merry-go-round and stop worrying about switching cards. When you get 10 months into a deal you won’t have to start looking for another deal. You can just relax and work on repaying your debt.
Remember, every 0% balance transfer deal comes with a one-off balance transfer fee anyway, so if you switch every year you will still end up paying something, even if it’s not strictly interest. If you know your debt will take a few years to pay off, a long-term credit card could be perfect.
Also, if you have a large purchase to make and you are considering a loan, a low rate credit card could be a much cheaper alternative, especially if the amount you want to borrow is less than £10,000 (loans tend to get cheaper above this level, although the low-rate credit cards still pip them!)
I think long-term low rate credit cards are a useful alternative for those people with a fair old sum to transfer, or a chunky purchase to make, who don’t want to keep on switching. They offer the chance to forget about finding the best deal or fretting over where you can shunt your money to next. Whether or not that’s lazy doesn’t matter, it sounds like a good option to me
Forget switching and relax with a long-term credit card...
Many people reading this website are keen to get the best deal in every circumstance. It’s natural to want your money to work hard for you, and that often means being a so-called ‘rate tart’, constantly moving your money around to ensure you are always beating the banks.
Loyalty is for losers according to many rate tarts, and good for them. If we all sat back and took what the banks dished out to us, the financial services market would be a far less competitive place than it is now.
But thankfully we are not all the same and plenty of borrowers don’t want to chase their tail constantly for the best rates. Some would call these people ‘lazy’, since they have neither the time nor the inclination to ensure they are always taking advantage of the best deals, whether on their credit card, savings, mortgages or anything else.
But they would argue they simply don’t want to dedicate much of their time to finding the absolute best deal, although they still want good value. Some people just have better things to do than to keep abreast of new credit card launches and diarise their optimum switching dates.
It takes all sorts of course, and I’ll be the first to say that while those who don't switch are certainly not lazy, serial rate tarts definitely do have a life!
But if you are in the camp that wants good long-term value without needing to switch, there’s some great news on the credit card front.
Cheap and easy
Barclaycard Platinum Simplicity Visa is a credit card that is designed for those who want one low rate that they can hang on to for some time. And that low rate has just got lower with the provider announcing it has reduced its APR from 7.8% to 6.8%. We have also heard reports from lovemoney.com readers that it is relatively easy to get accepted for this card, compared to other cards.
Rachel Robson takes a look at why you might be better off using a low interest credit card.
But hang on, aren’t there plenty of credit cards around that charge 0% interest. Why would you want to pay any interest at all, even if it is low?
The reason is that the 0% credit card offers, available for balance transfers, new purchases or sometimes both, are short-term deals, usually available for around a year. They are absolutely brilliant for many borrowers and extremely popular. But they do not suit everyone, and long-term low rate cards can be a better option for some.
Who doesn’t suit a 0% APR card?
If you are the sort of borrower who doesn’t want to keep chasing rates a 0% balance transfer or purchase deal will be all well and good until the initial 0% rate runs out.
Then you will revert to the lender’s APR which will typically be around 17%. If you still have a hefty balance on your credit card you will start to incur large interest charges, which could spiral quickly if you can only afford to pay the minimum required repayment each month.
It’s also worth remembering that, although you may have every intention of switching to another 0% deal at the end of your introductory period, what you forget, or worse, there are fewer 0% deals around to switch to? The number of 0% balance transfer deals has dwindled in the last year and is expected to fall further.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalPlus, with card companies lending criteria especially strict in the current environment, you might find that your applications are not accepted, leaving you stuck on your lender’s expensive APR. No one is suggesting that there will be no 0% cards at all in a year’s time, but realistically your choice will be more limited, which is not great if you don’t have a squeaky clean credit record for example.
It’s also worth knowing that you are only able to switch a balance over to a card provided by a different issuer, and many brands actually come from the same issuer -- Virgin and MBNA, two of the best providers for introductory deals, for example are both issued by MBNA so you cannot move balance from one to the other. This could limit your switching choices further.
Benefits of a long-term low rate
Frankly, a long-term low rate card allows you to get off the credit card merry-go-round and stop worrying about switching cards. When you get 10 months into a deal you won’t have to start looking for another deal. You can just relax and work on repaying your debt.
Remember, every 0% balance transfer deal comes with a one-off balance transfer fee anyway, so if you switch every year you will still end up paying something, even if it’s not strictly interest. If you know your debt will take a few years to pay off, a long-term credit card could be perfect.
Also, if you have a large purchase to make and you are considering a loan, a low rate credit card could be a much cheaper alternative, especially if the amount you want to borrow is less than £10,000 (loans tend to get cheaper above this level, although the low-rate credit cards still pip them!)
I think long-term low rate credit cards are a useful alternative for those people with a fair old sum to transfer, or a chunky purchase to make, who don’t want to keep on switching. They offer the chance to forget about finding the best deal or fretting over where you can shunt your money to next. Whether or not that’s lazy doesn’t matter, it sounds like a good option to me
Loyalty is for losers according to many rate tarts, and good for them. If we all sat back and took what the banks dished out to us, the financial services market would be a far less competitive place than it is now.
But thankfully we are not all the same and plenty of borrowers don’t want to chase their tail constantly for the best rates. Some would call these people ‘lazy’, since they have neither the time nor the inclination to ensure they are always taking advantage of the best deals, whether on their credit card, savings, mortgages or anything else.
But they would argue they simply don’t want to dedicate much of their time to finding the absolute best deal, although they still want good value. Some people just have better things to do than to keep abreast of new credit card launches and diarise their optimum switching dates.
It takes all sorts of course, and I’ll be the first to say that while those who don't switch are certainly not lazy, serial rate tarts definitely do have a life!
But if you are in the camp that wants good long-term value without needing to switch, there’s some great news on the credit card front.
Cheap and easy
Barclaycard Platinum Simplicity Visa is a credit card that is designed for those who want one low rate that they can hang on to for some time. And that low rate has just got lower with the provider announcing it has reduced its APR from 7.8% to 6.8%. We have also heard reports from lovemoney.com readers that it is relatively easy to get accepted for this card, compared to other cards.
Rachel Robson takes a look at why you might be better off using a low interest credit card.
But hang on, aren’t there plenty of credit cards around that charge 0% interest. Why would you want to pay any interest at all, even if it is low?
The reason is that the 0% credit card offers, available for balance transfers, new purchases or sometimes both, are short-term deals, usually available for around a year. They are absolutely brilliant for many borrowers and extremely popular. But they do not suit everyone, and long-term low rate cards can be a better option for some.
Who doesn’t suit a 0% APR card?
If you are the sort of borrower who doesn’t want to keep chasing rates a 0% balance transfer or purchase deal will be all well and good until the initial 0% rate runs out.
Then you will revert to the lender’s APR which will typically be around 17%. If you still have a hefty balance on your credit card you will start to incur large interest charges, which could spiral quickly if you can only afford to pay the minimum required repayment each month.
It’s also worth remembering that, although you may have every intention of switching to another 0% deal at the end of your introductory period, what you forget, or worse, there are fewer 0% deals around to switch to? The number of 0% balance transfer deals has dwindled in the last year and is expected to fall further.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalPlus, with card companies lending criteria especially strict in the current environment, you might find that your applications are not accepted, leaving you stuck on your lender’s expensive APR. No one is suggesting that there will be no 0% cards at all in a year’s time, but realistically your choice will be more limited, which is not great if you don’t have a squeaky clean credit record for example.
It’s also worth knowing that you are only able to switch a balance over to a card provided by a different issuer, and many brands actually come from the same issuer -- Virgin and MBNA, two of the best providers for introductory deals, for example are both issued by MBNA so you cannot move balance from one to the other. This could limit your switching choices further.
Benefits of a long-term low rate
Frankly, a long-term low rate card allows you to get off the credit card merry-go-round and stop worrying about switching cards. When you get 10 months into a deal you won’t have to start looking for another deal. You can just relax and work on repaying your debt.
Remember, every 0% balance transfer deal comes with a one-off balance transfer fee anyway, so if you switch every year you will still end up paying something, even if it’s not strictly interest. If you know your debt will take a few years to pay off, a long-term credit card could be perfect.
Also, if you have a large purchase to make and you are considering a loan, a low rate credit card could be a much cheaper alternative, especially if the amount you want to borrow is less than £10,000 (loans tend to get cheaper above this level, although the low-rate credit cards still pip them!)
I think long-term low rate credit cards are a useful alternative for those people with a fair old sum to transfer, or a chunky purchase to make, who don’t want to keep on switching. They offer the chance to forget about finding the best deal or fretting over where you can shunt your money to next. Whether or not that’s lazy doesn’t matter, it sounds like a good option to me
Thursday, June 3, 2010
FTSE rallies on brighter economic outlook
London's leading shares rallied on Thursday mirroring overnight gains on Wall Street, sweeping higher on enthusiasm over the brighter global economic outlook, dealers said.
The FTSE 100 index of leading shares gained 1.16 percent at 5,211.18 points.
The day's best performing security was Petrofac which added 59 pence -- or 5.18 percent -- to end on 1,199.
Software firm Arm Holdings was the day's second-best performer, adding 11.2 pence -- or 4.98 percent -- to finish at 267.9.
Gold miner Randgold was the session's biggest faller, losing 155 pence -- or 2.53 percent -- to close at 5,975, followed by minerals company BHP Hilton, which shed 16.5 pence -- or 0.89 percent -- to end at 1,839.5.
Lloyds Banking Group (LBG) was the most traded stock, seeing 334 million shares change hands, followed by oil giant BP, which saw 114 million units switch owners.
Meanwhile, the pound fell against the dollar while it climbed slightly against the euro.
At 17:07, the pound was trading at $1.462, down from $1.465 at the same time on Wednesday, while sterling was valued at 1.199 euros, up from 1.196 over the same period.
The FTSE 100 index of leading shares gained 1.16 percent at 5,211.18 points.
The day's best performing security was Petrofac which added 59 pence -- or 5.18 percent -- to end on 1,199.
Software firm Arm Holdings was the day's second-best performer, adding 11.2 pence -- or 4.98 percent -- to finish at 267.9.
Gold miner Randgold was the session's biggest faller, losing 155 pence -- or 2.53 percent -- to close at 5,975, followed by minerals company BHP Hilton, which shed 16.5 pence -- or 0.89 percent -- to end at 1,839.5.
Lloyds Banking Group (LBG) was the most traded stock, seeing 334 million shares change hands, followed by oil giant BP, which saw 114 million units switch owners.
Meanwhile, the pound fell against the dollar while it climbed slightly against the euro.
At 17:07, the pound was trading at $1.462, down from $1.465 at the same time on Wednesday, while sterling was valued at 1.199 euros, up from 1.196 over the same period.
Tuesday, May 25, 2010
'Fat cat' funds give modest income
THE average size of a self-administered pension scheme is less than €500,000, which would give a modest pension in retirement.
These schemes are favoured by company directors self-employed and are sometimes characterised as "fat cat pension funds".
But new research gives the lie to perceptions that large tax-free funds have been accumulated in these self-administered schemes. Research commissioned by a new body, the Association of Pensioner Trustees in Ireland (APTI), shows that the average self-administered fund has just €430,000 accumulated in it.
This would give a weekly pension of just €275, or €14,298 a year, Tiernan Clarke of APTI said.
The research, carried out by actuarial consultants Milliman, found that there were 7,200 self-administered schemes in the country.
Self-administered schemes are an alternative to personal pensions, with the added attraction that those who have one can control how the fund is invested. They are available to employees but generally tend to be put in place by company directors.
Directors who have such a pension arrangement can get their company to make contributions to the fund.
Scrutiny
Self-administered schemes must have a Pensioner trustee who is a Revenue Commissioner appointee overseeing the activity of the funds.
Mr Clarke said the research had shown that they were nothing like as valuable as some commentators maintain.
"Recent comments in the media that have suggested self-administered pension funds are the preserve of 'fat cats' don't stand up to scrutiny.
"Claims that average fund sizes run into millions are simply not correct and the research by Milliman clearly proves this," he added.
A 65-year-old who retires with a fund size of €430,000 today would get a pension of just €14,298 per annum, or €275 a week, Mr Clarke explained.
"I think it is important that the right information gets into the public domain, particularly at this time when pensions are under such a spotlight."
These schemes are favoured by company directors self-employed and are sometimes characterised as "fat cat pension funds".
But new research gives the lie to perceptions that large tax-free funds have been accumulated in these self-administered schemes. Research commissioned by a new body, the Association of Pensioner Trustees in Ireland (APTI), shows that the average self-administered fund has just €430,000 accumulated in it.
This would give a weekly pension of just €275, or €14,298 a year, Tiernan Clarke of APTI said.
The research, carried out by actuarial consultants Milliman, found that there were 7,200 self-administered schemes in the country.
Self-administered schemes are an alternative to personal pensions, with the added attraction that those who have one can control how the fund is invested. They are available to employees but generally tend to be put in place by company directors.
Directors who have such a pension arrangement can get their company to make contributions to the fund.
Scrutiny
Self-administered schemes must have a Pensioner trustee who is a Revenue Commissioner appointee overseeing the activity of the funds.
Mr Clarke said the research had shown that they were nothing like as valuable as some commentators maintain.
"Recent comments in the media that have suggested self-administered pension funds are the preserve of 'fat cats' don't stand up to scrutiny.
"Claims that average fund sizes run into millions are simply not correct and the research by Milliman clearly proves this," he added.
A 65-year-old who retires with a fund size of €430,000 today would get a pension of just €14,298 per annum, or €275 a week, Mr Clarke explained.
"I think it is important that the right information gets into the public domain, particularly at this time when pensions are under such a spotlight."
Monday, April 26, 2010
Low-rate mortgage era has ended
WASHINGTON - The era of record-low mortgage rates is over.
The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent. As mortgages get more expensive, more would-be homeowners are priced out of the market - a threat to the fragile recovery in the housing market.
And if you wanted to refinance at a super-low rate, you may have missed your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.
Rates are going up because of the improving economy and the end of a government push to make mortgages cheaper.
For people putting their homes on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their purchases and lock in something decent before rates go even higher.
"We are seeing some panic among potential buyers who have not found houses yet," said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md.
It's all about affordability. For every 1 percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.
Good economic news is the first reason rates are rising: U.S. government debt, a safe haven during the recession, is losing its appeal as investors turn to stocks and riskier corporate bonds.
Lower demand for debt means the government has to offer a better interest rate to sell its bonds.
The second reason is the Federal Reserve. The Fed has ended its program to push mortgage rates down by buying up mortgage-backed securities. When demand from the central bank was high, rates plummeted to about 4.7 percent for much of last year. And business boomed for mortgage lenders as homeowners raced to refinance out of adjustable-rate mortgages and into fixed loans.
Many analysts forecast rates will rise as high as 6 percent by early next year. If they go much higher, the already shaky housing recovery could stall. And that could slow the broader economic rebound.
For people who bought their first home in the 1980s, when rates stayed over 10 percent for several years, paying 6 percent for a home loan may seem like a steal. But it's come as a shock to many first-time home buyers this spring.
The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent. As mortgages get more expensive, more would-be homeowners are priced out of the market - a threat to the fragile recovery in the housing market.
And if you wanted to refinance at a super-low rate, you may have missed your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.
Rates are going up because of the improving economy and the end of a government push to make mortgages cheaper.
For people putting their homes on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their purchases and lock in something decent before rates go even higher.
"We are seeing some panic among potential buyers who have not found houses yet," said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md.
It's all about affordability. For every 1 percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.
Good economic news is the first reason rates are rising: U.S. government debt, a safe haven during the recession, is losing its appeal as investors turn to stocks and riskier corporate bonds.
Lower demand for debt means the government has to offer a better interest rate to sell its bonds.
The second reason is the Federal Reserve. The Fed has ended its program to push mortgage rates down by buying up mortgage-backed securities. When demand from the central bank was high, rates plummeted to about 4.7 percent for much of last year. And business boomed for mortgage lenders as homeowners raced to refinance out of adjustable-rate mortgages and into fixed loans.
Many analysts forecast rates will rise as high as 6 percent by early next year. If they go much higher, the already shaky housing recovery could stall. And that could slow the broader economic rebound.
For people who bought their first home in the 1980s, when rates stayed over 10 percent for several years, paying 6 percent for a home loan may seem like a steal. But it's come as a shock to many first-time home buyers this spring.
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