1. Selecting an Investment Fund
   
2. Structuring Your Investment Portfolio
   
3. 10 Basic Rules for New Investors
   
4. Key Principles in Investing
   
5. Falling Stock Markets - What to do?
   
6. Equity Markets - Realistic Expectations
   
7. Historic Stock Market Returns
   
8. Risk, Access, Objectives, Security
   
9. Risk and Returns - the Relationship between them
   
10. Diversification - Number of stocks in an Investors Portfolio
    
11. Inflation - Protecting your wealth
12. Special Savings Incentive Accounts (SSIA’s) Key Details
    
13. Pooled Investments
         - Tracker Bonds
         - With Profit Bonds
         - Theme Funds
         - Indexed Funds
         - Consensus Funds
         - Hedge Funds
         - Corporate Bond Funds
         - Income Producing Funds
    
14. Property Investments
         - Effect of Leverage/Gearing
         - Performance Variations between Property and Equities
         - Growth of Property Prices in Ireland
        - Property Funds
        - How Property Funds Operate
         - Recent Performance of Property Funds
         - Key Aspects to consider when Purchasing Property funds
    
15. Off Shore Funds
    
16. Tips for Buying Direct Equities
17. Investment Portfolio Asset Allocation
    
18. Investment Jargon Explained
    

This is divided into two main styles - growth investing and value investing. Growth investors buy into companies whose turnover or earnings are growing faster than the overall economy of those of similar companies. Even if the shares are expensive relative to the underlying value of assets, the investor believes that the ability of the company to grow faster than other companies will drive its share price ahead of the market.

Value investors examine stocks lists for companies whose share prices are cheaper (in terms of price earnings multiplies or relative to net asset values) than those of other companies in their sector. Buying relatively cheap shares can be a good strategy in an accelerating economy when most companies should benefit from economic expansion.

The key thing is to look for fund managers that can adjust their approach or switch styles as market condition change, which is easier said than done in practice.

Warren Buffett is on record as saying, " most investors, both institutional and individual will find that the best way to own common stocks is through an index fund that charges minimal fees "

The key is costs, both the entry charges and in particular the annual management fee can and do account for a significant portion of fund managers Investment returns. In addition, a good choice of indexed funds is also important where one can switch and nowadays switch without crystallising a tax liability.

Research has determined that portfolio performance is most affected by asset-class selection, according to investment expert Mr. Larry Chambers in " The First Time Investor ". Mr. Chambers claims that 94% of performance is attributable to asset allocation, 4% to stock selection and just 2% to market timing.

Not the kind of statistics fund managers who charge high fees would like to get around.

" October, this is one of the peculiarly dangerous months to speculate in stocks. The others
are July, January, September, April, November, March, May, June, December, August and February ".

The above frequently quoted phrase should outline that stock market investing involves risk, nobody has all the answers and its important you clarify your objectives before making any such investment. It’s important to understand and clarify your views on the following four issues, namely Risk, Access, Investment Objectives, and Security.

Begin by setting aside in cash at least two to six months’ living expenses -an emergency fund that will be available in the event of illness or a period of unemployment. Then take advantage of employer-sponsored pension plans by contributing up to the maximum amount allowed. Finally, commit yourself to regular investing now so that you and your family will have enough later.

Every year you put off investing makes accomplishing your ultimate retirement goals even more difficult. As a rule of thumb, for every five years you wait, you may need to double your monthly investment amount to achieve the same retirement income. Social welfare and pension plans are not enough for a comfortable retirement.

Understand yourself as an investor, your emotions, your fears, and your tolerance for risk. Make sure you choose investments that you’re comfortable with and that are appropriate for your long-term goals.

Invest in stocks, either individually or in pooled investment funds, for long-term growth. While in any given year, stocks can be more volatile than other investments, over time, stocks have typically out-performed all other types of investments while staying ahead of inflation. Stocks should be at the core of a long-term investment portfolio.

Patience is a virtue. Maintain the discipline to hold onto or add to appropriate investments through down markets as well as up markets.

In deciding how to allocate your assets, be sure to diversify, both among asset classes ( stocks, property, bonds, and cash equivalents ), and within each class. Choose an appropriate asset allocation model. Doing so can spread risk over a variety of investments and may provide more consistent and reliable returns. For many investors, broad-based index funds are an excellent investment strategy. Index funds are a sound, low-cost choice for a core holding designed to track the market’s performance.

Bonds and cash can play an important role in an investor’s portfolio, providing solutions for income and diversification needs. But to achieve your long-term growth objectives, look to stocks and pooled investment funds.

Over the long run, high entry charges, annual management fees can drag down the performance of even a well-diversified portfolio. Annual management fees eat into your profits every year. For example, if you invest €25,000 with an annual growth of 8 %, choosing a fund with management expenses just 1 % higher would reduce the value of your fund by €1,580 after only 5 years. Reduce your investment expenses by using pooled funds with no or low entry charges, low-cost stock broking services, and tax-efficient pooled investments. For many investors a buy and hold strategy can minimise the impact of taxes.

Review your portfolio at least once a year, and certainly whenever personal circumstances change. You’ll need to evaluate the performance of your investments against relevant risk-adjusted benchmarks, and, when necessary, to re-balance your portfolio to stay on track with your long-term financial plan.

Investing for growth shouldn’t stop when you retire. To make your money work for you throughout your retirement years, keep investing a portion of your portfolio for growth. Don’t automatically shift all your money into fixed-income and money market investments too early. A good rule of thumb is that the percentage of your total portfolio invested in cash and bonds should be the same as your age.

1. All four asset classes - shares, property, bonds and cash should be used in a portfolio,
2. The share component should contain at least 12/15 stocks to minimise stock specific risk
3. The longer you can afford to invest for, the greater portion you should invest in stocks
4. The more risk averse you are the more you should invest in bonds and cash.
5. The sooner you need access to your investments (e.g. retirement) the more you should invest in bonds and cash

Don’t be panicked into selling your shares in a falling stock market. Missing the best 10 days over a five-year investment period could cut your investment return in half. See Table 1. If you invested $10,000 in the MSCI World Index in 1995, five years later your investment would be worth $16,632 - an average annual return of 10.71 per cent. But if you decided to sell your holdings and missed the market’s 20 best days - your return plummets from 10.71 per cent per annum to just 0.78 per cent per annum.

In addition, by waiting to invest until the market ‘looks cheap’ you may cheat yourself out of the best performances. Trying to time the market and buy at the bottom is not easy and may prove a costly exercise. History has repeatedly shown us that it is time and not timing that counts when it comes to achieving high investment returns. The smart investor has a long-term view and overlook daily market fluctuations and understand that discipline and patience are the keys to successful investing.

The long-term average annualised returns from the stock market are closer to 10 to 12 per cent. The dotcom share price boom, where technology share prices doubled and tripled over weeks and months, is not anything close to normal share price behaviour. Historic returns as seen in the table below give a reliable track record of stock market performance.

Statistics show that the Dow Jones Industrial Average had 69 positive years compared to 32 negative years since 1900. The markets 32 negative years averaged -13.19 per cent return while the 69 positive years averaged 22.39 per cent (Source: Towers Data 2001). The market was up roughly two out of three times since 1900. Past performance does not guarantee future returns.

1. Do not borrow to fund your equity investments. The worst victims of all stock market crashes/corrections are those who have borrowed heavily.
2. Invest for the long term. Assets that provide the best long-term return are also the ones that can drop dramatically in the short term.
3. Ensure your portfolio is adequately diversified. If you are diversified into shares, bonds, property and cash you are far more immune from problems in any one area.

Inflation in simple terms is the rate at which your money loses its ability to buy things.
Since 1966, inflation has averaged 7.8% per annum. While our current rate of inflation (5.5%) is significantly lower than the 20.9% it reached in 1975, nevertheless, at 5.5% your income and wealth would lose over 40% of its value every ten years.

If your money is on deposit, and with interest rates at historically low levels, after-tax deposit rates are below the current rate of inflation; therefore your money is falling in value in real terms, i.e. its purchasing value is falling. For example, if you had put €10,000 into a deposit account in 1971 and let the interest accumulate, the account would now be worth €50,000. But due to inflation €50,000 today could only buy what €5,000 bought in 1971 so your money has lost half its value in real terms.

The most effective way of inflation proofing your wealth is by investing a significant portion of your wealth in assets (shares, property) that historically have substantially outperformed inflation in the long term.

• You can save up to €254 per month
• The Government will add a further 25% to everything you save
• The Government share will be automatically added each month, thus you are getting the benefit of compound interest on the government’s share also.
• You are obliged to leave your savings for 5 years from the time you start the Investment. If you decide to withdraw some or all of your savings, there is a tax penalty of 23% on the total amount withdrawn (other than on death). You are not obligated to close the account at the end of the 5-year period but the government contribution will end at that time.
• You are obliged to save every month for the full five years. However you can adjust your monthly contributions from as low as €12.70 per month up to €254 per month. This is provided your bank or savings institution will allow this flexibility. Many of these institutions are requiring that you maintain the same contribution amount for the first 12 months.
• A saver had to be age 18 years or older & resident in the Republic of Ireland to open an SSIA. Each individual is only entitled to have one SSIA.
• If you opened an account with only the minimum monthly contribution, you should consider increasing your monthly contribution if at all possible. This is because the 25% bonus awarded by the government is worth more as your contributions increase into the scheme.

By pooling money, the investor gains the benefits of being a single, larger investor. This means you are able to invest in a wider range of investments than you could as an individual, while having your money managed by a professional fund manager.

If you purchase a single piece of property, there are estate agents fees, legal costs and stamp duties associated with the transaction. Your portfolio is clearly not diversified and any downturn in the market would seriously damage your investment - and that’s before any of the headaches involved in managing an investment property, dealing with tenants, repairmen etc. Also, property is not a liquid asset, so if you need cash in a hurry you may have problems. Investing in individual stocks also brings risk. As with property, there will be commissions (many Irish brokers charge 1.5% with a minimum charge of €76 for both buying and selling stocks) as well as stamp duties due on Irish stocks when purchased. Given these high commissions, it can become very expensive to build a diversified portfolio of stocks. While you can usually sell the stock when you need cash with little difficulty, owning individual stocks can be subject to the same risk as owning individual property. Investors are not diversified and are exposed to fluctuation in values of individual stocks.

Pooled investments on the other hand are usually made up of many individual stocks or properties which can be spread over different sectors of the market or in different locations/countries. Many pooled investments are comprised of circa 10 properties or at least 15 individual stocks (most managed funds have over 100 different stock holdings), providing the small investor with an immediate diversified portfolio managed by professionals. Naturally there are costs involved in purchasing and owning a pooled investment. When the investment is purchased, there will either be an initial entry charge or an early encashment penalty. Please note that purchasing the pooled investment product through Primafinance is cheaper than purchasing it through your bank, accountant or traditional broker. See the Our Charges section of our web-site for more details. Pooled investments are also subject to annual management fees, which are typically 1.5%. There can be variations in the annual management fees and investors should review these when making the decision to purchase a pooled investment product. While these expenses can amount to a significant amount over time, management expenses should not be the sole criteria in selecting a fund. Funds with low expense ratios and poor performance returns are as undesirable as funds with high expense ratios and poor performance returns.

Pooled funds invest in assets whose value can go down as well as up. As a result, neither the original sum invested nor the rate of return is guaranteed. There are many forms of pooled investment funds, some of which are explained below.

Tracker Bonds combine stock market returns with high levels of capital guarantee. Tracker Bonds have seen enormous amount of money move away from deposit accounts and towards these products that on average have rewarded investors for doing so.

Volatile stock markets and rock bottom Interest rates, likely to fall further, make for ideal conditions for Tracker Bonds.

However, Tracker Bonds are not immune to falling interest rates and more recent tracker bonds have offered falling participation in stock market growth or reduced capital protection.

Tracker Bonds appeal to novice investors venturing beyond the security of Bank deposit accounts. In addition, Tracker Bonds may take up a small portion of an investment portfolio in order to minimise the overall risk and provide short-medium term liquidity.

The price for the capital guarantee on Tracker Bonds has resulted in a declining maximum return available form the stock markets i.e. expressed as a proportion of the index growth e.g. 70% of index growth, or as a cap beyond which investors cannot participate in index gains. In other words, the financial institution keeps all the growth above a defined level in exchange for protecting the investor on the downside.

Investors cannot access their money until the end of the investment term.

PrimaFinance is not a particular fan of Tracker Bonds, Particularly with interest rates so low and where most of the investment goes towards securing the capital, which results in lower caps for capital growth. There is also the risk that in falling stock markets, tracker bonds will only return the original investment, which is less than what would have been returned in a bank deposit account.

Primafinance would advise considering pooled investment funds that still provide a capital guarantee but do not limit the upside potential. With Profit bonds being the best example of an alternative product and still providing a capital guarantee at the end of a specified term. However, the investment term for With Profit bonds is now on average 10 years, with most of the bonus given out as a terminal bonus at the end of the term.

You decide in advance how long you want to invest for - 7, 10 or 15 years.
With Profit bonds are designed to “Smooth Out” returns. The Life Assurance Company does this by providing the return to policyholders in three parts at the end of the specified term;

1. The ‘guaranteed sum assured’ is the minimum amount that is payable at the end of the term,
2. Each year the assurance company adds a bonus to the guaranteed amount (the ‘reversionary bonus’), which is payable at the end of the term, generally.
3. At the end of the term, the life assurance Company adds a further, usually larger bonus i.e. the ‘terminal bonus’.

With Profit bonds are popular because they give a degree of security to the investor combined with good long-term prospects. Generally, early encashment is not advisable, as much of the return comes with the final bonus, and there can be significant surrender penalties. Also, investors should be aware that With Profit bonds might carry a “Market Value Adjuster” on early encashment. This clause entitles the company to reduce the final payment in the event of a major change in market conditions or if large numbers of investors wanted to encash at the same time.

There are two types of With Profit Bonds. The old-style version is the “Traditional With Profit bond”, it is very much like a guaranteed insurance bond. The new style version is the “Unitised With Profit bond”, it is similar to an open-ended unit linked fund. It is designed to have a more transparent charging structure than the “traditional With Profit Bond”. It is also designed to have a higher headline annual bonus rate that would attract income investors. This bonus rate however can change quickly in poor market conditions.

Benefits

• Provides an exposure to the growth potential of equity markets while also offering a capital guarantee. Unit-linked equity can fluctuate quite considerably over time.
• Once the guaranteed cash sum has been increased by the addition of this annual bonus, it cannot be subsequently reduced.
• Based on track record, one can reasonably expect a terminal bonus to be added at the end of the period.
• The facility exists to encash stated amounts every year as income.

Disadvantages

• The guarantee only applies if you stay the full term. If you encash early, you may be hit with a surrender penalty. You may also be charged an additional penalty called a Market Value Adjuster (MVA). This MVA can be applied to your bonuses and original capital.
• There is a low level of transparency and control. You never see the investment performance of the underlying With Profit Fund. Neither do you know whether the fund has a surplus or deficit and the company has complete discretion as to how much of the underlying “With Profit” fund’s investment performance you will get should you stay for the term, which can be up to 10 years.
• Paying approximately 6%-7% per annum before tax, the unitised With Profit Bond looks very attractive to an income investor. They need to be aware that;
      - it is generally a ten year investment,
      - that their annual income could vary significantly, and
      - taking an income can substantially reduce their guarantees with some bonds.
  
• the longer-term return is broadly in lines with a cautiously managed fund.
• MVAs may be applied in a market downturn if encashing some or all of your investment or if many investors encash their holdings at the same time.
  
  

These funds are aimed at investors who want to get into a particular market sector or region. The theme could be a geographic region, such as emerging markets, a sector such as technology or pharmaceuticals or a global macroeconomic theme such as protection against inflation.

Investing through funds in specialist areas is less risky for a retail investor than picking an individual technology company or geographic region. Theme funds may be managed on an active or an indexed basis.

Also know as Trackers these funds aim to build a broad-based exposure to a stock market or a number of markets by buying different shares in the proportion on which they are represented on the index/indices the fund are tracking. The fund manager buys into companies represented on the index and sells those that fall out. A tracker could be based on one index, such as London’s FTSE, or on a number of different indices.

Irish Life introduced consensus fund management into the Irish Market in 1996 and has since been followed by Hibernian, Canada Life and Friends First. It is important to distinguish between consensus management and passive or index management. In addition, the choice of investments (equities, property, bonds and the geographical mix of equities) in the funds is weighted in line with average managed funds. Funds are rebalanced every quarter. The return should be in line with the return in each market in which the fund is represented.

This concept is based on a finding, that over time only about 25% of funds beat the performance of the indices and up to 50% can perform below the index. Consensus funds aim to take the risk of under-performance out of investing and produce an average return. Critics argue that consensus funds will never produce the best performance for investors.

At the asset level index funds take a “weighting” in each market based on its total relatives to the total world equity market. If the UK equity market, for example, represents 10% of the world equity market a global equity index fund will invest 10% of its total value in UK equities.

Similarly at a stock specific level a passively managed fund will hold stocks in proportion to their market capitalisation. If Lloyds Bank makes up 3% of the FTSE100 index then a passive fund will hold 3% of its UK book in that stock and so on. The important point is that passive managers do not attempt to add value, as active mangers do, by following the strategies such as market timing, theme selection, or individual stock selection. Passive management has been gaining popularity in the developed markets over the past number of years and it is estimated that about 30% of funds in the US are managed passively.

Consensus fund management, on the other hand, uses the average asset allocation of competitors to weight its holdings. Irish Life take an average of the top 18 Irish funds managers weightings in each main market at the end of each quarter and adjust their holdings accordingly.

To work out how much of the fund to hold in the UK, for example, Irish Life look at all the other managers' weightings. Eagle Star might have say 17% while BIAM have 7% with the other 16 fund mangers somewhere in between, the average holding works out to be 10.6% and this is then the proportion of the fund held in the UK. The process is repeated for all the other major markets. Note that in this example the passive weighting (10%) is quite close to the consensus weighting (10.6%), this may not always be the case.

The attraction of consensus management to investors is that they will never get really bad (or really good) performance. This, however, has not been the experience to date: the Irish Life Consensus fund has outperformed the managed sector average by almost 3% per year since launch. It may seem strange to complain about good performance but if it can over-perform it can also under-perform and that is precisely what consensus investors are attempting to avoid. This difference in performance can arise for a number of reasons:

• Stock selection. Irish Life simply index their stock selection and do not attempt to hold the same stocks as the average managed fund. Therefore, Irish Life’s consensus fund does not necessarily mirror the average managed fund at the stock level and so performance can differ significantly.
• Rebalancing. Irish Life only adjusts the weightings in their portfolio every quarter while active managers can move on a daily basis. With a time lag of up to 3 months it is possible for the average to move away from its previous level and so leave a consensus fund exposed.
• Competitors aren’t stupid. Since the introduction of consensus funds it has become increasingly difficult to gain access to competitor asset distributions at quarter end with many investment managers delaying the release of their asset distributions by weeks or even months.

Hedge funds in Ireland are a very small market. George Soros bet against Sterling in 1992 in an investment that was constructed using a hedge funds.

Hedge funds can invest in equities, property, currencies, interest rates, futures, derivatives, or almost any tradable commodity.

Hedge funds usually operate by “going short” and using “leverage”. Going short means selling something you don’t have - a hedge fund will for example sell equities it does not own, promising to deliver them to the buyer at a future date. The deal is based on speculation - the fund will sell equities if it believes the equity market will fall. Then when the markets fall, it will be able to buy the equities at a lower price and deliver them to the buyer it had already sold them to at a profit.

The hedge fund makes a profit on its “short” deals when the market moves as it expects. But, if the market moves in the opposite direction the fund can lose heavily. It will have to pay more to buy the equities it has already sold at a lower price. Leveraging involves borrowing beyond the value of the fund so it can do bigger deals on the market. Private Investors that want to try a hedge fund should try a “fund of funds”.

This is a fund invested in a number of hedge funds and with the potential to reduce risk through diversification both the investments and the fund managers involved.

For example, where a hedge fund is 2.5 times leveraged and if that fund buys Microsoft and the stock falls by 20% in value, then that investment within the Equity hedge fund will have lost 50%(2.5 times multiplied by 20%) caused by the leveraging effect. Conversely, if Microsoft increases by 20%, the Hedge fund makes 50% on the stock.

Hedge funds can also make money if the market goes down, if they have “shorted” the market. Shorting means the funds sells a security (equity, bond or derivative product such as a futures contract or option) with a view to buying the security back at a lower price. Hedge funds generally have a minimum investment of between €63, 487 and €126,974 . As a general rule, investors that are comfortable with high-risk investments may consider having up to 10-15 % of their portfolio in a hedge fund(s).

These investments effectively make loans to companies or corporations - and have been promoted as a high-yield alternative to bank deposits. This investment is money advanced to a company in return for a yield or interest and the repayment of their capital at the end of the agree period. The higher the yield offered the greater the risk in the investment.

Neither the income yield nor the capital value is guaranteed. Corporate Bonds get vulnerable as economies slow down and there is an increased risk that companies will not be able to meet promised yield levels and that higher - risk companies could fail.

If you’re looking for an income and are of the view that the current low interest rates offer little attraction, and you don’t want the risk of volatile stocks and with the Bacon reports having adversely effected the income from property, here are some of the types of options worth considering.

• With - Profit Funds
  These pay out between 5-6% of your investment per annum, where the annual bonus declared by the Investment Company is equal to your annual withdrawal; your capital should remain intact. However, it is important to understand taking an income does reduce your capital guarantee.
• Income Distribution Funds
  These funds invest in high yielding equities, whereby the dividend is distributed as an income each year. These funds generally generate between 2% and 4% of income. The income taken is not reducing the capital invested. Irish Life and New Ireland have such funds.

Irish investors have a long-standing tradition of investing in property and certainly Irish Investors have seen excellent returns in recent years. Typically investors are drawn to property for two reasons, i.e. the inherent “bricks & mortar” security and long term capital growth represented by rising property prices. There has been many a debate over the merits of equities over property as an investment. The Equity enthusiasts all too frequently conveniently forget the value of leverage or “gearing-up” (i.e. borrowing to buy a property, thus investing less of ones cash than to total cost) which is all too frequently used when buying property. Indeed, borrowing and property go hand in hand, which is not the case for Equities.

The effect of leveraging ones property investment is to boost your returns significantly over the actual appreciation of the asset, assuming the asset rises in value. Conversely, where the property falls in value, leveraging would significantly increase the loss to you over the actual fall of the value of the property.

For example, Mr. Investor buys a property for €100,000 and borrows €50,000. Assuming the property rose in value to €150,000 then the value of Mr. Investor’s cash investment has doubled. This ignores all other costs associated with property and assumes the net rental Income from the property meet the loan repayments.

Table 1 outlines how property, as measured by the Average House Prices as published in the Housing Statistics Bulletins, has performed relative to the Irish Stock market ISEQ Index. It shows that property performance is not synchronised with the performance of shares. Building a diversified portfolio that includes both equities and property funds is one way to offset this lack of synchronisation and provides protection for the overall portfolio when one sector is under-performing.

Direct Property Investment can give rise to high transaction costs, e.g. stamp duty, legal costs etc and can offer poor liquidity and poor diversification. Property funds minimise these disadvantages in investing in property somewhat. Property funds are an easy way to build the property portion of your diversified portfolio.

Property funds have been hugely popular among investors in recent times, and this is not surprising with property funds (and in particular Irish Property funds) delivering well above average returns for most of the past decade. The annualised returns over the past 5 years for Property Funds is 14.3% compared with an annualised return on Irish Equity funds of 2.03%. (Source: Moneymate).

Most Equity based fund managers will discredit Property Investments frequently referring to historic/traditional motivators influencing such decisions. However, the Investment Performance figures would discount this view.

Undoubtedly, property funds represent a good way into the market for first time investors, because it is a product that is easy to understand and tends to be less volatile that stocks and shares.

How Property Funds Operate

Property funds operate the same way as pooled Equity funds and there are entry charges and annual management fees here also. Your investment buys units within the fund, each unit representing a portion of all the investments within the fund. This therefore achieves diversification with the property sector, between Industrial, commercial and retail units as well as location diversification.

A major attraction with Property Funds is being able to leverage ones investment, where the fund manager borrows on the security and income capacity of the Properties within the fund.

This increases the growth potential significantly, but so too does it increase the downside risks. Irish Life has offered some particularly attractive property funds in recent times and has effectively harnessed the benefits of leverage.

Recent Performance of Property Funds

Experts remain divided as to whether now is a good time to invest in property, or indeed is now the time to get out of properties. There is no doubt that property funds have experienced a run of exceptional years and this hardly can continue. Property valuations remained static from 1989 to 1993 in this country and when property funds are out of favour liquidity may be an issue. Property funds need to be seen as a long term Investment, and there are exit charges for early encashment.

Norwich Union (now under Hibernian) and Irish Life have the most impressive track record with Property funds over the last 10 years. Needless to say, that as with all investments, past performance is no guarantee of future returns. Overall, property should make up a portion of an investment Portfolio, and Property funds enable balance against the volatility of the stock market funds.

Investors get access to a professionally managed well-diversified property portfolio for as little as €6,349 . Purchasing your property fund through PrimaFinance will cost you less than purchasing the fund through a traditional broker. See the Our Charges section of this site for more details.

• Number of properties in a fund
  The larger the number of property in a portfolio the better
• Timing of rent reviews and valuations
  Fund managers generally revalue their properties quarterly.
  While rent reviews generally take place every 5 years.
• Location of Properties
  The majority of property funds marketed in Ireland invest solely into Irish properties. While this has worked extremely well over the past 5-6 years property funds should ideally have economic diversification i.e. properties in different countries

Some of the financial institutions that Primafinance has agreements with offer investment products to residents of the European Union. Visit our investment centre to view a list of these products. If you are an Irish non-resident, you can purchase one of these off shore products and not be subject to Irish taxes. We do recommend that you speak to your own tax advisor about any taxes that may be due from investment income and capital gains in your resident country. Other issues you may need to discuss include whether you intend to return to live in Ireland sometime in the future

1. Buy a good company but at a good price
   Price is a very important factor. It might be a great company but if it is fully valued by the market vis-à-vis its peers, there's not much point buying it.
   
   
2. Look at price/earning ratios (P/Es) and price to book valuation measures The P/E ratio is the stock price divided by the projected earnings figure. Another way of describing it is the price an investor is willing to pay for the future earnings stream of a company.
   The price to book value is simply the price you are willing to pay for the company's assets. For example, in the case of the Meridien Group, its portfolio of hotel properties would form a large portion of the assets value of the company.
   The dividend yield is the percentage annual return that the company pays investors based on the monetary amount of shares purchased.
   Familiarise yourself with the evaluation ratios of the stock. Examine other financial measures available such as earnings before interest tax, depreciation and amortisation (EBITDA), cost/sales ratios and other relevant measures.
   
   It is important to look at these measures relative to the history of the stock's own valuation. The company should also be compared to its relevant global, not domestic, peer group.
   The objective is to identify stocks where you can be confident the valuation is inappropriately low.
   
   However…
   Just as price is a measure of value, it doesn't necessarily mean the stock is attractive. Sometimes stocks are cheap for a good reason - perhaps the sector is out of favour. What an investor needs to know is if this situation is about to change, due to a new business strategy or other catalyst that will propel the stock price forward.
   
   
3. Is the sector attractive? Is it an industry that is going to perform?
   Many industries are passed over by professional investors due to a combination of inadequate secular growth (steel), excessive cyclicality (paper), poor competitive dynamics (retail stocks in some cases due to oversupply) or dependence on an artificial subsidised framework to support profitability (bananas due to quotas).
   
   Professional investors often have a strong bias towards industries growing above gross domestic product (GDP) levels and with free market forces in operation.
   
   
4. Has the company a strong competitive position within its sector?
   Investors should ideally seek market leaders with an identified and sustainable competitive advantage.
   The company must have appropriate or better financial strength - cash generation, interest cover, and debt/equity ratios - for its industry. Read ex-Fidelity fund manager Peter Lynch's book ‘One up on Wall Street’, or Benjamin Graham's book ‘The Intelligent Investor’, for a better understanding of the valuation measures mentioned in this article.
   
   
5. Tips
   
   1. The company should exhibit superior profitability to its peers, and at a minimum, in excess of its cost of capital. Measures that can be used are return on equity (ROE), which in simple terms means the annual percentage return of capital invested in the company.
      
      
   2. It should also have a strong historical track record in terms of growth and profitability. It is more likely that good companies will remain good and bad companies will remain bad than for either to change direction. Betting on corporate ugly ducklings or fallen angels can sometimes pay off very well but it is usually a loser's game.
      
      
   3. Try to satisfy yourself on the quality of top management: research the web (www.bloomberg.com and www.reuters.com are good sites), follow newspaper coverage of the company and its management team and the strategy they articulate.
      
      
6. Market capitalisation/liquidity
   The bigger the market cap of the company, the easier it is to trade (buy or sell) the company's shares.
   
   
7. Earnings momentum
   A company with superior growth itself - with above average earnings per share growth (EPS) and cashflow. Ideally, you would like to see stocks with an identifiable pattern of upgrades of analysts' financial forecasts.
   
   
8. Technical
   Without going into fine detail, look for stocks that are exhibiting a well-behaved pattern of price action. This means the share price has ideally shown positive momentum or out-performance but without a strongly overbought position having developed.
   
   Trading patterns can be studied using the www.bloomberg.com site.

Professional investors recommend a diversified portfolio to reduce the risk of being over exposed to one sector that may do very badly. Technology stocks last year are a perfect example. Aiming for one "wonder" stock is a high-risk strategy.

Local stockbrokers are concerned that many private investors have unrealistic expectations of their shareholdings. Professional investors advise that owning a blue-chip portfolio should average an annual return of between 10% and 15% over the medium term (3-5years). If you want a higher return than that, you are looking at riskier stocks, which can sometimes have dramatic price savings.

Price movements of 60 and 70 % are no longer unusual over short periods of time - this means days and weeks rather than months.

Is the difference between what investment units are bought and sold for. There is usually a 2%-5% differential i.e. it costs you that much more when you buy into a policy. Effectively this is an entry charge.

This is essentially the bid/offer spread under a different name. It describes the per cent of your original amount that gets invested up front. Higher investment amounts get a higher allocation and can sometimes be over 100%. The amount of commission paid to the broker will have an impact on this allocation.

An annual management charge is usually between 0.75%-1.5% per annum for managing your investment. If the bid offer spread is lower or non-existent, the management charge will be higher.