Managing Your Wealth

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Managing your wealth in the face of uncertainty

By Johnny McNamara, Director MCN Associates

Over the past 12 months I have had many people contact me wondering how they should manage their wealth given the uncertain future of the Euro.

Most of these people have been desperate to manage your wealth and have been looking at all kinds of solutions. Some talked about moving all of their money to other currencies, others talked about moving their money to foreign bank accounts and one lady even told me how she had buried a large portion of her money such was her fear.

Given this backdrop of panic, It is important to step back from the doom and gloom headlines and look at the effects of your decisions and how you can manage your money in this time of great uncertainty.

Firstly, it is important to note that I do not believe that the Euro will disband. Even if it were to break up, it would most likely take years to unwind intricate capital markets currently dealing in Euros. Any currency break-up would, in my opinion, require a lead time to allow industries and markets to adjust and avoid the global melt down that would follow a sudden collapse.

Managing your Wealth if the Euro was to disband

If the Euro was do disband what effect would that have on those of us living in Ireland?

If this were to happen, there would have to be a new unit of currency created in Ireland, presumably we would revert back to Punts. The value of the Euros you hold would then have to convert in to the new units at the specified exchange rate similar to what happened when the Euro was first introduced.

Likewise, the value of your debts and assets would also be converted/valued in the new units as would the units that you get paid your wages in. The net result is that your buying power should remain relatively unchanged.

You can argue that the cost of importing foreign goods and raw materials will increase given the likely devaluation of the Irish currency thus pushing the price of goods and services.

While this may be true to an extent if there were break up in the Euro, other countries would also revert back to new units of currency.

While the value of the new units may depreciate against other stronger currencies this may not be the case against other currencies. So while the Irish Units may be weak against say a new Deutschmark that would not necessarily be the case against other units of currency such as a Lire or Peseta. In fact some would argue that a new Irish currency would remain relatively strong compared to other countries new currencies given the debt levels in some of these countries.

“My friend has transferred all of their money to another currency…..”

Managing Your Wealth in a Foreign Currency

Let’s look at the idea of moving your money in to a foreign currency and how this may affect you.

By transferring money from Euros to another currency at this stage you will immediately be faced with exchange rate fluctuations that may instantly devalue the money that you are looking to protect.

We need only look to the devaluation of the Swiss Franc during the summer of 2011 which saw the value drop about 8% overnight to see how the value of your holdings could be impacted.

I would see the transferring of your wealth in to other currencies as engaging in currency speculation which is high risk by nature.  It is an immediate and real risk that you would be taking on which may prove far more costly in the long run.

The simple fact is that, at present, if you live in Ireland in order to buy goods and service you will need to use Euros. Therefore, before you can spend you must have Euros in your possession.

Where your money is not held in Euros, you will need to transfer your funds back to this currency. This not only incurs transaction costs but also leaves you open to the volatility in currency markets.

So what should I do with my money / savings?

The answer to this is that it will depend on your own needs and circumstances. The most important thing for you right now is that you need to make informed decisions and look at the possible risks and outcomes from your decisions. Too often I find that people are influenced by casual conversation with friends, acquaintances and even what they over-hear in bars and restaurants. This is very much like the concept of Chinese whispers where the truth is often exaggerated for effect. The right solution for you can only be explored and found by engaging with a Financial expert such as MCN Associates where a holistic approach can be taken assessing your needs, goals and objectives.

Only from this and informed logical decisions be made to suit you.

If you would like to discuss your needs why not ring us today on  353 1 230 9000 and we will be delighted to help you manage your way through volatile times.