Best place to invest 10k in Ireland! Tips from financial experts

Having €10,000 saved up is a great starting point, but leaving it in a bank account with minimal returns can be a missed opportunity.

The question then arises: where is the best place to invest €10,000 in Ireland? What investment options are available to retail investors, and what risks should you be aware of with each choice?

In this article, I’ll explore investment options for your €10,000, ranging from low-risk to high-risk opportunities.

1. Risk-free to low-risk investments

Despite your bank not paying you high interest on your cash, did you know you can get a rate of return of up to 4.20% in euros? You can check our list of brokers paying interest on cash, but here we will focus on two:

Trade Republic – Risk-free option

It pays 3.50% on uninvested cash up to €50,000. So, since you have €10,000, this will not be an issue. Your money is placed in a deposit account with a financial institution. The deposit guarantee scheme of German banks protects it up to €100,000 per depositor.

The interest rate depends on the European Central Bank’s (ECB) policy moves. For example, on September 12th, 2024, the ECB cut interest rates by 0.25% (from 3.75% to 3.50%). As such, Trade Republic immediately announced that it would follow suit and reduce its rate to 3.50%.

Please note that Trade Republic is starting to invest clients’ money in money market funds (MMFs), which are financial instruments that invest in short-term debt securities. This approach is still low-risk, but it encompasses a higher risk than deposits in financial institutions.

For more information, please check our article on Trade Republic interest.

Trading 212 – Low-risk option

It pays 4.20% on uninvested cash on any amount, whether you have €1 or €1,000,000.

Trading 212 uses a combination of “qualifying money market funds (QMMFs), time deposits, and current accounts” to provide the rates stated on their platform. QMMFs are funds that invest in low-risk, short-term debt securities, such as government bonds, and aim to maintain stable share prices.

Your funds and assets (like the QMMFs) are covered by the €20,000 (EU clients) or the £85,000 (UK clients) protection under the Cyprus Investor Compensation Scheme (ICS) and the Financial Services Compensation Scheme (FSCS), respectively.

For more information, please check our article on Trading 212 interest.

2. Low to intermediate-risk investment

Going up the level of risk, you can go for bond ETFs.

Bonds are loans made by the government or corporations to get financing. In exchange, the investors receive interest for the borrowed money. The loans are made for a set number of years, and, if all goes well, then you’ll get your capital back at the end of the period, plus the interest earned along the way.

Bond ETFs simply package several bonds into a single product. So, instead of buying one government bond, you can buy a Government Bond ETF that includes dozens or hundreds of different government bonds (Germany, France, Italy, etc.).

There are three characteristics you should consider in any bond ETF:

1. Credit rating: it answers the question, “How likely is it not to get my money back?”. The higher the rating, the less likely the bond’s issuer is to default on the loan and damage your returns. Government bond ETFs usually have a higher rating than corporate ETFs.
2. Yield to maturity (YTD): This is the average yield (expected return) of all the bonds in an ETF’s portfolio, assuming they were held until maturity.
3. Duration: The duration gives you the sensitivity of bond ETFs to changes in interest rates. An average duration of 5 means that for every 1 p.p. rise in interest rates, the bond will lose approximately 5% in value. If rates fall by 1 p.p., then the ETF would gain 5%.
4. Annual cost (TER): The cost of running the fund. If it is 0.10%, it means that €10,000 invested would have an annual cost of only €10.

Please find two examples of bond ETFs:

iShares Core Euro Government Bond UCITS ETF (government bond ETF):

The ETF seeks to track the performance of an index composed of Eurozone investment-grade government bonds. Data as of July 2024 (factsheet):

• Credit rating: AA
• Yield to maturity: 3.20%
• Duration: 7.25 years
• TER: 0.07%

One of the top 10 holdings includes Ireland:

iShares Core EUR Corporate Bond UCITS ETF (Corporate bond ETF):

The ETF seeks to track the performance of an index composed of Euro-denominated investment-grade corporate bonds. Data as of July 2024 (factsheet):

• Credit rating: BBB
• Yield to maturity: 3.81%
• Duration: 4.49 years
• TER: 0.20%

3. Intermediate to high-risk investments

Invest in an ETF tracking the S&P 500

The S&P 500 is a US index comprising the 500 biggest US-listed companies. You can easily invest in this index through Exchange-Traded Funds (ETFs). For a very low fee (no more than 0.10% a year), these instruments allow you to have access to a diversified basket of stocks.

Our article “How to invest in the S&P 500 from Ireland” provides all the details you need to invest in the S&P 500 index.

Invest in one of Vanguard’s LifeStrategy Funds

Vanguard offers a range of funds called Vanguard LifeStrategy which are a mix of stocks, bonds, and cash, and are rebalanced automatically over time. This way, you can pick a fund that aligns with your goals and risk tolerance. For a small management fee, you have a diversified portfolio of assets.

These are the Vanguard LifeStrategy available to European investors:

• Vanguard LifeStrategy 20% Equity UCITS ETF;
• Vanguard LifeStrategy 40% Equity UCITS ETF;
• Vanguard LifeStrategy 60% Equity UCITS ETF;
• Vanguard LifeStrategy 80% Equity UCITS ETF.

As the name implies, each offers exposure to stocks from 20% to 80%. The other exposure concerns government and corporate bonds in developed and emerging markets.

To invest in any S&P 500 ETF tracker or one of the Vanguard lifeStrategy funds, you must open an account in a brokerage firm. You’ll need to consider fees, minimum deposits, security, and availability of the assets that you want to trade.

A full comparison of several brokers is available here.

Common mistakes in investing

Investing is not only about choosing the right assets but also about avoiding pitfalls that can derail your financial goals. Here are some common mistakes to watch out for:

Emotional trading

Emotional trading involves making investment decisions based on emotions rather than logical analysis. This can lead to poor investment choices and significant losses. Here’s how to avoid it:

• Understand market cycles: Markets experience ups and downs. Emotional traders often panic during market downturns and sell off their investments, missing out on the recovery.
• Stick to your plan: Develop a well-thought-out investment plan and stick to it, even when emotions run high. This includes predefined buy and sell strategies not influenced by short-term market fluctuations.
• Patience: Investing is a long-term game. Resist the urge to make impulsive decisions based on short-term market movements.
• Avoid the herd mentality: This is tough since humans tend to follow other people’s behaviour. So, remember: just because everyone is buying or selling doesn’t mean you should. Make decisions based on your research and investment strategy.

Chasing returns

Chasing returns involves investing in assets that have recently performed well without considering their future potential or underlying risks. This often leads to buying high and selling low. Here’s how to avoid this trap:

• Diversification: Instead of investing all your money in the latest high-flying stock or sector, diversify your portfolio across various asset classes or instruments that invest in the broader market, like an S&P 500 ETF or a Vanguard LifeStrategy fund.
• Long-term perspective: Adopt a long-term perspective and avoid the temptation to follow the trends of short-term winners. Past performance does not guarantee future results.
• Be sceptical of hype: Be wary of investments heavily hyped by the media or online communities. A current example may be the AI story.

Bottom line

The number of investment options does not end here. You could add other non-traditional investments, like buying a luxurious watch or going for P2P Lending. However, from our experience, they are not worth the shot (they are not transparent and are illiquid investments).

For most retail investors, people like you and me, building a diversified portfolio of securities (cash + bonds + equities) could be the smartest option instead of trying to beat the market with specific stock picks.

For further reading, we recommend you explore our list of book recommendations and courses, and feel free to contact us if you have any questions or feedback – we’re happy to help!