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Irish savings on the rise, but are we saving wisely?

Savers here are notoriously shy when it comes to investing in the market

Warren Buffet has famously extolled the virtues of saving in the right places.
Warren Buffet has famously extolled the virtues of saving in the right places.
Proinsias O'Mahony's picture
Proinsias O'Mahony
Sun Dec 15 2024 - 05:00

Irish people are increasing their savings rate, according to Central Statistics Office (CSO) data, but are we saving it wisely?

Some €1.1 billion was added to pension funds between July and September – a good use of money. However, more money – €1.3 billion – made its way into bank deposit accounts, most of which pay hopelessly low rates of interest.

Meanwhile, €4.7 billion was invested in houses or home improvements. Buying a house or paying off mortgage debt is all very well, but home improvements rarely pay off.

Every year, US housing firm Zonda looks at the average costs for 23 remodelling projects, and the cost recouped in terms of resale value. In 2024, all but three failed to recoup their costs. In 2023, four projects paid for themselves. In every year between 2018 and 2022, none did. Usually, most projects fall within 50-70 per cent in terms of cost recovery.

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Of course, home improvements may make people happier, but it’s worth considering the opportunity cost of not investing in stocks.

[  Is Warren Buffett losing his faith in stocks? ]

Warren Buffett grasped the importance of compound interest when he was a child, realising that $1,000 earning 10 per cent annually would be worth over $1,600 after five years; almost $2,600 after 10 years; over $10,800 after 25 years; and more than $117,000 after 50 years.

As for houses, he jokingly referred to his Omaha home as Buffett’s Folly when he bought it for $31,500, because he saw that figure as equivalent to a million dollars when compounded over time.

The question is not just how much we save, as the CSO data highlights, but whether we’re planting seeds in fertile ground or letting them wither in low-yielding choices.

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