This Bank of England has recently reduced its base rate to 0.5% and we seem set for a sustained period of low interest rates. With inflation running at approximately 4%, the risk is for those people holding funds on deposit with banks and building societies that you will be receiving a negative real rate of return, particularly after tax is deducted from your deposit accounts.
So, what options are opened to cautious investors which enable you to potentially earn sufficient returns to beat inflation?
Obviously, your attitude to investment risk is fundamental in determining which alternative investments are most suited to your needs, and any other investments are likely to possess a greater degree of investment risk than deposit accounts. But, for those people who are willing to accept a slightly higher degree of investment risk, then we feel that good real rates of return could be obtained by investing into any of the following:-
- Absolute Return Funds
These funds might deliver positive returns despite falling markets, and they do this by using a variety of different techniques. They enable you to invest your money and will guarantee at least your original investment back at the maturity date. The investment will generally be linked to the stock market, and the future rate of return will be dependent upon the stock market rising in value over the time period involved. But, with a 100% capital guarantee return, irrespective of stock market conditions, this is a type of investment ideal for nervous investors who wish to potentially earn growth within the next five years or so. - Corporate Bonds
These are effectively loans issued by companies and funded by investors. In exchange for your capital, companies make a pre agreed payment of interest back to you at regular intervals, making them particularly attractive if you are looking to supplement existing income. In general, the more financially secure a company the lower interest rate it will need to offer to attract investors. A less secure company may, however, need to offer higher interest to compensate for the greater degree of risk it possesses on defaulting on payments. - Government Gilts
These work in a very similar way to Corporate Bonds, but they are loans issues by the Government, and are arguably the most financially secure investment you can acquire.
We can help you make decisions most suited to your preferences and circumstances, and if you would like to discuss the issue of setting up a portfolio of investments at the current time, please contact us.