Thursday, 11 July 2013
Identify your investment goals. Gone are the days of 5pc to 10pc interests on cash accounts.
Gone are the days of 5pc to 10pc interest on cash accounts, so if people want this type of return they need to look elsewhere.
Since the Funding for Lending scheme came in, banks have not needed to attract money from savers. Today, just 14 accounts out of almost 900 pay rates that beat inflation.
With inflation seemingly settled between 2pc and 3pc for the time being, assuming 0.5pc interest on most savings, then £1,000 cash savings would be worth £905 after five years and £820 after 10. That’s quite a reduction in real spending power.
Long-term investors who are wary that markets have risen so much and are thinking about how to limit any losses should markets fall again, could in turn consider a bond or absolute return fund.
The latter has had some bad press lately, but there are a number of funds which have done what they set out to do consistently over a decent period of time: namely, produced positive returns in all markets.
In a normal inflationary environment, bonds would be the asset class to suffer most as interest rates would rise. However, the new governor of the Bank of England has said he won’t be targeting inflation, but growth instead, so while inflation may rise further, interest rates will probably remain low for some time.
Investors could consider investing in assets that should do better when inflation is higher, such as equities and real assets such as commodities and property.
Start by identifying what your goals are – both short and long-term. Then think about how much you are willing to lose in the short term and how comfortable you are with seeing your investment go up and down.