Are low interest rates making your life an uphill struggle?
Recent economic data suggests that we are unlikely to see interest rates rising substantially for some time to come.
In fact, the good weather and Royal Wedding in April may have been counter-productive: while some aspects of consumer spending may have been given a boost, it is likely that when the final figures are available (which may not be for a month or two yet, because they are often revised up or down), the all-important manufacturing output is likely to have suffered from a virtual two-week holiday.
Another economic problem is that inflation is likely to rise during the latter part of this year, partly due to higher energy costs. The Bank of England’s Monetary Policy Committee must inevitably be cautious about how quickly interest rates are increased to help bring rising prices under control, as premature action could further slow economic growth.
Should we be gloomy?
While inflation is bad for savers and those on fixed incomes, it is not necessarily so for investors. There are strategies that can help those investing lump sums or regular amounts to avoid the worst pitfalls of inflation. These can include investing in sectors that are likely to benefit from what is going on, such as energy companies, and those areas where growth may be expected, such as alternative energy businesses. Before considering such an approach, however, it is essential to discuss this with us, because some investments can carry higher risks that some individual investors may feel comfortable with.
In any event, a balanced approach is likely to be more beneficial than putting all your eggs in one basket.
Lower risk alternatives
One option is to consider investing in bonds. Some of these are government backed, others are issued by businesses. In essence, those issued by the UK and some other governments are likely to carry the lowest practical risk although, as we have seen from recent events, some governments that have failed to bring borrowing under control have recently seen their credit ratings reduced – and in some cases downgraded almost to the lowest level. This means that their bond could – in theory at least – become worthless.
However, bonds issued by National Savings and Investments can be considered relatively secure and with the recent new issue of RPI linked bonds, they could form a part of a balanced investment strategy.
Overall, it is likely that the economy will recover faster than the worst predictions forecast, but more slowly than optimists may hope. We are, after all, in this together. Why not ask us to review your investments now?
