Look carefully before you leap into cash investments, even with interest rates on the rise
In recent weeks, many investment markets around the world have experienced volatility, notably the United States and the United Kingdom.
The main reason behind such widespread volatility is the belief, seemingly now held by many investors, that interest rates will begin to rise rather more quickly than they had previously anticipated and that the era of ultra-low interest rates may be coming to an end.
Of course, an end to ultra-low interest rates does not necessarily pave the way for sky-rocketing interest rates – many readers may remember UK interest rates as high as 17 per cent under Margaret Thatcher’s government, in stark contrast with today’s 0.5 per cent base rate.
Although it is not a new subject in this column, the prospect of rising interest rates is worth re-consideration by investors holding significant cash deposits. Although it is increasingly likely that rates will rise earlier than many investors anticipated a year or so ago, especially in the USA under a new Federal Reserve chairman, the pace of such rises will be of crucial importance to investors considering their investment options.
Recovery from the financial meltdown in 2007 has been slow and painful, with many investors left heavily indebted. However, in recent months US equity markets have made good progress under a Donald Trump administration that has cut taxes and promised increased infrastructure spending – encouraging economic growth at home and promising a potential knock-on effect abroad for the UK and European economies.
So this seems like a good time to review your income requirements and re-assess how to secure an income stream from your investments whilst keeping risk at a level you find acceptable.
The four asset classes – shares, property, bonds and cash – each have distinct investment characteristics. Shares, for example, have disadvantages but, on the plus side, in the current market they generally offer higher dividend yields than many instant-access cash deposits. Property and shares have been the best-performing assets over a long-term period of ten years or more, followed by bonds.
Cash has performed worst in comparison, and this tended to be the case even when interest rates were much higher than they are now – investors would do well to reappraise the structure of their portfolio regularly to ensure an optimum asset performance.
John Atkinson. Wealth Management department.Business, General, George Ide, Investment, News