As the year comes to a close, investors can look back on a highly successful year with returns from all major sectors – energy, commodities, equities and bonds all showing very healthy profits. Sadly, those that have kept their money under the mattress have had a less successful year with bank interest rates hitting rock bottom in March and never moving since. In this low interest rate environment that we find ourselves in, the end of the year is an opportune time to consider how best to invest for income and also to take a projected view on where interest rates are likely to head during next year.
Interest rates & Inflation
There are no immediate concerns with inflation but during the second half of 2010, we expect inflation to start to rise. At the same, we fully expect interest rates in the UK and the Eurozone to remain at their present level for at least the next six months. Thereafter, we may see some moderate increases but no more than 0.5 per cent by the end of the year.
The alternatives
If interest rates do remain at historic lows then those in retirement seeking to live off their savings and investments must look to alternatives to cash to produce any real rate of return. This can be achieved in a variety of ways and I would always advise to include a minimum of three or four different investments as opposed to relying on one single investment to produce the desired level of income or interest. There is a lot of truth in the fact that there is ‘no such thing as the ideal single investment’. That being said, below I have listed a few ideas of where a good level of income can be achieved without exposing your capital to much (or any) risk :
UK Corporate Bonds : 2008 was a very bad year for bonds with yields hitting dizzy heights as capital values fell in the region of 20 per cent. Most of that has now been reversed with many bonds settling back into a sensibly pricing range. Rather than opting for single corporate bonds, it is advisable to look to invest into a fund which may hold in the region of 200 different bonds. Our preferred bond funds have been providing a monthly income equivalent to 6-7 per cent during this year with yields expected to remain at a similar level during next year.
Capital Protected Income Notes : These have been our favourite this year as investors have enjoyed fixed income in the region of 8-9 per cent in both euro and sterling. These offer a fixed and guaranteed income paid quarterly and normally for three years. At the end of the term, the notes mature with the original capital returned to investors. The full return of capital can be linked to almost anything. We have used these notes in the commodity sector mainly – including gold and oil.
Autocall Notes : These provide a set rate of income in the event that a particular event is triggered within a set timeframe. An example is with a product we launched in August which was linked to the price of gold, oil and wheat. If all three commodities were higher in value at the end of three months then the product matured and investors received a fixed income payment of 3.5 per cent for the three month period. Very pleasingly this did happen and investors received their capital back plus the 3.5 per cent.
As you can see, there are good alternatives and by creating a portfolio of income producing investments, you can sensibly achieve returns in the region of 6-9 per cent per annum. We shall be launching a series of new income and autocall notes in January so be sure to contact us for further information.
Finally, I would like to thank all those readers that have expressed an interest in my articles during 2008 and to those who have accepted our advice and that have become clients. May I wish you all a very Merry Christmas and prosperous New Year.
Mark Hollingsworth, Director, Hollingsworth International Financial Services Ltd
Tel: +357 99066840, +356 21316298
e-mail: info@hollingsworth-int.com
Website: www.hollingsworth.eu.com
Authorised by the Malta Financial Services Authority to provide investment services, license IS/32457
Interest rates & Inflation
There are no immediate concerns with inflation but during the second half of 2010, we expect inflation to start to rise. At the same, we fully expect interest rates in the UK and the Eurozone to remain at their present level for at least the next six months. Thereafter, we may see some moderate increases but no more than 0.5 per cent by the end of the year.
The alternatives
If interest rates do remain at historic lows then those in retirement seeking to live off their savings and investments must look to alternatives to cash to produce any real rate of return. This can be achieved in a variety of ways and I would always advise to include a minimum of three or four different investments as opposed to relying on one single investment to produce the desired level of income or interest. There is a lot of truth in the fact that there is ‘no such thing as the ideal single investment’. That being said, below I have listed a few ideas of where a good level of income can be achieved without exposing your capital to much (or any) risk :
UK Corporate Bonds : 2008 was a very bad year for bonds with yields hitting dizzy heights as capital values fell in the region of 20 per cent. Most of that has now been reversed with many bonds settling back into a sensibly pricing range. Rather than opting for single corporate bonds, it is advisable to look to invest into a fund which may hold in the region of 200 different bonds. Our preferred bond funds have been providing a monthly income equivalent to 6-7 per cent during this year with yields expected to remain at a similar level during next year.
Capital Protected Income Notes : These have been our favourite this year as investors have enjoyed fixed income in the region of 8-9 per cent in both euro and sterling. These offer a fixed and guaranteed income paid quarterly and normally for three years. At the end of the term, the notes mature with the original capital returned to investors. The full return of capital can be linked to almost anything. We have used these notes in the commodity sector mainly – including gold and oil.
Autocall Notes : These provide a set rate of income in the event that a particular event is triggered within a set timeframe. An example is with a product we launched in August which was linked to the price of gold, oil and wheat. If all three commodities were higher in value at the end of three months then the product matured and investors received a fixed income payment of 3.5 per cent for the three month period. Very pleasingly this did happen and investors received their capital back plus the 3.5 per cent.
As you can see, there are good alternatives and by creating a portfolio of income producing investments, you can sensibly achieve returns in the region of 6-9 per cent per annum. We shall be launching a series of new income and autocall notes in January so be sure to contact us for further information.
Finally, I would like to thank all those readers that have expressed an interest in my articles during 2008 and to those who have accepted our advice and that have become clients. May I wish you all a very Merry Christmas and prosperous New Year.
Mark Hollingsworth, Director, Hollingsworth International Financial Services Ltd
Tel: +357 99066840, +356 21316298
e-mail: info@hollingsworth-int.com
Website: www.hollingsworth.eu.com
Authorised by the Malta Financial Services Authority to provide investment services, license IS/32457
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