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The Search for Yield

Following the financial crisis of 2008-2009, many central banks – including the Bank of England – have used a number of methods in an attempt to stimulate economic growth and ensure financial stability.  These have led to historically low interest rates on cash assets, which has caused a mass ‘search for yield’ amongst investors.

One of the biggest quandaries facing investors today is how to maximise income without taking undue risk.  Many investors, particularly those in retirement, need to use personal savings to deliver an income to supplement their pensions.  But with historically poor interest rates available on cash balances, where can they turn?

The problem isn’t confined to those in retirement – any medium to long-term cash investment holds an ‘inflationary risk’.  This is present when the rate of inflation exceeds the rate of interest available on cash balances, as has been the case in recent years. This leads to the erosion of the ‘real value’, or spending power, of the capital.

Additionally, those with existing fixed term deposits nearing maturity hold a ‘reinvestment risk’: reasonable interest rates may have been achieved till now, but as these rates are no longer readily available from mainstream, high credit rated institutions, what can be done with the capital upon maturity?  The option of investing in foreign currency or higher-yielding, low credit rated institutions in search of preferable interest rates is available, but presents a whole new host of significant risks.

It must be asserted that, currency denomination, country of domicile and credit-worthiness of institution taken into account, cash investments do remain the safest form of investment available.  However, they are unlikely to provide an investor with the level of income that they may desire or require.  Thankfully, there are a number of investment solutions available that hold the potential to bring about a significantly higher level of income and/or growth than cash balances could.

From corporate bonds to stocks & shares ISAs, there are a vast number of investments that could serve to provide an investor with a higher yield than they may currently be receiving from their cash investments.  These investments hold varying levels of risk, which will be at the core of any recommendation made by Greaves West & Ayre Wealth Management. We are well positioned to provide you with information and advice on a wide range of investment solutions.  If you are dissatisfied with the level of yield you are receiving from your existing investments and would like to discuss this further, please contact us.