As the demand for income continues unabated, David Hambidge, director, Premier Multi-Asset Funds, urges investors to look beyond the traditional income-producing assets.
Record low interest rates, stubbornly high inflation, rock-bottom returns from banks and building societies, and changing demographics have sparked an increasing demand for alternative sources of income. Income-hungry investors are realising that, to achieve a decent income stream, they now need to look beyond traditional income-producing assets.
The harsh reality is that, if your client’s money is tucked away in a typical bank or building society account, it is highly likely the value of that money is shrinking in real terms.
Back in March 2009, interest rates hit a record low of 0.5% and have not moved since. The general consensus is that we are unlikely to see a significant change to this position anytime soon.
Multi-asset: finding income in unusual places
So, while homeowners have tended to benefit from the fall in their regular mortgage payments, savers have been hit particularly hard, with banks and building societies cutting rates in line with the Bank of England’s base rate.
To compound the problem, inflation levels continue to hover above the Bank of England’s target of 2%. With the cost of goods and services rising, and wage growth stagnating, the pound in your pocket is buying less. If income is the main priority, your client may need to question whether the standard cash option is really a ‘low-risk’ investment choice in the traditional sense if the value of their investment in real terms is shrinking.
Looking beyond cash, fixed income assets, such as bonds and gilts, have traditionally been the next point of call for investors. The problem here lies in the ‘fixed’ part. With gilt yields currently at record lows, would your clients be willing to accept a pay freeze for the next 15 years? This is exactly what anyone retiring today with an average life expectancy and investing in traditional gilts, for example, is doing.
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