Move away from cash and savers could discover some green shoots

Spring is most definitely in the air. Even the odd dawn frost which threatens the daffodils, can't hide the fact that the mornings are getting lighter, the evenings longer and many of us have a renewed '˜spring' in our step.
Carolyn Black,  Associate Director, Myddleton Croft Investment ManagersCarolyn Black,  Associate Director, Myddleton Croft Investment Managers
Carolyn Black, Associate Director, Myddleton Croft Investment Managers

The stock market, however, appears to be offering little in the way of respite from the dark gloomy days of January. The volatility that we experienced at the turn of the year continues to play out and now the burning ‘to
Brexit or not to Brexit’ question has been thrown into the mix.

One factor which has remained a constant worry for some is the dwindling amount of income that their savings accounts generate as low interest rates look set to prevail.

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Whilst low rates, coupled with lower energy prices, will undoubtedly benefit the spenders amongst us, those who are savers look set for more misery as interest does little to supplement other sources of income. As we approach the end of the tax year, where should savers be turning in order to replace some of their lost income, whilst making use of their ISA allowances?

Investment theory would suggest considering the quality end of the bond market as a cash alternative. It is no surprise, therefore, that bond prices have rallied strongly as savers have taken a step up the risk ladder and sought returns from fixed interest investments issued by governments and corporates.

Sadly, this has served only to depress yields, and ultimately reduce capital and income payouts, leaving income seekers… still seeking!

Higher up the risk scale, and certainly not for those risk-averse savers, the UK stock market could offer a longer term income opportunity.

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Presently, the FTSE 100 yields around 3 per cent, with some household names providing income in excess of 5 per cent, which makes them appear attractive when compared to the returns on offer at the bank. Winter’s falling stock market, coupled with a little near-term stability, highlights some interesting investment valuations for income seekers in search of blossoming yields.

A lower risk alternative to direct equities would be a UK equity income trust which provides investors with greater diversification whilst providing a stable yield. Trusts which focus on alternative asset classes such as utilities, property and infrastructure have also proved popular in this low interest rate environment with yields of between five per cent and six per cent.

So, whilst the interest rate outlook is set to remain bleak for longer, for those prepared to move away from cash and take the leap towards some alternative income opportunities, there are signs of green shoots.

• The value of investments and income from them may go down as well as up and investors may not get back the amounts originally invested. Investors should refer to their financial adviser to ensure that our service is suitable for their investment needs.