At a time when UK savers are paying the highest price for the current slump with the BOE (Bank of England) base rate sitting at a record 1% (having dropped a whopping 3.5% in just 4 months), what are the alternatives for savers seeking a safe refuge and a reasonable return in the current crisis?
Today let’s look at some potential homes for your cash and review how they’ve been performing recently…
Index Linked Gilts
Gilts are UK Government Bonds. They are issued when the government needs to borrow money. Index linked gilts allow investors to hedge against inflation, which if the government puts its’ plans to print money into action, could become a very real prospect. In this sector I particularly like City Financial Strategic Gilt fund. The fund is up over 9%* this year and has a yield of around 3.4%*. I also think M & G Index linked Bond fund is worth looking at as well. Up 5.08% over 3 months it has returned around 30% over the past 5 years*.
Gold
Gold has long been a bastion of financial defence in times of economic hardship because it tends to hold its’ value. When people start to lose faith in currency then they also naturally turn to gold as a store of wealth. Many experts feel that holding 10% of your portfolio in gold is always good investment strategy.
You can invest in gold in a number of ways; either by buying physical gold e.g. coins or bullion bars or through gold exchange traded funds. You could also begin investing in gold by buying shares in mining companies. As the price of gold goes up then these companies tend to profit, although I do caution that these funds can be a lot more volatile than buying the precious metal itself. Black Rock Gold & General is up 48.1 % over 3 months* but you will also notice that it is still down over 1 year -18.25*, exemplifying its’ volatility.
Social Lending
One big success story over the last few years has been Zopa.com. It is a site that brings borrowers and savers together and prides itself on its’ stringent credit checks and low default rates (0.2 %). Although it is not an authorised bank and therefore not covered by the Financial Services Compensation Scheme anyone lending more than £500 has their money spread across at least 50 borrowers, greatly reducing the risk.
Lenders have received an average return of 9.1% after charges. Who knows, as more and more solid companies like Zopa are founded upon the principle of “by the people, for the people” come into being, maybe the fat cat bankers gravy train may become derailed by common consensus.
Life Settlements
I’m pleased to say that since writing an article on Life Settlement Funds a few weeks ago press coverage has really picked up. The Sunday Times included an article on Feb 1st. The EEA Life Settlement Fund concentrates on buying policies off people with an average life expectancy of 36 months.
This is still a largely untapped market with somewhere in the region of $1 trillion in face value of policies being lapsed or surrendered each year. EEA reckon approximately $200 billion of these policies would be suitable for purchase. Well in excess of the $8 billion that were actually traded. The EEA Life Settlement Fund returned 11.23% in 2008.
US Equities
This is probably a much more contentious issue but many commentators are predicting a strong bounce back this year. More than a quarter of fund managers thought that the US would be strongest performing region in 2009. The Neptune US opportunities fund is a fund I like and has returned 7.7% over 3 months* and over 5 years it has returned 54.2%*. A return to the markets may not be everyone’s cup of tea but as part of a longer term strategy equities are probably offering good value at this time.
I hope this has been a useful round up of places where you can usefully invest and increase returns in 2009, and I wish you the best of luck should you choose any of them to strengthen your portfolio with this year.
See you next time. In the meantime until then, here are also a few websites worth checking out www.atsbullion.com, www.goldline.co.uk.
* Performance figures taken from www.trustnet.com
