With deposit rates so low how can savers improve returns without too much risk?
This is a question we are being constantly asked by our clients and this month we take a look at investments you could consider given interest rates are likely to remain low for the foreseeable future.
Unless you opt for State savings, trying to get a better return on your money will always mean taking on more risk.
For investors that have a low risk profile then they are in a difficult situation because deposits are offering very little return.
If this is you, we believe Absolute Return Strategies are worth considering:
1) Absolute Return Strategy
If you are prepared to take on some risk, but not enough to warrant a stock market investment, you could consider an absolute return fund.
These funds are designed to protect the capital value of assets and to consistently achieve positive returns regardless of market conditions, and typically promise a return of cash and a particular percentage return. While they typically deliver a lower return than equities, they also tend to fall less than equities during periods of market stress.
There are a number of Absolute Return Funds available and most Life companies offer this fund option under their savings & investment contracts. One of these funds is the BNY Global Real Return Fund available through New Ireland.
The green line in the graph below shows the performance of the fund from the 1st July 2011 to the 29th June 2016. The orange line shows the funds benchmark or target return. This fund aims to outperform cash (1-month EURIBOR) +4% p.a. over a rolling 5 year period (gross of tax and charges). As you will see the target return for the fund over that period of time is 22.8% but the actual performance of the fund was 30%.
The fund looks to provide investors with solid long term investment return, with less short term risk. Using a multi-asset approach, the fund has flexibility to move across and between asset classes when the manager believes it is necessary. It is important to understand that your investment may still fall as well as rise and that you may receive back less than you originally invested.
Markets have been volatile over the past few weeks and the first graph below shows how the fund has performed over the short term, from the 1st June 2016 to the 10th July.
The graph below compares how the BNY Fund performed against the MSCI World Index which is an equity fund over the past 12 months and highlights the downside protection that exists in an fund like this.
A lot of companies have launched Easy Access Investments whereby you money is not locked away for any period of time and funds like the BNY Fund are available on these contracts. Therefore you can invest without having to tie your money up, you have on demand access. There is an interesting piece in the Irish Independent also that is worth a read http://www.independent.ie/business/personal-finance/ever-wanted-to-jump-from-savings-to-stock-markets-34812836.html
Give one of our Financial Advisers a call to discuss this further.
It is important to remember that:
Warning: These funds may be effected by changes in currency exchange rates.
Warning: The value of your investment may go down as well as up.
Warning: Past performance is not a reliable guide to future performance.
Warning: If you invest in these funds you may lose some or all of the money you invest.