INVESTMENTS & PENSIONS
Not that long ago , investors would have bitten your hand off for the deposit rates available at the start of 2024 . When the yield on cash and even government bonds is close to zero , 5 % feels like a fortune . But the playing field has now changed .
More than 15 years of ultra-low interest rates has understandably set expectations . Investors can get that 5 % yield virtually risk free . For those of us accustomed to receiving next to nothing for cash and ultra-defensive holdings , it looks appealing . However , rates are higher because inflation is now higher . Real cash yields - deposit rates minus the rate of inflation - are still low , so 5 % may not be as tempting as it first appears .
This is the first time since the financial crisis that investors have had to think about the difference between real and nominal rates of return . Dormant inflation in the decade before the pandemic meant that the two were similar enough to be largely ignored . However , the difference between the two is now vital .
REAL CASH YIELDS REMAIN LOW
Some investors might argue that real yields on cash will be higher if inflation continues to fall . But if it does , policy rates will likely fall too . Deglobalisation , demographics and decarbonisation are also expected to put upwards pressure on inflation in the years ahead . For savers in developed economies , where life expectancy has grown dramatically and income may need to be sustained during a retirement lasting decades , capital growth is vital . Without it , inflation will eat away at real values over extended periods .
MULTI ASSET INCOME STRATEGIES CAN BE A REAL RETURN OPTION
Anyone investing over a time horizon longer than a few years needs to find assets that will deliver a positive real return , not just a positive nominal return . Multi asset income strategies tend to offer higher yields than cash and have significant structural advantages - the potential for capital growth and the benefits of flexibility and diversification .
A mix of core income yielding assets , typically high-quality bonds , are the relatively stable bedrock of our Multi Asset Income portfolios , but they still provide the potential for gains in asset value and they will tend to be complimented by assets that provide both an income and the potential for more price appreciation . For example , our portfolios have exposure to hybrid bonds and US high yield bonds . We also utilise dividend paying equities in sectors where earnings growth will boost share prices over time , such as global healthcare or developed market energy .
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