Why low-risk investments are in demand
PUBLISHED: 10:04 04 January 2019
Gold's appeal remains undimmed in 2019, says finance expert Peter Sharkey
Although every conceivable snippet of content (and more) is available on even the most rudimentary mobile device, there is real pleasure in receiving a new diary at this time of the year and reacquainting yourself with its ‘helpful information’ pages containing a collection of metric data, time zones and conversion tables.
It’s reassuring to confirm that six gallons is still the equivalent of 27.276 litres and that eight pounds in weight is the same as 3.629 kilograms. And how do scientists know precisely when we’ll have a full moon on October 13 (at 22:10), or that the time at which the sun will rise in Norwich on August will 3 be 05:16?
If only, from an investment perspective, the forthcoming year was so solidly, helpfully predictable.
Regrettably, there’s little likelihood of any radical improvement for savers next year. Interest rates appear likely to remain below 1pc, bad news for those on fixed incomes as inflation continues to erode the real value of cash.
Theoretically, the Bank of England could be instructed to start raising interest rates, but such action would be needed only if the economy suddenly showed signs of over-heating. Frankly, when it comes to heat, I’d rather put money on us enjoying another gloriously hot, rain-free summer.
As a consequence, an increasing number of savers will be tempted to seek alternatives to frustratingly low-yielding saving accounts and put a chunk of their money into products such as retail bonds, where higher projected returns are countered by greater risks.
Corporate bonds have long been enormously popular, although the sector is by no means a one-way ticket to guaranteed returns a dozen times greater than those available on the high street.
Furthermore, given the level of political uncertainty enveloping the nation, which few of us have ever experienced, volatility could become 2019’s investment watchword.
Forecasting is a risky business capable of undermining the folks who deliver their medium- and longer-term predictions.
For proof, ask the person providing tomorrow’s weather forecast, or Mark Carney, governor of the Bank of England; his economic team rarely get their quarterly predictions of GDP or economic growth right, yet last month they came up with a 15-year forecast so ridiculously alarmist it should have been delivered by the bogeyman.
Nonetheless, there’s plenty of evidence to suggest that shrewder investment managers are starting to rein in their horns and acknowledge that QE-fuelled growth is coming to an end. It’s a development that could become more evident during 2019.
In a note issued last month, James Penny, the senior investment manager at TAM Asset Management, suggested that investments in gold and UK and US government bonds were “exactly the type of unexciting strategies that could protect portfolios when stock market volatility is watching and waiting in the long grass.”
Mr Penny noted that since the first half of 2018, TAM has been “pulling in its more exotic overseas investments and taking profits in preparation for this sea change towards volatility.” He added that, “Protecting capital may become more important in the next 12-18 months,” an observation that had resulted in his firm “shoring up the defensive elements of portfolios [while] reducing risk exposure.”
I suspect that gold’s appeal will remain undimmed next year, although silver should not be overlooked by investors.
It’s not difficult to see why folks take comfort from owning precious metals. Even though they offer no immediate dividend return, their role as a store of value offers a reliable alternative to some of the ‘exotic investments’ to which Mr Penny refers.
By late Wednesday afternoon, the price of silver stood at £12.29 per troy ounce, significantly below the £1,018.00 it would cost to buy an ounce of gold. However, silver’s price is not wholly reliant upon jewellery demand. It’s used in computers, mobile phones, washing machines and microwaves because it doesn’t corrode and a falling price (an ounce of silver cost £12.95 in the summer) has done little to dampen industrial demand.
It’s little wonder that investors are burrowing money away in bonds, precious metals and solid, blue-chip shares. The longer-term returns on these investments are nowhere near predictable enough to make the ‘general information’ pages of a new diary, but provided investors recognise this, I suspect the slow march towards low-yielding predictability will gather pace during 2019. Happy New Year.
TAM Asset Management Ltd offer investors the opportunity to invest in a variety of mainstream and ethical portfolios based upon their attitude towards risk. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
According to Google, this year’s most searched-for online new year resolution phrase (looked up by 62.7 million people) is ‘Get healthy’. Over 33
million folks searched for ‘Get organised’, while the third most popular phrase searched was ‘live life to the full’. Almost 19 million people are intent on doing so in 2019.
An estimated 63pc of people fail to keep their new year resolutions. Given that around one third of folks don’t bother making them in the first place, it means that only 5pc of people actually stick with them. More than 4 in ten (43pc) have abandoned their resolution by the end of January.
Traditionally, around 12% of new gym memberships start in January. However, according to Sport England, by February fewer than one in ten people who have bought membership actually attend the gym regularly.
Check out Peter Sharkey’s regular column, The Week in Numbers, for more financial advice.