Where in­vestors can find safety

The Jewish Chronicle - - Business -

THE bank­ing cri­sis has left in­vestors with much to mourn. Banks used to be havens of sta­bil­ity, of­fer­ing savers a safe home for their cash, and share­hold­ers a rel­a­tively se­cure in­vest­ment with a de­cent an­nual div­i­dend. But af­ter a tu­mul­tuous year, they’re no longer looking so at­trac­tive for ei­ther group.

So where should in­vestors go to find safety? Sav­ings ac­counts are still the ob­vi­ous choice, pro­vided you don’t put more than £50,000 (the gov­ern­ment’s com­pen­sa­tion limit in the event of prob­lems) with any sin­gle bank.

True, in­ter­est rates are low and fall­ing, but so is inflation, so the low rates on of­fer are not quite as dam­ag­ing as they might seem. And there are still some de­cent rates around. Ac­cord­ing to com­par­i­son web­site Money­facts, you can get a fixed rate of over 4.6 per cent if you’re pre­pared to lock your money away for a year.

Mov­ing slightly up the risk scale are bonds, which fall into two cat­e­gories. Gov­ern­ment bonds (gilts) are very safe as the gov­ern­ment is un­likely to go bust. How­ever, the mar­ket price of th­ese bonds has been ris­ing lately as wary in­vestors have looked for safe havens, so there’s a risk that the value might fall as ap­petite for risk re­turns. The eas­i­est way to buy gilts is via funds such as the iShares FTSE All Stocks Gilt.

The other cat­e­gory is cor­po­rate bonds. Al­though they fell in value last year as in­vestors fret­ted about bank­rupt­cies, many an­a­lysts be­lieve that re­cov­ery is on the way. Again, funds are the eas­i­est way in — the M&G Cor­po­rate Bond Fund and the In­vesco Per­pet­ual Cor­po­rate Bond Fund are both of­ten rec­om­mended.

If you’re looking for re­li­able div­i­dend-pay­ing shares to re­place the much ma­ligned banks in your port­fo­lio, there are plenty of op­tions. I ran a fil­ter of the FTSE 100 to find com­pa­nies that have a good record of growth, a de­cent div­i­dend and a rel­a­tively sta­ble share price. Amongst the names that came up were util­i­ties such as Na­tional Grid and Cen­trica, phar­ma­ceu­ti­cal com­pa­nies such as Glax­oSmithK­line and As­traZeneca and food and drinks groups such as Com­pass and Di­a­geo.

There are many other in­vest­ments that of­fer safety in trou­bled times, but be cau­tious. Gold, for ex­am­ple, is seen as a good store of value. But if the econ­omy starts to re­cover the gold price could suf­fer.

And struc­tured prod­ucts, which rise in value if the stock mar­ket rises but of­fer pro­tec­tion if the stock mar­ket falls, also at­tract safety seek­ers. On the face of it, they of­fer re­ward with rel­a­tively lit­tle risk. But read the small print – many of them per­form worse than cash when the stock mar­ket is fall­ing and per­form worse than shares when the stock mar­ket is ris­ing. Oliver Ralph is the ed­i­tor of In­vestors Chron­i­cle

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