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In November 08 the Bank cut interest rates by 1.5% to 3% and by a further 1% to 2% in December, and now in January 09 there has been a further 0.5% cut to 1.5%. Interest rates had started 2008 at 5.5%. Now they are at their lowest level since the bank was founded in 1694.
The dramatic rate cuts have now been passed on to savers with some accounts paying just 1% before tax. Many of you rely heavily on your savings interest to boost your income. After taking into account income tax levied on non-ISA accounts and inflation which, although falling, was 4.1% at the last quarterly report, many savers will be getting a negative real return on their savings. This means the real purchasing value of their capital is actually reducing over time.
OK, so the values of all sorts of investments have fallen significantly in 2008 and in many cases they are now offering very attractive income for those investors re-entering or increasing their investments in the market. In the past, on very rare occasions when shares have offered a better income than Gilts, the performance of shares has improved significantly in the years following. That is the situation now, the income yeild on the FTSE All-share exceeds that available from Government Gilts!
Perhaps more importantly it also signals that the risk from investing in shares is once again at a more attractive level, as the income available is appealing with the upside of potentially significant capital growth over the next couple of years.
If you are prepared to accept the risks associated with investing money, it may be a good time to think again about investments or to top up your existing holdings and average down the cost of your purchases. As ever the outlook is uncertain and before making any decisions I would encourage you to talk to your adviser at investing ethically or to make contact with us if you are not clients at this time.
Cash is King? No
2008 was undoubtedly a good year to hold cash. Rates peaked in the summer with many overseas banks (notably Icelandic banks!) offering rates of 7%+. With all else crashing around our ears cash provided something of a safe haven and a reasonable return for savers.In November 08 the Bank cut interest rates by 1.5% to 3% and by a further 1% to 2% in December, and now in January 09 there has been a further 0.5% cut to 1.5%. Interest rates had started 2008 at 5.5%. Now they are at their lowest level since the bank was founded in 1694.
The dramatic rate cuts have now been passed on to savers with some accounts paying just 1% before tax. Many of you rely heavily on your savings interest to boost your income. After taking into account income tax levied on non-ISA accounts and inflation which, although falling, was 4.1% at the last quarterly report, many savers will be getting a negative real return on their savings. This means the real purchasing value of their capital is actually reducing over time.
OK, so the values of all sorts of investments have fallen significantly in 2008 and in many cases they are now offering very attractive income for those investors re-entering or increasing their investments in the market. In the past, on very rare occasions when shares have offered a better income than Gilts, the performance of shares has improved significantly in the years following. That is the situation now, the income yeild on the FTSE All-share exceeds that available from Government Gilts!
Perhaps more importantly it also signals that the risk from investing in shares is once again at a more attractive level, as the income available is appealing with the upside of potentially significant capital growth over the next couple of years.
If you are prepared to accept the risks associated with investing money, it may be a good time to think again about investments or to top up your existing holdings and average down the cost of your purchases. As ever the outlook is uncertain and before making any decisions I would encourage you to talk to your adviser at investing ethically or to make contact with us if you are not clients at this time.
