19 August 2011

Do you need a new investment strategy?

Conventional wisdom says invest in equities (shares-based investments) for the capital growth you need for pensions, etc., etc.. Historically there is no doubt that this is a good strategy, and it is not difficult to show that equities out-strip other types of investment over the longer term.

BUT...
In the words of Dominic Rossi - Global CIO for Fidelity - Equities have been offering "jam tomorrow" for some time now. And after three recent bear markets (2000, 2008, and the present drop - if we are in another one) along with massive ongoing volatility, it is only sensible for investors to ask if they are doing the right thing.

It's foolish to dive in with a knee-jerk reaction (although there are plenty of fools around), but I am inclining to think that with unreliable capital growth, a greater emphasis on investing for income is a safer strategy. That doesn't mean you need to actually receive a regular income from your investments, since that income can be re-invested. But it does mean that there is some ongoing reason for the value to grow.

Investing for income could mean "equity income" funds, which derive their income from dividends, or it could mean "fixed interest" investments such as corporate bonds which pay a regular income. With falling values, the yields (income) on offer can look attractive. And anything that appears attractive in today's bleak investment landscape is worth a look!

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