To generate a return ahead of rising prices it is worth considering putting your money to work in the financial markets instead.
The good news is it has never been easier for investors to deploy their funds in a variety of different investment options and asset classes. In this article, we highlight five different areas you can invest in.
The asset class most familiar to most investors would probably be equities. Equities or 'shares' represent the part-ownership of a company and the entitlement to receive any dividends that a firm agrees to pay from its cash flow. Over the long-term equities have a good track record of generating returns for investors.
Investors also have an increasing variety of options to choose from, with it becoming almost as straightforward to buy and sell US equities as it is to trade domestic shares, which opens a whole new world of choice to investors.
To gain diversified exposure to stocks you could consider a fund. Steered by respected fund manager Terry Smith, Fundsmith Equity has good track record based on a strategy of focusing on quality companies. Low-cost passive exposure to stocks is available through exchange-traded funds (ETFs), including iShares FTSE 100 (ISF).
In the simplest terms, a bond is a financial instrument which operates as a guarantee by a borrower to repay money to an investor, typically with interest. It is seen as a lower risk option than shares. The payments from a bond, also known as the coupon, are largely guaranteed unless a company or government goes bust and, should a firm face insolvency, bondholders are ahead of equity holders in the queue to get their money back. An explicit schedule for these payments paid annually or semi-annually, offers a layer of security not provided by dividends paid by companies. Historically it was difficult for investors to gain exposure to the bond market, although ETFs have made this easier. Some products offer exposure to bonds which track inflation – the iShares Index Linked Gilts ETF (INXG) being a good example.
IShares index Linked Gilts ETF (INXG)
In uncertain markets investing in bricks and mortar can feel like a secure option. After all what asset could be more tangible than a house? For most investors investment is likely to be confined to property funds or listed property firms. This means you avoid risks such as a lack of diversification and liquidity that are associated with buying physical property. The listed-contingent with exposure to the property market includes construction firms, house builders, property developers and landlords of commercial property. Holding shares in a property developer may not have the same effect as owning a house, but these companies will generate higher profits when house prices rise, which in turn will deliver higher dividends and capital growth. Their structure makes investment trusts a more straightforward way to invest in property than traditional funds, Schroder Real Estate (SREI) is a popular example.
Schroder Real Estate (SREI)
An investor wishing to include an investment in commodities in their portfolio could turn to a commodities fund, ETF, exchange-traded commodity (ETC) or a listed company with exposure to commodities. Gold, which is often seen as safe during periods of market volatility, can be accessed through ETFS Physical Swiss Gold (SGBS) – backed by actual gold bullion held in a vault in Switzerland.
ETFS Physical Swiss Gold (SGBS)
This can include several different areas including water, renewable energy or wider investment themes like robotics. The main aim is to secure returns which are relatively uncorrelated to wider markets. One popular area is infrastructure, which offers a relatively secure and predictable stream of income over the long-term. Examples of infrastructure investment companies include HICL Infrastructure (HICL).
HICL Infrastructure (HICL)