Research Reveals 6 Reasons Why Investors Are Choosing Alternative Investments And Property
Today, investors are struggling with many difficult influences far beyond their control:
- stockmarket volatility
- low returns on cash
- rising inflation
- slow economic growth
- poor value pension products
- stagnant property market
These are the primary reasons investors are considering alternative investments and property for higher returns and a more secure store of wealth. Each of them is examined below.
1. Stockmarket Volatility
Despite the recent rise in the stockmarket's value at the start of 2013, many investors have been disappointed by years of poor returns. After 15 years, the FTSE 100 is pretty much back where it started. Volatility is a constant feature and there's no sign it's going to change in the near future. Investors are upset by the selfish culture of high charges and unjustified bonuses in the financial services sector.
2. Annuity Rates
The yearly annuity rates above are based on a fund value of £100,000, with monthly income paid in advance. The Bank of England has been purchasing gilts as a way of injecting money into the UK Economy. This policy is known as QE or quantitative easing. The Bank of England has purchased around £375 billion of gilts so far. This flood of money into gilts has pushed prices up, causing yields and annuity rates to fall. Annuity rates reached record lows in 2012.
Inflation has been above the Bank of England’s target of 2% for over 38 months now. Worryingly, the Bank has now conceded that it's likely to remain above target for at least a further two years. This will equate to more than five years above target. Tellingly for households, inflation is rising faster than wage growth. Inflation has negative impacts
for bond investors as it lowers the real value of income from bonds. This has implications for the traditional strategy of switching into bonds to avoid the volatility of the stockmarket close to retirement.
4. Interest Rates
Interest rates remain at an unprecedented low as the Bank of England searches for measures to stimulate the UK economy. Low interest rates negatively impact savers with cash deposits as they get a lower return on their money. After tax and inflation, many savings accounts currently offer negative real returns. This means that cash, traditionally a safe haven in turbulent times, is less attractive for savers and investors.
5. UK House Prices
House prices still remain below their 2007 highs and many commentators fear there may be further falls to come. However, many believe the reverse is true. Prices remained flat throughout 2012, with the average home in the UK and Wales costing £162,080 in December, according to the UK Land Registry. At the start of 2013, green shoots are appearing in all sectors of the property market as values are improving, fuelled by increased mortgage lending at lower interest rates.
6. UK GDP Growth
The UK economy, as measured by Gross Domestic Product (GDP), entered into a ‘double dip’ recession in 2012. The Bank of England is predicting a long period of slow growth with occasional contractions, described as a ‘zigzag’ path to recovery. In addition, UK unemployment is relatively high at around 2.5m. This slowdown in growth is not unique to the UK. It's reflected in many other parts of the world too.
Alternative Investments and Property: An Obvious Solution
The difficult environment for investors is likely to continue in the near future. Even as stockmarkets rally, many commentators feel that share prices are being falsely supported by artificially low interest rates and loose monetary policy. No longer can it be said the Stockmarket Is King.
In such a difficult environment, savvy investors are allocating a portion of their portfolio to alternative investments, backed by physical assets such as property and gold, as a way of diversifying and overcoming some of these issues.
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