Falling interest rates have seen many retired people - not to mention those living overseas on fixed incomes - suffer a large drop in income. Identifying the better investment opportunities has never been more essential, but it requires a knowledge of the market. Once you've determined the sort of low-risk financial products that interest you, it's necessary to search the market for the best deals.
Individual Savings Accounts
An Individual Savings Account enables you to invest money on a tax-free basis. For the tax year 2012/2013, you can put up to £11,280 in a stocks and shares ISA or £5,640 in a stocks and shares ISA and £5,640 in a cash ISA. If you invest regularly, you can build a substantial amount of money.
An Individual Savings Account is of particular benefit to the higher-rate tax payer because it prevents the loss of 40% of your income. It's well worth considering using an ISA allowance with stock market investments and savings so the maximum benefit is achieved from the higher investment potential.
High-Yield Stock Market Investments
Few people associate safe investments with the stock market, but there is a less volatile alternative. The FTSE 100 index is currently sitting at about the 4500 mark, down from highs of 6600. Why do some investors only want to invest in the stock market after everyone else has made money?
Darius McDermott, managing director of Chelsea Financial Services believes investors should consider higher-yielding assets like bonds and equities. “I’ve never seen yields on equities like it: M&S is providing a dividend of 8.8%, BP 5.7%, HSBC 8.1% and Vodafone 6.9%. Even if returns remain level you would be receiving up to three times more than cash deposits.”
Although nobody should put all their eggs in one basket, an investor may wish to put money into a diverse share portfolio and spread the risk. The yields will provide a better source of income for the retired person than any savings accounts at the current Bank of England base rate.
Capital-Protected Stock Market Investments
Those seeking safe investments and savings opportunities should take a 5 year view and invest in a capital-protected FTSE tracker fund. This investment doesn't risk your money, but it does offer you the chance to benefit from growth in the FTSE 100 index. If the market falls, you won't lose your capital. However, due to the effect of inflation, your investment will fall in real terms.
Fixed Term Bonds
All fixed-term bonds offer capital protection and offer a fixed rate of interest for the duration of the agreement. Using an online checker enables the investor to identify fixed-term bonds that offer the most favourable returns. Unless you're a non-tax payer, look at the net rate of interest only.
National Savings Premium Bonds
It's possible to invest between £100 and £30,000 in premium bonds. Investors don't receive interest but they will be entered into a prize draw each month. Tax-free prizes range from £50 to a million pound jackpot. Your money is protected, and it's usually possible to make a withdraw in just 10 days.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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