By ADRIAN LOWCOCK 19/01/2012
Inflation continued its downward trend in December 2011 with the Consumer Prices Index (CPI) falling to 4.2% from 4.8% in November. Retail Prices Index (RPI) inflation dropped to 4.8% from November’s rate of 5.2%.
Inflation continues to eat away at cash balances
While these latest figures are welcome and add weight to our view that inflation will moderate, albeit slowly in 2012, they offer little respite to cash investors who continue to see inflation eating away at balances while also contending with very low interest rates.
Interest rates no match for inflation
Based on December’s figures, a basic-rate taxpayer needs to keep cash in an account with an annual interest rate of 5.25% to beat inflation while those paying the higher 40% tax rate are forced to seek out accounts offering at least 7%. Clearly, in today’s low-interest environment, savings accounts with rates such as these are almost impossible to find.
Opportunities for returns do exist
Against this challenging economic backdrop, opportunities for investors do still exist. Our preference is for real assets, particularly high quality corporate bond funds, which offer useful yields but less volatility than equities and, for those with an emphasis on income, equity income funds. The following investment ideas are all highly rated by our research team.
Top fund ideas
Past performance and historical yields should not be considered reliable indicators of future returns. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. Bonds issued by large companies will generally be more stable than smaller corporate issuers, although this cannot be guaranteed; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested.
Please remember the value of an investment and income derived from it can go down as well as up, and you may get back less than you originally invested. This article is intended to help you make your own investment decisions, and should not be construed as a personal recommendation or advice to invest. If you are in any doubt as to the suitability of an investment please contact one of our advisers..