The Bank of England have kept the bank rate at 0.5% for the past four years. As a result, many savers and pensioners have been forced to move their savings away from the traditional cash savings accounts offered by banks and building societies and look around for alternatives. Some are turning to the stockmarket in their search for higher returns.
So, how to go about getting a better return - this was the question I was asking myself in 2009 and the answer seemed to be a combination of fixed income, individual shares and investment trusts. The attraction of the fixed income element - mainly PIBS and preference shares, is the immediate higher return - in 2009, some PIBS were yielding over 10% p.a. - however the downside to fixed income investments is the fixed rate of return which will be eroded by inflation over time.
To counter this and secure an income that rises each year (hopefully) a little ahead of inflation, it is essential to invest in equities. Therefore around 60% of my investments are split between individual shares and investment trusts.
In this first part, I will outline my strategy for securing a reasonable return of income using individual shares. Although the markets have seen a strong rally in recent months, it should be possible to secure a starting yield of around 4% without compromising on quality.
"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors".