If you’re an investor, you’re no doubt frustrated by the fact your savings are consistently being hit by the double whammy of low interest rates and rising inflation – will things get any better in 2019?
The last few years haven’t been great for savers, and it doesn’t look like 2019 is going to be much better, with property investment once again looking like the safest bet.
Stephen Findlay, CEO of investment specialists BondMason, has forecast: “2019 is likely to be more gloomy than great for investors, but we expect to see some areas of opportunity, including lending secured against UK property, which should continue to offer attractive options for investors looking for moderate returns with relatively low volatility and good downside protection”.
He added: “Against the uncertain and gloomy economic backdrop, BondMason expects to see private investors continue to be content with an investment exposure to property, as our research shows people have great trust for investments backed by ‘bricks and mortar’. Indeed, with buy-to-let looking less attractive we expect to see more people accessing returns from property through a variety of approaches such as property trusts and lending platforms.”
What problems are facing investors in 2019?
As has been the case for a number of years now, 2019 is looking like it’ll offer a relatively gloomy climate for investors for many reasons, including:
- Flat interest rates continuing: whatever the outcome around Brexit, the market is not expecting interest rate rises;
- Equity: shows every indication of continuing a downward trend as the bull run continues to fade; and
- A slowing property market as the drop in London prices reverberates outwards: combined with increased house-building increasing supply.
Why property is still the best bet
Although tax changes and market uncertainty mean investing in property isn’t as easy as it once was and has made the buy-to-let a less attractive proposition, property investment can still work well for passive investors.
It’s likely that 2019 will see an increasing number of people using their property as an asset to generate income, ranging from spare rooms are being rented out for income, a trend brought about by disrupters like Airbnb, which has proved popular with families looking to generate more money from their family and holiday homes, to leveraging any capital value via increasingly sophisticated equity release mortgages.
Stephen Findlay says: “The family home is still the most valuable asset most people have. Instead of hoping to make money simply by upgrading it and selling at a higher price, we are seeing continued innovation and popularity in new and improved ways to make this asset work harder.
He added: “Now you can easily rent your spare rooms to holidaymakers, your garage to people wanting storage and gain large amounts of capital through equity release mortgages. In 2019’s sombre economic climate, we expect even more people will be making use of these existing ways to generate income from their house, and this will itself spur further innovation, particularly financial, with more products allowing people to unlock some of their home’s value while they are still living in it, and at the same time, provide the suppliers of this capital – investors and lenders – a good opportunity for risk-adjusted returns.”
Why you need to spread your investments
As the old saying goes, ‘never put all your eggs in one basket’, and while increased uncertainty and the prospect of lower returns mean you might be tempted to invest in a high interest savings account, you should never rely solely on bank accounts – research shows that this approach has been disastrous for many savers over the past 10 years.
Stephen Findlay says: “The combination of low interest rates and modest inflation means that putting money in the bank is actually the one investment strategy guaranteed to lose you money in real terms. Our research shows that a big problem stems from most people significantly underestimating the way inflation erodes the real value of their savings. For instance, if you had £10,000 in a zero-interest bank account then, over the past three years alone, it will have lost around £650 in value. About half of people interviewed thought the impact was substantially less, with nearly 10% mistakenly thinking inflation had no effect at all.”
He added: “This misconception means many people do not realise the extent to which inflation is steadily making them poorer. Even in the good times over the past 10 years, many people have continued to keep a lot of money in the bank through uncertainty and inertia, rather than investing it after the financial crisis, and this has cost them at least £1,920 in real terms for every £10,000 of savings.”
If you do insist on keeping your cash in the bank, in the bank, it makes sense to at least spread your investments across a number of savings providers, but for the bets returns you should do your own market research and maybe consult a financial adviser. And make sure you do this sooner rather than later, else you could find your savings pot is gradually being eroded and won’t provide the expected returns.