Spreading risk during
economic uncertainty

Interest rates have fallen to their lowest levels in the Bank of England’s 315-year history and could fall even further, along with further inflationary falls.

If, during this current recessionary climate, you are seeking higher returns from your investments, you may want to consider a combination of the following: corporate bonds, equity income, absolute return funds and emerging markets. This will, of course, depend a great deal on your attitude towards risk for return.

In times of economic uncertainty it is even more important to spread risk by having a good mix of assets. You need to get the right balance within your portfolio and this will also depend upon your individual needs.

Corporate bonds are issued by companies to raise capital. The bond is a tradeable instrument in its own right and its value will tend to rise as interest rates fall and remain low. Conversely there value tends to fall when interest rates rise.

Absolute return funds can protect investors when markets go down and, indeed, in some cases give a return. When markets rise, they should also capture a portion of the rise. They achieve their steadier results through a combination of different strategies.
Some exposure to emerging economies, whose currencies look likely to appreciate against sterling, is worth considering. There is also an argument for foreign income funds, even if their dividends remain the same.