Fidelity Worldwide Investment has compared the yields available before the financial crisis to today.
According to our research, the only asset class currently offering higher yields than before the start of the financial crisis is equities, with many of the traditional asset classes sought by savers now offering below-inflation returns.
Many savers are losing out as a result of low interest rates and have no choice but to take more risk or to accept an income that will be eroded by inflation. It is a dilemma facing all investors who are searching for yield.
It's our view that central banks around the world are unlikely to start raising interest rates any time soon, which means the pressure on yields, which are at historic lows, are here to stay.
For investors who are willing to take more risk in their hunt for yield, here are three pointers to keep in mind.
Diversify
If you are going to move away from traditional sources of income, diversification is your ally.
Investors tend to diversify when they are investing for capital growth, so why not do that for income sources as well? By spreading your savings across asset classes such as bonds, equities, real estate and cash, you gain the benefits of diversification and are not relying on just one source of income.
Be aware of the risks
Some products available on the high street offer savers a higher level of income but it is essential you go into these with your eyes open. For example, permanent interest bearing shares (PIBs), offered by building societies, pay a fixed rate of interest.
Unlike a deposit, PIBS are not protected by the Financial Services Compensation Scheme (FSCS) for deposits as they are stock exchange instruments.
Consider whether you need help
Diversification remains a cornerstone of a sensible investment strategy, but with all the options available, deciding on the right combination of asset classes for the environment can be difficult.
For those who don't have the time or the expertise to monitor changes in markets, it may make sense to leave the balance between bonds, equities and other asset classes to the experts.
Investors can choose between a range of options such as a multi-asset income fund or a portfolio of funds focused on income.
The five crown-rated Fidelity Multi Asset Income fund is one of the best performers in the IMA Mixed Investment 0%-35% Shares sector over the past five years.
It has made 42.38 per cent over this time, compared with 28.78 per cent from the sector and 43.57 per cent from its custom benchmark – comprised of the ML Sterling Broad Market index, the FTSE All Share, MSCI World ex UK and Sonia (cash).
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is yielding 2 per cent.
The majority of the fund is invested in fixed interest, at nearly 60 per cent. Roughly 37 per cent is in equities.
Among its top holdings are Fidelity Enhanced Income, Fidelity Moneybuilder Income and John Laing Infrastructure.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.93 per cent.
