Living in a low yield environment

It was only in the mid-2000s that some investors were beginning to doubt whether it was worth all the risk of owning an investment portfolio, given that they could get around 5-6% by placing cash on deposit with their local bank branch (or higher with Northern Rock or Icesave – but we all know how that ended).

Today, things are very different. The credit crisis and the ensuing recession has resulted in yields on lending (placing money on deposit and owning bonds) being driven down to all time lows, as the UK and other world governments dropped short-term interest rates and bought back bonds from financial institutions (quantitative easing) to try to stimulate the economy and to help the indebted masses – individuals, companies and banks – out of a big hole. The result has been a transfer of wealth from prudent savers to less prudent borrowers. For many retirees, particularly the less well-off, who supplement their pension income in part with interest from deposits, this has meant a dramatic fall in living standards.

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