Low-yield bonds, no-yield banks and risky stocks: how to strike a balance

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Dow tumbles 300 points on scary sign from the bond markets, Spot gold breaches $1500 as Wall Street tumbles, Stocks slide as falling bond yields spook markets.

THESE are three recent headlines from, in order of appearance, CNN Business, The Guardian, and The Wall Street Journal.


They reflect the extreme volatility of the markets of late and the mixed message they have been sending out.

Anyone looking for financial guidance from the markets must be in despair. They are all over the place and you might as well consult a crystal ball or try your hand at reading tea leaves.

In particular, the stock and bond markets have been sending out contrasting signals.

At the root of the problem is investor fears about growth and the US-China trade and currency battle.

Investors are pulling money out of stocks and buying up good government bonds and gold as safe havens.

The US Federal Reserve last week cut interest rates for the first time since 2008.

That was good news for consumers and companies looking to borrow money; good news for anyone with debt but bad news for anyone needing to keep their money in cash.

The outlook is particularly poor for people who are parking their money in a bank. A recent survey showed that the average savings account is paying a derisory yield of 0.09% while a money market account yields only 0.18%.

Investors who want to save must broaden their horizons. Stocks may seem risky, but the alternative is putting your money in assets that will generate little, if any, return.

So for some people a little bit of risk is inevitable. If, for instance, you are trying to plan for retirement, you will need some growth. You can't push everything into bonds and cash.

Be that as it may, risk-averse investors will be more inclined to look for bonds instead of stocks to generate income.

One option is to go for dividend-paying stocks. They should benefit if the Fed keeps cutting rates to stabilise the US economy and they provide higher yields than bonds.

Yet even those yields are relatively low. So as long as investors are running scared and moving money to bonds and dividend-paying stocks, there may be little opportunity for savers to generate a decent rate of return.

The tide of money flowing to safety is pushing down yields. So, if people want a decent return, they will be forced into higher risk investments.

I recommend diversified investment and a balanced portfolio. Don’t put all your eggs in one basket. And I recommend taking impartial professional advice.

I have, let me say, a direct interest here. My company, the Woodbrook Group, is an international firm of financial advisers with its HQ in Cyprus and we will be very happy to offer our services.

We will look at what you want to achieve with your money; what risks you are prepared to take and what risks you can afford to take. Our team of highly experienced consultants can help you with solutions tailored to your unique situation in these unsettled times.

We are not owned by any financial institution or life insurance company and can offer you unbiased and impartial advice to help you understand your options and how to address your income needs.