Here in Cyprus, we’re probably not into the post-pandemic entirely yet, but we’re certainly in some sort of consequent phase – no doubt the epidemiologists will find a term for it as they seem to be able to explain everything.
So, now that we’re mostly back at work, it’s a good time to take a look at what’s in our wallets, and what we might want to find in them in the future.
The wallets should not be empty or too thin. There is still terrible uncertainty across the entire world about how the crisis will play out. A report by the Institute of Actuaries – the experts on calculating risk for insurers – suggests the following:
“The failure to face up to issues surrounding uncertainty is a threat to good decision making, with issues arising in a number of areas:
- The scope and nature of analysis undertaken by experts (such as actuaries); are important questions ignored because they are “too uncertain”?
- The positioning and communication of such analysis and advice; is the fact that some difficult questions are out of scope highlighted? If uncertainties were highlighted, that might lead to the issues being thought about more.
- The understanding of experts and their work by decision makers; “we paid for the advice, so let’s use it without worrying further”.
- The intelligent recognition of uncertainty when decisions are made.
All of this to say that not even the experts specialising in uncertainty have any certainty about how the crisis will play out.
From the point of view of personal finance, this means you should prioritise saving as much as possible. Now, saving money isn’t what it used to be, because the interest rate is so low – this is not the fault of banks, but rather a function of the European Central Bank’s near-zero interest rate policy.
So the trick is to find an investment vehicle with very low risk but with a decent rate of interest. For example, fixed- rate deposits, which usually mean committing funds for one to 10 years, can pay quite high rates. Of course, this means that you won’t be able to touch the funds for the period you commit to.
Of course, the best yield in the past few years has been from corporate bonds, which are used when companies raise debt directly from investors. There are bond funds that give access to this market, but do some serious research about the manager of any bond fund before you invest in it.
Here’s an example from a Morningstar analyst: “Pimco GIS US High Yield benefits from an experienced lead manager with a track record of sound judgment and the support of a sizable analyst group. Its cheaper share classes earn Morningstar Analyst Ratings of Silver and Bronze.”
Another route into corporate bond investing has been provided by the London Stock Exchange. The LSE launched a retail bond market on February 2010 called the Order Book for Retail bonds, known as Orb. These have been dubbed retail corporate bonds, or just retail bonds, and are bought and sold through brokers and investment platforms.
Direct investment in most corporate bonds isn’t available to the retail investor, but on the Orb, the minimum investment is low, and the disclosure is aimed at investors who may not have experience of this kind of investment.
The minimum investment for this type of bond starts at a low level – sometimes as little as £100 but more usually from £1,000 – and companies use the money raised to grow or to fund their activities, or reduce their reliance on bank borrowing.
Here’s a good example of an issue taken from Retail Bond Expert.
“Provider of home credit and digital lender International Personal Finance (IPF) is offering DIY investors a rare opportunity with a new retail bond offering an eye-catching coupon of 7.75 per cent per annum (per year).
The bonds will be traded on the LSE’s Order Book for Retail Bonds – ORB – exchange and will pay interest twice a year until the bonds are redemption at their issue price in December 2023.
A minimum investment of £2,000 is required with multiples of £100 thereafter; the offer period is now open and whilst it is planned to close on June 7th, experience tells that significant demand from investors can see that offer period shortened.
Describing itself as a ‘home credit service’ for people ‘who want to borrow money quickly and in a manageable and transparent way’, International Personal Finance (IPF) operates in Poland, the Czech Republic, Slovakia, Hungary, Mexico and Romania, and offers short-term cash loans of £50 to £1,000 as well as a home collection service.
IPF is FTSE 250 listed and was floated on the London Stock Exchange in July 2007; it has 2.4 million customers and more than 7,000 employees.”
Again, these types of investment have quite a low level of risk, and a reasonably high rate of return, thus making them good targets for the private investor seeking a decent yield.
Another sure approach of this type is the fixed-income funds provided by asset managers like BlackRock. These keep risk low by pulling together a diversified set of fixed-income assets – some are as simple as Certificates of Deposit, but they include bonds, mutual funds, etc. Again, it’s the management of such a fund that ensures its value, but investment managers at the high level have very experienced and capable managers. Rates vary depending on the type of investments the fund is making.
There are a number of Cyprus-based asset managers who offer this kind of investment, and if they can show a verified record of success, their products are worth considering.