24.01 Liontrust Views Winter 2024 - Flipbook - Page 12
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The increase in rates of interest that could be earned from cash accounts in 2022 and for some of 2023
attracted a lot of investment to flow out of equities and bonds. For anyone wanting to earn a relatively
attractive rate of income, cash appeared to be king. But is it the appropriate home for someone wanting
a regular income long into the future?
Cash can be a good place to park savings
for the short term as the returns are not
subject to the volatility experienced by
investment markets. Extending the time
you keep savings in cash, however, is an
active decision not to invest and you might
miss out on the long-term benefits of putting
money into investment markets.
If you wish to make real returns, so that
the spending power of investments keeps
up with, and potentially even exceeds,
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LIONTRUST VIEWS – WINTER
the rate of inflation over the long term,
then this means investing beyond cash. A
variety of asset classes can be used for
generating income, principally equities,
bonds and property. Over the long term,
equities have historically outperformed
cash, bonds and inflation.
But before selecting which asset classes to
use and how, investors should first consider
their own attitudes to risk. This is because
different types of assets carry a range of
risks that investors should be fully aware of
before using them in their income portfolios.
Although investors can use their wealth to
own assets directly, such as buying a rental
property, for many it is more practical to use
funds, which provide diversification across
asset classes. They often offer income share
classes as well as accumulation classes (in
which any income can be automatically reinvested into the fund), and investment trusts
may pay income to shareholders as dividends.
