Ask Money: how about cautious investment ideas?

Adrian Lowcock of Willis Owen helps a reader with a question about risk.

February 3, 2020

I am nearly 74 years old. On retirement, I adopted the traditional advice to reduce equity investments in favour of (‘more secure’) fixed interest, having fewer years to make up any major stock market losses. However, this advice is now resulting in the erosion of my capital rather than its preservation, due to the extraordinary policies prevailing, with no end in sight. I am therefore forced to go back into the stock market and indeed still have significant cash awaiting investment, but I am unsure how to reduce my risk. I would be very interested to hear of any views on this topic or techniques that might be of help to people in this situation.
Valerie Clack, by email

Adrian Lowcock of Willis Owen replies: Moving from bonds to equities is unlikely to reduce risk, as equities in the short term can be very volatile. In addition, while they offer the potential for capital growth, investors may also lose money in the short term. The advice that you have fewer years to make up any losses is pertinent. You need to consider how you would support yourself, should your investments lose 10% - this is not an uncommon scenario in any given year.

The current situation in markets makes changing a portfolio now very challenging. The bull run has been going on a long time and equity markets are not all cheap; bond yields are at low levels, which could mean significant losses should interest rates rise. However, the income available from some equities looks attractive, and this area of the stock market looks less expensive. Given your age, the key is diversification to reduce the risk of one option going wrong.

Jupiter Merlin Conservative Portfolio invests a minimum of 45% in bonds and up to 35% in equities. Manager John Chatfeild-Roberts combines his team’s careful review of global economic conditions to produce a concentrated high-conviction portfolio. The portfolio has a yield of 2.6% and could suit as a core holding for your investments.

If you want to add more equity exposure to increase risk then you may wish to consider Fidelity Global Dividend. The manager focuses on quality companies which offer a good degree of capital protection during market downturns. His analysis concentrates on stable finances and strong cash flows, as these underpin the reliability of dividend payouts. The yield is 2.5%.

Money Observer adds: The 2020 edition of Your Fund Choices, on newsstands and available through the Money Observer website in early February, has a number of highly regarded mixed-asset fund and investment trust suggestions for cautious investors keen to preserve capital, including some designed to pay an income.

If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com

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