Cash deposits

Cash is an important investment element for:

• Readily available funds.
• Capital security.
• Safe haven for funds waiting to invest elsewhere.
• A stable fund for regular portfolio income to allow other assets to grow.
• Regular investments for Pound Cost Averaging especially in volatile markets.

For short term expenditure ‘Cash is King’; however, as a long term investment medium cash risks loss through inflation and ‘opportunity cost’ (extra growth missed by not investing more actively).

Fixed interest

Annual return is set at outset, as is the Face Value at a future date. Fixed Interest tends to offer higher total return than cash, because the annual return is fixed. Although tradeable the capital value may be less than the purchase cost and/or face value.

Government bonds (UK bonds are known as Gilts, the original certificates had Gilt edging on them) are very secure, no UK Gilt has ever defaulted.

Corporate Bonds are issued by companies, which carry more risk of default than Governments so offer slightly higher returns. They are ‘credit rated’ to identify their potential risk. High yield bonds are basically rated a higher risk than ‘investment grade’ bonds, so typically pay higher annual yields in order to make them attractive to investors.

Fixed Interest offers more return than cash, and tend to outperform inflation; however there is an element of capital risk and volatility.