Poor cash returns spur appetite for risk

Individual savings accounts (ISAS) are only available in the resident of United Kingdom. They are designed for savings and invest purpose with tax benefits. They have two components of it, and one is cash component and the other one is a stock and shared component. Recently, people who have cash component which is similar to savings accounts want to change their component to stock and shared components because of huge interest rate cuts from the banks. Thus, they are seeking alternative way to grow their money, and that is a bond and a stock market. However, if they change their component to the other, they cannot take their money back to the original account. As we all know that the world’s economies are getting worse, so it is hard to invest in stock market even professional investors. However, fund managers who work for ISAS diversify their portfolios more than they did in the past. Thus, they are sure they would maintain their expected rate of returns even in the bad market. Lundie mentioned that clients need to keep 15 percent of their account in cash, and divide rest of money into five or six funds. I think keep the certain amount of cash is very good idea because if economies go extremely bad, diversifying would not work well. By the way, investing in corporate bonds is another good way to overcome this period. Corporate bonds give higher return of rate than savings accounts, and it is less risky than stock market. I recommend people to invest in bonds in this period because even if a company goes to bankruptcy the bonds holders will have priority over stock holders.


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