Ian Bell, Head of Farming & Rural Engagement, has been watching the stock market and what his dividend is doing during lockdown and it’s spurred him on to share his views…
‘Asset rich, cash poor’ was a phrase coined to describe the landowning aristocracy owning swathes of estates often containing a grand house and a host of other properties (asset rich), but unable to generate sufficient income to be sustainable (cash poor). The term would still be appropriate for some present-day landowners.
For some of us of a certain age, decades of property ownership during a time of often rampant house price inflation, alongside other events over the same period, has created a degree of wealth, but where is our income? The mantra of ‘asset rich, cash poor’ is becoming a reality for many families and individuals across the country.
Every situation will be different but let’s look at a typical asset portfolio which is likely to contain property, pensions, shares and cash. Regardless of value, our property asset is often the roof over our head, our home, not a cash-generator. Pensions are just what they are; to provide a regular source of income during retirement. Apart from drawing down up to 25% tax free which could be invested but may cause repercussions in years to come, so, again, no income now.
Many of us became share owners by accident! The Thatcher Years increased the number of people in the UK holding shares from 3 million to over 12 million through the privatisation of many state-owned companies. Remember ‘tell Sid’? (British Gas). BP shares were offered in a minimum lot of 100 at 330p/share but you could purchase them in three installments to make it affordable for more people. They have regularly returned a great dividend over the last forty years, but not now. Many investors might hold Shell – but no dividend, M&S – but no dividend. Where has my investment income gone?
Having drawn a blank so far, the wife and I looked to our cash saving to generate income. But think again! Savings rates have plummeted. A quick glance online shows an average instant access rate is just 0.21%, down from 0.39% at the start of the year. And the average one-year fixed rate has fallen from 0.97% to 0.6%. Looking to save tax, the High Street is offering 0.1% for an Instant Access ISA becoming more generous at 0.5% for a 1-year fixed.
So, if you’re like us, with no income being generated by our shareholding or cash savings, then I think a property-backed investment opportunity that earns typically 6.5% p.a. with no fees, begins to look like a very attractive addition to a balanced portfolio!
Why not find out more about investing via FOLK2FOLK here.
Capital at risk. No FSCS.
By Ian Bell, Head of Farming & Rural Engagement
Image: FTSE 100 performance YTD taken from Google 09 July 2020. For more blogs like this, sign up for #FOLKUS our monthly newsletter here.