Your inflation-busting tips for clients

National Savings & Investments (NS&I) ha announced both its fixed interest and index-linked savings certificates have been withdrawn from general sale because they are attracting too much investment.

We ask advisers to give attractive alternatives for clients now reassessing their options...

Adrian Lowcock, Bestinvest

"The closure of NS&I products has come as no surprise but it does mean investors will miss out on access to one of the lowest risk index linked savings vehicles out there. There are few cash products which investors can take out that are linked to RPI. To get exposure to inflation linked products means going up the risk curve into Index Linked Gilts and Index Linked Corporate Bond funds. The issue with the former is that they do not offer particularly attractive yields and currently have negative real returns. The index linked market has a different view of inflation (in that It is concerned about it) than the wider bond market where yields are closer to 2% which indicates the outlook for inflation is much lower. We expect inflation to fall steadily from recent highs making investing in inflation linked bonds less beneficial.

Income seekers are again being pushed into to taking more risk to achieve their objectives. However with the recent falls in the stock market, the outlook for equities and in particular dividend producers is more positive. Investors are being paid to wait and prices are factoring weaker growth, but not a deep (normal, not 2008) recession. So our advice is to look to equities over bonds but it is important to make sure investors understand the risks they are taking."

Juliet Schooling, Chelseas Financial Services

"Income is becoming increasingly difficult to find and my sympathies go out to all those pensioners who saved all their lives and now find that when they need to take an income from their savings that this is virtually impossible without putting their capital at risk. I think more investors are now willing to accept this risk - well, with negative real interest rates, they sadly don't have a choice. I believe that at current market levels an equity income fund, run by a tried and tested manager, should offer a reasonable level of income and hopefully some capital growth, which in turn would give an investor a growing income over time. However, with current market volatility an investor must be prepared to see their capital fluctuate. There is no doubt that economic conditions are tough but a good stock-picking manager should be able to select those stocks still able to perform, despite the murky economic outlook. One such fund would be Invesco Perpetual High Income."

Mike Horseman, Cockburn Lucas

"Given the news of withdrawal we think a number of funds with high concentration towards Index Linkers are looking attractive for clients wanting to take an inflationary view and ride the relative security of the index linked return funds. Ruffer total return is a classic Multi Asset play with a high concentration of IL stock and other Inflation linked hedges such as Gold inside. The fund has proved extremely defensive in past months and served all its investors well over the longer term and I a favourite of ours for this reason. Additionally there are number of Collective funds such as Standard Life Global Index linked Bond fund which will provide investors with a range of not only UK index linkers but also Global index linked stock for added security as there may be pressures on different parts of the World in this area and not necessarily UK or Eurozone which could actually face Deflationary pressures.
Finally adding in equity exposure to companies with sustainable process and Dividend growth should be as important as buying index linked as given IL STOCKS look very fully priced alternatives we would argue should be looked at as the train has left the station in this area in our opinion."

Christopher Wicks, Bridgewater Financial Services Limited

"Well, the options are conventional cash deposits, via ISAs if possible for taxpayers. Larger investments could be sheltered within offshore bonds for gross roll up - not the same as tax free but good tax deferral. Also try Index Linked Gilts/IL Gilt funds for an inflation proofed investment. Try short dated bond fund for a low risk fixed interest fund, for larger amounts where the FOS limits are inadequate."

Patrick Connolly, AWD Chase de Vere

"While we congratulate NS&I for keeping their Index Linked Savings Certificates available for four months despite huge demand for the products, the announcement that they are being withdrawn is a real body-blow for the many savers who are worried about inflation eroding the value of their savings.
Savers face the unwanted dilemma of keeping their money in cash and accepting it will lose value in real terms or taking more risk to try and generate better returns, though with the current weaknesses in the economy and the stock market this won't be a welcome prospect for many people.
For those who decide to take additional risk the best approach is a balanced portfolio containing cash, shares, property and fixed interest. This can be achieved through a range of individual investment funds or for novice or smaller investors through a multi asset fund such as Cazenove Multi Manager Diversity.

Martin Bamford, Informed Choice

"Investors seeking protection from inflation or income need to accept this is a massive challenge in the current environment. With interest rates so low and price inflation remaining stubbornly high, very few options cater for the lowest risk investors. One of the closest alternatives to the withdrawn NS&I Index-linked Savings Certificates is the Post Office Inflation Linked Bond. This offers RPI plus 0.5% gross each year over a five year term, although it is less flexible than the NS&I product and does not have backing from HM Treasury. As the provider is Bank of Ireland UK, savers will be covered by the UK Financial Services Compensation Scheme up to £85,000.

Really, savers face two stark options - either leave money in cash deposits and watch inflation erode the real value, or expose some of their savings to investment risk and take the chance that the capital value will fall. It is never an easy decision to make."

Jason Butler, Bloomsbury Financial Planning

"Not much!
This proves the point that I have said time after time that investors should fill their boots as soon as possible when competative NS products come out!"