Fallout from the COVID-19 crisis has seen corporate earnings plummet and businesses that were once healthy dividend payers have been cancelling their dividend payouts as they defend their balance sheets against the economic damage of the lockdowns. In response to the COVID-19 crisis, the South African Reserve Bank has cut interest rates to historic lows in 2020 (by 3.0%). The “no dividends and low interest rate” environment that has been created is devastating for those investors that were living on the income streams being generated from their savings.
We are of the view that this low interest rate environment could very well persist for a further two years, whilst dividends will also take a while to recover. Investors who are dependent upon their savings have been pushed into the unfortunate position of needing to increase the risk that they are taking in order to maintain their income streams. Increasing risk can, but does not necessarily, mean buying equities. There are several interest-generating options, outside of dividends, which investors can consider.
Not all risks are the same and there is a plethora of different investment options that purport to offer more attractive income streams. We have been helping our clients to understand the dynamics of credit risk, interest rate risk, market risk, and business risks, which all impact each of these options differently. Our available income products allow us to tailor a solution for each client’s individual needs and risk tolerance to maximise their income throughout this low-return period, without jeopardising their long-term financial future.
