Re-investing maturing Fixed Rate Bonds

harz99

My choice though.

Personally, and this should not be taken as advice, as the only qualification I have is my lifetime and of running my own business, which relied on me knowing which risks to take or not to take; I would rather live with a steady drip of capital erosion than risk a complete crash cutting off my income stream totally.

But there again, I am not the one who makes a living out of other peoples investments, good or bad.

dunstonh

My choice though.

Absolutely.

I would rather live with a steady drip of capital erosion than risk a complete crash cutting off my income stream totally.

This is the point I was making though. Risk is not a 2 level thing. It isnt on or off. What are you going to do when inflation has eroded the capital value to the point your living standard is reduced or you need to really eat into the capital?

Risk is a sliding scale and you have risk at the moment. Depending on your age and health, the risk you are taking could be higher than a portfolio of assets with 25% stockmarket exposure to the lower risk end of the scale.

There are investment products though that allow a regular income and have a capital guarantee. I'm not saying that I am a particular fan of them as guarantees cost money but there is, for example, a provider that allows portfolio investments that can pay you 5% net p.m for life regardless of the state of the investment. Another also pays 5% net and has a capital gurantee on death and a lock-in facitlity on growth. That can satisfy the requirements of many. Without the guarantees, the same investment spread could be obtained cheaper but if you "need" the guarantees then you reduce your choice.

Also, cash can do more damage than good. The other day I showed an adviser how his client who was retiring next year could get pension credit just by moving his savings/investments about. By having it in cash, he was losing £1 pw income for every £500. He would have needed his cash to pay 10.4% just to break even with lost pension credit. So, in effect now, he can invest in a cautious spread. Draw 5% p.a. net and receive pension credit of £98 pw despite having over £100k of investments. The investment risk is worth it because if it was in cash, he wouldnt get that £98pw. The pension credit is covering the risk.

A similar scenario done last year with £103k is now sitting at £112k with only a 10% stockmarket exposure and 5% p.a. paid.

So, to labour the point, risk is not on/off. You are currently taking a risk whether you realise it or not. You dont need to suddenly jump in the deep end an massively increase the risk as you seem to think. You can tip toe up the scale a bit. There can also be advantages as well to a bit of planning which you may not realise.