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What To Do In A World Of Zero Interest Rates?

Two years ago, we emailed our database with an article similarly titled 'What to do in a World of Zero Interest Rates?' Following the ECB's lastest interest rate cut to effectively zero (0.05%), everyone is aware that this is most likely where bank deposit rates are headed.

Two years ago the Irish banks were still desperate for retail deposits so they were paying circa 3%. Slowly, but surely, they are getting healthier, and now you'll be lucky if you can get 1%.

Zero Bank Deposits Rates Could Last....
And with the Eurozone still stuck with far too much debt, a lack of growth and a banking system that is still repairing itself, the odds on bank deposit rates staying this low for several years are actually quite high.

Diversified Funds Offering an Income of 5%
With a modest level of risk, investors can get upwards of 5% income from the stock market. And that does not preclude the opportunity for some capital growth also in the medium-term.

Looking around the equity funds we cover in the members area of our website, there is:

  • Princess Private Equity, a decent quality global private equity fund listed on the London Stock Exchange (LSE) offering a dividend yield of 7%
  • An Emerging Markets Equity ETF listed on the New York Stock Exchange (NYSE) offering a yield of 5.6%
  • The SPDR Global Dividend Aristocrats ETF listed on the LSE yielding 4.5%.

Among the non-investment grade floating rate corporate bond funds we monitor both:

  • TwentyFour Income Fund and Alcentra European Floating Rate Income Fund are listed on the LSE and offer dividend yields of 5%.

In the property sector, the pan-European property real estate investment trust (REIT):

  • Hansteen Holdings, also listed on the LSE, currently offers an attractive dividend yield of 5.3%, and Hansteen has grown its dividend by 30% since 2011.

Elsewhere, the commodities and mining stocks globally have been range-bound since 2011, when the China slowdown set in, yet the:

  • Blackrock World Mining Trust (listed on the LSE) offers a starting dividend yield of 4.9%, and the potential for capital growth if, or when, the commodity up-cycle returns.

And lastly:

  • the JP Morgan Global Equity Convertibles Fund, also listed on the LSE, offers a steady dividend yield of 4.1% without the downside associated with equities. Equity convertibles share the characteristics of both bonds and equities. The offer greater returns than bonds but carry much less risk than equities.

Rory Gillen is founder of GillenMarkets.com, the online investment website, and author of 3 Steps to Investment Success published in October 2012.