Stocks, bonds offer investment options amid low interest rates

With the central bank slashing its benchmark interest rate to a historic low of 1.25 percent, putting money in bank accounts will not increase people’s income, as bank deposit rates will drop in line with the key base rate.

Experts recommend reallocating people’s funds in bank deposits to other assets that offer higher yields. Real estates may be an option, but not a lot of people can afford to invest in an apartment unless they borrow money from banks with low interest rates. 

Funds investing in alternative assets such as real estate could be worth looking into, as well as funds investing in baskets of equities and bonds.

But one has to keep in mind that stocks in Korea could face corrections and volatility as the U.S. Federal Reserve is expected to raise its federal funds rate later this year.

Also, investing in stocks comes with risks but offer higher returns. One should approach stocks with cautious given that stocks do not necessary provide higher yields on low interest rates. For instance, investing in value stocks or dividend stocks could be an option to boost personal savings.

Asset managers have recommended against borrowing money to invest in stocks as it can not only increase credit risks but also the stock market faces a series of external and internal macroeconomic factors.

Bonds tend to offer stable returns in low-growth periods. Funds investing in bonds can be a good start for beginners. Interest on bonds may fall but their value will increase as bond prices move inversely to yields. However, the bond market also faces liquidity risks amid an industry slowdown, which is taking a toll on corporate profitability. Confidence has been affected in the stock and bond market following debt fallouts from once prominent industries such as shipping and shipbuilding.


By Park Hyong-ki (hkp@heraldcorp.com)