FEAR OF FINANCE

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The Independent Online
The prospects for personal savings and investment are looking distinctly brighter, provided the Chancellor does not overplay his hand in the Budget. The outlook for stock market-based investments worldwide is remarkably good. Inflation and interest rates are relatively low in the US, UK, Europe, Japan and the Tiger economies of eastern Asia, creating a virtuous circle good for economic growth, for company profits and for share prices.

Even in the US, where dividend yields are below even the 2.5 per cent that preceded the great crash of 1987, shares are not particularly expensive relative to prospective profits in the next 12 months, the point being that many companies are making a virtue of re-investing profits in sustained growth rather than paying out dividends.

In the UK there should be more money available to prime the personal investment pump. The capital from maturing Tessas can be rolled over into new Tessas and most of it probably will be, because this is risk-averse money. But at least pounds 3bn worth of accumulated interest cannot be rolled over and will have to be reinvested elsewhere. If the Chancellor delivers the tax cuts his party is demanding a fair amount of the benefits in the current climate will also be invested rather than consumed.

But savers and investors, like consumers, are hungry for bargains, and the best news of all is therefore the downward pressure on charges. Household and motor insurance premiums are 5-15 per cent cheaper than a year ago. Growing competition from low-cost telephone insurers has forced traditional insurance suppliers to set up telesales operations to prevent a further loss of market share.

Mortgages are also cheaper. The last round of reductions in mortgage rates owed little or nothing to changes in interest rates generally. Premiums on mortgage protection policies have come down, and Bupa and PPP have trimmed the cost of standard health insurance policies.

Charges on managed investment funds have also been reduced. The success of Branson's Virgin PEP and Fidelity's Moneybuilder PEP with no initial charges has made an irresistible case, and earlier this week Legal & General went the whole hog and abolished all front-end charges on its range of PEPs. Others seem certain to follow, making PEPs look very attractive for anyone with up to pounds 6,000 a year to invest who is willing to risk some capital loss in pursuit of long-term profit. Where PEPs lead, unit trusts may follow.

What kind of PEPs will perform best in 1996? Top place will probably go to a specialist unit or investment trust held in the form of a PEP. But fashion clearly favours index-tracker funds, designed to follow the FT AllShare index in the UK and equally well signposted indices in other markets. Here, L&G is challenging established providers such as BZW, County and HSBC, which has seven separate tracker funds, including an Asian Tigers Index Tracker, split among eight different Asian markets.

For risk-averse investors willing to take a five-year view, new guaranteed stock market bonds, which combine absolute security of capital with a chance to share in stock market gains are being announced almost daily.

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