Older investors withdrew nearly £3bn from savings accounts in the past 12 months, according to research from Aviva. The over-55s have reduced their average cash savings by 10%, disillusioned with interest rates that don’t keep pace with inflation, and instead have turned to higher-risk investments such as equities and corporate bonds.
That’s good news for shares that are typically found in equity income funds and which sensibly form the cornerstone of any portfolio: solid, dependable companies such as drugs giant GlaxoSmithKline (LSE: GSK)(NYSE: GSK.US) and consumer goods firm Unilever (LSE: ULVR)(NYSE: UL.US).
In the past, investors have tended to shift their investments away from risk assets and into cash as they get older. The worry has been that baby-boomers, whose investments have fuelled the stock exchange, would start to withdraw from equities and create a drag on stock prices.
But if those investors learn a new habit — to stay invested, but in safer equities — then it boosts the long-term prospects for such shares. With the new Bank of England Governor suggesting interest rates will remain low for another three years, while taking a relaxed attitude to inflation, remaining invested into old age could become the new normal.
Of course, we all know that shares can go down as well as up. Older investors require less volatility, so a good spread of relatively safe shares is essential.
That means shares such as GSK. Pharmaceuticals is a classic defensive — i.e. less volatile — sector. Big pharma companies have wrestled with the loss of patents on older blockbuster drugs but GSK is now coming out the other side, with its massive R&D spend creating a strong pipeline of new drugs. Turnover is expected to start climbing again this year.
What’s more, GSK has diversified into less risky vaccines and over-the-counter medicines, and made a big push into emerging markets. It’s currently embroiled in a corruption scandal in China, but that hasn’t hurt the share price.
Unilever is also in a defensive sector, and its strong global brands and scale give it immense market power. It’s the third-largest consumer goods firm in the world, but the best established in emerging markets. A heritage in the former British and Dutch colonies gave it an early foothold. They now account for nearly 60% of sales and are powering growth.
Unilever’s shares are down 12% from their recent all-time high, and it could be a good time to stock up.
GSK and Unilever yield 4.6% and 3.6% respectively. That’s far better than a savings account, even before any prospects for capital growth.
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> Tony owns shares in GSK, Unilever and Aviva. The Motley Fool has recommended shares in GSK and Unilever.