One bright spot might be income – as share prices move up and down violently, the attractions of a regular income via dividends start to become more attractive. According to Octopus Investments’ bi-annual Dividend Barometer private investors should consider UK small and mid-cap companies for income.

Sticking with that dividend income theme, investment trusts that pay a regular dividend might also be looked on more favourably—there’s a long tail of deeply discounted trusts that have a long track record of paying generous dividends, based in part on strong cashflows and built-up shareholder reserves (which allow investors to smooth out the payout).

The Association of Investment Companies (AIC) has just released a useful list of 26 investment trusts that pay a yield of more than 5% and have not cut a dividend in the past ten years. That includes five trusts from the Renewable Energy Infrastructure sector, with yields ranging from 9.2% to 12.5%

Consistent income payers with yields of more than 5%

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Low-volatility funds are providing respite

The focus on dividend income reflects an obvious truth – share prices might shoot up and down, but dividend cheques tend to pay out a stable amount. We’ll come back to that income point shortly, but what about the volatile share price bit of the equation? Is it possible to dial down the share price volatility by investing in shares through a fund like an exchange-traded fund (ETF) that only invests in more defensive, less volatile stocks? The answer is yes, and much of the time it’s a very successful wealth preservation strategy.

A good few years back, there was a sudden eruption of interest in what was called smart beta strategies. It sounds complicated, but it isn’t. Essentially, it’s saying you have two ways of passively tracking the (stock) market. The first is to buy into a tracker following a major index like the S&P 500 and be done with it!

The alternative is to say that the crowd, and thus markets, are not always perfectly efficient and that at some points, the market overindulges some trends (positive momentum stocks) and ignores others (value stocks). This gives rise to various market anomalies, as they are called, which range from value stocks through quality stocks to low-volatility strategies. These strategies all involve using technical and fundamental metrics to spot stocks that might be underappreciated and priced inaccurately by the market.

Taken from an article by David Stevenson