Making an investment when times are tough
Question : I am thinking of investing some monies, where do you think the investment world is at the minute and do you feel it is a good time to consider investing?
Answer: You have asked the six million dollar question and I will seek to answer it to the best of my ability, bearing in mind it is only an opinion and none of us know with absolute certainty where we are.
As with any investment, the most important thing to consider is why you are investing, and what level of risk are you prepared to take with that investment.
After those issues have been clarified, then the best thing to do is to ensure that your investment is allocated correctly in different areas, with the best fund managers managing each area. This ensures that you have spread your eggs in as many baskets as possible, and ultimately reduces your overall risk.
I would see the main areas any advisor should be considering at the moment are the stock markets, property, fixed interest, cash and alternative forms of investments. If we look at each of those areas in turn my comments would be as follows.
- The Stock Markets
Global stock markets have rallied significantly over the previous month on the back of improving economic data and the consensus view that the worst is behind us.
This is despite the fact that the main view is that the majority of the world economies will still contract over the next year. The various markets are still well off the peaks they experienced almost two years ago and as a result, ratios that investment managers consider before investing still look very favourable. The large degrees of volatility that we experienced between the autumn and the spring seem to have subsided, and while it would be unreasonable to expect that we would see a daily steady increase, the view appears to be that the worst is now over and so over the longer term, any investment allocated to the stock market should perform well.
Any anticipated recovery in the UK commercial property market is continually pushed further away as economic forecasts are revised and persistent problems in obtaining lending via the banking sector continues.
All of this leads the experts to believe that the turning point for commercial property may be some way off.
That said, recent data for the residential property market sector appears to suggest more optimism.
- Fixed Interest
The Credit crunch has provided some opportunity now for investment in the corporate bond sector — especially in investment grade bonds — industrials, telecoms, utilities and financials.
Government Bonds known as Gilts have fallen somewhat on recent news, but if inflation starts to return, as it is widely expected to, then a recovery in Index Linked Gilts is expected.
As interest rates are close to 0% and LIBOR rates move back towards the Bank Base Rate, bank rates for instant or fixed rate accounts haven fallen sharply making cash an unattractive investment. Again the view is that we are likely to remain at these low levels for some time to come, and individuals should continue to shop around for the best rates possible.
Again there has been a rally in commodities, specifically oil and gold. Despite these increases, oil looks undervalued on a medium to long term basis, which is good news for those looking to invest, less so with those who use it to heat our homes, or fill our cars.
As I said, my comments are based on market information and before making any decision you should seek professional advice.
Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact firstname.lastname@example.org or (028) 9022 1010