What To Invest In, In This Climate?
With interest rates in the doldrums and lack of confidence in the markets, many of us are turning away from investing in company shares or equity based funds and instead putting our hard earned savings into deposit accounts or fixed interest bonds. The problem of doing so, of course, is that with interest rates as low as they are, you run the very real risk of letting inflation eat away at the value of your capital over time. So these once ‘safe-havens’ really shouldn’t be viewed as being ‘safe’ at all.
Having said this, where, you may well ask, should you invest? Well, first of all, you have to ask yourself if you intend to invest for the long-term, and by this we mean ten years or longer. If your answer is yes, then the answer isn’t so difficult. It could be a wise choice to start off by playing around using a demo account like CMC Markets , my broker of choice.
You shouldn’t let the current economic climate put you off investing in share based investments like unit trusts, investment trusts or open ended investment companies (OEICs). However, instead of investing in funds comprising companies close to home you should certainly consider investing in companies operating in those parts of the world that don’t have enormous deficits and whose economies are continuing to grow at a healthy rate. These relative newcomers include China, South East Asia, Brazil, India and Russia.
There are many managed funds investing in these markets, so you should carefully study their performance figures over five and ten years, as well as their annual management charges. You’ll find these figures displayed on numerous websites as well as in investment publications and newspapers.
A sound and cautious way to invest is by regular monthly contributions. This will smooth out the peaks and troughs by buying more units when the price falls and conversely, fewer units when the price rises.
If you feel a little uncomfortable investing in these regions of the globe directly, then you can take a more cautious approach by investing in funds that select companies over here and in Europe that do most of their business with these emerging markets. After all, these are the economies, that over the next decade, are going to steal a march on the rest of the world. In fact, some economists will argue that they already have.
Another way to invest in these exciting economies is to buy funds that aren’t actively managed by fund managers. These passive funds simply track the average performance of any particular share index, and because they don’t require the skills and resources of fund managers and analysts, they carry very low management charges. The most popular and fastest growing form of index trackers are known as Equity Traded Funds (ETFs). These are offered by many of the large banks and investment houses and present you with a very wide choice of regions and sectors in which to invest. But because there will usually be a setting up fee, ETFs are best employed for lump sum investments rather than monthly payments.
While any equity based investment can rise as well as fall, investors must be prepared to sit it out for the long-term. And, of course, as any seasoned investor, worth his salt will tell you, the best time to invest is when markets are down.