17 January 2013

Where Should you Invest in 2013?

As I point out to my clients I am no economic expert, nor even an investment expert, in one sense. My role is really to read widely, watch what is happening and then form my own consensus opinion on the various issues relating to investments, and then explain it in terms that people can understand. So here are some bullet points on what I believe will happen in 2013.
Beware bonds!
Fixed interest investments from Gilts to corporate bonds and high yield bonds in particular have had a great run over the last year or two in terms of capital growth. My prediction is that it won't last. In particular gilts have a lot of room to disappoint, throwing in the air the standard approach to asset allocation.
Beware Europe!
There is still plenty of reason for uncertainty in Europe, although the Euro will remain as it is now and with all its current members thanks to political fudging. The basic problems have not been sorted out. That may result in investment values falling at some point in the year when the uncertainty re-surfaces, but in the meantime ride the rally.
Stick with Equities
In spite of wider problems, a diversified portfolio will still do well this year.
The FTSE 250 will do better than the FTSE 100
In other words, smaller companies are in a better position than the bigger ones. But both will be affected at some point in the year by another large fall (as we have had in the last two years). This might be triggered by another Europe problem, something in the Middle East, US political / economic problems resulting from the lack of fiscal agreement, or something else (there are enough candidates to trigger this).
No real UK growth
There is little prospect for a real turnaround in the economy this year. Individual companies will often do well, though.
Britain will lose its AAA rating
We are tetering on the edge of this and it will happen later in the year causing Government borrowing to be more expensive.
Interest rates will stay low
0.5% Base Rate will continue for most - if not all - the year. Inflation will continue to be present, though, and the Bank of England will start to increase the rate in about a year's time.
Emerging Markets will return to form
In 2012 investing in Emerging Markets was disappointing, largely due to Chinese growth slowing. That will turn around in 2013 making an investment allocation worthwhile.

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