A New Year – New Challenges

The devastating earthquake and tsunami, from which Bali was fortunately spared, has reminded us once again of our fragility and of the need to prepare for the unexpected. I don’t think I need to say any more about that resolution to make sure you and your family are protected in the form of medical, life insurance etc. Property insurance is important too, although few would have had cover for that particular event. The other point about the disaster is proof again that one should not put all one’s eggs in one basket. If you throw all your savings and assets into a business venture you risk losing all if things go wrong, whether it is a tsunami, fire, terrorist attack, political unrest, legal action or whatever. While a fortune can be made in business, it can be lost as well. Always have other strings to your bow such as property, savings, a pension etc. in a totally different location and environment.

Where will stock markets go this year?

The answer depends on which analyst or economist you wish to listen to! I do not consider myself an ‘expert’ in the field. My job is to try to pull together the views of the real experts, that is, the people who spend all or most of their time engaged in studying and researching the markets, and then provide clients with a form of consensus view to help them plan their investment strategies. The hardest thing to do is predict the direction of markets in the short term. Some will actually do this but wise investors like one of the world’s richest men, Warren Buffet, would never attempt to make short term predictions. He has always believed in looking for value and seeing stocks as a long term investment. However, if you really want to know what the experts are saying, most seem to think this should be a modestly positive, but not spectacular year for the markets. Then there are a few others who foresee the markets falling! So if you need your cash at the end of the year you should play safe and stay out of the markets. If you are looking long term then go in and stay in!

What about currencies?

Indeed, you could have made or lost far more money last year by being in the right or wrong currency than by investing in stock markets. The steady fall in the value of the US Dollar last year ensured very good returns for USD based investors who put some of their assets into other major currencies. Anyone who was Euro, Sterling or Australian Dollar based however would have seen losses in their own currency if they were heavily invested in USD assets. But last year is behind us. What will happen this year? The picture is not as clear as it was a year ago. The USD has made a strong comeback since the turn of the year, partly due to an expectation of higher USD interest rates and partly due to growing confidence in the US economy. The big problems that dragged the dollar down, however, have not gone away. The deficits are as big as ever. If we look at the fundamentals, the USD should fall further, but markets do not always follow logic. The message for us is that while we can anticipate further dollar weakness we cannot count on it. Best as always to be building up assets principally in the hard currency that you are most likely to be ultimately spending.

Where will gold and oil go?

The chances are they will keep rising, certainly in the long term. But they have also been known to fall, particularly in the case of gold, for long periods. Gold and oil-related funds are wise to hold in a long term portfolio and also act as a useful hedge whenever the USD is under attack, but be prepared always for short term losses.

And property?

Current general opinion in the case of most western currencies is that residential property prices will continue to fall, but not spectacularly. It is certainly not the time to speculate; the days of quick profits are probably behind us for a while. But equally so, it is probably unnecessary to panic sell. Property is still an important part of a balanced portfolio.

Is it a good time to invest in Bali?

This is something only you can decide!

Colin Bloodworth is a senior consultant with Financial Partners International. The views expressed are his own. No investment decisions should be taken without proper financial advice. If you have any questions you may contact the writer at colin.bloodworth@financial-partners.biz