Where will the market go next?

It’s impossible to predict exactly what will happen to the investment market in 2012, but there is a way to get a clearer picture of what could be in store. NS&I asked a panel of financial advisers how they would invest £10,000 in 2012. Here are their answers.

Their panel consists of:
Dr Robin Keyte, Director, Chartered Financial Planner, Keyte Ltd
Keri Carter, Certified Financial Planner and Director at Broadway Financial Planning
Adrian Lowcock, Senior Investment Adviser at Bestinvest (Brokers) Ltd.

Q: If you had £10,000 to invest, what would you do with the money in the current economic climate and why?
Keri Carter (KC): ‘I would take a cautious approach and invest part of the £10,000 in deposit accounts. They may provide returns of approximately only 3% but they also provide capital protection. I would put the remainder into a low-cost tracker fund providing global exposure. This equity investment would help me keep pace with inflation.’
Adrian Lowcock (AL): ‘I would put around half into a stocks and shares ISA. The other half I would hold in cash and use to top up my ISA when opportunities arise in the stock market. Keeping the money outside of the ISA wrapper means that I don’t risk wasting my allowance should I need to dip into my cash savings.’

Q: Given the current state of interest rates, are there any alternative investments you might consider?

Dr Robin Keyte (RK): ‘I would use Which Money or MoneyFacts to find the best deals on interest-bearing accounts. For a three-year or five-year cash investment I would also consider Zopa who offer a unique approach to borrowing and lending without the use of banks.’
AL: ‘Cash remains very unattractive, interest rates are somewhat below the rate of inflation, so in real terms you are losing money holding cash. The main aim of all my savings and investments is to ensure that I beat inflation, so I’m looking for investments that generate a real return and a decent income.’

Q: Would you put any of the money aside in a cash savings account?
RK: ‘Yes I always include cash savings in portfolios to ensure there are emergency funds available and a certain degree of liquidity. Cash ISAs are a good option and I am also a strong supporter of NS&I Index-linked Savings Certificates, which provide excellent tax-free, low-risk returns.’*
AL: ‘Whilst in real terms you are losing money holding cash, I would still hold some cash in a savings account for an emergency and give some flexibility to your finances.’

Q: What action would you take if you started to see a dip or loss in your investment?
‘If the values started to drop, I would not make any changes to the strategy. It’s important not to make any knee-jerk reactions and stick to your long-term investment plan. All too often, investors tend to sell their investments once the values have dropped, only to buy them again once the values have risen.’
RK: ‘Investments can go down as well as up, so I would not immediately sell out of everything and crystallise the loss. I would consider rebalancing so if shares have gone down, a small proportion of the other assets (like fixed-interest investments) would be sold and re-invested in shares to maintain the asset allocation strategy.’

Q: Do you have any tips on how to investigate the current status of the investment market at any given time?
‘First of all the most important thing to do is get your investment objectives and goals right and make a note of them. In uncertain or volatile markets they are worth referring back to. It will help you ignore short-term volatility and not panic when markets are weak.’
KC: ‘There is a whole host of websites that provide up-to-date information on investments and their performance. The Telegraph website lists plenty of information in a straightforward manner. For more specific information, I tend to favour trustnet.’

NS&I asked the questions and the experts have spoken. We hope that this gives you a better idea of what could be in store for the investment market in 2012.

*not currently on general sale