Recovery Position

22nd January 2009

You forgot to mention that the value of your home fell by anything between 14 and 17 per cent, depending on which index you believe to be accurate. Oh, and you forgot the bit where inflation went ballistic, quickly followed by fears of deflation, oil and food prices skyrocketed and the Government stepped in with fiscal and monetary stimuli to try to prevent the recession to which you refer.

I cannot guarantee anything better in 2009 but, being the eternal optimist that I am, I rather hope there will be some improvements.

You may feel that as a result of Government actions, your cash deposits are safer with your banks but the bad news for 2009 is that you are likely to see much lower interest rates payable to you. When you deduct the income tax payable on interest and whatever inflation rate applies, you are likely to get a negative real return.

In the stockmarket, it is generally held that the pricing mechanism for shares works ahead of the economy. In other words, a rather nasty recession may well have already been priced in.

Some commentators believe we may have reached something like the bottom of the bear market. I will not be so bold as to claim this but I do suspect that if you are holding shares for the long term, now may well represent a buying opportunity. When the equity markets recover, they tend to do so quite rapidly, with most of the profit to be made at the start of the recovery.

Interest rates have fallen and that is generally beneficial for fixed-interest securities. The latter seem to have priced in a very substantial default rate, so my view is that fixed-interest securities are due a bit of a rebound in 2009. I cannot put a date on it but I would tend to be as bullish about corporate bonds, for example, as I am about equities.

Two areas that I believe will continue to struggle in 2009 are cash and property, both commercial and residential.

For the former, it still makes sense to hold on to enough to cover emergencies but, as an investment asset class, cash is going to produce a lot less income in 2009 than it has for the past few years.

Property still represents a solid long-term investment. Few people lose out on property investments in the long term but many lose out in the short term. The worst aspect of economic recession must be loss of jobs, coupled with losing a home.

Property and shares have similar attributes, in that they should only be considered as long-term investments.

I rather hope that when we review 2009 it will be much more pleasant than our review of 2008.

Optimism is nice but stick to the investment basics. Be diverse and spread your investments across all asset classes. Invest for the long term, not the short term.

Review your investment and pension portfolio during the year and remain aware of what is going on and definitely take advice. Yes, 2009 might be a better year.

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