What Should You Do?

Date Published:06/08/2009

Over the past week or so, financial and economic news has been somewhat mixed.

National Saving and Investments, the Government backed provider of savings and investment products have recently advised that the flight to safety is over.

The Investment Management Association also reported that net investments into UK investment funds during the second quarter of 2009, were three times higher than during the same period of 2008.
In addition, net investments during June were almost twenty times higher than in June 2008.

At the same time, we also heard that The Bank of England was not going to expand the programme of quantitative easing and that there appeared to have been some positive effect of this programme so far.
Things must be looking up!

However, other reports suggest that perhaps the garden is not quite so rosy.

The quantitative easing programme may not be working as hoped and expected.

The Government is pressing banks to make credit more readily available to small businesses.

It appears that the banks are concerned about the future for the businesses currently seeking credit facilities.

Interest rates for borrowers are still very high when compared to the Bank of England base rate. This is due to the cost of funds in wholesale money markets which is where banks obtain funds to lend to their borrowers, unless they receive sufficient deposits from savers.

Standard & Poor’s, a major credit ratings agency, has very recently downgraded its outlook on three mortgage lenders. This is after Fitch and Moody’s also downgraded other mortgage lenders earlier in the year.
This is based on concerns that these lenders may suffer with the expected defaults on what are now felt to be bad loans.

Alastair Darling’s forecasts for economic growth were shown to be wholly inaccurate when official figures showed that the UK economy shrank by 5.6% over the last year.

The Office for National Statistics reported a fall of 0.8% in gross domestic product over the three months to June 2009.

This was far higher than the City’s expectations of 0.3% which was based on better retail sales figures and an increased level of activity in the housing market.

Sadly, these figures dash any hopes, and earlier spurious reports, that the UK had pulled out of recession.

The day that these dreadful economic figures were released, the value of Sterling weakened against the US Dollar but in contrast, the FTSE 100 rose for the tenth day in a row.

All of this may cause some investors to wonder what to invest into, and whether or not to invest now.

We always remind clients that if something, including reports and predictions, appears to be too good to be true, it probably is.
I was reminded of this recently when reading the allegations of yet another ponzi scheme.

The difference with this one is that, whilst smaller at ‘only’ £80m, it is UK based.

It has caught out hundreds of investors who were expecting promised monthly returns of between 6% and 13%.

Even at 6% per month, this is an enormous return. Unfortunately for investors it was too good to be true.

This scheme was unregulated and this means that the investors are not eligible for compensation from the Financial Services Compensation Scheme.

Blindly following the crowd into the latest investment opportunity without a proper assessment is not advisable.

In reality, the only sensible solution is to consult your financial planner to establish what long-term returns are needed to achieve your own objectives, assess your tolerance to investment risk and to then construct a properly diversified, low-cost, efficient investment portfolio designed so that over the long-term you have a good chance of achieving the returns you need.

balanced stones