Titanium Quarterly Update June 2008
Over the last couple of months, equity markets have remained volatile, although more resilient than some had expected. We are now seeing the effect of the credit crunch filtering into the real economy as consumers tighten their belts.
Unemployment has started to rise, increasing to 5.3% in the 3 months up to April. The property sector has been hit particularly hard and we expect to see house-builders and estate agents laying off employees in significant numbers over the next few months.
Mortgage rates are still increasing, making it difficult for borrowers. There is no realistic prospect of a cut in interest rates, in fact increases are far more likely as the Bank of England looks to fulfil its primary role of keeping a lid on inflation.
That leads us to the real development of note for most of us, the rapid increase in the real rate of inflation driven largely by rising fuel and food prices. Although the official inflation figure is 3.3%, for most consumers spending a significant amount of their income on food and fuel, it is generally accepted to be much higher than this, typically 7 to 9%.
Inflation is a real enemy for investors as it can erode the purchasing power of cash incredibly quickly. If inflation averaged 5% over the next 10 years, £10,000 will be worth £5,998 in today's terms.
All of this sounds very gloomy but if investors are aware of the issues we face it can be taken into account when planning an investment strategy.
There are a number of alternatives to cash depending on investor timescales and whether they would be prepared to consider other asset classes.
Investors who are extremely risk averse could consider Index Linked Savings Certificates from National Savings and Investments. These are tax free, so even more attractive to higher rate tax payers.
Guaranteed Income Funds
For investors who do not require the security of a Government backed investment but prefer cash based returns, there are some attractive investments available from time to time. We have had a lot of interest in this fund and if you would like more information on it please do not hesitate to contact me at email@example.com.
If you can tolerate some volatility in at least part of your portfolio you should consider holding some of it in gold. We have introduced significant exposure to gold in all of our portfolio recommendations.
We have been keen on Japan for over a year now. Japan is the only major market that will massively benefit from inflation. Unlike Western markets, the Japanese economy is in good shape looking forward, with a growth forecast of 3%. At the moment Japan looks cheap and now the case to invest is compelling, with relatively little downside risk.
The outlook has become quite bleak for Western economies and our view of UK prospects has become less optimistic over the last couple of months. Further afield, we have recommended that investors with some appetite for risk invest in funds with exposure to Africa as potentially the next sector to see dramatic emerging market returns. We have also made a recommendation to invest in a fund with exposure to oil related companies as, over the last few months it has been impossible to ignore the rising cost of oil.
These are interesting times for investors and there are many opportunities for the bold and the cautious alike.
If you're in the borough of Richmond and would like any further information on anything in this review, please do not hesitate to contact David Tilley at Titanium Financial Management without any obligation on 0800 633 5380 or firstname.lastname@example.org.
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