Don't get stuck in a UK rut - where to invest in 2010...

Published on 19th January 2010

Many savers are far too narrowly focused on the UK investment markets and this is ensuring that opportunities to exploit growth elsewhere are being missed. At the same time over-exposure to assets in a single country leave investors completely at the mercy of fluctuations in that one market. Here, we take a look into our crystal ball at where might be best to invest over the next twelve months and beyond.

There can be no denying that 2008/9 was a volatile period for the stock markets, with once trustworthy organisations falling like dominoes and Governments worldwide struggling to keep a lid on the problem. In the UK, we saw so called 'quantitative easing' pump £200 billion of liquidity into the economy in an unprecedented effort to prevent financial meltdown and interest rates were lowered to just 0.5%, their lowest point in over 300 years of the BoE. However the UK will be the last of the large economies to exit recession as amongst others the USA, Germany and Spain all announced growth at the tail end of last year.

This late escape from negative GDP numbers is, in some way, a result of the little acknowledged fact that our economy did not shrink to such a dramatic extent as other economies that are more reliant on exports of manufactured goods but it does underline the case that the UK may not be the place to be invested in over the next decade.

It is a natural reaction in a global recession to withdraw investments from what may be considered to be more risky emerging markets and put all of your eggs into a UK-shaped basket but in this downturn the approach would have been the opposite of what should have been done.

Diversification is the key

Our mantra is that 'its time in the market rather than timing the market' that is the key.

However we do also advise clients that successful investment is all about spreading the risk across a diverse portfolio and now is undoubtedly the time to rebalance in favour of less UK-centric investments to exploit seismic shifts in the global economy.

Spreading your bets across a variety of funds also allows you to be more adventurous in your choices and to take risks on what may seem rank outsiders such as technology shares that have had a torrid decade but now have the opportunity to grow significantly over the next 10 years The less of your overall pot that you have invested in any one area, the less risk that your investment carries and this will allow you to leave it to grow over time, without worrying about short term fluctuations in the market.

It is also fool's game to try and invest large lump sums into a fund that you believe is about to come good and as such drip feeding a monthly or quarterly amount into your investments can make all the difference.

So where looks best to invest over the next decade?

Contrarian logic suggests that commercial property offers a promising option for investors that are not adverse to risk. Prices have started to stabilise and whilst rents don't seem to be rising at the moment and this may need a long term outlook, Commercial Property should definitely play a part in any portfolio as it is a great diversifier. Size matters in property funds and so for those that are less open to risk, companies such as Aviva offer products that have critical mass and tend to be more liquid.

Regardless of your risk appetite it is important not to turn your back on the emerging markets irrespective of very strong past performance last year and through the Noughties. Brazil and India in particular have the potential to offer excellent returns over the coming years as corporate governance and the rule of law are relatively well established and there's still massive growth potential in terms of further industrialisation and the increasing wealth of the population.

When making any investment decisions it's important to remember that changes to the interest rate climate or withdrawal of the various Government support initiatives such as quantitative easing over the next year might have an impact on the world economy and the value of your investments. This is especially relevant in the UK considering that we may have a change of Government this year so there may be a number of political influences having an effect on the stock market both in the short and further into the decade that mean that the time to act on rebalancing is now.

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