Now we will discuss more "liquid" options; investments which do not involve locking up money for a certain time, and are liquid (i.e. can be traded daily).
Again, some important financial planning rules come into play:
› First, it is always recommended to leave some savings as accessible cash in the bank (at least 6 months income, which you can easily access if required).
› Second, you need to establish your attitude to investment risk and return - the so-called "Risk Profile." This should be fully clarified before entering into any investment.
› Third, your time horizon is a crucial factor. Put simply: how long do you have before needing this money?
For those who have anything between a "medium to high" risk category (i.e. those who are comfortable with volatility and accept higher levels of risk for a potentially greater return) it could now be a very good time to invest in equities (shares).
After the recent falls, some people feel that some equities may be undervalued. Timing the market however is notoriously difficult and so a "drip-feeding strategy" could be used.
Looking ahead with a 5 to 10 year investment outlook, the emerging economies (Asia, Latin America, etc.) continue to look attractive. China and India alone now generate around 40% of the world’s economic growth and there is a rising middle class in these countries. This creates demand for goods, materials and infrastructure.
Demographic trends (the larger proportion of young and educated people compared to retirees), growing urbanisation and increased demand for natural resources (it seems likely that commodity prices such as hydrocarbons, metals and water will rise in the long-term) mean that some excellent investment opportunities are available. Again, a drip-feeding strategy could be the most sensible approach here.
Emerging market equity funds should obviously be in a position to capitalise on this and provide some strong returns. However do not forget that strong domestic demand in emerging countries for products has helped Western companies grow their businesses in Asia and Latin America.
So, despite the public debt problems in the developed world, the private sector has some very strong companies with healthy balance sheets who are in a great position to capitalise on growth in the emerging world.
Many analysts therefore see this as a compelling reason for investing in global blue-chip companies who have exposure to growth in the emerging world. Further, this could also be a way of reducing exposure to the political risk inherent in some of the emerging countries.
The golden rule of investing! It is rarely advisable to "put all of your eggs in one basket" by choosing just one asset class. Even those with a more adventurous approach should balance out their portfolio with some exposure to other asset classes, to ensure diversification.
"Multi-asset" funds, as the name suggests, normally aim to provide investors some exposure to each major asset class, giving the investor active management and excellent diversification.
There are funds in this sector which have disappointed but thankfully there are a handful of very successful fund managers who have delivered the steady growth that they aim for, for example Carmignac Patrimoine, Jupiter Merlin International Balanced Portfolio, and HSBC Open Global funds.
Some of these funds are for "cautious-moderate" investors who have a medium to long-term outlook.
A fixed-interest bond is essentially a loan to either a government or a company, that pay a fixed rate of interest over an agreed period. The risk to the investor of course is that the debtor defaults on the loan.
This risk can be minimised by using a mutual fund which invests in a collection of fixed interest bonds, and there are many available with a long track record of steady returns (Franklin Templeton Global Bond for example).
Investors should be aware that there is still a risk to capital in a fixed-interest bond investment, particularly in the higher-yield sector.
Again the emerging markets are coming into play here with emerging market bonds attracting a lot of interest from investors due to the more fluid credit conditions in these economies.
These types of funds aim to deliver a positive performance (absolute return) in any market conditions, even when markets are falling. They can do this by using a variety of financial strategies, and some have been reasonably successful over the last three or four years, with consistent performance and low volatility, even over the last few months.
Once investments are in place it is important to keep track of them and review at least twice a year.