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When it comes to investment, one thing I really notice is what short memories we all have. I know one gay couple who have several investment properties and are in the process of buying another one.
They are mortgaged to the hilt but when I remind them that the property market crashed 15 years or so ago, leaving millions of people with 'negative equity', and suggest that it might be a good idea not to have everything they own invested in property, they look at me like I'm speaking Chinese.
Since they started investing in bricks and mortar, property has done well - very well - and they just can't imagine that ever changing. Never mind that the rise and rise of the market seems to defy both gravity and common sense.
Or take another friend of mine. Four years ago, he was one of the most enthusiastic exponents of the 'tech boom'. I mentioned that there had been booms like this before and they were usually followed by a bust but he was sure it was different this time - tech had changed the world and the boom would go on and on. When the tech bubble burst, he was a much poorer man. But not, alas, wiser - he rang me just the other day to say he was putting everything he could afford into Chinese funds because you couldn't go wrong with
China! Where did I hear that before?
So, when it comes to investment, what s the best approach? I'm afraid it doesn't sound very exciting (unlike tech and Chinese stocks), but the best approach is to diversify. By that, I mean that you should not put all your eggs in one basket - be it property or stocks and shares or whatever.
Depending on your own attitude to risk and other factors such as your age and your financial objectives, you should split your investments between the four major asset classes - cash, equities (stocks and shares), bonds and property.
The reason for diversifying in this way is that your wealth is at least partially protected from crashes. You do not want to be dependent on only one type of asset. If all your money is in equities and the stock market crashes, you have a problem.
The same happens if you own a number of properties (especially if you have borrowed to finance them) and the property market crashes. With property, there is also the risk that you may not be able to find tenants. If your investments are diversified, you can ride out hard times in one particular market.
And sometimes, when one type of asset is doing badly, another is doing well. We've seen this recently. The equity market was in steep decline for 3 years between 2000 and 2003 - the very years when property prices were rocketing and bonds were giving excellent returns.
The way you divide your money between the different types of investment will depend largely on your attitude to risk. More cautious people will tend towards cash, bonds and property, while more adventurous souls will want a higher proportion of equities.
For most people, owning their own home is their only holding of property but it is also possible to invest in the property market through unit trusts (which can be held tax-free in an ISA) and pensions. You can invest in bond funds the same way.
Equities markets worldwide perked up after the Iraq war and the recovery seems to be under way. If you are underinvested in equities, this may be the time to dip your toe in the water. You can invest up to £3,000 in a mini equities ISA (together with £3,000 in a mini cash ISA) or, alternatively, you can invest up to £7,000 in a maxi ISA. You can put equity, bond and property funds within the tax-free ISA wrapper.
But if you want an ISA for the current tax year, you will need to sort it out soon. You should contact an independent financial adviser, who can recommend a mix of funds that suits you.
And please, not everything in China!
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Maggie Fleming
