With the UK stock market at levels not seen since before the financial crisis, its highest level since Spring 2008, investors have been welcoming the recovery. But for those who have stayed out of equities until now is it the time to invest?
The economic picture in the UK remains uncertain, but the stock market took the recent bad news on GDP in its stride. The recent resolution of the US fiscal cliff provided markets with a lift and Chinas economy now seems to be heading for a soft landing. All this led to the FTSE 100 rising 6.4% in January (the best January since 1989), after we had seen gains of 6% in 2012.
However, is it now too late to get involved? We certainly believe that it is a mistake to try and second guess markets, the short term performance of any index should be largely irrelevant. What is far more important is the long term investment strategy. It is more prudent to consider what you need over the course of your lifetime and then follow a diverse, balanced investment strategy.
A more pertinent question should be are equities right for me? Equities do tend to outperform other assets over the long term, so if you are saving for long term objectives equities should be considered no matter the short term valuations. However you must be prepared to accept the risk of your investments falling in both the short and long term.
A recent poll of 13 large banks including Goldman Sachs predicted the FTSE 100 would finish the year at around 6500. Schroders Private Bank, with whom we work closely, predicts that the index will trade a range between 5800 and 6500 this year.
The banks are confident because equities look well priced, price earnings and dividends have room to rise. In addition the fixed income market (government gilts and corporate bonds) have continued to rise. Some commentators believe we could see a rotation from fixed income into equities and this will lead to further momentum.
With cash rates currently offering at best 2% a year (Nationwide offers an easy access account paying 2%) we can help you decide through a robust risk profiling and advisory process if equities are for you to help you achieve your long term objectives.
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