Is Now A Good Time To Invest?Written on July 22, 2014 by Kirk Rice LLP
Financial Services QuestionsThe Question:
I have received a windfall from the sale of a painting we had in the family. The Stock Market seems to be providing good returns and I am thinking of investing. If I could obtain a little income to spend on my holidays it would be ideal. I am not risk averse. Do you have any particular views?
Kirk Rice LLP answers:
As you say the common UK Stock Market indices (FTSE100 & FTSE All Share) have increased by 80% or more over 5 years1. As you probably know, not all companies pay dividends (income), and many do not pay them regularly. Therefore, if you held shares that do not pay dividends you would hope they increase in value by enough to compensate you for the wait and lost income opportunity. You would also need to be mindful of how and where your companies generate their income. It’s often said that 2/3rds of the income of the companies in the FTSE100 is generated abroad.
Currently Sterling is seen as a strong currency, which means the same foreign income buys fewer pounds today than last month. Will dividends fall as a result? The Stock Market has reached relatively high levels and inevitably, commentators’ views that we will see a fall soon are coming to the fore. The Stock Market reached its high in December 1999 when the FTSE100 reached 6930. In February this year it reached 6865 and is now at 6712. Does this mean it will fall or rise next? None of this is an indicator of the income you can expect though. What if you loaned money to the same firms in return for regular payments of interest?
A traditional way to lend to companies has been to pool your money in investment funds that buy Corporate Bonds. Bonds are issued by listed companies as an alternative source of funding their growth. Another asset to consider is commercial property and there are funds with diverse portfolios of property assets that pay you regularly from their rental income. Combining different funds avoids having ‘all your eggs in one basket’ and with careful management you’ll continue to receive good income in most Market conditions without the volatility of the Stock Market.
Listed Companies are widely researched and publish regular updates to enable them to be classified into bands of risk and reward. If you invest directly you need to carefully interpret the research to predict the Risks you are buying. We use multiple investment funds in our Portfolios and if an investment fund company goes bust you are protected by the Financial Services Compensation Scheme up to £50,000.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email info@kirkrice.co.uk stating Financial Services Questions in the subject heading and we will add you to our distribution list.
1FTSE100 20/07/2009 to 18/07/2014
The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is no indication of future performance.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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