The financial market and the economy are now entering a new phase full of new risks and opportunities for investors. It is evident enough that unemployment levels are declining and there is hope that inflation will start to pick up.
As it is with economic transitions, this moment of change is creating new opportunities in the financial markets; the landscape is shifting and investors need to come up with smart ways to invest their money. Where should you invest your money? Here are the 5 areas experts think you should consider right now:
As the global economy recovers from the recession, the fear of deflation has been replaced with concerns about possible inflation. For some time now, the price of commodities such as oil, gold, land packages and agricultural products has been on an upsurge. Most businesses have not been able to pass down the high costs down to the consumer but there is a likelihood that all this will change. While some experts rule out the possibility of inflation being a major problem, you should not throw caution to the wind; inflation cannot be ignored!
According to Kristi Mitchem, a senior managing director working with the State Street Global Advisers, real assets such as commodities could provide protection for your investments in an inflationary environment. Here is a word of advice from him; rather than try to invest in the next ‘hot’ commodity, tap into an extended exchange-traded fund or a mutual fund and invest in a range of different commodities.
You can also invest your money in REITs (real investment trusts). Mitchem pointed out that certain kinds of REITs could provide you with protection against an inflationary environment. He went a step further and warned against REITs that comprised of 15-year leases claiming that these offered no protection at all.
3. Inflation-Protected Bonds (I-Bonds)
Inflation denies you the opportunity to reap from your investment in traditional fixed-income securities. This is due to the fact that the money you earn in interest is not as worth as it was during the time you made that investment. This phenomenon has prompted some financial institutions to come up with products that are shield credit from the depredations of inflation.
Treasury Inflation-Protected Securities (TIPS) are one way to go about this. TIPS come at fixed interest rates but the principal may fluctuate. You can also purchase I-bonds which are some form of savings bonds whose interest rates fluctuate while the principal remains constant.
4. Australian Dollars
Steve Persky, managing partner of the Dalton Investments was quoted saying, ‘One way to hedge it is with the Australian dollar.’ True enough, the Australian economy was unscathed by the global recession; it did not fall victim to the credit pressure which faced much of Europe and the USA. So, if you want to invest, you now know where to put your money.
5. Municipal bonds
The municipal bond market is attracting more investors by the day. Most issuers are able to repay their obligations without any problem and the returns are good; a 10-year bond may yield about 4 % interest. The secret to success is simple: learn to protect yourself from weak issuers.
Of course there are many solid choice to invest your money, however these are some of the areas where the returns can be quite healthy, and the risk is also not too large. Property is also always a solid choice if the investment is sizeable to purchase a house land package for development. For this type of investment you need to be looking at quite a large deposit, along with the unstable property market are both key reasons ‘property investment’ did not make the top 5 list.
John is a keen reader of investment property news and is very interested in the economy.