Does the stock market have the X Factor? Vote now
Shares have rocketed since March. Is it still worth getting in on the act now? Or will you end up a loser?
Saturday 08 August 2009
The Footsie reached its highest point of the year this week, prompting hopes that it could soon top 5,000. In fact, the FTSE 100 is standing at its highest level since last October. Since slumping to a low of 3,512.09 on 3 March, it has been almost all upward movement, which means investors who were brave enough to get in then are now sitting on handsome profits.
But will markets continue to climb? Thousands of investors believe it will and confidence is booming as people consider flooding back into the market in the hope of further gains, according to the Investment Management Association (IMA). Its Great British Investor survey revealed that 49 per cent of people believe now is a good time to invest.
"Although investors are still cautious, our latest report shows signs of increasing investor optimism compared to a year ago," says Richard Saunders, chief executive of IMA says. "If investor confidence continues to gain momentum, investors may start returning to the markets in the near term. IMA's sales statistics suggest this may have started, with the last six months showing healthy inflows."
Lloyds TSB Wealth Management's Investor Outlook report published this week backs that up with news that investors have an average of £28,000 invested in the markets today, compared with just £24,000 in December 2008.
"In the past few months, we have seen signs of stabilisation in the markets with some commentators suggesting the first 'green shoots' of economic recovery are starting to push through," says Prabal Gupta, investments director at Lloyds TSB UK Private Banking. "The signs may be small, but this confidence seems to be infectious. Rather than simply talking about recovery, investors are putting their money where their mouth is and cash is starting to flow back into the FTSE."
The problem for anyone thinking about dipping a toe back into the market is that no-one can predict with any certainty what will happen next. One view is that the recovery will continue and the Footsie will climb back above the 6,000 mark within the next two years. Another valid view is that we're heading for a "double dip" with markets set to slump again soon.
Investors are tempted by the fact that getting into shares when markets are recovering can mean huge rewards. For example, according to analysis of Bloomberg data by Axa, anyone who invested in the FTSE All Share Index after the dot.com bubble burst would have seen a 74 per cent return over five years. Those who invested after the stock market crash in 1987 would have seen a 57 per cent gain in five years. Going further back, after the oil crisis of the mid-70s, investors would have seen returns of 240 per cent over five years.
The prospects of pocketing such profits are tantalising, but anyone succumbing to the temptation to invest now could be cursing their actions if markets do slump again. Rather than piling into the shares or sectors that have already been successful, it may be wiser to research the market more thoroughly to find areas that are less likely to collapse, even if there is another slump.
For instance, anyone just looking at the figures could be tempted by shares in TV company ITV. Back in March the shares fell to 17p. Since then they've been on a very strong run and this week climbed to around the 44p mark, despite results which revealed considerable losses. As one analyst says, they are a "death or glory recovery play". In other words, the profits could be great, but the losses could be catastrophic.
A much safer approach is to pick a unit trust or investment trust that invests in a wide variety of shares or other investment. It can be a way to spread the risk and lessen the impact of any future decline.
"I don't believe it's too late to get in on the stock market rise, but I expect there to be plenty of volatility ahead," says Ben Yearsley of investment experts Hargreaves Lansdown. He favours defensively-positioned opportunities. "I'm topping up my holdings in funds that haven't really moved, such as Neil Woodford's Invesco Perpetual Income or High Income funds and others that are more defensively positioned, such as the First State Global Listed Infrastructure fund. If there is a pullback in valuations, I would expect these type of funds to do well."
Brian Dennehy, of advisers Dennehy, Weller & Co, is even more cautious. "Our technical indicators suggest the rising trend in the Footsie is a trend that is getting a bit tired, and fundamentals don't look screamingly cheap." He warns that there may be a pull back in the markets soon. "We could see a pull back all the way to 4,100, before the assault on 5,000 begins – and then we get nervous all over again!"
He advises sticking with corporate bond funds that have been outperforming the markets since March. "I'd also drip some money into India where the trend is also extended – but liquidity can extend trends much further than you expect in these high risk/high reward markets."
Martin Bamford, of financial planners Informed Choice, believes investing in the stock market should be a long-term decision rather than trying to make short-term profits. "We rarely encourage investors to try and time the markets, but we might see some profit-taking over the next few weeks which could present a good buying opportunity. But the only real answer for any investor who feels they have missed out on the best of the stock market recovery is to invest now and stay invested," he says.
Anyone wanting to expose themselves to the potential gains – or losses – that the stock market currently offers should drip-feed their cash in, advises Adrian Lowcock, senior investment adviser at Bestinvest. "Investors should not get sucked into the rally, as markets appear to have got ahead of themselves," he says. "However, equities do represent fair value at present and, while markets may not go back to the lows of March, there is a lot of good news priced in that even a small amount of bad news could see some profit-taking. Investors should drip-feed money in and if markets head back down treat these as buying opportunities."
He points out that the recent stage of the rally has occurred on the back of economic data which looks good because it is being compared to data from six to nine months ago when activity was at its lowest. "However, we are not seeing things go back to levels prior to the recession. For the recovery to gain that sort of momentum, at some point the consumer will need to respond with increased demand. This looks less likely to happen with unemployment still rising and the benefits of low interest rates not being passed on to the consumer," Lowcock warns. "That said there is still a lot of money sitting in cash waiting to be invested, which could cause the rally to gain further momentum."
Getting the timing right when investing in markets is impossible but that may not be that important, says Mike Kellard, chief executive officer of AXA Winterthur Wealth Management. "Time in the market is nearly always better than timing the market. People should consider their attitude to investment risk, and explore many of the investment opportunities available. There are alternatives to the extremes of cash and equities, which offer some cautious exposure to the markets over the short to medium term. Before proceeding, however, independent financial advice is always a good idea."
History tells investors to keep their nerve when headlines scream 'crisis'
Rain doesn't stop profits at Andy Murray's £600-a-night hotel Cromlix House
Five Questions On: GB Energy's new tariff
Santander's Kitti app aims to bring the good old cash kitty into the 21st century
Questions of Cash: 'I want a refund on my TV licence payments but they've turned my claim into a soap opera'
- 1 Windows 10: man updates PC, wakes up to find porn slideshow on repeat
- 2 The 'world's most beautiful vagina' has been debunked by science
- 3 John Green schools morning show hosts after awkward interview with Cara Delevingne
- 4 Bulletproof armadillo puts Texas man in hospital after shot bounces off hard shell
- 5 Doctors declare war on Jeremy Hunt over weekend working 'myths' amid plan for seven day NHS
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
Is Britain really full up? Are migrants taking our jobs? Leading academic answers the most common anti-immigration claims
Calais Migrant Crisis: Deputy Mayor of Calais labels Cameron's use of 'swarm' as 'racist' and 'ignorant'
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...
£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...
£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...
£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...
Day In a Page
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.