Investors who bet their money in 2006 – 2007 would have lost money in 2008. In the current scenario where most markets have collapsed, people are left wondering what to do in 2009. Should I invest in shares/real estate/mutual funds/fixed deposit schemes? The confusion and questions are endless.
If you go by speculation, then the Sensex may fall to lower levels, around 7,000 - 8,000 and the worst is estimated to hit by the middle of 2009. Also, the global economic recessionary trend and the increasing warnings of job cuts have further sensitized the risk perception of the layman investor.
According to Daya Paul of Nile Financial Planners, the following avenues may be considered for the safety of your money:
- Considering the current interest rates scenario - the rates are falling. Falling interest rates make a good opportunity of investment in income funds. Income funds are type of mutual funds that emphasize current incomes, either on a monthly or quarterly basis, as opposed to capital appreciation. Such funds hold a variety of government, municipal and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks. When we believe that the rates have reached their peak and can only come down, then income funds are recommended.
- My favourite - Bank deposits are currently the most attractive investment option as fixed deposits are offering higher interest and steady returns on their deposits without having to track their performance. In case you’re thinking of taking a corporate deposit, then make sure that the credit rating of the company is properly scrutinized. However, like cash, bank deposits also don’t provide protection against inflation and taxes.
- One of the preferred options for active investors is Equity. Undoubtedly, there are risks involved here, in order to get decent returns on investment. Don’t forget that time is the biggest risk factor in equities. If you have a positive outlook, then it would be a great opportunity to buy stocks and mutual funds available at highly discounted prices, but one must keep in mind a fairly long-term investment horizon. Also, researching the technical data or fundamentals of the company is a must (e.g. previous years balance sheets, profit and loss accounts, etc). Most of this data is easily available on the Internet.
- Real estate has always been an attractive option for the investors as it is an appreciating asset. Buying flats/apartments may not be a good option right now as the industry is expected to have a further correction in the coming months and also selling flats/apartments can be a painful exercise in case of liquidity requirement.
Currently for short-term objectives (1-2 years), bank fixed deposit may be the best option. I ended my previous post, “Is it a good time to invest in the Art market?” by saying that the safest place for your money is in the bank. I was not wrong.
- After suffering major losses in both the stock and realty market, I have chosen to keep my money (whatever is left of it) in the bank.
- If you are looking to be invested for the medium term (3-5 years), mutual funds can be a good option for.
- For long term goals (10-20 years) equities/real estate can be chosen.
Looking at the way things are going, who’s to say where the economy will be in 5 – 10 years. No one predicted the current global economic crisis and no one will predict anything for the future either.
My advice for this year is - be prudent with your money. Greed is the enemy. Be happy with lesser returns on your investment. Don’t take many risks. As a wise person once said, “the best way to double your money is to fold it in half and put it back in your pocket”.
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