How should I allocate my investments going forward, especially in a recessionary market? This is the question I am being asked by most of my clients. Now that the world has generally accepted that we are in a global recession, with some debate continuing about the depth and length of the recession, the questions being asked are how best to weather the conditions and what plans should be made to adjust to the changing economic conditions.

The first and most important concern for a lot of people in the current climate is to keep their jobs and a roof over their heads. Anything else is of secondary importance. But if you are able to move on from this concern and are in a position to invest or re-balance your existing portfolio, what areas should you look at?

As with any investment, there are a number of questions that should be considered before doing anything. First, how long are you planning to invest for? With any stock market or property investment, the timescale is important and should really be a minimum of five years.

The next issue to consider is your attitude to risk. If you are a cautious investor, I would suggest that equities may not be the best place to invest. But if you are willing to be more adventurous, equities may well be a good place to invest, since prices are already so low. Just remember that it could well be a bumpy ride for the next year or so.

For a lot of investors, cash is king. Even though there is little or no interest to be earned, the security and capital protection that cash can offer is attractive and can outweigh the lure of growth elsewhere. However, with the current financial crisis affecting banks around the world, it is ironic that what is generally viewed as a safe haven could be more risky if something were to happen to the bank that your money was placed with.

There have been a lot of guaranteed products available in the market offering a guaranteed rate of growth, a guaranteed rate of income or a combination of the two. However, when the guarantees are looked at in more detail, they often require very precise criteria to be met for the guarantee to be honoured, effectively making the product much more risky than it first appeared.

This was further compounded by the collapse of AIG and Lehman Brothers, which underwrote a huge amount of the guaranteed products. As such, it is still unclear as to what investors may get back from their investments.
Property could now be seen as an attractive investment in some parts of the world. It has recently been reported that Gulf residents have been buying large amounts of property in London, taking advantage of the reduced prices and the better exchange rate.

All equities are now trading at a much reduced price from a year ago and could be viewed as a buying opportunity if you are willing to accept that the markets may fall further before they recover. But with a five-year view, I believe there is growth to be had.

Commodities have also been hit extremely hard over the past year, with oil down by over US$100 a barrel. Iron ore, copper and nickel have halved in value. With the decreased price investment, the discovery of new sources of material will slow down, causing the price to increase when the world’s economy recovers.

Another area that can be invested into is currencies. With the large and rapid fluctuations in currencies, it is possible to make considerable gains by buying and selling the right currency at the right time. However, the opposite is also true, and you can quickly lose a lot of money if the currencies move against you.

All investments should be thoroughly considered and investigated before you commit to placing your money into them. You should be prepared to accept the falls as well as the rises and be happy to commit to them for the medium to long term.

As with all aspects of your financial affairs, you should regularly review your financial situation to make sure it continues to reflect your wishes and requirements.