The action-packed year has finally come to an end. Year 2008 witnessed everything from financial turmoil to sliding stock markets, rising inflation to high interest rates. So, as you get set to usher in 2009, Wealth tells you what strategy to adopt while investing, where you can invest and for how long.
Scenario 1: I want to invest for less than three years
The best option – debt
Outlook:
In the year 2008, debt funds (short term income schemes) have already given a return of 25 per cent and the Government is also signaling lower interest rates.
Director, Wonderland Investments, Sandeep Shanbhag says, “Inflation is expected to become zero by June/July 2009. So, with inflation under control, the Government will give a thrust to growth of the economy, which will in turn bring down the interest rates.”
Action:
This is the best time to invest in debt funds. Moreover, you may also want to lock yourself into high interest fixed deposits before interest rates fall further.
Certified Financial Planner, Yogin Sabnis says, “The best debt products to consider at this point in time, say for at least a one year period are the category of funds called income funds and Government securities funds. These funds have investments in corporate debt and also Government securities which are actively traded. In a falling interest rate scenario these investments acquire a premium because they have been bought at higher interest rates and now as the interest rate falls they become coveted. This appreciation of the bond prices gets reflected in the NAV and the returns are invariably in double digits.”
Equities: only for capable traders
Outlook:
"The year 2009 is expected to be another volatile year," says Certified Financial Planner, Anil Rego.
Action:
"If you are a short-term trader," Rego suggests, “You can capitalise on bear market rallies that can be as large as 30 to 60 per cent.”
Tip: Do this only if you have enough knowledge about the equity markets and the appetite to take risks.
If you are an investor and not a trader, equity is a strict no-no for the short-term. In the short term, of less than three to five years, equities can be volatile.
Commodities: not now
Outlook:
Commodities market has been volatile in 2008 and it’ll be no different in the coming year. “Demand uptake for gold does not look good in the Western economy. And, Oil prices have already fallen to $35 per barrel and it could go down further."
Action:
"It is ideal to stay away from commodities market,” says Shanbhag.
Home buying: Can wait
Outlook:
Property prices are expected to fall further by 35 to 40 per cent in the coming six to eight months.
Action:
Investing in real estate for shorter period is a bad idea. Apart from further corrections, liquidity is very low, that is, it will be difficult to sell off quickly when you require the money. Moreover, if you have short-term time frame in mind, this is not the time to get into this asset class.
If you want to buy a house to reside, experts from Knight Frank Property consultants recommend that you wait, if possible, for a year or so and consider living in rental property.
Scenario 2: I want to invest for more than three years
The best option – Equity
Outlook:
The year 2009 is expected to be another volatile year. The equity market does not look good and it is not likely to recover within a year. Our markets have fallen by 50 per cent after FIIs withdrew $15 billion. However, the market will look healthy in five years time.
Action:
“Stocks are for the long-term, that is 5 years and above. This belief holds good in any type of market. Any investor beginning with that mindset will be a winner. The year 2009 is a year of opportunity because a number of stocks have been hitting historical lows. The good news is that even blue chip stocks are available at P/E ratios below 10. But to taste the fruits of this labour, you may have to wait at least another couple of years,” says Sabnis
.
Debt: safe but not sure
Outlook:
It is difficult to foresee interest rate movements beyond a year's time frame. However, it'll come handy to remember debt products do not beat inflation in the long run.
Action:
If you cannot take risks, you can lock yourself into high interest debt products now because interest rates are likely to fall in 2009. But again, remember that inflation will drag down your real returns.
Commodities: not really
Outlook:
As Shanbhag points out earlier, commodities are likely to face difficult times in 2009.
Action:
So this may not be the best year to enter this asset class even if you want to stay invested for the long term.
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