SO the results for the third quarter in the UK show a return to growth, albeit modest.
This brings to an end the longest double dip recession since the end of World War Two, with some commentators already making reference to seeing the first green shoots of recovery.
But will this really make any material difference to our day-to-day lives?
In the short term, the answer is probably ‘no’ and the talk of recovery may well be quickly forgotten as we face the monumental task of repairing the damage caused by these difficult times.
But don’t misunderstand me; I am not a pessimist, far from it because I think the stock markets are an area that will respond relatively quickly when the economic data is confirmed.
They have been climbing steadily since May and continue to do so.
While there will be ‘corrections’ along the way with short term dips in market values, if confidence levels return to markets following better economic data, we are then likely to see some of the cash reserves held in institutional funds starting to hit the market and it has to be said, there is a herd instinct at work here as well.
It is, after all, a trait of human nature to jump in when things are looking good!
While being over optimistic with investments can undoubtedly lead to taking too high a risk with consequent volatility and even losses, being overly cautious and waiting too long can have just as much of a detrimental effect.
Even though markets are set to continue to rise further, interest rates remain stubbornly low – good news for borrowers, but for those relying on a return on capital for income, the frustrations go on and are likely to continue for many months yet.
We know that on the world economic stage, there are no quick fix solutions and the same is true when considering personal finances.
It takes planning and patience to get the results you may want to see.
Very recently, I have been reminded of the perils of people investing too much of their capital into one investment type, simply because the forecast return is promising the income level they need.
Sadly, quite a number of these funds are currently suspended from trading, often with the income payments having ceased, and the individual investors wondering when they will see their capital back, and in some cases whether they will see it at all.
In many cases, the fund has been suspended to avoid a run on it, which would be bad for investors, and the hope is that they will return to full trading in due course.
The real lesson here is to avoid the ‘eggs and baskets’ scenario and to have a sensible spread of investments across different types and with a phased approach to markets if at all possible.
Richard Alexander Financial Planning Limited is an appointed representative of L J Financial Planning Limited, which is authorised and regulated by the Financial Services Authority in the UK.
Contact him at [email protected]
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