Major Concerns for Investors Right Now

Global concerns that investors should be aware of before they leap into any future investments. Read,  understand and contribute.

Investors, Sit Up and Listen!

Following on from my previous post I feel the need to briefly discuss major global concerns that investors should be aware of and have an opinion on right now. I would encourage any readers to voice their opinions in the comments box below.

Christine Lagarde is the Managing Director of the IMF (International Monetary Fund). This basically means that she knows a thing or two about the Global Economy. Christine recently sited three major concerns for the global outlook at the moment.

Major Economic Concerns

Christine highlighted the following three issues:

Picture from freedigitalphotos.net
3. Slowdown in the rate of economic growth in China. Whilst China appears to have an incredible rate of growth, between 8% and 9%, this is actually a significant slowdown since the previous 3 decades in which they saw double digit growth. This could have large implications for global imports and exports, meaning that the rising middle class in China is not expanding as quickly as everyone had hoped. Investors may be forced to look elsewhere for new, and more rapid rates of growth. Examples include parts of Africa, Brazil, and Turkey.

2. The second major concern that she highlighted was the ever growing credit crisis in Europe and falling confidence. Please read my previous article on the Eurozone Crisis for more information. Essentially, a core part of Western Civilization is no longer the centre of growth and innovation in the world. The tide has shifted and the power comes from the East.

1. The biggest major concern in the world economy at the moment is the US fiscal Cliff. To put it simply, America is spending so much money (vastly more than they receive in taxes) that their level of debt is reaching alarming levels. Automatic tax rises and spending cuts come into action at the beginning of the coming year if nothing is done. Clearly action needs to be taken, and with the oncoming election in November the outlook for the future of the American Economy may all swing on the outcome of that election. Republicans want to avoid tax rises and to cut spending, whereas Democrats want spending cuts and tax rises. Regardless of the outcome, if America isn't careful they could see a vast slowdown in the rate of economic growth. This has implications for the whole world, particularly for us in England since America is our biggest export market.

A Further Investor Concern

Whilst Christine offered up several major Economic concerns, I would also argue that she missed out a couple of others:
  1. If there are any further problems in the Middle East, such as a war between Israel and Iran, this will have huge implications for the price of a barrel of oil. We could see oil rise to $150 a barrel or more! This affects costs in almost every industry all over the world.
  2. Food prices has been soaring over the past few decades as the population of the world has boomed. The next 50 years could see even greater price rises, unless there are huge innovations in food production. This is unlikely to happen.
Readers, are there any other major concerns for the global economy right now that investors should be aware of?

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Should I reinvest with Investec?

Investec Fund: should I reinvest in a fund that previously demonstrated a high success rate for me personally or are there a couple of things I should consider first?

Investec Investing

In the previous post I discussed my favourite and most successful fund investment, the Investec Kickout scheme. Please read my previous article for more information.

The investment will mature on 14th September, assuming the stockmarket doesn't have a major crash (over 10%) in the meantime. I will make a healthy 10.5% profit for my one year investment, on which I will pay no tax due to its ISA status.

The Big Question

Following the success of that investment I have one big question on my mind right now: should I reinvest in the same fund. If I were to reinvest and the product was a success I could realise upwards of 13% or more return on my investment - not to be sniffed at.

If I reinvested I would gain the benefits of a compounding effects as I would be gaining interest on a much larger investment due to the 10.5% added capital.

Considerations When Reinvesting

There are a number of issues to consider in this decision:
  1. If I reinvested I would be growing a tax free investment without having to take anything away from my ISA allowance, since the pot of money is already in ISA form.
  2. The success of the product assumes that the stockmarket will be bigger than the starting index (probably around 5700-5800 by the time the product commences) when the product matures. This could be any time within the next five years.
  3. Existing concerns such as those in the Eurozone make the investment quite risky. If any other country was to default in the Eurozone or there was any other serious details to emerge we could see a sudden fall in the economy and in the Stockmarket.
  4. The OECD has just predicted that the UK will see a shrinking of growth in  the economy by 0.7% this year. This does not bode well for the future of the stockmarket, as performance in the stockmarket tends to be linked to actual economic data.
  5. The FTSE100 is at quite a high level at the moment. Today it closed at 5794.8 near the highest levels seen this year (5807.57). Investment now would probably mean buying at the top or else an expectation of significant growth in the stockmarket since the crash in 2007/8. This seems to be a lot to ask.

Conclusions

As I've waffled on I've come to realise that to reinvest at the moment would probably be  a major mistiming of the market. Whilst I know that I recently wrote an article in which I stated that share price and timing shouldn't matter, I believe that with an index it should be a concern. Clearly the stockmarket is performing abnormally well at the moment. To reduce my risk of the product not maturing I should at least wait until the stockmarket has had another dip. This could possible happen if there were any major world concerns, e.g Presidential Election (Nov), Potential Oil Crisis (War in Middle East), or further Eurozone Crisis. Clearly I am not happy to invest right now.

Readers, what should I do with the capital in the meantime? What would be your recommendations?




Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Investec Fund

The Structured Product that I like most and have had most success with. Here I explain how it works and the pros and cons of such a Plan.

As I wrote in my Multimillionaire Road Plan Review 2 I own a structured product called the Investec FTSE 100 Enhanced Kick-Out Plan 22. The product is on course to mature on the 14th of September yielding a healthy profit of 10.5% on my investments, boosting my capital to £8,775.91. This is clearly a good return in 12 months, especially considering that it is in ISA form and so I don't pay any tax on it.


How does the Structured Product Work?

Picture from freedigitalphotos.net.
This product has a zebra as it's logo!
The product is fairly straight forward to understand and is considered a balanced risk product. First, you deposit your money with Investec. Investec then take an Initial Index level of the FTSE 100 on a predetermined date. Mine was 14th September 2011 when the FTSE 100 stood at 5227.02. If exactly 12 months later the FTSE 100 is even 1 point higher then the product is finished and you are paid the predetermined percentage plus your original capital. In my case I received 10.5%. However if you were to invest today you could earn 13% in 12 months.


But what if the FTSE 100 is down on the previous year?


Don't Panic! If this occurs, the product runs for another 12 months and if the FTSE 100 is then above the initial index then you receive double the original percentage. In my case that would have been 21%. Fortunately I did not have to wait another year. Clearly the only draw back is that you don't receive any benefits of compounding.


But what if the FTSE 100 is down again?


Don't Panic...again! The same process runs again at the end of years 1, 2, 3, or 4 depending on where the FTSE is. Each time you increase your return. So after year 3 it would have been 31.5% and year 4 it would have been 42%. If the Plan does not mature early and runs for a fifth year then you receive a return of 120% of any FTSE 100 growth.

Are there any drawbacks?


If the FTSE 100 has fallen by more than 50% of the initial index level at any point during any of the years that the Plan has run for, your initial capital is reduced by 1% for every 1% the FTSE 100 is below the initial index at the end of year 5. However, if the FTSE 100 has only falled 49% or less below the initial index level during the 5 years then you receive capital in full. Of course the cost of this is that inflation has eaten your savings and you have lost in terms of the opportunity cost of keeping your capital in cash or invested elsewhere.

Conclusions on the Structured Product

I am a big fan of this type of product. It gives exposure to equities whilst providing protection against some risk. This was the second time I have held a product such as this and it has been successful both times.

Readers, what do you think of this financial product? Would you invest in something like this? Would you like to know more?



Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Free Foreign Withdrawals

Free foreign withdrawals are still possible. You just need to know where to find them. Metro bank in the Uk provides it's basic account holders with the ability to make free foreign transactions abroad. Here I outline why I recommend it.

Unfair Payments!

I have often found that one of the biggest annoyances of going abroad on holiday is being charged anywhere between 3-5% to withdraw your own money or pay for things with your debit card. This is particularly annoying considering you're already being charged a commission on the foreign exchange. Very few banks help you to get round this problem.

Don't Pay for Foreign Transactions

Picture from freedigitalphotos.net
As many of my regular readers know, I have been travelling around Nepal and Northern India for the past 5 weeks. Although both are relatively cheap countries to travel round (I highly recommend it!) I managed to find an easy way to avoid charges whilst using my debit card. A new bank has recently been formed in the UK. Metro bank has branches in London but is looking to expand to other parts of the UK. Fortunately signing up for an account couldn't be easier and if you're not from London, take 30 minutes out of your day next time you're in London to do this. You visit one of the 12 (and growing) sites in London and within 30 minutes you could have an account up and running with them. They give you the debit card and online banking details on the day! It's incredible that you can have an account up and running that quickly.

The Brilliance of the Account

The biggest benefit of the card, in my opinion, is the free foreign withdrawals and transactions, perfect for going away. Furthermore they have great customer service and have been extremely helpful. In all honesty I went in to the branch in Borehamwood for the sole purpose of using the account for when I go abroad. However, I have been so impressed with the service that I'm inclined to keep the account now that I'm back and use it for other transactions in the UK.

Not from the UK?

For those readers not in the UK, there are nearly always banks that provide this service, it is simply a matter of identifying which banks have accounts with debit cards that don't charge on foreign transactions.

Readers, there is no reason not to have an account such as this one! Are there any other banks in your country that provide this service?


Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Disclaimer

Information on this site is not appropriate for the purposes of making a decision for carrying out a transaction or trade nor does it provide any form of advice (investment, tax or legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments, or products.
Always seek advice of a competent financial advisor with any questions you may have regarding a financial matter