Your Money Magazine :  Investing in the stock market during the economic cycle

As the economic cycle goes round certain asset types potentially give better returns and security than others in the various economic periods. Typically the cycle for the market can be described very simply as follows:- The Top of the cycle, last seen in January 2000, is when we reach economic expansion and would be where share prices peak followed by a period of decline with falling share prices, a recessionary period and then share prices start recovering until they peak. There is no set time scale to the periods of this cycle, although markets do now tend to react faster than they used to due to the greater number of shares changing hands each day and the new advanced computer technology making trading easier.

There is, however a theme to the best assets to be held during each phase. When share prices start falling property is generally the top asset class as this is usually a time where interest rates also start going down. The decline period in the equity market starts and consumers get concerned about investment income as share dividends are cut and interest rate cuts reduce returns and fixed interest assets such as gilts and bonds become popular. The recessionary period traditionally causes investors their biggest investment decisions dilemma as when is the right time to get out of property and fixed interest assets and move into shares to take advantage of the recovery period, which is now believed to have started.

The smart money is already being moved - gains have been taken from gilt and property holdings, and are now being re-directed along with new cash into equity holdings.

Investors will often take the easy route and do nothing during the economic cycle except sit tight and accept that the value of their investment portfolio's will go up and down comfortable in the knowledge that over the long term shares have historically always given a better return than any other asset class. However, the clever trick is to take profits at the right time and to ensure that your PORTFOLIO is balanced between the asset classes to reflect your attitude to risk and reduce volatility at all times. This necessitates regular reviews.

For those investors who like to see their investments keep pace with changing times this is an uncertain stage, they may be contemplating a move into the market but need to be re-assured that now is a good time.

• Are we at the end of the recessionary period and entering the recovery stage?
• Stocks seem to be undervalued, but are they yet cheap enough?
• Should we hold back or seek out the opportunities now, before the recovery gathers momentum?

These are just some of the decisions that need to be made. Most people, understandably, do not want the responsibility of making these choices or indeed have the experience or time needed to undertake the research necessary to make informed decisions.

CHARLWOOD LEIGH CAN HELP.......

This is where we can help. Investment companies have designed products usually called portfolio or multi-fund services and commonly referred to as the 'fund of fund' approach to investment management. These plans give the potential for your money to be managed across the investment cycles giving the diversification of holdings in all the asset classes in correct proportion at the right times, thus reducing your risk.

There are two options in multi-fund management and that is self select (D.I.Y.) or to have some body do it for you (Portfolio Management). Both are very straight forward but offer the investor a varying degree of hands on control.

For the self select route the investor chooses from a range of investment funds that are available and will switch between the available funds as seen fit to match changing circumstances or personal needs and your attitude to risk -- we can help you to select the funds that best suit your circumstances.

With portfolio management investment decisions are left to professionals who do this full time thus removing the stress and pressures and offering the diversification associated with successful money management - we can help you to select the best portfolio manager, if you would prefer to take this route.

We are happy to recommend either investment route to you; it all depends upon how much involvement you want. In both cases the money will be invested in accordance with your own personal wishes taking into account, risk levels, personal tax implications, length of time to be invested, income or growth requirements and access needed. We can also help you to monitor the progress of the portfolio and show you how to use it.

If you are you in the position of having accumulated cash in the bank, building society or in National Savings and you are dissatisfied with falling interest rates and returns. We can suggest alternative investments to take advantage of the economic recovery that looks to have already started. Then please contact us immediately.

Do not wait until the herd moves and drive up share prices before joining in as you will miss the opportunity that is currently available to the more informed investor.

Leading article: When is it the right time to invest in the stock market?