Top 10 ways to invest in the new year

1. Property

With property prices at their lowest for many years, 2013 could be a good year to purchase a second property and enter the rental market. There are always risks attached to property investments: prices could fall even further or you may find yourself saddled with problem tenants. This is not a short-term investment but it could be extremely lucrative.

2. Stocks and shares

There is a great deal of satisfaction to be gained from cherry-picking shares which go on to perform well. The key to success is to diversify your shareholdings or, if this option requires too much research, you could invest in a stock fund and let the fund manager do the leg-work for you.

3. Stock funds

These funds can be used to invest in a particular industry, so you can target your investment towards newer technology companies or well-established ‘blue chip’ companies. Fund managers have the benefit of specialised financial systems, such as those provided by APT.

4. Bonds

Bonds are typically a lower-risk investment as you effectively lend money to the bond issuer (normally a government or large corporation). You will receive a guaranteed interest rate for the life of the bond plus the return of your initial investment once the bond matures.

5. Bond funds and income funds

Instead of choosing to buy a particular bond, you may prefer to spread the risk over a number of different types of bond by pooling your money with other investors in a bond or income fund. Whilst generally considered lower risk, you must be aware of both interest rate and credit risk.

                  

6. Gold

Whilst gold is a commodity, it merits a special mention due to the huge demand for gold, and the resultant increase in price. This is why so many ‘cash for gold’ type companies have appeared over the last couple of years. There is some debate over whether or not the recent price slump is serious but it could be an excellent time to buy.

7. The shale gas revolution

Despite the bad press, it looks as though ‘fracking’ is set to increase throughout 2013. Incredible as it may seem, the US could become self-sufficient in terms of energy supply and the UK is looking to follow suit.

8. Other commodities

Investing in commodities has become increasingly fashionable recently due to the huge price rise for commodities such as oil and base metals. However, caution should be exercised as the bite of the global recession can be felt in this once-lucrative market. There are still some commodities, including meat and water, which are extremely attractive to those looking to invest in 2013.

9. Investing in emerging markets

The hot topic of 2012 was investment in emerging markets and this trend is set to continue in 2013. The hub of wealth appears to be moving from West to East and it’s worth considering investing part of your portfolio in emerging markets. To help you decide which emerging market to pick, consult a market risk model which will estimate risk for different asset classes within a given market.

10. Alternative investments

If you would rather put your hard-earned cash into something more tangible then an alternative investment may suit you. When consumer prices start to climb, history has shown that there is money to be made from investing in artworks, fine wines, classic cars and other luxury items that should continue to appreciate in value.

Resources

Why now is a good time to buy-to-let

Guardian article explaining why would-be first time buyers are being forced to rent

Stock prices and financial markets news

London Stock Exchange

Emerging markets information

A Wikipedia article on emerging markets

Top 10 tips for investing

To ensure that money makes a good return, investors need to do their homework. Use these 10 pointers as a guide to making wise investment decisions.

Conventional wisdom says that a fool and his money are soon parted. While most investors could hardly be called fools, that doesn’t mean they aren’t susceptible to making regrettable decisions – especially those new to investing. To avoid expensive errors, consider these 10 points before assigning any money.

1. Assign a fixed amount

Decide how much you have to invest and stick to it. Don’t be tempted to spend more money if an investment goes awry.

2. Gauge your level of risk

The level of risk indicates the potential for money to be both made and lost. People who are investing in order to make money should choose relatively ‘safe’ options such as ISAs or bonds issued by the government, known as index-linked gilts. Those with money to play with can take the greater risks associated with stocks and shares – and potentially reap greater returns.

3. Diversify

Like eggs, investments should not all be put in one basket. A diversified portfolio reduces risk. Investors can manually invest in a number of different areas or sign up to something like a global equity fund, which will do it for them.

4. Keep calm

Make all investment decisions rationally. Seek second opinions on any advice you may receive.

5. Understand what you’re investing in

If you’re investing in a company, make sure you understand how that company works and what it does. Simply throwing money at a business that vaguely seems to be doing something interesting isn’t investing, it’s speculating. Buying shares is effectively buying a piece of the company, so do your research – reading its annual report is a good start.

6. Avoid fads

The investment industry is susceptible to fads like any other. For the first-time investor, these fads are best avoided. By the time news of a money-making certainty has reached the level of the masses, it will be anything but a certainty.

7. Understand pricing

You should always check the recent price performance of any share you are thinking of investing in. However, just looking at the fluctuations is meaningless in itself – you must understand why any changes have happened. Check the news to see how industry or management changes may have affected the company.

8. Set limits

Decide on a target profit for shares and sell them when this is reached. Similarly, set a maximum loss to dictate at what point to sell loss-making shares. This technique can help prevent novice investors from making large losses.

9. Respect the stalwarts

While investing in a start-up may seem glamorous, the chances are that it won’t be the next Big Thing. With their lack of demonstrable abilities, start-ups may have the potential for high returns, but they also have the potential for failure. Large companies with proven track records are far safer bets.

10. Make use of available tools

There are numerous tools available that can help investors reduce risk. For example, software available from http://www.sungard.com/apt can be used for portfolio construction, factor modelling and risk reporting.

Image sources (1,2)

Resource box

Which?

The beginner’s guide to investment

Moneywise

Expert opinion on the best investments for 2012

CNN Money

Preview of investment guru Warren Buffett’s annual letter