Contractors’ Questions: Where’s best to invest abroad?

Contractor’s Question: As a novice investor, is there an easy way I can take advantage of interest rates almost certainly about to jump upwards? Also, the pound is currently at its lowest point since December so does this mean I should be looking for investment in foreign, non-sterling currencies/markets? Or is the UK’s currently low currency expected to recover, indicating that the currently sizeable dip is just a blip?

Expert’s Answer: Before I address the investment aspect of your question, we actually believe that the Bank of England will ignore the inflation target in preference to keeping the only remaining stimulus to economic activity in place. This is because there is little or no scope to cut taxes or increase public spending to alleviate current pressures, whereas the historic low base rate acts as a stimulant to the economy. With the likelihood that inflation will continue to be relatively high, the spending power of cash in the bank will continue to be eroded.

For those investors who are willing to take a long-term view and accept an element of risk, an equities-based investment has typically performed well in an inflationary environment. It’s as a result that we recommend contractors should revisit their investment time horizons to see whether there is indeed scope to potentially tie money up for the long term in an asset-backed investment vehicle.

In terms of overseas markets, we see particular value in Japan given the fact that the Japanese have been building bridges that haven’t lead anywhere but were intended to stimulate their economy for years. Now, and since the devastating tsunami and earthquake, the country faces a massive reconstruction task that legitimately needs to be carried out and which should stimulate a somewhat moribund economy. Investment in Japan should ideally be carried out as part of a broadly based portfolio of global equities.

The expert was Tony Harris of Contractor Money, an independent financial advisor to IT contractors.

Tuesday 5th April 2011