With volatile markets, stock exchange slumps, property declines and experts predicting a year of market uncertainty, are the old favourites like property and shares still smart investment choices?

Experts agree that it will be harder in 2008 to make the right investment decisions. However, that shouldn’t deter you from investing.

Dr Kate Warne, an Edward Jones Market Strategist, suggests that you review your portfolio to ensure that you have quality investments; make sure that your portfolio is diversified and have a plan to stay invested during times when the market is choppy.

“These strategies historically have worked to help long-term investors achieve their financial goals,” she says. “While slower growth is a concern, it should also help calm worries about higher UK inflation during 2008. Globally, economic growth is expected to remain reasonably strong, which should provide a generally supportive environment. However, as in 2007, currencies and financial institutions appear likely to continue to be turbulent.”

So which investments in the current climate are lower risk?

Property: Confusing Times

Currently, there seems to be a consensus among property professionals that the market this year will fall, or at the very least be flat. House prices in the fourth quarter of 2007 rose by less than the long-term average of 8%, and the slowdown is expected to continue or even worsen.

Scotland remains the most promising investment area. For the fifth consecutive year, Scotland recorded the biggest price rises, with a 13.1% increase; the only double digit increase. A key factor driving the increase in house prices in Scotland has been its relative affordability. Scottish house prices continue to be the most affordable in the UK. At £144,897, the average price of a house in Scotland is 26% less than the UK average of £197,071. Northern Ireland is another promising option. To find out how other areas fared, Click Here.

If you’re in it for a long term investment though, it’s not all bad.

“Conflicting data on the state of the housing market may leave homeowners, property sellers and prospective house buyers feeling confused,” says David Kuo, Head of Personal Finance at Fool.co.uk.

He, along with other commentators, predicts that the price of an average house in the UK will fall this year before resuming growth at the long-term rate of 8% per annum after that.

“We believe that the average price of a house could fall up to a fifth to £157,290 in 2008 before rising to £185,410 in 2012,” he says. “However, this would be £13,000 less than the price of a typical home now.”

Not convinced? If the pound continues to swing in value compared to the Euro and U.S. dollar, overseas property may be a better investment.

Overseas Property Investments

Property markets across the world have experienced some tough times in 2007 as international economic events have shaken consumer confidence, but the property market across Europe has fared relatively well despite market fluctuations. The EU’s economy continues to grow above trend. Record low unemployment, together with relatively modest borrowing rates and a strong housing market, is reflected in rising expansion and consumer confidence.

As returns from property in the UK are expected to slow significantly, they are expected to be well below those forecast for the Euro zone market. Rental growth forecasts strongly suggest that European property will outperform the UK across all sectors, making it a hot buy-to-let option.

“There has been a surge of interest for Continental European property from UK investors over the last few years,” says Maria Grubmueller, Head of Research for the Close Investments property division. “There is, however, the possibility of oversupply in some of these markets as development has been boosted by foreign investment and is not always matched by the economic development and demand.”

The world’s established property markets have maintained a consistent level of interest over the last 12 months and, despite speculation to the contrary, many are expected to continue being popular. Countries such as France, Portugal, Italy and Cyprus will do particularly well in 2008 according to Vanessa Bird, of financial services company Baydonhill.

“There has been considerable nervousness over the economy recently, but the majority of the established markets will remain robust over the next 12 months,” she says. “The key is the diverse selection of buyers who look to purchase in these destinations, from second home owners to those relocating for retirement. The huge variety present here – in terms of age, financial circumstances and motivation for buying – is the driver behind the constant supply of purchasers.”

Don’t go for France or Spain though, unless you’re going for a stable, long-term investment and looking very carefully at where demand outstrips supply. Interest in Spain has decreased by 2% since 2006 and is 10% lower than interest levels in 2005. Interest in France remained steady from 2006 to 2007 however enquires last year were down 7% compared to 2005.

Experts say the biggest investment potential is in the emerging markets – in particular the likes of Bulgaria and even Panama, Egypt, Brazil and China. The past 3 years have seen a surge in interest in less traditional overseas property destinations, according to HiFX’s Annual Global Property Hot Spots roundup.

For a quick and easy round-up of some of the best overseas properties on offer, visit www.JustOverseas.co.uk.

To read more about 2008’s predicted property winners, Click Here.

To read an interview on overseas property investment with A Place in the Sun’s presenter and property expert Amanda Lamb, Click Here.

The Stock Market: Temporary Glitch?

The stock market has recently seen a much publicised fall, and with conditions remaining uncertain and volatile, fears are rife that investing in shares may not be the smartest move after the shock announcement by the US Federal Reserve to cut interest rates 0.75% to 3.5%.

One in five stock market investors have moved some of their money into more cautious investments, such as cash or bonds over the past three months.

“Investors have undoubtedly been rattled by the recent stock market turbulence, and the widely-reported ‘credit crunch’ has prompted many to review their investments,” says Nathan Moss, managing director of wealth management at Lloyds TSB.

Of investors who made changes to their portfolio over the past three months, one in five (21 per cent) moved some of their money into more cautious investments such as cash or bonds, 17 per cent kept their stock market investments the same but invested more in other investments while nearly one in ten (9 per cent) decided to invest more money in equities to take advantage of any subsequent rises in share prices. To find out more, Click Here.

Taiwan Stock

On the positive side, there are hopes that short term falls in stock markets will not have an enduring effect – and even now, there are some smart investment options. The Lincoln Far East Trust is finding good value in Taiwan and Korea, in particular those countries’ information technology, telecoms and utilities sectors, while continuing to underweight China, which looks increasingly overvalued.

Taiwan is one of the highest-yielding stock markets in the region and an attractive target for investors looking for an alternative to the overheating stock-prices of China. Taiwan and Korea will benefit from Asia’s growing domestic economy, but they have good defensive qualities that will stand them in good stead if China’s export-led growth were to encounter difficulties. Such difficulties could be prompted by a US economic slowdown or protectionist policies in response to China’s failure to allow its currency to appreciate.

“The valuations of companies in China and India can make the Far East as a whole look expensive, but if those markets are taken out of the equation then the region looks much more attractive,” says Will Hale, Head of Distribution at Lincoln Unit Trust Managers. “Investors who want to participate in the long term story of the region would be well advised to look at the value-driven approach in this fund.”

To read more about the pros and cons of investing in China, Click Here.

To read more about the US interest rate cut and stock market collapse, Click Here.

Gold: Old Faithful?

Gold is no longer unfashionable, with prices more than doubling since 2001 and outperforming the stock market. Historically, gold has been viewed as the ultimate store of value and a relatively risk-free investment – which is why its popularity in the current volatile climate is soaring.

Experts say gold, platinum and diamonds are set to shine in 2008, remaining a rich seam for investors. It’s down to a combination of rising demand from Asian economies, peoples’ concern over the western economy and a continuing global tightness of supply. Any US slowdown will not affect the dynamics between supply and demand, particularly in base metals and copper, since developing Asian economies will snap up any excess supply. It’s also returned to favour with governments worldwide that are looking to spread the risk in their investment portfolios.

“The companies that will benefit most from these factors, along with cost inflation, are those with long mine lives, high quality assets and low unit costs of production. This equates to larger players in the industry such as BHP/Rio, Anglo’s, Vedanta and Xstrata,’ says Global Oil & Natural Resources Analyst at Alliance Trust, Angus McPhail.

The price of gold will remain high for as long as the dollar remains weak, and diamonds are also worth looking at, particularly at the quality end of the market.

’Diamonds, like gold, offer a safe haven to preserve value in uncertain times,’ says McPhail.

However, some experts warn that gold prices do fluctuate.

“Historically gold has been the bedrock of the financial community. If in doubt, investors always used it as a hedge,” says Graham Spooner, investment adviser at The Share Centre. “But whilst there is the potential for further gains in the short term, investing in the precious metal is not for all. Those who are after a low risk investment should think twice before looking to invest as the price of Gold can fluctuate widely.”

The problem is that the fortunes of gold are closely associated with inflation and asset price movements. Investors tend to buy gold and push up its price when the value of their investments is at risk of being eroded by high inflation or losses in the stock market, bond market or property market. In general, the price of gold rises when the stockmarket performs badly, and is most likely to fall again when the stockmarket does well.

Art and Antiques

Pension simplification rules and the increased popularity of SIPPs (Self Invested Personal Pensions) means that art, antiques and fine wines now offer excellent tax breaks. Along with classic cars, there has also been a marked interest in works of art among investors, where the returns have even been more lucrative than property.

“We are witnessing an increasing trend towards putting money into alternative investments such as collectibles and antiques,” says Andrew Lowe of Direct Line. Collecting art and antiques, from comic books to antique glass, is not just a hobby. Brits spent £2.5 billion on collectables in the last 5 years, many seeing them as collectibles that will increase in value over time, according to Direct Line.

The most popular collectibles are first edition books and comics, royal and pop memorabilia, paintings and prints, stamps and medals, out of circulation money and vinyl records (10 per cent). Others are investing in items like cigarette cards (such as the 1909 one just sold in the US for £1.2m), exclusive glassware and pre-1950 football programmes, according to the insurer Zurich.

But are these actually viable investment options? Yes, but unless you have a real rarity you won’t make much. Owners of coins from the early twentieth century can expect to receive up to £150 for a five-pound note from 1907, royal memorabilia such as plates or mugs from Queen Elizabeth II’s coronation could be worth over £200, while some early Beatles records are estimated to be worth over £4,000.

Zurich also claims to have seen a change in investment habits, with traditional high value purchases like art and sculpture now being joined by iconic cars, which are often supported by powerful brand heritage that can help them hold their value.

The insurer says survey results show that the top 10 most iconic cars are the Enzo Ferrari, the Porsche Carrera GT, the Ferrari F599, the Aston Martin Vanquish S, the Mercedes-Benz SLR, the Bugatti Veyron, the Ferrari 612 Scaglietti, the Lamborghini Murcielago, the Bentley Continental GT and the Pagani Zonda. To find out more, Click Here.

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