Over the past year or two, house prices have been driven by the low cost of borrowing. From here, they’re likely to stabilise because affordability is now becoming an issue. Interest rates are unlikely to get cheaper than they are right now and they might even rise, but as long as the economy remains robust, then house prices should, too.
Everyone should own their own home if they can. Timing any kind of market is so difficult and the housing market in particular is not worth speculating over – all homes can be difficult to sell, for many reasons – but history tells us that values tend to rise over time. Costs also rise and inflation is a natural part of the system, but one way to take advantage is to own your own home. If you’re young and able, buying a house is always a good future investment.
There’s no specific asset class that looks especially attractive right now. Equities aren’t cheap and bonds are yielding less than inflation, not all your money can be held in gold and property is illiquid… it’s why you see people moving into alternatives like Bitcoin. But if you ask me, while we live in an economy that’s growing, then investing in stocks or equities has to be one of your best bets.
Global stock markets took a real hit last year. But they’ve recovered – the US stock market is riding at an all-time high and the FTSE 100 has come back strongly, too. It is a volatile animal, though, so my advice is to buy good-quality companies that can survive the economic cycle. The mistake many people make is that when the markets are down, they get overly nervous. It’s often a time when you can make money, but investors get very worried about the short-term ramifications. Over an extended period of time, the statistics show equities offer a 7-8% return per annum, on average. Even blue-chip companies, defined as the largest, most mature, reputable and financially-sound aren’t without their risks, but they’re usually in a better position to see themselves through economic recessions and often come through these periods of time in a better position.
If you’re thinking about investing for the next 10 years, then the stock market is a good option. If you’re more focused on the next 10 months, then it’s not. If you do choose to invest, try not to look at the markets every day and don’t allow yourself to be driven by sentiment. Be wary to buy into sectors that are highly cyclical – for example airline stocks or construction, they do well in times of growth but struggle in recessions. Also, consider the things you most admire in a company – if you like what they do and how they do it, you’ll usually do well by investing in them.
If you’re looking for income, right now the only place you can go is the stock market – and specifically, big, blue-chip FTSE 100 stocks. If you like the idea of being a long-term saver, then the stock market is performing well ahead of other asset classes. Inflation erodes the value of money in the long term. If you like the idea of being a long-term saver, then the stock market provides the best returns historically compared to other asset classes. If you have short-term plan, then don’t put your money into the stock market.