Investing money is not an easy task and especially in these volatile times, as one witnessed during the year 2011 which was marked by extreme volatility throughout the year across all the asset class. So now the question is where to invest money in the year 2012 so that one can earn good returns, well before answering that question I would like to divide the asset classes and then proceed to answer. There are basically 4 asset classes –
- Equity Market – Equity investment if possible should be avoided in the first half of 2012 as European crisis is still not resolved and as we saw in the year 2008 all efforts of saving companies by America were futile and Lehman brothers ultimately collapsed, though this time the magnitude of crisis is much higher because now there is risk of default by nations as a whole and that is the reason one should keep his or her exposure to equity markets at low levels. Ideal investment should be in the range of 10 to 15 percent of your total wealth and once this problem gets eliminated you can become aggressive and increase it to 35 to 40 percent.
- Fixed Income Bonds or deposits – At this point of time considering the risk reward ratio this option seems to be the best one as there is no risk involved and return are adequate. In the first half of 2012 one should invest between 50 to 60 percent of his wealth into this asset class. Though this percentage appears on higher side but as discussed above one can always shift into risky assets like equities once the environment become investor friendly.
- Gold and Silver – This is the tricky one because in the past 2 years they are the best performing asset class and that is the reason why many investors are willing to invest into gold and silver, but if world goes into recession than it is not necessary that precious metals would be unaffected by it as they have been in the past 2 years. So the idea is to stay away from precious metals because majority of people have gold and silver in physical form and there is no point in increasing your exposure at these high prices and wait for a correction and then d buy rather than buying and then repenting about it.
- Real Estate – The main culprit of recession in the year 2008 was real estate, and now many people are thinking of investing into real estate which is not a bad idea because every asset class has up and down cycles and investors who are investing with a horizon of 5 years can look into investing around 10 to 15 percent in real estate in the year 2012 and can except good returns from it.
Apart from above investments which would be around 90 percent of your wealth you should always keep 10 of your wealth in cash because cash though do not give returns but it is very handy in times of need and should be kept at all times.