Financial Voice

Wednesday 21st November 2018 05:54 EST

Dear Financial Voice Reader,

What are the best investments in a downturn bear market? Of course most Indians have their property portfolio of residential and commercial rental properties I’m sure!

But what about stocks? Especially around Brexit and market concerns? The reason we like property so much is that it is leveraged. You borrow a shed load of money and get to keep the upside of the investment you buy with the borrowed money. And you can borrows tones off it. In the good old days, you just needed to show you would rent out the property and it would cover the mortgage and you had enough for the 5% deposit!

How many Indians are super rich today in Britain because of it. Of course many many. With stocks you cannot really do this. And also unlike property they feel a lot more volatile because you can see the value daily – not every five years which is what you do with property.

Well in America, their accounts often offer leverage, so you can with say $10,000 buy $50,000 of Amazon stock and check back in 5 years and find you’re a millionaire.

Can you do this in the UK? Should you? Given the market may well fall between now and five years from now? Of course you can get leverage in the UK. The problem is no one will look at their portfolio five years later. They will panic in 12 months. You don’t do that ever with property. So psychology is important.

Then you have the issue of what to buy. I prefer in these difficult times cash rich companies. Companies such as Microsoft and Apple and Amazon. They can never be valued less than the money they have in the bank. (Well they could but it would be nuts).

You also have funds which invest in corporate bonds. These give a lower return but a return nevertheless better than a bank account. After all if the market falls, and there is fear of property price falls after Brexit, then a positive return of any size is even more attractive.

A corporate bond is a loan to a company. Depending on the quality of the company, the interest rate varies. So a low quality company has to pay more interest but you have more risk of default.

Funds invest in these and you invest in the funds. Google is a good place to search. You may get a 5% return but you may be happier with that than the alternatives.

But truly, to get the crazy property like returns – you need leverage and the ability only to check prices every five years. Which is why Warren Buffett says buy stocks you would hold forever. So you don’t panic at price falls.

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