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Investors shouldn’t panic about UK recession

Investors should not panic and should avoid making knee-jerk financial decisions in the current economic climate, says a London-based financial adviser.

25 April 2012

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“Too many people make investment decisions based on short-term performance or sentiment, meaning they buy when sentiment is positive and sell when there is negative news,” explains Patrick Connolly, certified financial planner at AWD Chase de Vere. ”Investors will achieve better long-term returns by staying calm, adopting a long-term strategy and sticking to it without being distracted by short-term noise.”

As fears grow that the UK is falling back into recession, Connolly believes that investors could capitalise by looking for opportunities further afield. “While western economies may be struggling, many in the emerging markets are still surging forwards. Investors can take advantage by investing in these regions, as part of a balanced portfolio,” he says.

“They can also access this growth by investing in western companies which are aiming to benefit from emerging market growth. Funds such as M&G Global Basics and AXA Framlington UK Select Opportunities are positioned in this way.”

Mitigating tax should be at the top of any investor’s list of priorities. Explains Connolly: “Tax charges can eat significantly into any gains you make, particularly if you are a 40 per cent or 50 per cent income tax payer or pay capital gains tax at 28 per cent. It therefore makes sense to utilise tax breaks wherever possible. Most people’s long-term savings strategy should be based around a combination of pensions, which provide initial tax relief but are inflexible, and ISAs, which are also tax efficient but allow far more flexibility.

“Investing regular premiums, rather than lump sums, is a sensible way to invest during difficult economic times,” he advises. “This negates the risk of market timing and means that if investments fall in value then units are bought cheaper next time, bringing down the average purchase cost.

“Finally, it is important to rebalance your investments regularly as this ensures they remain in the right shape to meet your objectives and attitude to risk. By taking profits from assets that have performed well and reinvesting into those that have performed badly you are effectively selling at the top and buying at the bottom, which is the Holy Grail for investing,” Connolly says.

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Tax & Wealth structuring