Property and shares in light of the credit crunch

Mark Wilkinson, head of tax and financial planning, AXA Winterthur Wealth Management: Interestingly, according to research carried out by AXA in the wake of the credit crunch, consumers do believe that property and shares are still the asset classes with the best long term return potential despite recent falls in property and equity markets. Given the likelihood of continuing market volatility in, at the very least, the short term, even those who share this belief in shares and property will be well advised to take a step back and consider how best to capture this longer term investment potential.

Investors with new funds to commit need to decide how much risk they wish to take over the longer term and commit only the capital that they are prepared to risk. The old adage ‘it's time in the market, not timing the market that counts' should be remembered. Timing the market is notoriously difficult and any attempt to do so runs the risk of missing the gains as well as avoiding the losses. Investors may wish to consider drip feeding their cash into the markets over a period to mitigate this. Spreading the risk by investing via funds rather than individual shares or single properties is also something that investors should be considering. Investors now have a huge choice of funds, ranging from relatively simple index trackers and ETFs at one end of the spectrum to the more sophisticated multi-manager offerings with robust investment processes and multi-layered investment expertise at the other.

Those with funds already invested should be reviewing their position and revisiting financial plans with a view to making a rational, rather than knee jerk, decision as to what action they need to take in light of the downturn in asset values. This may involve difficult, and perhaps counter-intuitive, portfolio rebalancing decisions and moving funds out of bonds and cash into property and shares in line with their agreed risk profile. Existing investors may also see the market fall as the ideal opportunity to spread their risk and rationalise existing portfolios when asset values, and therefore capital gains tax, liabilities are reduced. Some may also wish to consider the pros and cons of rolling loss-making portfolios into their pension fund in order to ‘recapture', via tax relief, some of the losses suffered.