Editor’s note: This article was first published in October 2010 for the second half of that year. The deposit rates of over 4-5% TAE, the Enel Green Power IPO terms, the Gamesa target price, the gold forecast, the JPMorgan emerging-market fund results and the weak dollar all reflect that time.
What are the most profitable investments available to us for the second half of 2010? We look at the securities and products that can give our money the highest return while trying to minimize risk as much as possible, although I’d like to take this opportunity to remind you that risk is part of return.
At the beginning of 2010, a major Spanish investor gave me a piece of advice: “Invest in shares of a company you know will still be standing when the crisis is over.” It was very good advice, but of course we’re probably talking about a very long-term investment, because right now I find it hard to see an end to this crisis.
Even so, let’s try to put together a portfolio that I’m going to call “short-term, controlled risk, with the option to switch”. I say “the option to switch” because if things go wrong in the short term, we can always turn it into a long-term investment. A simple but very effective strategy.
We’ll try to make a profit in the short term and take our gains without squeezing every last drop out of the upward trend, to avoid surprises. We accept that we’ll earn less on some products, but we’ll be in a safer position when it comes to controlling risk.
We start with a capital of X, and we’re going to allocate it the opposite way to a mixed fund.
We invest 30% in fixed income. Look for a fixed-term deposit at a bank that pays more than 4% TAE (annual equivalent rate) over 12 months. If we can get 5% or more, so much the better. I recommend taking a look at online banks.
For the remaining 70%, here are some investment ideas. Depending on how much capital you’re building your portfolio with, it may pay to split it up to diversify, or to put it all into a single product so that fees don’t “eat up” your returns.
Renewable energy: As you know, until 29 October you have the chance to invest in Enel Green Power from €2,000 up to a maximum of €60,000, at a price that will range between €1.80 and €2.10. We definitely recommend this investment for anything from the very short term up to 12 months. Beyond 12 months, watch out for changes.
On the other hand, I don’t dare recommend investing in Gamesa, as it has become my Achilles’ heel. I still haven’t managed to make money on this company, although I’m still focused on 6.40 per share. After a meeting with financial analysts, 7 out of 7 advised me against it, so I thought it a good idea to put part of my portfolio into Gamesa once again, hoping it will reach 6.40 in 8–12 months.
We’ll rule out investing in bonds and government debt from developed countries, since so far emerging countries are delivering higher returns, and Asia in particular is investors’ favorite because of its high returns and its rise into the developed world. Remember that right now a fixed-term deposit pays more than government debt.
Looking at emerging markets, and mentioning Asia again without forgetting China, India and Brazil, let’s look for an investment fund diversified across specific regions of these countries, with a portfolio based on commodity companies. Check with the fund manager you work with. Right now JPMorgan is getting very good results with this kind of fund.
Investing in gold. Be clear that the price of gold is a bubble about to burst, but some analysts expect gold to reach 1,600. I wouldn’t be that optimistic, but I do recommend investing in gold over the very short term. Look for an investment fund specializing in assets such as gold and silver, one you don’t need to stay in for more than 12 months, and if it can be less, so much the better.
As for the Spanish stock market… not even God knows how to invest in it right now, and picking the right stock in the short term looks more and more like a lottery, although in the long (very long) term it is still one of the most profitable investments. That said, with the dollar losing value, we have a good opportunity to invest in the US stock market, as long as we can get low brokerage fees.
Remember to keep an eye on both currency depreciation and the price of gold, as these are the indicators that move all other investments. As soon as you notice changes in them, stay alert and be ready.
IMPORTANT NOTE: Those of you who know me know that I don’t like investment funds at all. If I’ve recommended them here for certain products, it’s with people who have no investing experience in mind. For those of you with experience, you know: there’s no better investment fund than the one we can build ourselves.
Please remember that these recommendations are mine alone, and that various financial analysts will disagree with me on some points and/or stocks. We expect that, we know it, and in the end these are only tips. Every investment carries risk, and each person has to take on that risk themselves rather than simply following someone’s advice. If you’re not ready to invest with real knowledge, stay in fixed income.
Further reading
- Is investing in gold profitable right now?
- Common investing mistakes
- Serious mistakes investors make in the stock market
- What Arthur Rock looks at before investing
- The 7 levels of investors and types of investment
Featured image: www.elbpresse.de, CC BY-SA 4.0, via Wikimedia Commons.
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