Arabian investors: thoughts for the seasonal return

Chasing the pathetic investment terms available for most asset classes at the moment is a fool's errand. For investment always means capital risk, and if the return is not there then pretty soon capital losses will follow.

Take the example of London property, now officially the most expensive real estate in the world. The small Pimlico apartment once owned by this correspondent is now valued at $665,000 and commands an annual rent of $35,000.

No prizes here for seeing that the owner of this flat is risking a large sum of cash for an income - which after management and other fees - is below what he or she would earn in a bank. Of course, the value of the apartment may go up, but then again it may soon go down, and lose a lot of money. Rising UK interest rates will surely hit values soon as they have done in the US.

Low rewards

But this picture of big risk and low rewards is repeated across asset classes. Shares are at a three-year high, which is longer than the average upturn. Bonds offer low returns. Hedge funds and emerging markets have not been doing so well recently. So why not just take those higher interest rates on a cash deposit and sit back?

Well, if you can accept the volatility then precious metals might be an attractive alternative. Since September a year ago the gold price is up by 39% and anybody who took this column's advice at that time would have cause for celebration, unlike virtually any other investment class.

Let us be bold about gold again. The past few months have seen a retracement from $730 to $620 an ounce but the bulls have just been resting. Gold traditionally has its best performance in the second half of the year and with all the geopolitical nasties in the pipeline this autumn this just has to be a good time for the yellow metal.

Gold for the bold

Besides, apart from cash, where else will investment go? Global real estate, equities or bonds: all have problems: Local equities or real estate? Well, possibly the latter although the best performance is most likely over, and the former might bounce but are vulnerable to further weakness if the oil consumer nations go into recession.

No the really wise will sit on their hands and do nothing. For what investors really need now are a financial crisis and a major shake-out of asset prices. Then investment will again be profitable but only if you have cash or gold available to take advantage. Welcome back to autumn 2006!