If you are going to run with the bulls, be a bull that understands the risks

3rd February 2013

So far, into 2013, so good – stock markets have enjoyed a period of exuberance but despite the run fund managers appear to have been seized by something more akin to nervousness.

Managers have witnessed the recent rally in the US and have suggested we are not necessarily out of the woods, either in terms of the fiscal cliff; particularly the spending element of it, or in terms of the eurozone crisis, despite EBC backing. Many are awaiting for indices to least retrench.

Some even question whether China has really managed to avoid a soft landing or whether there could still be bad news to emerge.

As if to confound these bearish sentiments, Citigroup has revised its FTSE 100 forecast for 2013 up to a very healthy 7,000, a peak it has yet to rise to.

This may be the most bullish assessment in the market at the moment, involving the market rising -something in the order of 7 or 8 per cent but it is sure to make investors sit up and notice.

So what does this mean for investors? If the FTSE 100 moves up to 7,000, it would be great news for almost everyone. If you have a broadly diversified portfolio perhaps recommended by an adviser, a significant component will be invested in the UK. Whether you are at the stage of trying to build up a decent set of investments or deriving an income from one you have already built up, it should be good news. If you have a with-profits plan with a big UK insurer, as many still do, the same applies. It would also put the people running your company pension in a better mood too.

For those of you who have delegated the asset allocation to a fund manager or discretionary fund manager, they may consider adjusting their tactics, though they will have a sophisticated process to test any market predictions.

But what if you are an investor thinking you might take a punt now, and put a few thousand quid into a FTSE 100 tracker or ETF in the belief that it is going to hit 7,000 sometime in the next 11 months?

Here Mindful Money would urge caution. It is not that this prediction is not worth bearing in mind. But it is also worth considering what your goals really are. Can you afford to lose a significant proportion of that cash?

To all intents and purposes you will be market timing – in fact that is exactly what you would be doing, albeit based on the prediction of one of the world’s biggest banks, with millions of dollars of research resources behind them but that has not stopped them from eating their words before. If you decide to run with the bulls, that is your decision, but whatever you do, do not be a bull who does not understand the risks.

 

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