Where to invest money: Your best option is both in the UK and overseas
You need to spread your risk across global markets such as Europe, the US, Asia and emerging markets, as well as doing your bit on the home front.
It is a question of balance: so how much should you invest in the UK, and how much elsewhere?
Even those who think British is best must concede that there are times when foreign stock markets will perform better.
That has certainly been the case over the last year, which saw the UK All Companies index grow a healthy 14.6 per cent, according to TrustNet.com.
However, other global markets have grown at a faster pace, with North America up 17.6 per cent, Europe 24.7 per cent and China almost 30 per cent.
When one region underperforms, another may compensate by doing far better
There will be some years when the UK sets the pace, and others when it is an also-ran, which is why you need to avoid something called “home market bias”.
Mark Whitehead, portfolio manager at Martin Currie, says UK stocks have lagged behind global equities, not because of Brexit or slower economic growth, but because of a hidden flew in our market.
The benchmark FTSE 100 is over exposed to the volatile oil and gas sector through oil majors such as BP and Royal Dutch Shell, and has struggled with the price of crude plunging to $50 a barrel.
“At the same time, UK investors have missed out on the explosive growth in technology companies such as Apple, Facebook, Samsung and Chinese internet giant Alibaba,” Whitehead says.
A home bias is perfectly understandable but can be costly over the long term, he adds: “Investing globally allows you to access some of the best companies in the world, regardless of sector or location.”
The message may be getting through, as latest figures show British investors pulling money out of the UK and investing elsewhere.
An average of £322 million every month has been pulled out of UK equity funds over the last year, while £737 million was pumped into global funds in July, and another £350 million into Europe, according to figures from the Investment Association.
Jason Hollands, managing director of independent financial advisers Tilney, says this nervousness is understandable: “Private investors might be shunning the UK given Brexit uncertainties, the slim Government majority and the ascendancy of the radical Left in the Labour Party.”
The UK domestic economy has also hit a soft patch, but Hollands says the negativity has been overdone: “UK funds have still performed well over the past year and valuations look less expensive than in the US, where the S&P 500 Index is trading at levels last seen in 1999, when the dot.com bubble was about to burst.”
Another reason to stand by the UK is that it is a truly global economy, with FTSE 100 companies generating more than three quarters of their earnings overseas.
“Buy British, get global,” he says, adding that you need to examine where your pensions and Isas are invested to know how much exposure you have to the UK and other countries.
Latest figures show British investors pulling money out of the UK and investing abroad
Chase de Vere certified financial planner Patrick Connolly says the largest chunk of your investments should be in your home country, as this is familiar territory and you also avoid foreign currency risk: “You should then balance it with a blend of overseas stock market funds, combined with other asset classes such as cash, bonds and property.”
Connolly says the average investor should have around 40 per cent UK exposure and tips funds such as the HSBC FTSE All Share Index, Liontrust Special Situations and Threadneedle UK Equity Income, which can all be bought inside your tax-free Isa allowance.
You can then diversify by investing 20 per cent in the US via funds such as HSBC American Index, Old Mutual North American Equity, and 15 per cent in Europe, where Connolly tips BlackRock European Dynamic and JPM Europe Dynamic.
The remaining 25 per cent could be divided among Asia-focused funds such as Stewart Investors Asia Pacific Leaders and Invesco Perpetual Asian, Japanese funds such as Schroder Tokyo and Baillie Gifford Japanese, and finally, funds such as M&G Global Emerging Markets and JPM Emerging Markets.
“This way when one region underperforms, another may compensate by doing far better, offsetting any losses,” Connolly adds.