THE intrepid souls participating in The Scotsman IFA of the Year competition face a complex set of interacting economic and market conditions. To win this challenge, you need to have a good understanding of how this investment cycle is different from previous episodes. 2008 is not like 1998 or 2001.
Although it is possible to see an end to the financial sector crisis, as a result of concerted actions by central banks and self help from commercial banks, by no means does this signal an end to the economic crisis.
A lengthy period of credit r
ationing looks to be in place, as the UK housing market reminds us day after day.
Economic headwinds could be further exacerbated if an upturn in global inflation, especially in emerging market economies, transforms a US recession into a global one.
Whether or not this happens depends in large part on commodity inflation.
In today's circumstances, a rigorous investment process is needed, both at strategic and tactical levels, not a model based on past cycles or a view of the world which becomes out of date.
So, at the risk of teaching granny to suck eggs, I cannot emphasise enough the real need for diversity.
If there is one lesson we all learned from the last bear market, and some people are painfully learning once again, it is the need for a diversified portfolio. Hits come – in bonds, credit, equities and property – but they should not be so large that they cause material damage to an investor's wealth.
• Andrew Milligan is head of global strategy at Standard Life
The full article contains 273 words and appears in The Scotsman newspaper.
