The credit crisis of 2007 and subsequent Euro zone debt crisis have well and truly rocked the global economy. As we enter 2012 fears over government debts reign and global economic growth has crashed.

In order to try to stimulate growth governments around the world have responded by slashing interest rates. These lower interest rates are painful for investors as it means holding cash in deposit accounts or bond investing currently yields a minimal amount of interest. Combine this low return environment with inflation and in most parts of Europe and the US you are losing money in real terms by saving in cash. The interest your savings earn is less than the rate of inflation.

The above phenomenon means that if you’ve got spare cash you’ll need to look a little harder to find decent investments that will not just hold the value of your money but hopefully add to it. Below we’ll take a look at some options

The Stock Market

Stock markets around the world took a pounding in 2011. With the Euro Crisis looking far from resolved there will almost certainly be choppy times ahead for stock markets in 2012, which initially might scare you off. However, stock markets haven’t been on a one way nose dive- there has been massive volatility meaning the markets are making more frequent and dramatic short term moves, both up and down, all be it with an over riding downward trend.

This increased volatility presents a good opportunity to make money for canny investors. By choosing the right stocks, big gains can be made as we discussed in our recent article 3 stocks to invest in for 2012. In choppy time you need to narrow your focus on reliable steady performers. A couple of areas to consider are companies that traditionally benefit from a downturn – think pawn brokers, pound shops or regular steady cash cows like utility companies.

Gold

In turbulent financial times gold is traditionally the place where the money goes – pushing it’s price up in the process. When stocks fall usually gold is seen as a safe haven. This effect has increased in recent years as institutional money no longer sees government bonds as equally safe.

Despite the above we must remember that Gold is near it highest ever price. Is there room to rally further? Well if you think we are headed for even more financial turmoil having some exposure to Gold could be a very good play indeed.

The counter argument to the above may go like this……in a big financial crisis scenario (big meltdown of the EURO resulting in widespread defaults of financial institutions) many big financial institutions would be forced to liquidate some of their assets very quickly indeed. The quickest and easiest way they could do this would be to sell gold, which could force prices lower still. Would this effect be enough to pull the price down or would the ’safe haven’ aspect outweigh it? You decide.

Oil

With Iran flexing it’s military muscle, oil prices are looking nervous. A serious escalation in the Iran situation could easily push up oil prices to over $150 per barrel in a very short time indeed.

At the same time a serious collapse of the EURO could bring oil prices down to $75 per barrel on fears of a sustained and deeper global recession than feared. Personally i think having some exposure to oil is a good thing. Even if prices fell to $75 per barrel I don’t think it would be long before some other political/environmental crisis sent them over $100 again.

Property

Global property crashes have meant it is much harder to get mortgages these days, banks simply can’t afford to take the risks of lending to Joe Public. As a result the cost of borrowing is much higher than it used to be, resulting in property prices remain low.

If you have a large lump sum, you’ll get a much cheaper mortgage thanks to your bigger deposit.It’s a buyers market in 2012 with lots of properties for sale and many people opting to rent as they can’t get the finance to buy. If you can afford it it, is a great time to enter the buy to let market.

Take a Break

No matter where you invest make sure you take advantage of tax breaks. If you’re in the UK be sure to invest via an ISA to ensure any profits are tax free. Most ISA accounts allow you to buy individual stocks or even funds and ETFs linked to assets like gold and oil meaning you can access most asset classes through an ISA.

By using tax efficient vehicles like ISAs to invest you’ll ensure you keep as much if not all of any hard earned profits. It’s worth remembering that you can still hold cash in your ISA account so even if you’re not ready to invest it all at year end make sure you subscribe the full amount before the end of the tax year to avoid missing out on the tax breaks.

Manage Your Risk

In turbulent markets it can be harder to find a profit. With increased volatility a small paper loss an soon blow up to be a seriously big problem. Be sure to manage your positions and if they don’t work out don’t be afraid to get out and take a loss. No trader gets it right every time so don’t expect yourself too.

Overpay Your Mortgage

Ok, it’s not an investment in the tradition sense but if you’re struggling to find investments then over paying your mortgage can be hugely beneficial in the long run. You can easily save thousands over the term of your mortgage and end up debt free many years earlier than scheduled.

Overpaying is particularly effective if you’re stuck on a higher interest rate that you can’t refinance. If this is the case then you’re probably better off overpaying than investing elsewhere.

In this post we’ll discuss some basic tips that will help you become a successful landlord if you are thinking about getting a buy to let property. Below are some of the main things you’ll need to consider when choosing and selecting a buy to let property to invest in.

Before investing in any buy to let you should put together a financial forecast working out how much money you expect to make from the property. Such a forecast should include income and expenses such as mortgage repayments, expected rental income, maintenance costs, income tax, service charges etc. Only by forecasting these things will you be able to decide if the property is a good investment opportunity.

Plan for 9 Months Occupancy

One common mistake new landlords make is presuming that the property will be let out for the full 12 months out of the year. In reality the actual occupied time of the property you rent out will be much less. Your rental property may be empty for a period of time after tenants have moved out while you look for another tenant.

There are many reasons why you may have periods where you are receiving no rental income from your property. Depending on the local market the property may be left vacant for a while while you struggle to find someone to move in. You may need to do maintenance work to the property between tenants again increasing the time the property is not receiving any rent. And of course every landlords worst nightmare, your tenants might stop paying their rent which may mean you go without rental income for a few months while you evict them.

As a general rule most experienced landlords do their financial planning assuming they’ll receive rental income for 9 months out of the year. While you may get lucky and have tenants stay for several years you can equally have tenants move out after every 6 months lease is up. Planning for 3 months unoccupied will hopefully be conservative enough to deal with any rent free periods without causing you financial problems.

Factor in Interest Rates Rising

With interest rates at incredibly low levels it is easy to lose sight of what might happen to your rental business should interest rates begin to rise again. In the 1980’s in the UK interest rates reached over 15%. Could you afford to keep paying your buy to let mortgage if that happened again?

OK so rates probably won’t reach 15% again in a hurry however your variable rate buy to let mortgage could well get 2-5% more expensive in a relatively short period of time. When you are working out the finances on a new buy to let property it is well worth considering what the mortgage repayments would be if interest rates rose by a few percentage points. You can work this out easily by using are mortgage repayment calculator.

Buy To Let Income Is Taxed

If you are going to be making an income profit from your buy to let it is important to realize that your profits will be liable for income tax. Basically that means that you have to pay the government tax on any profit you make from your buy to let.

Taxable Income = Rent received less Interest Paid On Mortgage less Maintenance Expenses

Tax Paid = Net Profit x Your Income Tax Rate

It is worth noting that mortgage interest is a tax deductible expense in the UK. This means that you can offset any payments made as interest on your buy to let mortgage against the profits, before working out your tax bill. In addition any direct maintenance expenses such as wear and tear, decoration, legal fees etc can also be offset against your profits, reducing your tax bill.

If you do not do so already you will need to start submitting a self assessment tax return each year as soon as you start receiving income from your buy to let.

Factor in Maintenance Costs

As mentioned in the point above you should also bear in mind the fact that you will incur maintenance expenses on your property. Hopefully these will not be too excessive, maybe a lick of paint every couple of years, however do not lose sight of these in your financial forecasts.

Also try not to ignore the maintenance needs of your property. If you fail to spend small amount regularly on small jobs, you may find you have bigger problems (and bills) to deal with a few years down the line.

It is a very good idea to plan for larger one off maintenance bills (such as a new roof, new kitchen, new bathroom suite etc) by setting aside a small amount of the monthly profits into a contingency fund you can avoid having to find a substantial amount of money for an unexpected one off expense.