The rule in investment is...
#1 Multiple Asset Classes
Achieving decorrelation such that when A-B-E go down C-D go up. Only in 2008 did this fail, but it was momentary and something like M&G International Sovereign evidentally found a flux capacitor and decided to give near 18yrs return in 1yr.
An example would be a) Cash (liquid and reduces portfolio volatility) b) Gilts, International Sov Treasury, Index Linked UK & International Treasury (with the emphasis on Index linked) c) Corporate Bonds (with emphasis on global exposure) d) Equity Income (with emphasis on global & emerging market exposure) e) Commodities (with some emphasis on oil/ energy if she pays a lot out, Gold is rather pricey now and "a bit late unless Werner Republic") f) Global Commercial Property Shares (NOT actual property because it is illiquid and NOT solely UK) and g) Currency Hedge Funds (Insight do one, they make money on extreme currency moves, many do badly though). Increasing age skews emphasis to a) & b), otherwise realise only shares outperform inflation significantly unless you are very lucky (buying 30yr T-Bills yielding
12% decades ago was a bright move and one the USA would like to avoid repeating).
#2 Built Monthly
That way you Dollar Cost Average over time. The exception is if market conditions provide a significant drawdown opportunity - such as a 3 standard deviation or greater drop. Such are rather common re 1987 1998 2000 2001 2002 2007 2008 - there is always another around the corner and that will remain the case going forward.
#3 Risk Adjusted Return
I would not suggest b) unless she has at least 100k of liquid capital. The reason is the percentage return is barely better - it just requires more capital, thus there is little compensation for the risk taken on. You do not accept a risk without a commensurate premium and I do not believe the yield of b) is commensurate, I would want at least 14%.
#4 Market Pricing
By that I mean sufficient volume so price accurately reflects supply- demand. To be blunt the projected yield is not guaranteed and is based on assumptions, those assumptions need to be subjected to a sensitivity analysis. A sensitivity analysis is basically a "best, likely, worst case scenario" and frankly I would not be surprised to see 5% being a more realistic real world figure.
Now, 5% sounds good, but consider Fidelity MoneyBuilder Income which is a AAA Corporate & Other Bond fund will give you an annual yield of circa 4.5%. It is true such income can at times (effectively) come from capital in that the capital portion of your holding is subject to variation, however you can *liquidate your position* and recover at least 80% of your cash at any given time. Can you do that with a pile of solar panels on your roof? This is why b) is a very unattractive option and to be honest a) is not remarkable unless someone would otherwise put =A32610 in Premium Bonds (which have a return that is low).
The real problem going forward is not so much interest rates, but inflation. Looking at Lib-Con figures it is very likely that inflation by stealth is on the cards to erode the debt - which means your solar panel yield needs to be considered in relation to that. That is why a) may look attractive now, but in hindsight could be the next bunch of people whining on TV about how they got stiffed out of their life savings.
So overall, any investment should be made with consideration to Risk Adjusted Return and form part of a multi-asset portfolio. A golden rule is your age as a percentage of assets in Gilts/Global-Treasury/ Index-Linked Global Treasury. USA is going to run down Index Linked Debt over the next few years because it plans on burning the 22T$ liability by inflation, most likely by forcing more pensions/banks/ individuals to buy the stuff - but in non-index linked form.
The future is about capital preservation AND capital preservation relative to living costs.
The worst thing you can do is bet on one thing - that exposes you non- diversified risk and missed opportunity. Today Stocks went down about
2% whereas Sov Debt probably went up 0.7-1% - you have more Sov Debt than Stocks so the portfolio figure barely changes, but you sell some Sov Debt (sell high) to buy some Shares (buy low) on a regular basis so you benefit from the volatility between asset classes whilst at the "headline balance level" you get reduced volatility. The exception was
2008, but that was an exception because "2T$ money has to go somewhere" in that it rotates into liquid assets and cash is generally not one of them at the global view.
The real pig is Cash yields so little, but even ING will give you about 2.75% right now. An issue is inflation, I do not see interest rates rising in 2011 to protect currencies - I think they will delay it until 2012 due to the risk to GDP. They must get GDP up, but inflation increases cost of debt which in turn reduces GDP so they can't let inflation get too high :-) Re housing, remember bottom of the 1981-1990 channel is about 67,000 for avg house price. Without jobs even immigrants go home and that along with C/C debt writeoff is making banks distinctly "ill".
Another issue is tax rises reduce GDP very effectively, so all in all we are stuffed. Beware "easy quick solutions", it takes prudence over a decade to built up a portfolio *monthly* because that way you iron out the very obvious lunacy. Trustnet has a good multi-fund (indeed anything) charting tool. Avoid individual stocks unless you are willing to buy core names, accept 30% will vanish (even Mer & Lehman did, and GM is basically Gov't Motors), and stick with buying them for
20yrs or so - even then you will not pick the next AAPL because it is most likely in an emerging market which will either be bought by the Western company so diluting the return potential or buy the Western company for eventually peanuts). All Western Big Business dies in the end because of the failure to manage change, so funds are a far safer option - it just requires more monthly saving to compensate for the reduced annual return, then let years of compound interest do their thing.
So comes down to her existing financial circumstances.