Diversifying investments in a credit crunch

I am currently in the process of completing a Consolidated Household Finance workbook (wait for its release on Wednesday this week). I created this tool to better manage my finances.

While creating this finance workbook, I realised that our investment seem to fit the path commonly taken by OFWs. Like most, the investments we made are in real estate. In fact, almost 70 percent of our assets are in this category.

Most OFWs get into real estate based on the assumption that real estate properties will always go up in value. We continuously hear this sales pitch from real estate agents and brokers who many of us are made to believe this would always hold true. With the events in the housing market in the US (and its eventual global impact), our blind confidence on this premise may not be totally wise.

I am not really worried about our real estate investments in the Philippines. First, none of these are in any mortgage. Second, the property market still seems to be stable that I feel that we can sell the properties if we needed the money (although we have setup an emergency fund that we can tap before even considering this).

Yet, I realise how vulnerable our family is. I could not imagine how devastating it would be for us if our real estate investment fails. The only way I could address this is by diversifying our investment.

Now, I am planning to increase our investments in equities and fixed income instruments. I feel that this is a good time to start investing in the stock market. It had been hammered for more than a year now so there is no other way to go but up.

I am not an expert in the equity and bond markets. The only exposure I had were investments on company stocks and mutual funds in the Philippines. Luckily, I am here in the UK which allows me access to other options not available in the Philippines.

My ticket to the stock and bond markets will be an ISA (Individual Savings Account). The ISA , launched by the UK government in 1999, is a tax-free investment subject to some limit amounts. For the tax year that started last April 2008, the limit is up to £7200.

To invest in the stock and bond markets, I plan to open a Stocks and Shares ISAs called Self-Select Funds ISA with my current provider ISA Halifax. For this type of account, I have access to different investment funds - from money market funds, index trackers to actively manage funds. Best of all, I also have access to different funds investing in the global markets.

It may not be perfect but this would meet my needs for now.