Time May Be Right For Equities

There’s a good, detailed article at the Scotsman written by Claire Stracey, Marketing Director Retail Investments at Legal & General, arguing why now might be a good time to invest in stocks & shares.

Although it is pretty detailed, it is well worth a read. To summerise the article, she states that the apparent abundant cash flow that U.K. companies have been building up over the last few years suggests that it is a good time to invest in them (although going back to the end of 2003, when the markets were much lower, would probably have been an even better time).

She explains the term “free cash flow yield”, which is a measure of the amount of free cash flow relative to the overall value of the shares, and says that this has recently seen significant growth – from 5.5% in December 1999 to 10.5% today.

All this “spare” cash means that companies will be spending – on takeovers of other companies, dividends for their share holders, plus new equipment or product / service developments. Although the increase in company cash flow is not just confined to the U.K., I also presume that the likely reduction in interest rates in the U.K. this month will mean that U.K. companies are even more likely to spend / borrow than to save money.

As ever, with shares the usual risks apply of course – they should be seen as a long term investment and not a way of making quick money.

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