Is 2013 the year to invest in shares?

Investors are understandably looking closely at the Stock Markets as a home for their investments after the returns seen throughout 2012 and in the first weeks of 2013.

Whilst in the UK, attention has been drawn on the FTSE 100 index breaking through the 6,300 mark for the first time in four and a half years, across the Atlantic the US's Dow Jones index also hit a five-year high last week.

It’s a brave investor that, in this economic climate increases their exposure to high risk stocks, such as AIM Stock Market companies, however there appears to be a segment of the investment community willing to do just that. There are indications, that some investors are selling income-focused funds which are regarded as a safer investment and turning to buying riskier stocks.

The recent Bull Run that we have seen over recent months may have given investors false hope. There is little doubt that investors that do not maintain a balance of risky and safe investments in their portfolios could end up with their fingers burnt in the coming months.

History is full of examples that demonstrate the down side of investors following short term trends. One of the most recent examples was in 1999, which was the height of the technology stock boom. In only a matter of weeks the sales of unit trusts increased by 33pc to £4.7bn. Investors bought £220m of technology funds only to see the technology sector come tumbling down once the dotcom bubble burst. We saw a similar situation in 2007 when property funds outsold funds investing in shares and bonds, only to see these funds suspended, as property prices crashed.

These examples demonstrate why a long term view of holding onto their safer defensive investments during bull markets makes a good deal of sense.

Although some of the more defensive funds have had a difficult 12 months, there is little doubt that if poor economic data continues to flow and the feared triple dip recession becomes a reality, and then it will be the safer defensive funds that will prop up riskier investor portfolios.