Where to go for growth and avoid pitfalls in 2013

Investors looking for clear ideas on where to invest in 2013 and beyond should keep in mind three important themes: that quantitative easing (QE), dubbed the greatest financial experiment in history, is ongoing and its results are not yet known; that income has become very expensive to extract from many assets, particularly bonds; and that some stockmarkets, especially China, have become historically cheap.

We will also need to keep an eye on the actions of politicians and policymakers this year. The global economic background remains challenging: experimental (or perhaps increasingly desperate) measures - from Washington and Tokyo to Brussels and London - will continue to be used to get credit flowing again, kick-start anaemic economic growth and shore up the eurozone.

Will inflation be benign or damagingly high? Will interest rate expectations start to rise in 2013? Can we look forward to normal, higher levels of economic growth or more years of austerity-driven weakness? Is the global financial system on firmer foundations or are the tough decisions still being kicked down the road?

We cannot be sure what effect all of the unconventional, experimental measures that are being adopted will have, but it's safe to assume that we won't know all the answers in 2013.

Money Observer's Wealth Creation Guide should not, therefore, simply be viewed as a compendium of tips for 2013 alone, but as an analysis of the current and potential future state of financial affairs and how you might want to factor some of the resulting investment ideas and themes into your own wealth creation, or preservation, strategy.

Certainly the most compelling theme for me is just how expensive income has become. Put another way, investors are not being adequately rewarded for the risks they are taking by investing in particular asset classes, chiefly bonds. The chart below shows the 20-year range of yields on various assets, with the yellow dots indicating where, worryingly for bond investors, they are now.

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