WITH no sign of the credit crunch or market volatility receding, investors are struggling to find a safe place for their money and it is difficult to identify the next big market that could take off.
Anyone with a good adviser will have a balanced portfolio of assets, including equities, cash, private equity, property and corporate bonds, and take a long-term view of investing.
As John Ross, managing consultant with Pagan Osborne, said: "There is a feeling of people hanging off just now. Ultimately, there's no need to panic if investing for the longer term.
"There are guaranteed products in the market but the word 'guarantee' comes at a price - usually of limited growth opportunities."
But it is impossible not to worry about the short-term impact of the situation and that is where cash may come in to play.
"The only safe place to invest for the short term is cash," said Gordon Wilson, director with Thomson. "For those thinking medium to long term, I wouldn't be at all put off by what I would describe as short-term noise. Volatility is inherent in investment markets and is nothing new."
A slightly more unusual option to consider is gold. Demand trends released this week by the World Gold Council showed "safe haven investors" spurred record flows into gold ETFs (exchange traded funds) in the third quarter of this year. This has helped push total demand for gold to a record £20.7 billion, up 30 per cent on a year earlier.
At 138 tonnes, investment in ETFs and similar products was a quarterly record and jewellery demand remained strong.
James Burton, chief executive of the World Gold Council, said: "We believe that investor interest will remain very strong in the near future and that, as the price stabilises, major gold jewellery buying nations, such as India, China and the Middle East, will quickly adapt to a higher floor in the price."
But some advisers are urging caution on gold as they believe it is already over-priced.
Experts are recommending people prepare their portfolio for tougher times to come. Lindsay Fraser of St Andrews Asset Managers points out: "The balance of risk has shifted slightly in favour of an economic slowdown next year, whether or not it's a full-blown recession, and we're encouraging clients who are likely to need funds from their portfolios over the next few months to at least start raising cash now."
She believes investors may avoid some of the defensive stocks, such as banks, in the short term, given the preconditions for the slowdown. They should instead look to gilts, National Savings and cash.
Alan Dick, a certified financial planner with Forty Two in Ayrshire, warns that many investors and advisers are approaching things the wrong way.
He said: "The first thing all investors need to do is take a step back and ask themselves 'what am I trying to achieve?' They should be asking how much growth they need to reach their lifestyle objectives.
"Too often clients think of risk in terms of capital loss through market falls such as October 1987 or the technology bubble bursting in 2000. However, there is an even bigger investment risk that is a silent killer - inflation."
The government quotes inflation in terms of the consumer price index (CPI), which is running at 1.8 per cent for the 12 months to the end of September. According to Dick, this is not even close to a real indication of the rising cost of living to an average person.
Even the more meaningful retail price index (RPI) - 4 per cent a year at the moment - understates the true figure. Several commentators suggest that the real cost of living rise for a typical family could be more than four times the government's stated figures when you include mortgage and fuel costs.
"For an investment to make a real return it needs to beat inflation. One of the best things an investor could do is maximise any tax-free investments such as cash individual savings accounts (
ISAs)," added Dick.
Structured deposits are also worth considering. These are a combination of deposit and an investment, typically linked to an index, such as the FTSE 100.
Callum Reid, a director with Albannach Financial Management, said: "The investment can be structured so that the capital is 100 per cent protected. People can participate in the potential of equity returns generated by the FTSE 100 without putting their initial investment at risk.
"To provide the protection, the structured deposit will often have a capped return but many investors are happy to trade a potentially higher return for additional security."
There is money to be made for those willing or able to take a risk. As Ken Taylor, director of Mackenzie Taylor Wealth Management, said: "Global financial stocks are significantly discounted at present, and if interest rates fall in the US, they are likely to soar in value.
"Remember the great Warren Buffet said: 'Be brave when others are fearful'. We are very close to just such a time."
