Killik & Co is advising investors to check the quality of their share holdings and to buy defensive stocks.
In its monthly report, it says: "Buying in dips, especially in blue chip stocks which have strong fundamentals and which have seen their high
rating drop towards fairer levels, should yield long-term benefits."
The firm also advises investors to adopt a defensive strategy. At least 20 per cent of a portfolio should be in bonds complemented by defensive stocks such as BP and British Telecom.
The firm recommends the following asset allocation: 20 per fixed interest, 50 per cent core blue chip, 10 per cent small and mid cap, 5 per cent technology and 15 per cent overseas securities.
It also says that larger investors should consider investing in low risk hedge funds.