But in the past 12 months such an asset allocation strategy would have been as good as useless. The average UK fund is down by around 15 per cent, the average corporate bond fund has lost around 2.5 per cent of its value and the average commercial property fund has fallen by more than 20 per cent.
Even cash has looked decidedly dodgy. Household names that you could never envisage – Lehman Brothers, AIG, Morgan Stanley and, of course, HBOS – have fallen victim to the crunch in some shape or form. Never before have people spread their cash savings among different institutions in the same way as they spread their investments among a number of shares.
Then we witnessed investors who tried to withdraw their money from some income bonds being told withdrawals were being deferred to protect the interest of those staying put. These investors also learned that they weren’t covered to the same extent as bank and building society savers – and only £2,000 is fully protected by the Financial Services Compensation Scheme, with the remainder protected up to 90 per cent.
It’s perhaps unsurprising that structured investment plans have been enjoying a boom under these circumstances. The renaissance in structured products also comes five years after the precipice bond scandal.
Now it has emerged that Lehman Brothers underwrote some plans sold in the UK, leading one financial adviser firm to send out a memo alerting members. Herein lies the problem – returns offered by a structured product are only as good as the company backing them.
Wealth managers and private bankers reckon that structured products can play a role in investment portfolios – as they can help diversify a portfolio and reduce downside risk. That’s as maybe but you wonder whether mainstream investors should be investing in products whose underlying strategies have been dubbed Napoleon, Cliquet, Wedding Cake and Annapurna.
Investors have been caught out before, thinking their capital was safe only to discover that under the terms of the plan it was at risk. It is perhaps ironic that I received a phone call the other day from an elderly Sunday Telegraph reader who was embroiled in the split-cap scandal seven years ago.
Madeline Hill, 84, from Brightlingsea in Essex, says the split-cap scandal has destroyed her and her husband’s life. They invested their life savings – around £140,000 – in income shares of the Aberdeen Preferred Income Trust, but didn’t get a penny from the compensation fund because the money was not put into zero shares.
For years Mrs Hill was “buffeted” between the FSA, the Financial Ombudsman Service and her financial adviser for over three years, and having salvaged £17,000 from the initial investment, she has since been forced to live off pensions credits and housing benefit.
She had phoned to update me on her case that had gone to the Financial Ombudsman – and she had won but it had gone to the Financial Services Compensation Scheme because the adviser firm was no more. The FSCS had just paid her £44,000 compensation – although it was chasing her for a £12,000 overpayment. Like Mrs Hill, I could not fathom the overpayment either.
Aberdeen and the stockbroker who sold her the trust in the first place are now sitting pretty has they have both prospered in recent years. Not so Mrs Hill.
No wonder investors lose faith. For that reason alone I don’t blame anybody for playing it ultra safe at this moment in time. National Savings – or NS&I, as it is now known – and the Post Office, with its link to the Bank of Ireland, have never looked so appealing. Not only is your money guaranteed, there is also less chance of being let down.
Paul Farrow is digital personal finance editor at The Telegraph Media GroupMoney Marketing