Don’t panic! How to protect your hard-earned savings from stock market wobbles 

Building an investment portfolio requires commitment, patience, sacrifice and nerves of steel – especially when stock markets go into freefall.

Certainly, the recent sharp sell-off in shares worldwide, triggered by fears of a global trade war between China and the United States and higher interest rates, has unnerved many investors.

As have other events both further afield such as currency crises in emerging markets and closer to home – dare I say the word after the drama of the past few days – Brexit. A tsunami of factors that could cause further stock market disruption in the weeks and months ahead. Yes, you have been warned.

An option? ‘Mixed investment’ funds offer exposure to equities, bonds, property and commodities, all under one umbrella

It also allows users to then access key information on a specific fund such as the latest factsheet which will highlight the biggest holdings and the charges the managers levy. Yet good starting points for those looking to diversify include funds that track the performance of a particular stock market. Plain and simple, cost effective, and provided by the likes of asset managers BlackRock, Invesco and Vanguard.

Also worth considering are funds that have either broad exposure to the UK or international stock markets – with the icing on the cake provided by the fact that they have a history of increasing dividends going back more than 20 years. For more information, visit the website of the Association of Investment Companies and click on the link to ‘dividend heroes’.

Question five: Should I rush into gold or bonds?

Answer: Funds with exposure to property, gold and bonds can also provide all-important diversification – although in the case of property and gold this is often through shares, not the physical assets. Again, website Trustnet can allow you to drill down to individual funds specialising in these specific areas.

There are also a number of investment funds renowned for their defensiveness. These include stock market-listed funds Ruffer and Personal Assets as well as so-called targeted absolute return funds which are set up to deliver positive annual returns – usually ahead of inflation – irrespective of the prevailing stock market conditions.The record of some of these absolute return funds is somewhat chequered – only 22 out of a universe in excess of 100 have achieved positive returns over the past year. But the best of them can prove useful diversifiers.

Speaking to a number of financial advisers last week, a few ‘good’ funds were regularly mentioned: Newton Real Return (aim: four per cent above cash per annum); Jupiter Absolute Return (positive returns over three-year rolling periods); and BlackRock UK Absolute Alpha (positive return over 12 months). In the interests of balance, one adviser (Alan Steel of Alan Steel Asset Management) described such funds as ‘crap’. Another, Patrick Connolly of Chase de Vere, said they ‘charge too much and deliver too little’.

Finally, there are a raft of so called ‘mixed investment’ funds which offer exposure to equities, bonds, property and commodities, all under one umbrella. They are categorised according to the maximum percentage of shares they hold – the lower the share content, the more risk averse they are. So you can match your attitude to investment risk.

All too complicated? Then maybe you should use a website such as Nutmeg or NetWealth that will construct a portfolio specifically to dovetail with your attitude to risk and investment time horizon. Or an investment adviser that for a fee will do all the hard work for you.