Five years on from Northern Rock: It's a whole new world

The run on Northern Rock in 2007 changed the market landscape for investors, but have they learnt the lessons? Emma Dunkley reports

A lot can change in five years, but no one could have predicted how much the run on Northern Rock, and the ensuing credit crunch, would alter the UK's economy.

Before 14 September 2007, when people panicked and queued for hours to withdraw their cash from ailing branches, it was relatively easy to find an investment return, whether it was in a savings account or in property.

But since 2007, figuring out where to put your hard-earned cash – if only to preserve its value – has become a challenge. Savers have been punished, with the base rate cut from 5.25 per cent to a record low of 0.5 per cent, while inflation has soared, hitting highs above 5 per cent.

It's not as if there have been many other obvious investment opportunities, with shares hardly shining, property having a torrid time, and yields on government bonds now hovering at lows of less than 2 per cent. So five years on from Northern Rock, what lessons have been learnt and where is the best place to invest your money?

"The global financial crisis has brought pain, misery and in many cases significant financial losses to both savers and investors," says Patrick Connolly of AWD Chase De Vere. "The idea that you could invest in the stock market for just a five-year period now seems foolhardy, with most people advocating a minimum period of 10 years and often more."

As well as having to invest for longer, you will also have to scale back your expectations. Mr Connolly says: "The view on likely returns has changed, with long-term stock performance now set to be far more muted than before."

Meanwhile, it seems the so-called "blue chips" aren't all as robust as they once appeared. "With banks, you're tripping over banana skins on a regular basis," says Tim Steer, a fund manager at Artemis. "There have been Libor manipulations, transactions for Middle Eastern countries that shouldn't have been done, and selling the wrong products to people. They're not blue chips any more."

In fact, what can now be considered a blue chip has changed, with a lot of banks falling out of that category. While there were three banks in the top 10 companies in the FTSE 100 back in September 2007, HSBC is now the only survivor.

Indeed, the financial crisis has led people away from banks and towards defensive sectors that can withstand the economic turmoil, such as pharmaceuticals and tobacco.

"Pharmaceutical stocks, for example, still offer excellent value in my opinion," says Michael Clark, a fund manager at Fidelity Worldwide Investment. "GlaxoSmithKline and AstraZeneca in particular are favourites. Glaxo's share price is ar the same level as 15 years ago, yet earnings have doubled over that time. The stock yields more than 5 per cent with the prospect for decent dividend growth as well."

Aside from the more defensive companies that have done well, Gemma Godfrey an investment director at Brooks Macdonald says gold has more than doubled in value over the past five years, as people have fled to safety.

"Government bonds likewise have done well, up almost 50 per cent, attracting investors due to the UK Government's highest credit rating," she adds. "Corporate bonds have also performed well, with companies paying down debt to be in a stronger financial position."

But the search for safety is not as easy as it might seem. "From banking scandals to sovereign troubles, some assets perceived as 'lower risk' have come under pressure," says Ms Godfrey. She says investors have to "mind the minefields" and get used to more volatility in stock markets.

Graham Duce, a fund manager at Aberdeen, says: "Equity investors have had a tough time over the past 12 years; it's been about making money in bond markets. But the UK market has a decent yield with prospects for growing that dividend. So investors will do well to focus on equity income, not just in the UK, but globally.

"We're now seeing a rich source of income in Europe, Asia and the US. So equity investment with a yield is something you should consider over the next five years."

He also has a positive view on European equities over the longer term. In contrast, he says he would be reticent to invest in gilts, German bunds or US treasuries over the next five years because they are already pricey.

If you are very risk-averse, Mr Connolly says you should remain in cash, but accept that the value of your savings will continue to fall in real terms. "For everybody else, the best approach is to spread risks with a diversified investment portfolio containing cash, shares, property and fixed-interest."

Emma Dunkley is a reporter for Citywire.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas