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
Sunday 16 September 2012
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
- 1 Cyclist in Russia narrowly misses being hit by car and lorry
- 2 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 3 What are your fingerprint words?
- 4 Gary Lineker involved in Twitter row after presenter rubbishes claims he will be warned by BBC over foul-mouthed tweets
- 5 Pink Floyd new album: Band unveil cover art for first record in 20 years
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
Labour Party conference: Ed Balls to set out plan to freeze child benefit to balance books
iJobs Money & Business
£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green