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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea