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
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
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

    IT Project manager - Web E-commerce

    £65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

    Robert Fisk on Syria air strikes

    ‘Peace President’ Obama had to take stronger action against Isis after beheadings
    Will Lindsay Lohan's West End debut be a turnaround moment for her career?

    Lindsay Lohan's West End debut

    Will this be a turnaround moment for her career?
    'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

    The follow-up to 'The Tiger Who Came to Tea'

    Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
    BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

    BBC Television Centre

    A nostalgic wander through the sets, studios and ghosts of programmes past
    Lonesome George: Custody battle in Galapagos over tortoise remains

    My George!

    Custody battle in Galapagos over tortoise remains
    10 best rucksacks for backpackers

    Pack up your troubles: 10 best rucksacks for backpackers

    Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world