When it comes to investing your hard-earned cash, the majority of us want to play it safe. It's hardly any surprise, given the uncertainty over Europe's sovereign debt crisis and the wild swings in global stock markets.
According to a survey by Axa Wealth, the nation is risk-averse and more concerned with preserving money than gaining growth. Although this may be the case, there are still opportunities to reap returns without betting the farm.
Keeping money in cash means losing value as inflation is so high, while putting money in 10-year government bonds will see low returns of just over 2 per cent. Investors have to put cash to work and take a little more risk in order to achieve some growth and decent returns.
Ben Seager-Scott, a senior research analyst at Bestinvest, says you could opt for a corporate bond fund, which largely invests in the debt of very high quality companies. These bonds usually do not experience the same level of price swings as equities, while the chances of the companies defaulting on their payments are low.
From a cautious, long-term perspective, and for those investors who do not need immediate income, some bond funds reinvest the dividends, which creates a compounding effect to boost capital growth.
Andrew Merricks, the head of investments at Skerritt Consultants, says the M&G Optimal Income fund is attractive, if you are prepared to take a degree of risk. "The manager can go into any part of the bond market that he sees fit," he says.
Although a lot of funds are designed to avoid risk, Mr Merricks says you can end up paying high fees for only cash-like returns. However, he warns investors to be very careful about losing capital in the short-term because they will then need to earn a significant amount more over time to claw that back and achieve any growth. Finding the balance between preserving capital, while achieving growth, can be hard. In general, equities can deliver higher returns than bonds, although they are usually riskier.
For those who do not want the full-fat of investing in equities but want to take some of the cream, one option is to buy a fund that mixes shares with bonds.
The majority of the Invesco Perpetual Distribution fund, for example, is invested in bonds, which are overseen by highly-rated bond fund managers Paul Causer and Paul Read, while the remainder is invested in equities, chosen by the respected Neil Woodford. The fund can hold more equities when the market looks attractive, or move into bonds when markets are turbulent.
At the same time as taking a little risk, you want to know your manager is cautious over the long-term. "When you have a situation like now, all news is bad, but you want to participate when the good news comes back," Mr Merricks says.
"So take a little bit of risk. The Investec Cautious Managed fund invests in different assets and the manager, Alastair Mundy, does stick to the fact it's cautious."
Mr Mundy buys stocks that are out of favour, or those which other people have sold, with a view that they have potential over the long-term, while blending them with bonds.
Having a mix of investments, such as shares and bonds, can help achieve decent returns, while spreading risks and reducing potential losses.
Adrian Shandley, the managing director of Premier Wealth Management, says: "By investing in one asset class, you are ultimately only gambling because every investment will have good times and then subsequently bad times – and the bad times can be really bad."
However, Mr Shandley says the problem with funds in this environment is that managers can ultimately make mistakes and that performance will always go off the boil eventually. He says: "By investing in funds that are actively managed, you are putting yourself in the hands of a fund manager who may take the wrong position on the wrong sector at the wrong time."
On the other side of the coin, managers are able to react to market events by buying or selling investments for the fund to help prevent investors losing money. And for those who are really risk-averse and think cash would be an ideal safe haven even if returns are low, think again. Julian Thompson, a manager at AXA Framlington, says savers who are leaving money in cash are being hit by the high level of inflation, which is eroding value. While you may get back what you put in a deposit account, it will be worth 5 per cent less in terms of purchasing power.
He adds: "The key in this environment is to preserve the value of your capital by putting it to work in assets that offer some level of inflation protection." He believes residential property, with a 5-6 per cent yield, is not a bad option, nor are different types of global equities, although they entail more risk than UK shares.
Emma Dunkley is a reporter for Citywire.co.uk
Andrew Merricks, Skerritt Consultants
"If people can accept some degree of short-term risk, and avoid panicking if they see their values dip, the longer-term rewards look like good from here, with interest rates and gilt yields so low and dividend yields so relatively attractive. Bad news won't last for ever."