Personal Finance: Call me smug but...

This is a moment for a mild touch of schadenfreude. Anyone reading The Independent's personal finance pages regularly will have noticed more than a hint of scepticism at the way fund management experts tried to reassure us that raging bull markets seen across the world in the past two years were destined to continue.

In August, we devoted almost an entire issue to suggest this was not necessarily so and that people should revise their investment strategies. In particular, in the past year it has given me immense pleasure to bin all press releases suggesting the Far East was a suitable area for investment. As Brian Tora, one of our regular columnists, made clear a few months ago, that particular market looked very wobbly and, he presciently argued, a fall there could have grave consequences for the rest of world equity markets.

Moreover, as Jonathan Davis, another columnist, has repeatedly written, the US stock market in particular is generally overvalued - and the recovery seen there in the latter part of this week may only serve to conceal this underlying problem.

Volatility is now the key feature of world equity markets and anyone who fails to recognise this is cruising for a financial bruising.

Does this mean we should pull out of equities? Er, no. Let's start from basics: why do we invest? For most of us, it isn't because we enjoy the vicarious thrill of shares rollercoastering up and down every week. OK, there is a sense of satisfaction if a fund we have put our money in does particularly well, but the main reason is that we have little alternative.

If you are saving for retirement, or to pay off your mortgage, equity investment provides one of the few ways of earning respectable returns. What must change is the assumption that markets will always deliver the goods to small investors. Sadly, that was never true and this week's hair-raising experience is the best possible reminder of it.

There is something strangely amiss with all this discussion of stakeholder pensions, flowing from the Government's wish to consult widely on its plans to reform the pension system.

For a start, insurance companies are backing the notion of highly flexible pensions with no penalties for stopping and restarting contributions or increasing them. They also want these pensions to be extremely cheap.

Could these be the same companies that have consistently sold poor-value products to unsuspecting punters over the past few years, leaving them potentially tens of thousands of pounds worse off in retirement than they should be? Would it not be better for them to practice what they preach in the here and now?

Moreover, surely the real question should not simply be that of creating better "second-tier" pension provision. When is the Government going to make good the past 18 years' massive fall in value of the "first-tier" system, the basic state pension?