The crisis touches all of us

IT'S BEEN another doom-laden week on the stock market, with the promise of more to come. The UK dropped its interest rates, but not by enough to satisfy the City. The talk is of a global economic downturn. And we are now less than three months away from kick-off for the European single currency on 1 January 1999. All of this is going to have an effect on our personal financial health.

And it's more serious this time than during the last recession, or even the 1930s slump, because many more of us are shareholders. In the UK around 30 per cent of our savings is now invested on the stock market. We're still way behind the US, where earlier this year the amount of money invested in mutual funds (their equivalent of unit trusts) overtook the amount of savings held on deposit for the first time. Millions of individual investors have bought into the American Dream through shares, but if they need to cash them in now - to send a child to college, for example - the dream will be shattered.

Even if you keep your savings firmly locked away in the building society, you are exposed to the markets in other ways. You probably pay into a pension. That's invested on the stock market. And many home owners have endowment mortgages with only a hazy idea of what that means. In fact an endowment policy is invested in a "with-profits" fund, meaning an investment fund made up of shares plus other, less volatile, investments.

Most people realise there's no point in cashing in a stock market investment at the moment.

The only exodus, according to PEP discount broker Financial Discounts Direct, is a move from equity-based PEPs into corporate bonds. In effect, these are IOU notes issued by large companies. They pay a fixed rate of interest and carry a lower risk profile than equities.

But financial advisers and fund managers face an uphill struggle to persuade new investors to brave the topsy-turvy markets, while the more experienced armchair investors are holding off because they want to buy shares at absolutely rock-bottom prices. That day may still be some way off, despite the FT-SE 100 index having lost 24 per cent of its value since its high point in July.

If you fancy a long-term punt, there are bargains to be had. Just don't stake your kids' education on it.

i.berwick@independent.co.uk