Where to turn for safe investing

The stock market has finally bared its teeth in the past few months.
After spectacular rises over the past four years, savers have recently been bluntly reminded that shares can also fall - and fast.
Rebecca Mackay knows this to her cost. Rebecca, 46, confronts fictional dangers every day.

Her job as an examiner for the British Board of Film Classification means she watches countless hours of thriller and horror films every year.
She loves her job, but she does not want the shocks and danger in real life - particularly when it threatens to wipe out her savings.
Single mum Rebecca, whose son Luke is 14, invested in equity Peps in the Nineties. 'The markets fell one year and I lost several thousand pounds,' she recalls.
'I know I should have been able to leave the money there to recover, but I suddenly needed it to move house.
'The experience gave me cold feet about risky investments.'
Now, Rebecca, who lives in Balham, south London, saves into a mix of cash Isas, high-interest deposit accounts and Premium Bonds. But she gives herself the opportunity to gain from stock market rises by also holding guaranteed equity bonds.
Gebs operate over a fixed term and protect the investor's original capital while offering returns linked to the performance of a stock market - usually the FTSE All-Share or FTSE 100 index.
Rebecca has taken out a number of Gebs with National Savings and so far she is pleased. 'I don't understand stock markets,' she says. 'This feels right for me. I'm not going to lose out.' Rebecca has opted for just one of many routes investors can take if they want equity-style returns with less of the risk.
The upsides and pitfalls of Gebs and their alternatives are covered below. We also give our verdict on these 'timid' schemes:
Guaranteed equity bonds
Investors commit minimum lump sums ranging from £500 to £5,000, depending on the provider, for a fixed period. Most are for three or five years and many are available as Isas. At maturity, investors get back their money plus a percentage of the growth of a stock market index, usually the FTSE 100, but sometimes another foreign index or a mix of indices.
Many of these bonds are highly complex, calculating their payouts based on index averages over certain periods within the term, or capping their payouts if the stock market grows rapidly.
Some carry guaranteed minimum returns, such as the deal from Coventry Building Society. Available until June 14, this four-year Geb requires a minimum £3,000 investment and promises to return the capital plus a guaranteed 14.25%.
That rises if growth of the FTSE 100 exceeds 28 per cent over the same period. The National Savings Geb (Issue 12), is available until April 24 for minimum £1,000 investments. It pays 120% of the FTSE 100's growth over five years with guaranteed return of capital. If the Footsie falls, you get back only the capital.
Other Gebs are being promoted by banks Abbey and Barclays, and by Britannia, Chelsea, Leeds and Newcastle building societies.
They make their money by keeping the dividend income earned by the investments. But Justin Modray of London adviser Bestinvest warns: 'These investments have a role, but they are complex. The downside, is that investors lose the dividend stream, which is about 3.5 to 4% a year.
'If markets rise over the term, you are unlikely to do better with these than you would with a tracker investment fund. But on the other hand, you have protection if markets fall.'

Protected funds Like Gebs, these complex investments have built-in protection to shield savers' money, but again, investors lose some market gains. Protected funds include Escalator 95 and Escalator 100 funds from Close Investment and Gartmore's Safeguard. Not all offer complete protection, meaning investors risk losses in exceptional market declines.
The opportunity to profit is also limited. The three funds mentioned above have returned 4%, 4.2% and 6.1% respectively over the 12 months to April 13, compared with 10% from an average UK investment fund.
Verdict: Avoid
Little and often is the way to save
Regular saving by monthly payment reduces risk because contributions made after falls in the value of an investment buy more of that investment. This counteracts some of the short-term volatility.
Some brokers and Isa providers allow 'phased' investment, where lump sums are automatically trickled into the market. Internet fund service Fundsnetwork (fidelity.co.uk), for example, allows investors wanting to use their £7,000 annual Isa allowance, a six-month phasing option. This splits their money into six portions and invests it in customers' chosen funds in monthly intervals.
Absolute return funds
These are like other unit or investment trusts bar one major difference - they try to profit even when markets are falling. They do this by taking advantage of rules that since April 2004 have permitted fund managers to 'go short'.
'Long-only' funds are the norm, rising in value only when underlying shares also rise. By ' shorting', managers use financial instruments to generate gains when share prices drop. Only three significant absolute return funds are available - Merrill Lynch UK Absolute Alpha, SWIP Absolute Return UK Equity and Saracin Equisar IIID.
All were launched last year, since when, markets have risen. Most advisers say that until these funds are tested by a period of sustained falls in the market, the jury must stay out. Verdict: Not yet proven

With-profits funds
Though reviled and deeply unfashionable, especially among the millions who have been left facing mortgage shortfalls, with-profits can still have a place in risk-averse investors' portfolios. This is because they have a spread between shares, property and other asset classes. Strong funds, which include Prudential, LV (formerly Liverpool Victoria) and Wesleyan, are still open to new investors.
Verdict: Few funds are worth looking at and capital could be lost
Multi-asset funds
Relatively new and currently fashionable, multi-asset funds try to reduce risk by spreading investors' cash across a broad range of assets within a single fund.
David Jane, below, fund manager at investment house M&G and the overall manager of M&G's Cautious Multi-Asset Fund, which was launched last month, says: 'Everyone wants high-return assets to protect investors against inflation.
Equities are best for that, but they also carry the extra risk of volatility. 'The multi-asset approach means you can reduce the risks by carrying other assets that don't go up or down with equities.
'Property, for instance, has similar characteristics as equities, but doesn't rise or fall in value in line with them. So when they are held together, the overall risk is reduced.' His new fund is currently 52% invested in equities and 23%t in property, with the rest in cash and Gilts. 'This fund is for me, my sister, my grandmother, the everyday Joe on the street,' he says. 'It's for people who would have bought with-profits or managed funds.'
Justin Modray of adviser Bestinvest applauds the multi-asset concept, but warns investors against the cost.
Like fund of funds, those that invest in other funds, Multi-asset Funds can sometimes carry layers of costs. Modray's top pick is the £294m Midas Balanced Growth fund, launched in 2002. It has returned 60% over the past three years. Cautious managed funds can achieve similar risk-reducing effects, but there are stricter rules governing how freely fund managers can switch between different assets.