Without a doubt we are facing the most unsettling times in living memory and the root cause is all the accumulated debt in the global financial system, that the markets have now decided is something that can no longer be lived with and must be dealt with. How the world governments will achieve this is as yet an unknown, but the immediate and short term consequences pose a serious dilemma for advisers and investors. To summarise the issues we are dealing with currently:

1. Inflation is running at uncomfortably high levels which has the effect of devaluing money as goods and servi es become more expensive. This has been particularly noticeable in the cost of essentials like fuel and food, and recent estimates have put personal inflation rates particularly for retired savers at around 6%. If this trend continues it will gradually reduce the buying power of your money. Of course it also has the effect of devaluing debt and there is a school of thought that maintains that the government turning a blind eye to inflation is a deliberate strategy in tackling the national debt burden.
2. Related to point 1 is that interest rates remain low and are predicted to do so for another 2-3 years. The government is fearful that raising the cost of borrowing will weaken the economy further. Consequently keeping money on deposit means for most people a negative real return of 1-3% a year, even if you are an avid rate-surfer.
3. Equity markets are nervous and volatile. Volatility is the up and down movement as money moves in and out of shares as large investors make their buy and sell decisions. In many cases these decisions are based on rumour and speculation and often ignore what we call the "fundamentals" i.e. the underlying true value of the assets being traded.
4. Traditional safe havens are no longer regarded as safe as they have been in the past. Remember that banks are at the root of the problem and are the core of the danger zone. The recent downgrade of 12 UK bank and building societies by the credit ratings agencies reflects the government's unwillingness to provide an unconditional guarantee for all deposit-taking banks, and if for example one of the major European banks collapse there is a significant risk of this affecting UK banks too. Remember the queues outside Northern Rock in 2008? Well it could happen again.
5. Other safe haven assets, such as government bonds, known as Gilts, are in the greatest bubble in history due to the run to safety caused by nervous markets and untrusted banks. Should confidence return to the markets this could mean a reduction in capital invested in Gilts by as much as 8% in a short space of time. The same could be said of gold which has risen in value by around 20% this year.

So what are we recommending for our clients? Certainly a lower risk approach is appropriate for all but the most resilient long-term investors. Even our growth oriented clients are feeling nervous about the market swings and are taking a more conservative approach.

Diversification is the key. Since we can't be really sure which investments are safe the best approach is to spread it around. For savers this means sticking to the largest high street banks and placing safety above return. The "big four" banks (HSBC, Barclays, Natwest and Lloyds TSB) could not be allowed to fail or they would bring down the entire payment systems that move money around the economy. Take heed of the protection of the Depositors Protection Scheme and keep no more than £85,000 with any one group. Bear in mind that the cover limit applies to all subsidiaries of a banking group.

We are recommending investment funds that are risk controlled and widely diversified. Having the oversight of highly experienced financial experts is crucial in protecting and preserving your wealth. For example Seven Investment Managers investment committee includes some of the most experienced financial experts in the country and even small investors can have access to their skills through the funds they offer. All the funds we offer have a committment to stick within strict risk levels so we won't see a low risk fund buy heavily into shares, for example.

We are also recommending holdings of 15% in physical gold funds for all investors. We recognise that the price is at a high point but believe that the amount of new money being printed and pumped into the financial system is inflationary and this, combined with the increasing demand for gold by private investors and governments alike, we believe means that there is far more potential upside for the gold price than risk of falls.