At a lunch just before Christmas, a well known fund manager told me that 2008 would represent one of the best chances ordinary people would ever get to make a “material difference” to their wealth.

How? By buying into the UK stock market, and specifically into the big blue chips, which at the time he was convinced were grossly undervalued. So far, anyone who had followed his advice would indeed have made a material difference to their wealth, just not in the way he forecast.

The FTSE 100 is now down by going on 7% for this year alone and is about 10% off its highs. And I suspect that, overall, things will get much worse before they get better. The data from the US are pretty miserable and the Fed’s rate cuts (0.75 percentage points the week before last and another half a point last Wednesday) smack of panic rather than policy.

Meanwhile, over in France, Nicolas Sarkozy may have been enjoying himself with his new lover, but the rest of the country is miserable – consumer confidence is at a 20-year low. Add it all up and it seems perfectly possible that the bear market could be with us for some time to come.

So what exactly should investors do about this? The financial services industry has a simple answer: buy more stocks. As far as the industry is concerned you should never be out of the market. It’s hard to know whether this is because they genuinely think you are missing out by being in cash while stocks are falling, or because if you aren’t investing you aren’t paying them fees. Either way, they see their challenge as keeping your money in their pockets, so they’ve invented special kinds of products for cautious people to buy in tough times.

First up is the cautious managed fund. The idea of these is to give investors exposure to the stock market but in a safer way than usual. So instead of just buying equities and nothing else, the managers limit themselves to holding 60% of their assets in shares with the rest going into bonds and cash.

This might mean you make less money in bull markets, they say, but on the other hand you’ll lose less in bear markets.

This is perfectly true – if you’d been in the average cautious managed fund over the past three months you’d have lost a mere 5%, according to data firm Financial Express, whereas had you been holding a FTSE 100 tracker fund you’d be down 15%. But does the fact that they lose less than other funds really make the average cautious managed fund worth buying?

If you think the market is going to fall and can’t cope with the risk, then instead of paying fees for the dubious privilege of losing less money than everyone else, why not just get a good savings account?

These not only come free (no entrance fees, no exit fees and no management fees) but you can also use them to guarantee yourself a pretty safe return – even I don’t expect any of the UK’s big high street banks to actually go bankrupt.

I have similar feelings about the other great bear market product out there – the guaranteed equity bond (GEB). You’ll see these on offer everywhere these days. The basic idea is that they offer a high level of income and also the right to have your capital returned to you at the end of the term, but only if certain conditions are met.

One getting some attention at the moment is Blue Sky Asset Management’s reassuringly titled Protected Income Plan. This offers you 10% a year in income plus all your capital back – as long as none of a collection of bank shares fall by more than 65% during the six year term. If they do, you start losing capital.

You might think that sounds like an alright deal, but in fact both the words “protected” and “income” are slightly misleading. Markets are very volatile things – big movements in prices are much more common than small ones – and, as the past few weeks have shown, it is perfectly possible for bank shares to move 10% in a day. So what’s to stop them moving 65% in six years? Note that shares in Royal Bank of Scotland have fallen around 45% since February last year alone. So, while it might not look like it at first glance, statistically speaking its pretty likely you’ll lose money.

There are hundreds of similar schemes out there. Some are linked to one index, and some to several. Some offer full capital protection but most do not and while they all claim to offer the upside of one particular market or more, none include dividend payments (historically the source of most stock market returns) in their calculations.

There are several other obvious problems with GEBs – they generally require you to commit your money for five years, for example – but the real reason I’d never put a penny of my own money in them is simply because they are so complicated, both in their structure and in the way they calculate the returns you might get. It is verging on the impossible to figure out where your risks are.

Someone contacted me a few weeks ago looking for publicity for a new GEB. It could run for as long as six years, he said. But it might not.

If the FTSE is not lower in the first year, you get an 11% return and the bond closes. If it is, it rolls over for another year. If the FTSE is not lower at the end of the second year, you get 22% and the bond closes. If it is, it rolls over again. And so on.

If it is still lower at the end of six years you get your money back (in nominal terms anyway – its purchasing power will have been much reduced by inflation). Or you might get your money back. If the FTSE has fallen by 50% at any point you won’t get it back. Or something like that. I can’t remember the rest. But you get the picture. The salesman thought it was “innovative”. I agreed – just not in a good way.

Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always seek professional advice.

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