Page last updated at 17:00 GMT, Friday, 10 October 2008 18:00 UK

Money worries: Your questions

Trader in London 8 October
The FTSE 100 fell below 4,000 for the first time in five years

World market shares remain volatile as indexes such as the FTSE, the Dow Jones, the Nikkei and the Mumbai markets experience falls.

Dealers' trading screens across Europe and Asia have all turned red amid rising fears of a global recession.

BBC News website readers have been emailing in their questions and concerns. Here, financial experts from, answer readers' queries.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

What I fail to understand is where exactly has all the money gone? Huge amounts of it must still be out there in the banks. It can't have vanished into thin air, can it? Please explain?
Patrick Howard, Bristol, UK

IAN HUDSON: This is a great question and deserves a very long answer, but there isn't the space. However, in brief, money is not really 'money' at all nowadays; it is a "promise of value". When we use our credit cards at the shops, we don't actually hand over any money, we merely promise a transfer of value from our bank to the shop's bank (quite often the same bank). But what has happened over the most recent years, as banks have overstretched their lending capacity, other banks have decided that the "promise of value" (in the form of a debt i.e. mortgages) is not a good risk to take in the main because the "promise of value" could not be backed up by hard cash. Banks lend much more than the deposits held by depositors; it is a system called the fractional reserve banking system and means banks can gear up many times more than the deposits they hold. This works well when value is added to the system, but has failed miserably as institutions have found the "promise of value" in the debts has turned sour. So, the money has not actually gone anywhere - it was never there in the first place!

There have been many references to the fact that savers' deposits are guaranteed to the sum of 50,000 with UK banks and building societies. Can you confirm if my deposit in a current account with Halifax is similarly guaranteed, or not?
David Southon, Kilmacolm, Scotland, UK

JASON BUTLER: All cash accounts, regardless of whether they are current, deposit, tax free or fixed term, are protected in the same way up to 50,000 per saver per institution.

I would like some advice on ISA stocks and shares and what is the best thing to do at the moment?
Andrew Hobbs, Bristol

JASON BUTLER: If your goals haven't changed and the time horizon before you'll need the funds is in excess of 10 years, sit tight. The investments should still generate a yield (the FTSE100 is currently yielding 5.30%) and when things stabilise and the world realises we aren't going back to mud huts, you'll benefit from the bounce.

On what basis are companies on the stock markets valued? Most are involved in the essentials of life and so, no matter what current problems, they will come back strong. So why this panic? What is the volume of trades? Is this a few shares being sold cheaply and distorting the market?
Simon Tucker, Swindon, UK

JASON BUTLER: Companies that are listed on the various stock exchanges are valued (priced) on the basis of a multiple of current and future earnings. This is known as the PE ratio. PE ratios expand and contract all the time based on supply and demand for those earnings. PEs have been as high in the UK as 27 at the height of the boom and to as low as six in the 1970s. PEs reflect investors optimism or pessimism in the short term but always revert to the mean. So the average PE of about 13 for the FTSE100 may well fall but not by a very large margin. The current PE on the FTSE100 is just under nine so it's well below the long run average. However, while no one knows what will happen in the short term in the long term it is likely to revert to the long run mean, even if that mean is slightly lower.

My wife and I are retired. I am 65 next May, so for me it was early retirement, and my wife is 61 in November. My wife has a managed pension fund that is due when she reaches 65. Should she hold tight on this and hope that everything calms down by then?
Mr Michael Knight, Ilkley, West Yorkshire, UK

JASON BUTLER: If the fund is managed it is likely to be well diversified across different asset classes so it shouldn't have fallen in value as much as the stock market. In addition, what you should do will be influenced by how much the pension is worth relative to her overall wealth and income needs. On the basis that things are already bad I'd sit tight and ride out the storm. If markets are still choppy when she retires she could consider taking an investment linked annuity with guarantees. This would provide certain income protection with upside participation in the stock market.

Yesterday, I invested a modest sum in shares in a UK bank and watched as they lost about 1,000 but it's not a short term thing. Like with many other aspects of investment strategy and tactics the question is, can we afford to ride out the storm?
Aymeric, Nork, UK

JASON BUTLER: If you have a 10-year view and you've sufficient cash and you've repaid any debt you can ride out the storm. I'd advise against investing in individual shares. Use an index fund to lower risk for the same expected return.

Simple question - should I pull out of my Scottish Widows pension scheme which is all invested in equities and plummeting fast (around 35% knocked off its value in the past month) or hang on with the hope that shares will eventually have to bounce back up? It seems that once things begin to fall so dramatically, trying to salvage what is left by withdrawing the money is simply accepting the loss. Conversely, if I do nothing, is there a risk that I could lose the whole lot?
Chris Saunders, Winchester, UK

JASON BUTLER: See previous comments. If you can hold on for 10 years you should be OK. Total loss is unlikely but if you sell now you've got a definite loss. Someone who was looking at a 65% loss in the FTSE100 in 1974 after investing in 1973 saw their money increase tenfold by 1982.

Please tell me how 'investing in the long term' squares with the immediate problem of buying an annuity at 65, or realising one's endowment fund if that happens to coincide with a falling market.
Geoff Clifton, Reigate, UK

PETER McGAHAN: You can move either of the two to cash or another safe investment within the fund whenever you want so you don't have to be exposed to the vagrancies of the stock market at maturity. Your pension also lets you defer when you take your annuity so you can remain invested until age 75 if you wish. Some funds allow an automatic switching out of equities as you get closer to retirement or the plan maturing but I don't like that idea as you can be automatically sold out of equities at a time like today.

A 30-year endowment policy with L&G is due to mature in December 2008. The forecast terminal bonus as of March 2008 is 70%. Is the current situation likely to have a significant effect on the value of a terminal bonus built up over a 30-year period?
Frank Hayes, Nottingham, England

PETER McGAHAN: A terminal bonus can be taken away at a moment's notice. I suspect if you checked now you may find it's fallen. The terminal bonus isn't actually built up over 30 years. The bonus you will receive will simply be based upon the actuaries deciding what they can afford to pay out at the time of completion. If the markets are under pressure and the actuaries decide they don't want to pay you, they won't. This is one of the many reasons with profits opacity has made them a dead duck.

I have a 30,000 endowment policy which has been performing well. How will the banking crisis affect endowments?
Jagjit Pall, Derby, UK

PETER McGAHAN: None really, unless your capital is invested into banking shares within the investment element of the plan but I suspect not. An endowment is spread across a wide range of investments diversifying your risk so this will ensure you have a balance to it. As for the stock market itself one of the benefits of you investing monthly into a savings plan is that the low prices you are now buying could be advantageous in the long run.

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