Johannesburg - The first anniversary of the global financial crisis turning point is a bitter-sweet affair.

Local stocks climbed 50% and the US market is up more than 60% since Wall Street reached its lowest levels in 12 years a year ago.

But far from celebrating, many investors are nervous about losing money.

Worries about cooling economies in Europe (SA's main trading partner), fears over contagion spreading from Greece, Dubai and Iceland as well as weak job creation in the US could lead to share prices falling again.

The worldwide economic recovery has been driven by the supply side of the economy - and not demand, warns Johan Pyper of Plexus Asset Management.

There is concrete evidence that companies are producing and stockpiling more goods, but consumer demand - retail sales, for instance - has not yet recovered. This is because households have to pay a big chunk of their income to settle high debt levels.

Markets have already discounted a strong economic recovery and shares are not so cheap any more, Pyper adds. Any further gains in share prices will depend on a rebound in company profits - which means consumers have to start spending again.

"This situation will cause nervousness and volatility in shares. Investors will be looking for any signs that companies are struggling."

After the good run in 2009, expect only moderate returns from listed shares in 2010, says Daryll Owen, chief investment officer for BoE Private Clients.

Others are less sanguine.

"It could very well be that 2010 is a year that people will talk about for many generations to come. Not because of growth, but because it could be the year that marked the first decline in world markets larger than that of 1930," says technical analyst Joe Meyer of marketsignals.co.za.

The pullback in shares in early February saw some markets testing the August 2009 levels.

"Despite the current rebound that followed the February decline and convinced everybody that the bull market has returned, we are still, from a technical perspective, viewing this as a market that is setting up for a very significant decline."

How can you prepare yourself for volatility?

Short the market

Not for the faint-hearted, but there are instruments which allow the small investor to make money if shares are falling.

The risks are considerable, as you may stand to lose all the money you invested (even more), while if you ride out the storm (and the companies you invest in do not go bust) you may end up in the black in a couple of months or years.

For the determined who can afford to take it on the chin, there are a number of options.

Single stock futures (SSFs) allow you to sell a number of shares at an agreed price on a future date. If the share price falls below that price by that date, you will make money.

To enter into the contract, initially you only need to put down between 10% and 15% of the value of the shares. (For more on how to trade SSFs, click here.)

Another option is warrants. A put warrant gives you the right to sell a share at a fixed price at a specified time in the future. Unlike SSFs, which are a contract to buy or sell shares, warrants are only options on underlying shares - you are under no obligation to buy or sell them.

Warrants are traded on the market like shares. If the underlying shares are falling, the value of your put warrants will rise and you can sell for a profit. But if the share price rallies, your warrants may end up worthless.

The most you'll lose is the price you paid for the warrants - unlike SSFs, where you may stand to lose the initial amount you paid plus more to cover the losses on the contract if the market really turned against you.

Richard Juchniewicz of Standard Bank Equity Derivatives says that generally call warrants (which give you the right to buy shares) are more popular, but amid the turmoil in world markets puts have gained ground.

"Our most popular puts are generally over the large and volatile resource stocks like Anglo, BHP Billiton, Sasol and Put Warrants over the Top 40 Index, which will protect investors from a fall in the overall market. Some examples of put warrants with the most volume recently have been AGLSBT, TOPSBW, AGLSBS and TOPSBX."

Diversify

It times like these, the importance of spreading your money over a range of assets, not only in stocks, becomes very clear. It may be a good idea to obtain professional advice.

Pyper warns that while having a portion of your money outside the country is advisable, too much or too little exposure to foreign markets may be extremely risky given the volatility of the rand.

Gold?

Continued volatility and financial worries, or a new crisis, will squash investors' appetite for risk and convince them to flee to "safe haven" investments, including gold and the dollar.

This could lead to further gains in the gold price (as well as a weakening in emerging market currencies like the rand).

The threat of a euro crisis - given concerns about the economies of Greece, Spain and Italy - does explain some of the underlying reasons for gold's relative resilience as the oldest currency around, and the ongoing investment in precious metal exchange traded funds (ETFs), Owen says.

Pyper prefers getting exposure to gold through these types of funds, instead of investing in the shares of gold companies which are struggling with problems such as increasing costs and mine safety.

An ETF is like a unit trust; it pools investors' money together to invest in an asset. But it is listed and trades like a share on the stock exchange.

Gold ETFs have been immensely popular in recent times and allow you to invest in the physical metal, without ever having to make room for it in your safe.

Pyper's preferred ETF is NewGold, which was developed by Absa. Each NewGold "share" represents a hundredth of one troy ounce of fine gold in rand. You can buy NewGold like other shares on the JSE.

Another option is to buy it through the NewGold investment scheme, which allows you to invest a monthly or lump sum investment.

A long-term NewGold investment looks attractive, but Pyper thinks it should be bought only when prices dip. Gold can also be volalite.

"We therefore are not advising exposure of more than 7.5% to 10% in this asset class."

Not everyone is convinced that gold will give shelter in the storm.

Meyer says the trend of a weak dollar, which has been boosting commodity prices, is coming to an end.

"While most people believe that the dollar will remain weak due to a weak US economy, we believe that the dollar is going to strengthen rapidly on the back of US savings! This will in all likelihood spur the demand for dollars out of control as deflation is likely to set in, especially in the US. This is all but favourable for commodities."

Don't be greedy

If you missed out on the gigantic rally in the market over the past year, don't take bigger risks now to make up for it, warns Pyper.

"Wait patiently until consumer spending improves and the markets start to move higher with more conviction."

Where to invest?

Interest-earning investments, particularly the yields on money market funds after tax, look unattractive due to low interest rates at the moment, says Pyper.

"The exceptions are some preference shares, which are still trading at a discount and pay tax-free dividends."

Government bonds and property are also still relatively expensive, which means the stock market remains the best alternative in the medium to long term, says Pyper.

Philipp Wörz of Alphen Asset Management says bottom-up stock picking will generate inflation-beating returns over the medium to long term.

"We think current market valuation levels do not provide investors with a margin of safety that is sufficient to be fully exposed to the market as a whole and, as above, would suggest buying the right shares and taking a medium-to long-term view."

Wörz likes shares such as Steinhoff International, MTN, British American Tobacco and specific small cap companies.

- Fin24.com