“Be fearful when others are greedy, and greedy when others are fearful” – Warren Buffett

“Be fearful when others are greedy, and greedy when others are fearful,” Warren Buffett once warned investors. He was trying to advise people not to get sucked into bubbles – whether of an optimistic nature, where people assume the good times will just go on and on, or of negativity, where people can’t seem to get out of a downbeat mindset.

The UK stockmarket was recently trading around an all-time high. Although – at the time of writing – it has dropped back down to under 7,000, Buffett’s counsel is still worth thinking about now. That’s not to suggest you fall into the trap of trying to call the peak of the market – picking the tops and bottoms of bull and bear runs is just too difficult; in any case, if you’re a stock market investor, you should be in it for the long term, rather than trying to speculate on short-term market movements.

Nevertheless, investors are wise to at least consider their options. And if you want to stay invested in equities, the investment company sector offers two potentially interesting ways to achieve this balance.

Regular savers win

The first possibility is an investment company regular savings scheme. These let you drip feed money into the stock market – at some funds, you can invest as little as £25 a month, either inside or outside of an individual savings account.

Regular savings schemes are an excellent way to commit yourself to disciplined saving over an extended period, but during times of market volatility, they have extra appeal. This is because of the statistical quirk known as pound-cost-averaging, which effectively enables investors to benefit when markets are falling as well as rising.

The trick is that your fixed monthly investment works harder in months when the share price of the investment company has fallen. Imagine that you have £15,000 to invest in an investment company with a share price of £10, via 12 monthly instalments of £1,250. In the first month, you buy 125 shares, but by the second month, the price has fallen to £9.75; your money then buys you 128 shares in the fund. If such falls continue, the compensation is at the end of the year you will end up with more shares in the fund than you could have bought with an upfront lump sum – and the prospect of long-term returns on a larger holding.

Diversification matters

The second option is to invest in a fund that offers some protection against stock markets through the assets it holds. The Daily Telegraph recently picked out three investment companies that aim to do exactly that – as the newspaper pointed out, RIT Capital Partners, Personal Assets and Ruffer Investment Company all have a mandate to focus on wealth preservation.

These funds hold a spread of assets, including shares, bonds, cash, property and commodities such as gold. Their past performance track records, though no guarantee of the future, show they have been managed in such a way as to limit losses during stock market downturns without sacrificing much (or any) of the upside when share prices are rising.

That sort of proposition looks very attractive in market conditions such as those that currently prevail. In fact, this explains why open-ended funds such as absolute return and target funds have been in such demand in recent months; these are a relatively new concept in asset management but really do little more than wealth preservation-focused investment companies have been doing for years – holding a spread of assets with a view to downside risk.

None of which is to suggest any of these funds, or similar investment companies, will be suitable for all investors; your individual circumstances are what matters. Still, these funds do offer another way to remain invested in the stock market while also playing close attention to risk management.