Building an investment portfolio is not rocket science, whatever the City players drowning in bonus cash might claim. We all know the basic rules of investment; ignore fashion, diversify, buy low and sell high.

These basic tenets are obvious and yet we blithely disregard them. Figures from the Investment Management Association (IMA) show that £3.6 billion of our cash poured into property funds last year. We all know that returns on property have been astounding: residential prices grow ever more absurd, while the rewards for those who invested early in UK commercial funds have been stellar.

Investing in property is desperately fashionable. The same private investors who may scoff at larger ladies in leggings, condemning them as fashion victims, are piling into commercial property because some bloke at the golf club has made a packet.

As a general rule, the money has already been made by the time that retail investors pile in, inflating an asset class to far beyond its real value. Following investment fashions is the easiest way to buy high and sell low.

Commercial property has been sold as a way to build diversification into a portfolio because, historically, it doesn’t move in line with equities and other asset classes. But the Financial Services Authority (FSA) gave warning this week that this mismatch can no longer be taken for granted.

The chief City watchdog warned companies to beware of the effects of asset classes moving in harmony. Companies, or individuals, who believe that they hold a diversified portfolio may find that the supposed protection this offers melts at the first hint of a downturn. There are still some untapped commercial property opportunities, primarily overseas (see pages 16-17). Fund managers are innovating merrily, keen to capitalise on our unquenchable thirst for all things bricks and mortar. New Star, the fund manager, said this week that it is launching a new fund allowing tax-efficient investment in overseas property.

But those investors who are committing more than a small percentage of their funds to property should go back to basics. Ignore fashion, diversify, buy low and sell high.

One in the eye for the payment protection pedlars

HOW glorious it feels to be proved right. Here at Times Money a smugness has permeated the office this week. Our long-running mistrust of payment protection insurance (PPI) has been vindicated by a whopping fine on one of the companies that sells the iniquitous moneymaker. The FSA fined GE Capital Bank £610,000 for failing to treat its customers fairly and failing to have the proper controls in place when selling the insurance.

Much of the PPI sold by GE Capital was flogged by shop assistants in retail outlets that offer it with their store cards. The model works like this: you want a new dress but it is not yet pay day; the assistant says that you can put it on a store card – oh, and would you like some insurance with that? You pay £100 for the dress, the interest on the store card is anything from 15.3 per cent to 29.9 per cent – and then the insurance kicks in. By the time you finish paying for that £100 dress, you may as well have gone for that lovely designer number. Once again, fashion is the enemy of money management.

It’s not only in high street stores that such sales tactics bite. Capital Blue, the market research company, has talked to nearly 8,000 homeowners who have taken out a mortgage in the past two years. One in four felt pressured into buying associated insurance products. The staff at the shop counter, and the trained sales staff at the bank, are all agents in an industry-wide plot to take money from you for insurance while you are trying to buy something else.

Over the next year the FSA plans to visit hundreds of companies involved in selling PPI – and we can expect more fines to follow. The crackdown may mean that we end up paying more for the objects we are actually trying to buy, be they houses or dresses. The revenue from useless insurance subsidises a range of other services. Free bank accounts are one obvious example of a financial misnomer. But most of us would prefer to buy an honestly priced product than be taken for a fool by the financial services industry.

Forget the pointless spin, the Isa shake-up is still good news

LAST year’s PreBudget Report contained plans to simplify Isas. This week Ed Balls, the Economic Secretary to the Treasury, announced that the changes will come into force from April next year.

The new regime is certainly welcome, as the present system is far too confusing (see page 16). When the changes were announced, the intention, clearly, was to implement them this April. Isa providers complained, fairly, that this did not give them enough time to change their systems.

Mr Balls said this week that the new rules are actually to be introduced a year early. He used the tortuous logic that because an Isa review is due in 2009, implenting the new rules in 2008, rather than this year, means that the new regime is coming in early rather than late. We know he’s talking nonsense, he knows it and presumably you don’t care as long as the new regime is better than the old.

The spin seems oddly pointless. Have politicians become so afraid of admitting they have got something wrong that they can’t tell us straight when they’ve got something right?