After the American Congress rejected a $700 billion rescue package for US banks, world markets went into turmoil. Many experts are suggesting that unless the deal is passed, the world economy could be tipped into a deep recession.

The markets are fearful that without a rescue package, more banks could fail, credit will become even tighter, companies will go bust, unemployment will soar, repossessions will increase and house prices plummet further.

It is a truly toxic combination for stock market investors, who could see returns depressed for years. However, there are a number of strategies investors can adopt to minimise the pain. Here are Times Money’s top ten tips.

1. Choose cash

If stock markets go into freefall, investors would be better off with cash where they can earn interest rates of more than 7 per cent. Of course, moving all your portfolio into cash has risks of its own. For a start, you would have to be certain that your money is safe. After the nationalisation of Bradford & Bingley and the failure of other banks around the world, savers are understandably nervous. However, there are safe places to put your money, even in the most volatile of times. Here are Times Money’s list of the six safest places to store your savings .

2. Go for absolute return funds

Absolute return funds — the retail sector’s answer to hedge funds — aim to make money in any market conditions, and 14 such unit trusts and open-ended investment companies are in positive territory over the past year, despite the market’s slide.

They invest not only in shares, bonds and cash, but also property and hedge funds, and can use derivatives — specialised products that allow managers to make money when asset prices fall. The practice, known as shorting, has worked in investors’ favour over the past 12 months, but the Financial Services Authority (FSA) last week banned new short positions in financial firms for 120 days.

3. Consider money market funds

These funds invest in short-term debt, such as government securities, certificates of deposit and other cash-like securities. They aim to preserve capital and pay modest dividends. Until recently, they were among the few places investors could put their cash and sleep peacefully. However, the Reserve Primary Fund, the oldest US money market fund, said last week customers’ shares were worth only 97 cents of each dollar a share they had invested. In Wall Street parlance, it “broke the buck” — a rare occurrence. In the UK, the Threadneedle UK Money Securities fund, one of the biggest with £377m invested, has lost 2.9 per cent in the past year, compared with a sector rise of 3.4 per cent.

4. Go for gold

Gold is traditionally considered a safe haven in times of turmoil. However, the price has varied dramatically in recent months and some experts suggest gold is actually overvalued and could fall in price. Capital Economics believes bullion has largely become a play on the dollar, and chief international economist Julian Jessop expects the price to fall. “Admittedly, the still-high risk of a financial-sector meltdown will provide some support for gold, but the most likely outcome is a prolonged period of weak global growth, low or even negative inflation and a gradually recovering dollar, with gold remaining on track to reach $700 soon,” he said. If you are still interested in gold here are ten tips on how to profit from the precious metal.

5. Invest in Government backed assets

Government gilts, are 100 per cent secure — no British government has defaulted on these since they were introduced in 1693. “The counterparty is the government and is therefore as safe as you can get,” Clem Chambers at Advfn says. Capital return on redemption is fixed, with yields on UK 10-year gilts running at 4.5 per cent. Gains on directly held gilts are free of capital gains.

6. Choose fund managers who have weathered previous downturns

Bestinvest, the independent financial adviser, has looked at two different periods - the economic downturn of 1991-93 and the bear market of 2000-03 - and examined which managers performed best in those troubled times. It was looking for managers who regularly beat their benchmark by at least half a percentage point a month. The research revealed some impressive performers. The 2000-03 top ten included Carl Stick, of the Rathbone Income fund, Graham Birch, of BlackRock Gold and General, and Hugh Hendry, who was then managing the Odey Continental European fund but now runs the Eclectica Continental European fund. Among the 1991-93 top ten were acknowledged experts such as Nigel Thomas, of ABN Amro, who is now running the AXA Framlington UK Select Opportunities fund, and Kathryn Langridge, formerly of Invesco Perpetual but now managing the Lloyd George Global Emerging Markets fund.

7. Keep investing

If you do not wish to watch the markets constantly to decide when to invest, you can drip-feed your money into funds by making a regular monthly investment. By using this approach you will also benefit from what is known as pound-cost averaging. This is where your money buys more shares when the fund price is low and fewer shares when the price is high.

8. Consider corporate bonds

The collapse of Lehman has hit some UK corporate bond funds. AXA Sterling Corporate Bond fund, F&C Strategic Bond and Extra Income funds, and Old Mutual Dynamic Bond are among those exposed. However, with corporate bonds — even non-financial ones — yielding around 7 per cent, long-term investors are advised to lock in. “When you consider that the long-term return on equities is typically 8 per cent-9 per cent, it seems absurd not to lock in some yields at these levels on quality corporate bonds,” said Nigel Parsons at broker Bestinvest. BT has a 2016 bond, rated BBB+, at present yielding 6.65% and AAA-rated General Electric bonds, maturing between the end of this year and 2037, give a typical gross yield of 6.5%.

9. Be cautious

Cautious managed funds have protected investors from some market falls, but have still lost an average 6.4 per cent in the year to the end of July, the latest Investment Management Association data show. These funds must maintain at least 30 per cent holdings in cash and fixed interest, and equities are limited to a maximum of 60 per cent.

10. Consider alternative investments

When equity markets are falling, other, uncorrelated assets can still perform. Ian Goldbart, managing director of Noble Investments, is particularly bullish about the world of collecting. "We've never seen business as strong as it has been this year," he said, after announcing the £1.25 million acquisition of Surrey stamp trader Apex Philatelics. Meanwhile Britain's biggest stamps and memorabilia trader Stanley Gibbons, says the "all-consuming passion" of collectors would insulate the sector from the wider economic slump.

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