Investors are beginning to feel more confident about the markets but are unwilling to dive back in because recent losses have been so painful.

Almost 90% of investors polled by Barclays Wealth, the private-banking arm of Barclays, and the Economist Intelligence Unit, the global advisory firm, thought the recession had thrown up some big investment opportunities but 68% were unwilling to commit hard cash because of the risk of further losses.

Their caution would appear to be well placed: the FTSE 100 index of Britain’s leading shares fell below the important 4,300 level last week although it closed Friday back up at 4,355.

Indeed, while the National Institute of Economic and Social Research has called the end of the recession, the International Monetary Fund warned last week that the worst of the global downturn is not yet over.

Rupert Bentley, head of asset management at Butterfield Private Bank, said: “Though the spectre of depression has receded, investors are now faced with a recession of indeterminate length.

“Investors should remain cautious but also plan for the challenge of both low interest rates and economic recovery.”

Most investors are aware that they can guard against volatile markets and the prospect of inflation by using investments that provide a “hedge”, such as gold or choosing index-linked savings products. Here, we show how bets can be hedged on everything from the mortgage to your holiday money and rental income.

Mortgage

Brokers are urging borrowers to take out a fixed-rate loan now because costs are going up as money markets anticipate higher rates in the medium term.

However, this can mean paying hundreds of pounds a month more than you would on a tracker deal, especially as lenders are cutting variable-rate deals while putting up the cost of fixes.

Last week, Abbey and Alliance & Leicester cut the rate on two-year trackers by 0.3 percentage points, with the lowest tracker at 2.95% for those with a 25% deposit. Abbey’s five-year fix, however, increased by 40 points to 5.39% for those looking to remortgage with a 30% deposit.

One solution is to take out a “hybrid” deal, in which borrowers can place most of their mortgage on a fixed-rate loan while leaving the rest on a tracker.

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained