T he stunning surge in equities has flummoxed many investors and fund managers. I’ll put my hands up and say that I’ve largely missed the rally, as well – because I am, perhaps, too cautious for my own good. In fact, in my self-invested personal pension (Sipp), I maintain a cash and hedge fund position equivalent to 50 per cent.

I am still buying the odd share and a few funds. However, when I see headlines that suggest private investors are piling back in, I start feeling very wary. Every contrarian bone in my body aches with fear.

Looking at the fundamentals – the dividend yield on the FTSE 100 is around 3.5 per cent, and the price/earnings ratio is at 13.5 – I’m not convinced that I’m getting an appropriate reward for the great potential risk. But am I the only one?

This global recovery in asset prices is also forcing me to re-evaluate my investment approach. If I’m looking at “safer” assets and markets – such as developed equity markets – I’m now favouring any vehicle or structure that gives me some form of protection. So I’m halfway through a plan to build a strong portfolio of stocks with a progressive dividend policy and decent asset backing.

I increasingly think that income is going to become hugely important in markets that could run up rapidly and then crash back down to earth.

I also think investors need to be careful about the siren voices suggesting gold as a defensive call. What we’re seeing now are some extraordinary asset flows based on quantitative easing and investors feeling they’re late to the game. All sorts of weird and wonderful asset classes are witnessing extraordinary activity, and gold is being affected by the unwinding of hedge positions by the miners which, I believe, will soon spur a correction.

If I was inclined (which I’m not, because it would be gambling), I’d put a stack of money on gold hitting $1,300 within a few weeks/months and then crashing back to a sustainable $800 within the next six months.

Investors also need to consider how they time their entries back into mainstream equities – if at all. Here, some of the listed structured product providers have some interesting ideas that bear closer inspection.

A concept called “Best Entry Level” offers one way of moving back into the market in a measured way. Morgan Stanley has launched a product called the FTSE 100 Best Entry Enhanced Tracker Note. It offers 170 per cent participation in any rise in the blue-chip index – but with capital protection that is potentially based on a lower index level.

Instead of measuring the initial level of the FTSE 100 Index at the outset of the investment, Morgan Stanley will look at the next six months and pick the lowest FTSE index level as the reference point for setting the barrier for downside protection (see box). So, by taking the lowest level of the FTSE, the note offers better protection with geared upside – which may be enough to compensate you for not receiving the FTSE dividends that you’d get by holding a plain vanilla exchange traded fund (ETF).

Morgan Stanley’s rival BarCap has come up with another interesting new idea for the less adventurous. It’s called a “Lock In”. BarCaps’s five-year FTSE 8 per cent Zero Lock In Note issued next week will accumulate 8 per cent a year for the next five years as long as the FTSE 100 isn’t down 50 per cent at maturity in 2014 (the Morgan Stanley note also observes its downside protection barrier at maturity which is another big plus).

But there’s also this “Lock In” feature as a bonus: if the FTSE 100 ever closes 25 per cent above the initial strike level during the five-year term, the Lock In kicks in, the 50 per cent barrier vanishes, and you get your full 40 per cent payout in year five (five times 8 per cent a year) no matter what happens next.

adventurous@ft.com