Can investors sleep easy with cash under the mattress?

Caution is key for many investors at the moment – but is it really time to hide your cash under the mattress?

The experts who are telling investors not to panic and continue to take risks may yet be proven right – but there are an increasing number of unprecedented unknowns and potential pitfalls.

Disappointing global growth, particularly in China, the end of the quantitative easing era, weak company earnings and concerns about when the U.S. Federal Reserve will start raising interest rates are among the most important factors causing confusion.

"Never have we seen so many clients who just do not know what is happening and have cashed up," equity analysts at Credit Suisse recently flagged.

John Harper | Getty Images

Concerns about China seem particularly apposite as its President Xi Jinping arrives to what is broadly expected to be an enthusiastic welcome in the U.K. this week.

The world's second largest economy's growth may be slowing slightly less than feared. Yet it is still facing its first prolonged slowdown in growth since it became one of the most integral parts of the global economy, and trust in its policymakers to deliver is sinking among investors, particularly in the U.S.

The cliché goes that when the U.S. sneezes, the world catches a cold – but what if the equivalent if China has pneumonia?

Cash flows beat stocks for first time since 1990

There is plenty of food for bearish investors when it comes to the U.S., too. High yield credit spreads have been widening, which historically has sometimes been a sign that a recession may be on its way. The vast majority of borrowing by U.S. businesses is financed by the credit market, which is why the spreads are often assigned huge importance.

In the eyes of the stock markets, the Fed, led by chair Janet Yellen, appears to be damned if it does and damned if it doesn't raise rates. If it goes ahead in December, as many forecast, it risks risk looking like a poor communicator to the market and being over-optimistic on the U.S. recovery. If it doesn't, the world's most important central bank may be left without much room to manoeuvre when the next downturn comes.

UK rolls out red carpet for China’s President Xi

When the Fed is as cautious as it appears to be at the moment, it's no wonder investors are too.

Still, there are rewards for taking risks on the markets. If you look at the key measure of risk rewards, the Equity Risk Premium – the extra return that stock market investing provides over a risk-free rate like low-risk bonds – it is around 8 percent in Europe at the moment, well above the post-credit crisis average of 7 percent. That is reliant on picking the right risks, however, and with visibility as poor as it remains, that seems a bit like driving with a fogged-up screen.

Catherine Boyle is a senior correspondent for CNBC, based in London. Twitter: @cboylecnbc.