Thanks sbarrett
So 2 out of every 3 every trackers gave close to zero return - Does this mean that the banks and the brokers kept the interest - from what i remember you could have earned 5% pa or more on deposit 5 years ago.
Is this a misselling scandal or does is the Central Bank know how bad these products are?
Its funny that we only ever see the ads and we never see the actual performance until now!!
Thanks for posting
Kate
It's not misselling at all Kate. People just don't understand what they are buying. I see a conflict between someone not wanting to take any risk and then putting them in an investment that buys equities, gold, commodities etc.
An example of how a tracker bond works:
€100,000 investment
€85,000 goes on deposit for 6 years
€7,000 is paid in fees to broker and product producer
€8,000 is used to buy an option in whatever the bond is based on, we'll say stock.
The producer has negotiated a deposit rate with a bank to ensure that the €85,000 is worth €100,000 in 6 years time.
If the value of the stock is higher in 6 years than it is today, they will exercise the option and you get a higher return. If it's not, they won't exercise it and you get your money back.
The cost of options has increased over the last few years, so there are a number of changes made to the product. I reviewed one recently that offered a capital guarantee up to a fall of 35%. If it fell by more than 35%, the client was on their own. The reason people invest in these things is they want security and this bond was pulling away the safety net when they needed it most!
Never, ever invest in something that you don't understand. If you use an adviser, don't be afraid to ask him. Afterall, you are paying him for advice.
Steven