M
Ms. Roban
Guest
I've a lump sum I'd like to invest, but I'm not comfortable with the idea of risking it all. Are there any capital guaranteed products available on the market and which are the best?
ringledman
Registered User
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In my opinion these products arent worth paying the managment charges for.
With most (certainly not all!!!) of the downturn likely to be priced into the markets, now probably isnt a good time to take out these sort of investments.
If you want a stock market investment you need to be looking long term (10 years minimum) and therefore why pay for a firm to take your eventual (!) upside off you?
With most (certainly not all!!!) of the downturn likely to be priced into the markets, now probably isnt a good time to take out these sort of investments.
If you want a stock market investment you need to be looking long term (10 years minimum) and therefore why pay for a firm to take your eventual (!) upside off you?
Stock market investment at perceived historically low unit price and capital protection would seem a good bet,particularly when OP said that they would be uncomfortable with risking their capital.Capital protected bonds are available from many well known Assurance companies.Choice of three,four,five,six year terms and longer are available.Averaging of returns over final twelve months reduces risk of losing growth already attained.
ringledman
Registered User
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Stock market investment at perceived historically low unit price
The exact reason not to take a Capital Guaranteed Investment!!!
If the stock market is so low (granted could bottom lower in next 6-12 months) then dont take a guaranteed scheme!
2 options -
1) Want Low risk- Stick to safe Gilts, cash, bonds. Hope inflation doesnt take off and errode value.
2) Want Risk- Stocks. Market at excellent P/E for long term. Risk of market falling further in short to medium term.
The capital guaranteed scheme suits the seller of these products just fine but is a dumb halfway house between the low risk and the high risk options above.
For a LONG TERM (i.e. 10 years min) investor then gilts, bonds, cash or stock are the ONLY options.
Guaranteed. Guaranteed to make the seller of such products a lot of money but not the purchasers.
The exact reason not to take a Capital Guaranteed Investment!!!
If the stock market is so low (granted could bottom lower in next 6-12 months) then dont take a guaranteed scheme!
2 options -
1) Want Low risk- Stick to safe Gilts, cash, bonds. Hope inflation doesnt take off and errode value.
2) Want Risk- Stocks. Market at excellent P/E for long term. Risk of market falling further in short to medium term.
The capital guaranteed scheme suits the seller of these products just fine but is a dumb halfway house between the low risk and the high risk options above.
For a LONG TERM (i.e. 10 years min) investor then gilts, bonds, cash or stock are the ONLY options.
Guaranteed. Guaranteed to make the seller of such products a lot of money but not the purchasers.
dunkamania
Registered User
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- 186
Structured products work by placing most of the money into a zero coupon bond and purchasing options with the balance.
With dropping interest rates, zero-coupon bonds are more expensive. With elevated volatilities, options are more expensive. As a result you will be getting much less exposure in current environment.
With dropping interest rates, zero-coupon bonds are more expensive. With elevated volatilities, options are more expensive. As a result you will be getting much less exposure in current environment.
johnnygman
Registered User
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- 188
Quick question as i do not understand your point, if a guaranteed invesment is stuctured in a way that for instance(many of these Guaranteed type products on the market) there is no annual fund management fee and the investment is structured on a allocation basis, ie 60/40 in the clients favour, surely the investment company will not make any money if for instance the investment does not provide a positive return, and all the client receives back is his/her origional investment amount..
How does the bank or assurance company make money in this scenario?
Quick question as i do not understand your point, if a guaranteed invesment is stuctured in a way that for instance(many of these Guaranteed type products on the market) there is no annual fund management fee and the investment is structured on a allocation basis, ie 60/40 in the clients favour, surely the investment company will not make any money if for instance the investment does not provide a positive return, and all the client receives back is his/her origional investment amount..
How does the bank or assurance company make money in this scenario?
Stop, stop, you are going to make me cry. The poor banks have it bad enough without being ripped off on these capital guaranteed schemes!
Unfortunately, there is no down side for the bank/assurance company - you take all the risk. In very simple terms, if you give them 10,000 euro it gets divided up like this:
8,500 on deposit which turns into 10,000 in 5 years or whenever the scheme matures.
1,000 to buy an option on the index in question and provide the participation.
500 into Mr. Bank's trouser pocket.
The bottom line is that they don't care how it performs as they get paid anyway. Except of course that if you make a profit you are more likely to give them another 500 by reinvesting when it matures.
johnnygman
Registered User
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Sarcasm and bank bashing to one side please,(i am not intersted in childish comments like that and would prefer to see the banks make money and use it to stilumlate the economy rather than be paralysed and needing to be bailed out by goverment, although fairness needs to be there for the ordinary customer as well of course) that would appear to provide possibly a very poor rate of return if only 10% of a persons money is invested in the markets, seems hightly unlikely any company would be offering such a low participation rate, if this is the case then surely these are best avoided like the plague?
voodoobazza
Registered User
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- 57
Take it from me any capital guaranteed bond makes the seller around 6% in day one.
Keep you money on deposit or in Gilts and look for tactical tilts with a portion of it!!!
Keep you money on deposit or in Gilts and look for tactical tilts with a portion of it!!!
No as stated it is not that 10% of the sum is invested in the markets as witha typical fund but rather it is "to buy an option on the index in question and provide the participation" - therefore the return would represent the return if the full amount had been invested in the index.
I think you misunderstand me. I am not 'bank-bashing', I am merely stating in answer to your question "How do the banks make money out of this?" that you need not worry, they do just fine out of capital guaranteed bond investment schemes.
I won't add to the confusion by getting into too detailed an explanation but 10% of your money buying an option on an index does not mean that you only have 10% participation.
johnnygman
Registered User
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Sound Janman.. no worries im sure they will of course, hope the poor punters make a few quid also fingers crossed.
Some trackers operate in a different way to what previously mentioned e.g. lump sum is equaly invested in forty specified companies and the capital is protected by the receiving Assurance Company/Bank purchasing a guarantee from a third party.The term is 3,4 or 5 years and the participation rate is determined upwardly by the term i.e.5 years is the highest participation rate and therefore has the highest potential return.