Investment
Hi Baloo Mowgli,
No replies to your post. I suspect the "low risk to our capital ... and high return" requirement may have been a bit of a deterrent. You generally only achieve high returns by taking some risk. It's really a matter for you to consider and decide what's the best balance for yourselves. I'll set out the various options:
1. You could put it on deposit. Ostensibly safe, since your capital will not reduce in nominal terms. However, it will almost certainly reduce in real terms, because the interest rate you'll get will not keep pace with inflation. So the buying power of your capital will diminish.
2. You could buy a capital guaranteed tracker bond. These promise your money back after a preset period (unsually between 3 and 5 years), and also give you a stake in the growth of one or several stockmarkets over the period - this stake is known as your participation rate, let's assume 50% over 4 years for this discussion. So in 4 years time, you get your money back, plus half the growth in the relevant market. (Some variants offer a deposit-like return, with a bit less participation.) Trackers are often aimed at people who want to do a bit better than deposits, but don't want to risk their capital. Note two risks - (1) if markets fall, you simply get your money back, so it'll have diminished in real terms even more than if you'd left it on deposit (since you got no interest), and (2) your funds are tied up for the period of the tracker, and you can't access them, even in an emergency.
3. You could buy a with-profit fund like the one recommended to you. These funds aim at providing exposure to stockmarket assets, but within a vehicle which (a) smoothes out the gyrations of the markets, and (b) provides guarantees of capital at pre-defined dates. These are complicated vehicles, so I can only outline them briefly here. Some points to bear in mind. If stockmarkets don't do well, then with-profit funds won't either - there's no additional source of potential returns. The guarantee periods are pretty long-term. The shortest worthwhile one is offered by the Secure Investment Bond you've been recommended - after 7 years, and every year thereafter. Funds with a high equity content are likely to do best in the long run.
4. You could buy an equity or managed fund. Here you're investing largely or exclusively in the stockmarkets, with no guarantees. If you go this route, then charges are one of the aspects you should consider in choosing between the various offerings, but only one. Investments are not commodities, and cheapest is not necessarily best.
The four options go up in the scale in risk, but also in potential return. If stocks do perform well, then 4 will give you the best return, followed by 3 (because you'll leave some money on the table to pay for the guarantees and smoothing), followed by 2 (because you have a reduced participation), followed by 1. If stocks don't deliver, then 1 guarantees your nominal capital and gives you a low return plus access to your money, 2 and 3 guarantee your nominal capital, might give you no return, and force you to tie up your money, and 4 might lose you money even in nominal terms.
Stocks have historically been the best performing asset over any reasonable time period (5 years would usually qualify, 10 years certainly would), and some analysts argue that markets are perhaps now in fairly low ground - certainly a lot lower than they were - although others believe them to still be overvalued. So you pays your money and you takes your choice.
Hope this is some help. Sorry I can't promise you low risk and high returns ... but don't believe anyone who says they can !