Kick out bond
- Thread starter tony50
- Start date
Kick out bonds are amazing for making money for the product producer, and the broker. Terrible for the investor!
Kick Out Bonds
Hi, I would be grateful if I could get some investment advice on Kick Out Bonds which was recommended by financial adviser. I have 280k cash sitting in a bank, which I don't need for next 10 years. I received recommendation on four investment products to invest 70k in each over a term of 5...
www.askaboutmoney.com
agree with above the structure and layers of complexity do two things:
1. Attempts to convince your of reward without risk (not possible)
2. Make sure all the participants in the bond get paid (except for you) .
I've bought over the years several of these ..I got my money back and nothing more.
So cold hard experience talking ..whilst I agree with many on AAM on getting flat to equity markets...I don't know how to do that outside of my pension ..I hope that's your next question
1. Attempts to convince your of reward without risk (not possible)
2. Make sure all the participants in the bond get paid (except for you) .
I've bought over the years several of these ..I got my money back and nothing more.
So cold hard experience talking ..whilst I agree with many on AAM on getting flat to equity markets...I don't know how to do that outside of my pension ..I hope that's your next question
Steven Barrett
Registered User
- Messages
- 5,125
Wow!
You do know that if you want to invest in artificial intelligence, you can just purchase the index that this bond is tracking? That way, you can take gains whenever you want and won't have to leave your money invested with them for 10 years and risk losing your shirt.
Under the terms of that bond, there is a capital guarantee as long as the index doesn't fall by more than 40% at which point all guarantees are off and you are on your own.
There is a cap on the gains too of 85% (6.3% annualised). The index it tracks has returned 14.75% per annum in its 8 years, so you are leaving money on the table by wrapping it up in a product that will deny you access to your own money for 10 years.
By way of comparison, much more diversified and lower risk investments like a Global Stock index or the S&P 500 have returned 10.90% and 14.30% per annum over the last 10 years, so why would you settle for a maximum return of 6.3% from something that involves much more risk?
Steven
www.bluewaterfp.ie
You do know that if you want to invest in artificial intelligence, you can just purchase the index that this bond is tracking? That way, you can take gains whenever you want and won't have to leave your money invested with them for 10 years and risk losing your shirt.
Under the terms of that bond, there is a capital guarantee as long as the index doesn't fall by more than 40% at which point all guarantees are off and you are on your own.
There is a cap on the gains too of 85% (6.3% annualised). The index it tracks has returned 14.75% per annum in its 8 years, so you are leaving money on the table by wrapping it up in a product that will deny you access to your own money for 10 years.
By way of comparison, much more diversified and lower risk investments like a Global Stock index or the S&P 500 have returned 10.90% and 14.30% per annum over the last 10 years, so why would you settle for a maximum return of 6.3% from something that involves much more risk?
Steven
www.bluewaterfp.ie
@SBarrett
The 'kick out' makes these worse than that.
If at the end of 1 year or any monthly observation date thereafter, the index is higher than the starting point, the bond early matures, and you get your 8.5% simple interest. If it's below initial value on maturity date, you get no return at all.
So, to make any kind of return long term, you want the index to lose money, but make a positive return in the final month!
There's a high probability you get your money back after 12 months, and the broker gets another 2% commission signing you up to the next product they produce.
The 'kick out' makes these worse than that.
If at the end of 1 year or any monthly observation date thereafter, the index is higher than the starting point, the bond early matures, and you get your 8.5% simple interest. If it's below initial value on maturity date, you get no return at all.
So, to make any kind of return long term, you want the index to lose money, but make a positive return in the final month!
There's a high probability you get your money back after 12 months, and the broker gets another 2% commission signing you up to the next product they produce.
Duke of Marmalade
Registered User
- Messages
- 4,448
Generally, I oppose these products, and in this case I would be no different. However, I would not damn it on the usual grounds of being a rip-off and of over gilding the proposition.
The overall charges (provided you do not exit early, as opposed to kick out early) seem reasonably modest at 4.2%, unless I am missing a big dollop going to GS.
But the proposition itself seems very unappealing, as disclosed in the KID. After 10 years the "unfavourable" scenario would return €4,862 for your original €10k investment whilst the "favourable" scenario returns €11,841. I think the silly PRIIPS rules are actually doing the product a disservice, surely nobody would be swayed by a proposition which appears to give an equal possibility of gaining €1,841 and losing €5,138 after 10 years! In fact, the only attraction of the proposition is to kick out early for relatively modest gains. Taxation seems iffy. They suggest CGT but it could be income tax or even exit tax.
In short, it seems a very lopsided proposition, hoping for a an early kick out for a modest gain but a big chance of languishing for 10 years with an unacceptable possibility of a big loss.
Question for any nerds that know how PRIIPS KIDs work
The favourable scenario is defined as the 10th best centile outcome
After 10 years there are only 3 possible scenarios: €18,500, €10,000 or <€6,000.
It is simply not possible to get a return of €11,841 yet this is what is disclosed in the KID
The overall charges (provided you do not exit early, as opposed to kick out early) seem reasonably modest at 4.2%, unless I am missing a big dollop going to GS.
But the proposition itself seems very unappealing, as disclosed in the KID. After 10 years the "unfavourable" scenario would return €4,862 for your original €10k investment whilst the "favourable" scenario returns €11,841. I think the silly PRIIPS rules are actually doing the product a disservice, surely nobody would be swayed by a proposition which appears to give an equal possibility of gaining €1,841 and losing €5,138 after 10 years! In fact, the only attraction of the proposition is to kick out early for relatively modest gains. Taxation seems iffy. They suggest CGT but it could be income tax or even exit tax.
In short, it seems a very lopsided proposition, hoping for a an early kick out for a modest gain but a big chance of languishing for 10 years with an unacceptable possibility of a big loss.
Question for any nerds that know how PRIIPS KIDs work
The favourable scenario is defined as the 10th best centile outcome
After 10 years there are only 3 possible scenarios: €18,500, €10,000 or <€6,000.
It is simply not possible to get a return of €11,841 yet this is what is disclosed in the KID
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