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Natwest Guaranteed Combi Bond
Comments
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Or to make money for the issuer!The same way everyone else does.
Are you telling me that if you invest in cash and I invest in the FTSE100 for the next twelve months you will get a better return?
Not a chance it can be classed as low risk under any definition of the word.
Surely, as the FTSE100 constituents are usually(possibly always) classified as low risk then the FTSE100 itself or an ETF (although they are usually registered offshore, which would preclude them from low risk) would be classified as low risk and ETFs Medium risk?
Doesnt matter what the upward potential may be. When it comes to risk its the downward potential that matters.
True
Putting up with generally low rates, NS&I etc on the basis that you have to hedge against the risk on other options.
Not sure what you mean by that!
Enough to keep me recommending NS&I index linked certs as a good place to keep cash.
Better than IL-gilts? (or more commission)
The link to the FTSE100 in the GEB is purely for underwriting purposes because of the way the guarantees and returns are funded. The consumer themselves will not be investing in the FTSE100. The upward performance is not an issue and there is a fair level of downward allowed before capital risk becomes an issue. Plus 5 years is a good timescale. I dont think you will find many people giving a level of 1900 on the FTSE in 5 years time as likely.
Does that matter? If it's linked then it's linked.
Remember with these things, they are not there to attract investors the shrug off short term losses and look for the next potential. They are there to attract the more cautious individual who doesnt mind a calculated risk where they feel the odds are more stacked in their favour. The downside is always the focus when it comes to risk. The upside doesnt really matter at that point.0 -
Obviously they hope to make money.
They'll invest this money with far greater risks, you can make 8% in 5 mins trading stocks so if they have any clue it should not be difficult for them.
Just relending the money would probably turn a profit alone, thats why banks are so irritating0 -
Are you telling me that if you invest in cash and I invest in the FTSE100 for the next twelve months you will get a better return?
I dont know. However, what I do know with cash is exactly what I will have in 12 months time as a minimum. Can you say the same with the FTSE100?Surely, as the FTSE100 constituents are usually(possibly always) classified as low risk then the FTSE100 itself or an ETF (although they are usually registered offshore, which would preclude them from low risk) would be classified as low risk and ETFs Medium risk?
You appear to be starting your risk scale at a higher point. Effectively, on a 1-10 scale, you appear to be starting at 6 or 7 and calling that low. Risk scales need to be placed in context to cash so you can realistically measure the level of risk.Better than IL-gilts? (or more commission)
There is no commission on NS&I index linked certs. Also, you dont have to worry about redemption and running yields.Does that matter? If it's linked then it's linked.
It does matter depending on the type of GEB. One that pays out x% of FTSE growth over 5 years is much closer to tracking the index and actually investing in the FTSE (even though you arent). However, one that pays out 8% per annum and returns your capital providing the FTSE isnt lower than 50% of its current level is much removed from the FTSE apart from the capital security.Or to make money for the issuer!
A lot of them are cash cows for the provider and mostly useless for the consumer. That is why I and most regulars here generally have a negative view on them. However, every now and then a good one comes along.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
I think cash will be the worst place to be, therefore high risk and I think assets will be the best place to be (in the coming few years), therefore lower risk.0
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I think you seem to be missing the point of what risk is that Dunstonh is pointing out.
Low risk - you will get back what you paid in with the potential for a small gain, and the likely hood of losing any of your capital is LOW
High risk - you will place your money in shares/trackers etc. If all goes well you will get your capital back plus a large amount of gains. However if things go wrong you get less back than your initial capital.
Cash is not high risk because you get low returns, its low risk because its secure.
I do understand your point in that you see assets to be low risk because you don't believe than can fall much further and in 3-5yrs they should have risen in price and show a good gain. However there is no guarantee that this will happen, though it is likely due to stockmarket cycles from history past (but previous gains are not blah blah blah...lol)0 -
It's a great investment for NatWest. The FTSE is likely to grow by more than 50% and they get to keep the excess having used your money to make them that excess.KeepSmiling42 wrote: »We have been offered a guaranteed combi bond by natwest but we're not sure whether it is a good investment.KeepSmiling42 wrote: »The deal is that Natwest take a snapshot of the FTSE 100 now and again in 2015. If the value has risen by 50% then we will receive our deposit (which is guaranteed) plus 50% return in 2015. If it doesn't hit the 50% growth mark we will receive the return that the FTSE has grown by. If the FTSE grows more than 50% our return is capped at 50% and natwest receives the additional
Here's an illustration of how it works and how you can do it yourself if you like.
First, you start with a savings account or other guaranteed product. I'll use a five year savings bond paying 4.5%. After five years of 4.5% £1,000 will have grown to £1,246. They only need to guarantee 100% so all they need to put into the savings is £802. Five years of 4.5% grown on £802 is £999.44, so that gets you your 100% capital guarantee.
That's used £802 of your money, so with the rest they can buy a FTSE 100 fund. That's £198 into the fund.
But you'll probably find that there's also a term in the agreement that says if the FTSE 100 drops by more than 50%, you take that loss. While the guarantee is currently assuming it has to cover 100% loss, not just 50% loss. So more is in the savings account than really needed.
If they split it to £400 in the FTSE 100 and £600 in the savings account, what happens after a 50% FTSE drop? The FTSE part is worth £200 and the savings part is worth £748 after the five years of 4.5%. £200 + £748 = £948 so they haven't delivered the 100% guarantee. But the FTSE 100 pays about 4% in dividends a year and those dividends pay out £86 over five years. £948 + £86 = £1,034 so they have managed 100% of the capital after the 50% drop that they guarantee to protect you from.
Here's how it works out for other possibilities:
75% drop: 748 + 86 + 100 = £934. NW: maybe £750? DIY win
50% drop: 748 + 86 + 200 = £1,034 = 100% guarantee met = same as NW
No change: 748 + 86 + 400 = £1,234 = 23.4% gain. NW: 0% gain, DIY win
50% gain: 748 + 86 + 600 = £1,434 = 43.4% gain. NW: 50% gain, NW win
100% gain: 748 + 86 + 800 = £1,634 = 63% gain. NW: 50% gain, DIY win
200% gain: 748 + 86 + 1200 = £2,034 = 103% gain. NW: 50% gain, DIY win
What you can see is that the DIY approach usually beats NatWest, except in a small range around 50% FTSE 100 growth. I'm simply assuming that NatWest has the common 50% drop and you take losses below that condition, I haven't verified it.
You're also not restricted to using just the FTSE 100 with the DIY approach. You can use indexes that are more likely to make money and you can diversify across several, say including a global index as part of the investment part.
Put the investments in ISAs and you can do this tax free. The NatWest product probably isn't tax free, though maybe they do offer it for their ISAs.
NatWest doesn't really use a FTSE 100 tracker fund. What they do is buy products from other places that expect the FTSE to rise more and sell them the gain over 50% that you don't get. That pays for more of their profit. And you get something called counterparty risk: if whoever they buy from goes bust you might lose some of your money regardless of what the guarantee claims. Some banks have reimbursed their customers when this has happened. Others haven't. So find out who the counterparties are if you go for the NatWest product or any similar one. Don't expect it to be easy to find out: they often make it a secret and refuse to say, so you can't know how much risk you really have.0 -
That is not a definition of risk that is generally used. Performance risk would only ever enter into a discussion if a fixed return were required as a minimum after a certain time, which is where low-cost endowments fell down - they stopped performing as well as they should have and the lack of guarantees left a lot of people without the means to pay off their mortgages. If performance risk is a factor then a very complex investment strategy is required to get higher-than-cash returns simply because you need to phase in to and out of the market at suitable times, which is rarely a great way to try and manage your finances for the average investor.I think cash will be the worst place to be, therefore high risk and I think assets will be the best place to be (in the coming few years), therefore lower risk.
Risk as a general rule is closely linked to volatility, and there's no way you can possible claim that cash is more volatile than equities. Put it this way, if I take out a cash account, is my capital realistically going to reduce? What about if I invest in equities? The fact that my capital is at risk with equities but not with cash shows that equities are higher risk than cash.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
Sorry to bump this - I am reading this thread as I am considering (only considering) sticking 5k into this Natwest guaranteed combi bond.
But its my first foray into such things.
On the plus side, its guaranteed so I cant lose money
On the negative - its 6 year term and return is likely to be anything between 125% to 175%. Ok I am not deluding myself, I do not see me getting a 75% growth.
25% growth is equivalent to something like 4% annual interest on the 5k over 6 years so that just sounds as if I should stick to saving bonds.
Answered my questions but I am still puzzled for a good reason why I should consider this (if any). Any help, advice appreciated - I am still digesting previous comments.0 -
I am considering (only considering) sticking 5k into this Natwest guaranteed combi bond.
You can get better versions if that is the sort of thing you want.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
You can get better versions if that is the sort of thing you want.
Any products I can look at?
I have always played safe in terms of savings - just standard savings and bonds - no risk.
This seems like no risk in the sense its relatively small amount of money in grand scheme of things with a guarantee. I spent 1.5 hours talking to someone at natwest today - wasnt pressurised into anything, I still have not gone for it but its available to 23rd Oct before they change to some other product (no information available).
I could just continue playing safe or do this as a test investment....0
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