Investment Bond Dilemma

Ecoman

Hello there, I have a dilemma.

I have a small Personal Investment Bond with Scottish Mutual. In January 2005 it was worth £8900 but in March 2005 I withdrew £3000 leaving £5900. I have just got my annual statement today and see that it is now worth £6500 (I'm talking round figures here) which seems like a good year to me but then I'm no expert. This bond did go down in value 2 years running in 2001/2002 but now seems to be OK. My question is..... should I leave the money where it is as I plan to use it as my endowment 'top up' and I still have 12 years to go or is there anywhere else I can put it that will outperform Scottish Mu? (or maybe be a tad safer considering the 2 years it went down in value!)
Any informed opinions would help steady my nerves I'm sure.
Thanks.

Deemy

generally stock market investments are viewed as longer term than 2 or 3 years... so if its performing leave it where it is for the 12 years.

ReportInvestor

Do you want safety or performance? I'm not sure from your post that you know yourself!

For any assessment you would need to post what fund(s) your bond was invested in.

For comparison, the FTSE 100 in 2005 went up about 17/18%, but if you were in a balanced managed fund it would be unrealistic to expect that to be relicated (and you may also have missed the worst of the earlier falls).

It may also be that you have already paid upfront charges, which may be a factor in staying with this investment. Check your terms and conditions and the investment projections / effect of charges sheet you would have received before investing.

Ecoman

Thanks ReportInvestor.
The bond was originally £6000 taken out in1995 ans it rose to £8464 by 2001 and then fell back to £8000 in 2003. The fund is invested, directly or indirectly, in a diversified portfolio of fixed interest securities, convertible stocks, and selected high yielding United Kingdom and international equities. The objective is to exceed the long term return from a building society account. (that's a quote from the company blurb)The management charges (1% per day divided by 365 are deducted at the time of each valuation according to the agreement. I don't mind a little risk but as the purpose of this fund is to make as much as possible to top up my endowment over the next 12 years I must have some guarantees. (as far as they can be given of course) Another option would be to use the cash as part of my offset mortgage which is currently 5.7% but right now the fund seems to be doing better than that. I hope this might give you a fuller picture of the fund and my aims. Any further comments will be most appreciated. Thanks.

al_yrpal

Most people have very little idea what they are investing in, and are 'lazy investors' expecting practically anything to deliver profits. You can't really do that.

If I were you, I would get educated by reading the recently released book Fundology (a short very up to date read) which explains a lot about 'invest and forget' type investments. At the very least you will end up with a better knowledge of investment products which will point to what you should do with your current investment. We aren't allowed to give specific investment advice in this forum.

Ecoman

Thanks for that Al, I'll look out for Fundology. Wasn't looking for specifics, just general advice.
(I really should know more)

cheerfulcat

Just as a general comment, not advice or anything - the performance of your investment seems spectacularly poor. It has returned ~4% pa so it hasn't even outperformed a building society account ( the fund's objective ).

EdInvestor

This bond probably has high charges since it dates from 1995.You could ask what is the "Reduction in Yield" (that's the amount your return is reduced by charges) to check that. If high (over 1-1.5%) this could be what's reducing the performance.

If there are no penalties, you could cash it in and find a better investment, especially since the ISA season is upcoming.It's just about the right size for the 7k stocks and shares ISA ( or the 4k S&S plus a 3k cash ISA).

Property funds will be allowed in ISAs from this year, which are about the right risk level for you it seems, along perhaps with lower risk Equity Income funds.

ReportInvestor

You keep harking on about "I must have some guarantees".

Your fund's stated aim is to exceed BS interest, but it might not.

Paying down your offset mortgage at 5.7% would achieve that same objective and it carries no risk .

I agree with cc, assuming his calculation of 4% pa performance is correct. The High Income equity part of your fund had no excuse not to perform very well over that period. One or two High Income funds, if in PEPs/ISAs, have trebled since 1995.

Ecoman

Thanks for all the info everyone, I will certainly think about cashing in and moving to a better deal. I have been a lazy investor over the years but this site is making me far more savvy there are so many good folks out there willing to pass on knowledge.
Cheers!