investment bonds a good idea?

Scillonia

I am a relatively young self-employed widow on a low income, which I hope will increase. Most of my money is tied up in investment bonds which I bought through my IFA. Since I bought the bonds my investment value has gone down by about a quarter.Should I hold on to them in the hope that I regain what I've lost in years to come or do something else with it? Should I put some of it in a pension fund? Any suggestions or thoughts on this would be very welcome.
Thanks,
Scillonia

dunstonh

Investment bonds are just a tax wrapper. Just like ISAs and pensions. They dont lose or make money. The investments inside of them do that.

If you put the same investments inside an ISA, a pension, an investment bond or leave them unwrapped the actual rate of return will be identical. Its just the tax treatment and maturity process that is different.

A drop of a quarter isnt much (FTSE is down nearly 50%). So, it looks like your portfolio is lower risk.

Arthurian

I suggest you take enough out of your investment bonds to make you stop worrying - maybe one third?

Scillonia

Thanks for taking the trouble to reply, Dunstonh and Arthurian.

Yes my portfolio is lower risk, but I don't think I'm really cut out for risk at all. My IFA says that I can change the investments within the portfolio at no charge, but I can't help but wonder if there might be some hidden costs.

I think that taking a third out might be a good idea - after all, I don't suppose the FTSE is going to suddenly soar, certainly not in the next 12 months, and I can always jump back in when things look a bit more positive.

ozzage

What does your IFA say? I reckon they would say leave it in there, and to be honest so would I.

I don't really see the point of taking 1/3 out, except to make it harder to gain back what you've lost so far on paper.

dunstonh

My IFA says that I can change the investments within the portfolio at no charge, but I can't help but wonder if there might be some hidden costs.

If there was then your IFA has just committed fraud in telling you that. So, its unlikely. Plus, one of the benefits of investment bonds is that virtually all allow fund switches at no cost and it doesnt give rise to any tax liability.

after all, I don't suppose the FTSE is going to suddenly soar

Its up over 10% in the last week and by the sounds of it you arent fully in the FTSE anyway.

certainly not in the next 12 months

There is a good chance that a 20% gain this year could occur. If the recession shows signs of a bottom occurring in 2010, then 2009 is likely to have growth on the stockmarkets. If 2011 looks more likely then the growth is likely to start later.

I can always jump back in when things look a bit more positive.

You mean after its gone up and you have missed out on that?

IFA1

There should be no costs associated with switching funds.

However, many bonds have early encashment penalties (typically accompanied by higher initial allocation rates). These are commonly applied during the first five years.

There may also be tax implications of making large withdrawals, depending upon your circumstances. Bonds offer a number of advantages, but encashment is complex - if you encash a large enough sum in the wrong way, it is possible to be liable for tax on a bond that is showing a loss.

Scillonia

My IFA does say leave it in there - all the points above seem valid, so I guess I just have to ride it out.

gozomark

Scillonia wrote: »

I don't think I'm really cut out for risk at all

so why are you invested in this product ?

hedger

Scillonia wrote: »

My IFA does say leave it in there - all the points above seem valid, so I guess I just have to ride it out.

he would say that tbh

Im in a similar situation and for what its worth I believe there is some way to drop before this is over (FTSE around 3000) so Im looking at my options and how my money will work best for me - I think we all need to be really on the ball in todays climate cos things are so volatile

if u are really worrying whip it all out, if ur comfortable with the risk keep it in. youve already said ur not a risk taker so maybe the stock market isnt for you....

dunstonh

We dont actually know how its invested. It could all be in the cash funds now within the bonds. So assumptions on the risk and the investments shouldnt really be made by any of us.