Post Office GEB

LMS2

I am thinking of opening a Post Office GEB (Guaranteed Equity Bond) based on Martin's information (dated 12 October 2005) which says "You're paid 125% of the growth of the index .......etc"

However, on going to the PO site it now seems that you either get 75% on a 3yr investment bond, or 110% on a 5 yr investment bond.

Does anyone know if these are still good deals?

Lin

EdInvestor

GEBs are not good deals because you get no interest, as you would on a savings account, and no dividends from the shares as you would if you invested in the stockmarket. The "capital guarantee" ignores the fact that your money will be worth c. 15% less in 5 years time because of inflation.

Avoid.

ReportInvestor

Martin needs to reconsider his suggestion based on the changed t&cs.

dunstonh

Until Martin removes or edits that article we will continue to repeat ourselves.

1 - the article is very old now and contains out of date information
2 - GEBs are poor quality products designed to sold easily to people who wouldnt know a good product from a bad. Quite a simple direct sale as well.

cheerfulcat

And of course the headline rate of 125%, 75% or whatever ignores the effect of taking the average level of the index over the last 6 or 12 months of the investment term when determining the closing level - you are not getting the stated participation in the actual performance.

I do wish that Martin would remove the article.

grumbler

cheerfulcat wrote:

I do wish that Martin would remove the article.

There is no point in removing article, although figures need correction. The article clearly explains product and highlights both advantages and disadvantages (catches).

LMS2

Thanks to all for your advice. I'm totally inexperienced at this game of investing and really appreciate your help.

Lin

cheerfulcat

There is no point in removing article, although figures need correction. The article clearly explains product and highlights both advantages and disadvantages (catches).

But it doesn't. It doesn't mention the fact that getting your money back in nominal terms means losing money in real terms. In fact, he says

There’s a way to beat the stockmarket’s growth, but with a cast iron guarantee that if it crashes you get all your money back.

Which contains two inaccuracies. There are several more within the article. But what concerns me most is that even though he does mention a few of the faults of GEBs ( since they were pointed out on the boards ) he still seems to be endorsing them as a product which means that people are likely to ignore the warnings. ML is ( deservedly ) very popular and IMHO needs to be more careful than most when recommending products as I suspect that people follow him blindly..
I also don't think that people unfamiliar with the stockmarket will be fully aware of just how inflexible these things are and how damaging that lack of flexibility can be..

It cannot be said often enough, GEBs are dreadful products and suitable for no-one. The risk-averse investor is taking on far more risk than s/he realises or ( possibly ) would be comfortable with, while the investor prepared for the possible 15% loss inflicted by inflation over the term should the market not oblige over a specific, arbitrary period, would be infinitely better off in a set of trackers or managed funds, as the reward for risk taken is far better.

dunstonh

There’s a way to beat the stockmarket’s growth, but with a cast iron guarantee that if it crashes you get all your money back.

for information, if a financial advisor was to use that terminology "cast iron guarantee" on one of these products, it would be an upheld complaint waiting to happen. You cannot call these products cast iron guaranteed because they are not.

There is no point in removing article, although figures need correction. The article clearly explains product and highlights both advantages and disadvantages (catches).

If the figures cannot be updated every two weeks, then there is little point showing any figures in the article. These change with every tranche and providers are not in the same cycle.

I agree with CC that an article signed off by Martin is going to be seen as a recommendation. Look how many times we have seen people say "Martin recommends this one" in other posts.

Ignoring the fact the FTSE100 is a large cap sector and has been the worst performing UK stockmarket sector over the last 5 years. Ignoring the fact you dont get any dividends/income and these can account for much of the return on a normal investment. There are lower risk investments than these available offering just as good potential, if not better.

These products are designed to be simple but are money makers for the providers. You are not getting the full return on the index you are tracking. You are not getting the dividends. They are not cast iron guaranteed (although the actual risk to capital is very low).

People who took one of these out 5-8 years ago are getting just their capital back now. Had they been on a FTSE250 tracker, 8 years ago, they have averaged nearly 9% a year. A FTSE all share tracker would have averaged 4.7% a year. A FTSE100 tracker would have averaged 2.9% a year. Still better than these GEBs and thats with a major stockmarket crash right in the middle.

MSE_Martin

I've read the notes and the GEB article is going to come down temporarily as its out of date. I fundamentally disagree about GEBs being bad products thought. For many people its a good lower risk entry point to the stock market and if the returns are up their and bought the right way it outperforms a tracker (even incorporating dividends) with no downside barring the lock in

martin

moneysavingobsessive

I agree with Martins comments. The capital guarantee in these bonds is useful - it appears that most people assume that stockmarkets will rise, don't forget that there are crashes too. If you had bought a GEB before the tech bubble, you would have got your capital back (I know that this is less in real terms, but may not be too affected depending upon personal inflation - ignore RPI as its not personally representative), whereas if you had direct exposure or through a tracker etc, you would have lost in nominal and real terms.

Furthermore, there is decent potential upside if markets rise, OK it ignores dividends, but for people looking for low risk exposure to the stock market, this may be a useful product.