Tieing money up for 5yrs

dunstonh

lesleyfb wrote: »

I've just seen an advisor at Nat West who has advised me to take out a Barclays product (thru him) which will guard my capital and give me up to 40% growth if I tie it up for 4 yrs. He also mentioned charges of up to 3% which he said wouldn't come out of my initial £10K investment but would come out of the growth but that I wouldn't even notice it.
I have used up all my ISA allowances.

the terms of that product are poor. Easily beaten by others. See a real financial adviser and not a bank sales rep

Middle_Sister

He told me he worked for the bank but that he was giving impartial advice. I still think he'd get quite a bit of commission for pushing that product. Don't know though.

Still need to find somewhere for £10K for 5 years.

dunstonh

He told me he worked for the bank but that he was giving impartial advice.

The only word that is important is "independent". Any other phrase is a spin. There are tied, multi-tied, whole of market and independent advisers. Independent is the word that matters. The three other classifications will often try to give the impression of independence or play down the importance. Unless the person specifically says "I am an independent financial adviser" then he isnt and any other selection of words doesnt matter.

He told you he worked for the bank. So, how is that impartial? The bank is his employer and he isnt independent. He isnt working for you as an IFA would.

Natwest also got into trouble with the media for a few months for using the word "impartial" to suggest something they were not.
http://www.timesonline.co.uk/tol/money/consumer_affairs/article5678478.ece

I still think he'd get quite a bit of commission for pushing that product. Don't know though.

3% on £10k is £300. Thats fine for the level of work. Especially as its not an explicit charge you pay.

Still need to find somewhere for £10K for 5 years.

Nothing wrong with the idea. Just the choice of provider and product.

Middle_Sister

Thanks for that. Where can I source the information on provider & product. Would moneysupermaket be able to point me in the right direction. Its a minefield out there.

dunstonh

Where can I source the information on provider & product.

An IFA has whole of market access.

Would moneysupermaket be able to point me in the right direction

No. They may offer a limited range but they wont advise and you are no better off than using Natwest.

D1zzy

"Still need to find somewhere for £10K for 5 years."

Given that everyone is just guessing at what will happen in the next few years - have you thought about doing normal fixed rate bonds for a shorter term, then you can reassess at maturity - couple of examples
1) West Bromwich BS 1 year @ 4.3%
2) Nat West 3 years - 3% year1; 4%year2, 5% year3 {Based on that I'm assuming therefore that NW are expecting inflation and rising interest rates over the next few years}

dunstonh

1) West Bromwich BS 1 year @ 4.3%
2) Nat West 3 years - 3% year1; 4%year2, 5% year3 {Based on that I'm assuming therefore that NW are expecting inflation and rising interest rates over the next few years}

doesnt really compare well to the 8% a year you can get on the investment side if you are willing to tie it up and accept the risk that the FTSE wont drop by more than 50% in the next 5 years.

jamesd

If you're worried about the FTSE dropping you simply build your own guaranteed equity bond by placing 75% of the money in a term deposit account at a fixed interest rate and 25% in a tracker of the FTSE. The fixed interest portion will provide the guarantee of no capital loss down to 50% drop in the index while the tracker portion will provide the gain if it does grow. Both with better treatment for the person doing this than the typical GEB products from banks.

The 75%:25% split is approximate and based on currently available interest rates. The exact values vary with iterest rates.

However as dunstonh implies, other investment products like corporate bonds could be used for part of the savings account portion to provide a good prospect of increased return and also increase downside protection, because corporate bonds tend to do well when equities and heir index trackers do badly. But with less of a guarantee than the pure 75%:25% split.

Jake'sGran

Bogof_Babe wrote: »

We were told 90% of our capital was guaranteed safe, which doesn't sound as good as your 100%, but then we were also told our package was geared to maximum returns.

It's all far too complicated isn't it?

If an investments seems "far too complicated" I think it is best to leave it alone.

At the beginning of my investing, over 20 years ago, I used to believe everything I read in the Sunday Times money section and did manage to get it right a few times - like Fidelity Spec Sits - which Dunstonh will know all about. My £3600 of monthly payments became almost £50k but has now lost a lot in the last year or so. It's going back up now and I am in it for the long term anyway.

I've seen a few posts lately, including one to me, saying "this is the second time you have posted about this". Has this person not got anything better to do that check an individuals older posts or does he just have a brilliant memory?

D1zzy

dunstonh wrote: »

doesnt really compare well to the 8% a year you can get on the investment side if you are willing to tie it up and accept the risk that the FTSE wont drop by more than 50% in the next 5 years.

Agreed.
I'm just averse to propositions that combine savings and stock market investments. IMO if you want invest in the market you should do that and if you want to save you should do that, but keep them separate, and you definitely should not invest in anything that you don't fully understand, no matter who recommends it.