Question about growth rates

glesgaguy_2

I just been given an Investment Bond Illustration by an IFA, as usual the illustration gives returns dependant on growth rates, these are 4%, 6% and 8%.

What are these growth rates dependant on ? Intrest Rates? The Economy? or Share Prices ? or something else ?

Is there anywhere I can find out what has happened to growth rates in the past, do they ever hit the top rate of 6% or more ?

I realise they have to give the worst and the best case scenario.

Thanks.

Aegis

They're just illustration rates for how your investment might perform. The actual performance will be determined by how well the underlying investments perform, and those investments should be selected as part of the bond set-up.

Out of interest, why are you going for an investment bond?

glesgaguy_2

Thanks for your reply

I need a monthly income, the plan offered is an Investment bond from which I can take 6% monthly income and depending on growth after 5 years how much of my orgional capital is returned.

I've worked out that the actual intrest is 3.75% after getting my full capital back after 5 years, presuming growth is 6%, so I presume if growth is only 4% this will be less, if 8% more.

dunstonh

Is there anywhere I can find out what has happened to growth rates in the past, do they ever hit the top rate of 6% or more ?

Does it matter what they have done in the past? Is the economic cycle for the next 5 years going to be like the 5 ahead?

Investment returns offer potential. An investment bond is just a tax wrapper. It is a container for investments. If you use the investment bond to invest in a cash fund then you will be lucky to hit 4% let alone the others. If you use it to go 100% into the stockmarket you could be up 20% one year, down 10% the next, up 5% the following 3 years, down 40% , up 15% etc etc.

I've worked out that the actual intrest is 3.75% after getting my full capital back after 5 years, presuming growth is 6%, so I presume if growth is only 4% this will be less, if 8% more.

Investment bond illustrations use 4%, 6% and 8% gross of charges. Not net of charges. You are not earning interest (unless you are in cash). If the average return equals 4, 6 or 8% then that is what you will get. The figures are realistic and achievable depending on the investments you use. You will never get exactly 4 , 6 or 8%. That isnt how it works. They are just three example figures.

turbobob

glesgaguy wrote: »

I realise they have to give the worst and the best case scenario.

In general no they are not worst or best case scenarios! This is really important to understand. They are simply examples of what an investment might be worth assuming three average growth rates over a period. They could return more or less than shown. Many funds, even "cautious" ones lost heavily over 2008.

What are the funds this bond will be invested in? Once you have information you should be able to find historic performance information on www.trustnet.com or www.morningstar.co.uk but always remember past performance is not a guide to what might happen in the future.

glesgaguy_2

Thank's for clarifying