Britannia Guaranteed Return Capital Bond

miaxmia

dunstonh wrote:

Did you read the other thread highlighted? They are poor value.

Well I have now and I got the gist of what you are saying, but am very confused - have some money to invest and, if I am understanding you correctly, then a Unit Trust is better, but how do I pick the right Unit Trust?

dunstonh

miaxmia wrote:

Well I have now and I got the gist of what you are saying, but am very confused - have some money to invest and, if I am understanding you correctly, then a Unit Trust is better, but how do I pick the right Unit Trust?

Unit trust funds may or may not be better. They dont have a guarantee on them (although some do on death which may be all the guarantee thats needed for some). However, you can invest into very low risk funds right up to very high risk funds. Or ideally a combination that averages out to match your risk.

If you are cautious, then just dip your toe in the water and start with a small amount of perhaps £1000 and pick a relatively low risk sector.

Say you had £5,000 and you put £3000 into a cash ISA at 5% for 5 years and £2000 into an equity ISA for 5 years. That would give you a £3828 at the end of 5 years on the Cash ISA. You could then afford the £2000 to lose just over 41% and still end up with £5000 at the end of the 5 years.

What chance of a 41% loss after 5 years? Highly unlikely but thats a nice buffer to have. Anything less than a 41% loss would beat a guaranteed equity bond. Had you done that 5 years ago and gone through the worse stockmarket crash in 30 years, you would have ended up with £3838 on the cash ISA (assuming 5%pa) and £2795 on an equity income fund giving a total of £6633. Had you gone in any Guaranteed equity bond 5 years ago linked to the FTSE100 (which most are), you would have got back £5000 only.

So, if you are cautious but fancy a stockmarket dabble, that is a much better way of doing it than a GEB. Now, if Martin was to rewrite the GEB article to bring it up to date, I would like to see an example like that above as to why GEBs are poor value for money. Risk offsetting like that is in my opinion the better option.

Too often people look at the investment as a single item. It shouldnt be like that. You take the whole pot and look at your bottom line of all your savings/investments and then build a portfolio which is spread out to average your personal attitude to invesment risk. You then work out how much you are willing to accept as volatility (i.e how much could it go down before you get the jitters) and then build your savings and investments to match that.

Ian_W

Wish we had the Thank You buttons back, you'd have earned 2 more from me tonight for the above and the FOS reply on mortgages. Thanks dh, Thanks dh - there, done it the old fashioned manual way.

ManAtHome

On the 'rule of thumb' bit, I'd avoid any savings/investments from Brittania - they're much more interested in borrowers than savers - check the 'best buy' tables.