Are index linked products wise for me?

Newbie2saving

I suppose I know you you may say that 'one product or type of product can't suit all', hence it is down to personal circumstances, but I am really interested in your responses...

So I am doing my research before investing and I have seen two IFA's (although I can kind of discount one as she was attached to my bank). They are both advising very different products, which is no surprise, and I want to be as clued up as possible before I proceed. One of the IFA's has recommended a few index linked products (approx 20% of total portfolio, split into 2 seperate products). I know there is some debate over whether this is a good strategy or not, but as a new investor with a cautious to balanced risk I am not sure if they are the best option for me.

I was wondering for those of you with portfolios do you mainly all have some percentage tied up in these type of products?

I don't want to put all my eggs in one basket, but at this point I feel this may be an ideal holding in my portfolio (can you tell I am a little bamboozled by all this ?!), although I think 20% seems very high.

Any comments much appreciated... (TIA)...

Aegis

What are the index linked products? That description ranges from index-linked cash products through to global index-linked bond funds, so covers quite a range of risk profiles.

If it's index-linked savings certificates from NS&I, then they're pretty safe.

Yes, by the way, the IFA at your bank will not be a real IFA.

dunstonh

Investments are about opinion. You will never get the same answer from different advisers as they will have different opinions on what is best. Much the same as you get here with the experienced investors having their views.

Some may like high yield strategies, some sector allocation, some asset allocation.

Some advisers, like those at banks, dont have the full remit to give portfolio advice. So, their advice is often limited to structured products or "portfolio" funds which do everything all within one fund. Occassionally they will split it over 2 or 3 but thats about it.

I was wondering for those of you with portfolios do you mainly all have some percentage tied up in these type of products?

It depends on your risk profile, objectives, timescales and tax position amongst other things. Some will, some wont. However, as Aegis says, you need to clarify whether you are on about NS&I index linked certificates or index linked bonds.

although I think 20% seems very high.

Not really. I work on 10 risk profiles and index linked bonds (as in corporate bonds, gilts etc) doesnt fall below 20% until risk 7. If its NS&I index linked certs then I treat those as cash and 20% could be high or low depending on your overall cash holdings.

Newbie2saving

Thanks for the speedy responses.

Sorry for not clarifying. One is a Barclays FTSE Performance Plan, the other is a Zurich FTSE 100 linked account, so structured products. I have about 30% in cash.

I don't need this money now (sorry should clarify, I won't need it for >10yrs), I am in my early 30's and want it to work harder than what the banks are currently offering in terms of AER.

Thanks again...

Aegis

Newbie2saving wrote: »

Thanks for the speedy responses.

Sorry for not clarifying. One is a Barclays FTSE Performance Plan, the other is a Zurich FTSE 100 linked account, so structured products. I have about 30% in cash.

I don't need this money now (sorry should clarify, I won't need it for >10yrs), I am in my early 30's and want it to work harder than what the banks are currently offering in terms of AER.

Thanks again...

I'm not generally a fan of structured products like those, largely because the underlying investments are generally not easy to uncover, plus the returns tend to be pretty poor in comparison to a standard investment. However, if you accept the counterparty and investment risk, they can be ok for an investor looking for security.

What are the specific terms you've been offered?

Newbie2saving

The Zurich is a 3.5yr investment with a 23% max capping on your savings. The Barclays is a 48% max, on a 6yr term, plus lock in feature in 3yrs time at a rate of 24% regardless of the final FTSE level. Both based on the FTSE 100.

Jake'sGran

I have never bought one of these products and was a complete novice at the beginning; sometime in the 80s. My portfolio is looking good although I have made mistakes.

I would buy OEICS ( called Unit Trusts previously). After doing some research like the list of Alpha Managers in Trustnet, I would buy the funds you choose through Hargreaves Lansdown for the discount they give on the initial charge - mostly this is the full amount e.g. around 5% .And they also rebate a small amount of their annual commission if the funds are held in their Vantage system.

Seems like many people are still buying Income funds ready for retirement but they have not done well during 2009 although the most well known manager for this type of fund - Neil Woodford - is listed as an alpha Manager. Have a look at the record of his Income and High Income funds. Lately, I have been buying funds invested in Asia, China, Gold and others plus blue chip shares. It is best to diversify I believe. The best Asia fund is the Fidelity one i.e. for performance (check that). Finally, I will certainly be putting money in their China Special Situations which will be run by Antony Bolton, the most famous fund manager of all! Information packs will be available at the end of this month. Hope you do well with your investments.

dunstonh

I am not a fan of structured products (and that is generally the feeling here as well with most of the regulars). However, you do find from time to time that one does come up with decent terms and they can fit that niche market.

The banks love them and oversell them as they have a few soundbite features which suit the typical bank customer and they can ignore the negatives.

Jonbvn

Jake'sGran wrote: »

Finally, I will certainly be putting money in their China Special Situations which will be run by Antony Bolton, the most famous fund manager of all! Information packs will be available at the end of this month. Hope you do well with your investments.

I assume you are aware that this investment is a trust and not a fund per se? Although I tend to like the idea of sticking with the good managers as a strategy, I'm not sure about this investment - seems to have missed the boat. For me it is a wait and see.

Aegis

Jonbvn wrote: »

I assume you are aware that this investment is a trust and not a fund per se? Although I tend to like the idea of sticking with the good managers as a strategy, I'm not sure about this investment - seems to have missed the boat. For me it is a wait and see.

It's also quite expensive for an investment trust. Quite a high annual charge and a 15% performance fee above a certain minimum threshold. On top of that, the fund launch may well end up with a discount shortly after the initial subscription because Bolton is only signed up to manage the fund for 2 years.

I liked the idea of this fund to begin with, but after finding out the structure and the charges, I decided to give it a miss.

Newbie2saving

Thank you all for the pointers.

Well, there is so much to take on board. As I have mentioned (and my user name states) I am a newbie so all your comments are really useful and makes me realise I am even more niave to my options than I first realised!

Back to the drawing board and research literature I think....