Garanteed Equity Bonds?????

stphnstevey

What are they?

Are they any good?

Are there any search engines out there to search them?

dunstonh

It is one of the few things the regulars on this board agree on. They are usually very poor value for money and best avoided.

See this thread (as an example of many). http://forums.moneysavingexpert.com/showthread.html?p=2728519#post2728519

stphnstevey

Thanks dunstonh. I try to stay away from any stocks and shares whenever I can as I know I don't understand them enough! I am tending to agree with you, but can you just clarify a few points:

a) Is Martin's article on GEB's still in existance?

b) You mention in your posts you might be better off with a Cash ISA and a Unit Trust than a GEB - I can see your logic. But I think you mention that even in a stockmarket crash, a Unit trust would outperform a GEB and a Unit Trust would actuall produce a profit. How could this be - would they not both be equally affected?

c) I was looking for the next rung on the ladder up from reguler savers and cash ISA's with limited risk - any suggestions?

dunstonh

a) Is Martin's article on GEB's still in existance?

I dont know. However, most of us here disagree with Martin on this one.

b) You mention in your posts you might be better off with a Cash ISA and a Unit Trust than a GEB - I can see your logic. But I think you mention that even in a stockmarket crash, a Unit trust would outperform a GEB and a Unit Trust would actuall produce a profit. How could this be - would they not both be equally affected?

Lets say you pick an equity income fund that loses 20% over the period in unit price value. You still have an annual income from the distributions (dividends) which buy more units and reduce the loss.

However, the main thing is using the cash ISA for the other half of the money. If that grows by 25% over the period and the other half loses 20%, you are still 5% better off. With the GEB you wouldnt have any profit.

Its offsetting the risk on one part with a nil risk product for the other.

c) I was looking for the next rung on the ladder up from reguler savers and cash ISA's with limited risk - any suggestions?

These GEBs are still risk 5/6 on the crude 1-10 scale. They are not the next level up. A cautious portfolio averaging 4-5 could involve unit trusts in corporate bonds, global bonds, gilts, commercial property and a little UK equity income and some annual rebalancing to boot. Along with a cash ISA to offset some of that risk.

lowbrim

i would not write them off as quickly if you can get one that pays in excess of 110% of any FT100 rise with no risk to capital if it falls. Virgin had one last year at 130% of any rise and I took it out and so far it is up 25%. This has been an exceptional year but it is a lot better than the 5% I would have got in a Cash ISA. Accepted that there is 4 years to go and the market could collapse but the odds are with me! I took one out 5years ago that is just coming to maturity and I have only made 20% on that but the last 5 years have been dire! In my view it is a low risk way of getting stock market exposure.

cheerfulcat

lowbrim wrote:

i would not write them off as quickly if you can get one that pays in excess of 110% of any FT100 rise with no risk to capital if it falls.

You are ignoring inflation risk.

Virgin had one last year at 130% of any rise and I took it out and so far it is up 25%. This has been an exceptional year but it is a lot better than the 5% I would have got in a Cash ISA. Accepted that there is 4 years to go and the market could collapse but the odds are with me!

No they aren't. You fixed the price of the market when you bought and all you can do is take your chances. You can't add on the dips and reduce your price.

I took one out 5years ago that is just coming to maturity and I have only made 20% on that but the last 5 years have been dire!

The last three years have been fantastic. You have missed out on huge amounts of upside.

In my view it is a low risk way of getting stock market exposure.

You don't have stock market exposure. You have a fixed term deposit account with a variable interest rate determined by the difference between arbitrary start and finish dates in levels on one or more indices. And a basic rate tax payer pays savings tax on any profit; had you actually invested in the stock market you would have a CGT exemption to play with.

EdInvestor

I took one out 5years ago that is just coming to maturity and I have only made 20% on that but the last 5 years have been dire!

Nonsense.The FT allshare has gone up 45% in the past 4 years.

You are getting half of that and none of the dividends, which would have averaged around 4% a year over the period, ie another 16% on top plus compounding.)

Terrible investment.