Virgin Money's Legal & General 6 Year Growth Deposit Bond 17

ihr

I was looking at the Legal & General 6 Year Growth Deposit Bond 17 from Virgin Money. I was trying to understand what rate they are offering. They state the following:

Provides, at the end of the 6 year term, return of the capital plus the greater of:
4.85% Gross2 minimum return (AER1 0.79%)
or
100% of any growth (after averaging) in the FTSE 100 Index up to 40% of your original investment (AER1 5.77%)


In particular I don't understand how 4.85% gross can be 0.79% AER.

Also generally, does this sound like a new good home for a bond about to mature?

jimjames

0.79 x 6yrs = 4.85% (when compounded)

It isn't one I'd personally use as you wouldn't get any of the dividend income from the FTSE over that 6 years which could be a lot of the gain that is made but it does guarantee that you won't have less money at the end than the start - apart from inflation.

Also if you need the money before 6 years you may not be able to access. I prefer to use a S&S ISA so I have complete choice over the funds and when I can get my money out but the value isnt guaranteed.

ihr

jimjames wrote: »

0.79 x 6yrs = 4.85% (when compounded)

It isn't one I'd personally use as you wouldn't get any of the dividend income from the FTSE over that 6 years which could be a lot of the gain that is made but it does guarantee that you won't have less money at the end than the start - apart from inflation.

Also if you need the money before 6 years you may not be able to access. I prefer to use a S&S ISA so I have complete choice over the funds and when I can get my money out but the value isn't guaranteed.

Right, got you. 6 years is a long time to put money away without any return. I will explore S&S ISA options, though I am, perhaps irrationally, intimidated by them.

frostyjon

How can you be intimidated by an equity ISA when you're seemingly happy to get into bed with a structured product!?

ihr

frostyjon wrote: »

How can you be intimidated by an equity ISA when you're seemingly happy to get into bed with a structured product!?

Well, I imagine that would be why I said 'irrational'.


Seriously though, for someone with no background in finances/economics there's a heck of a lot to learn when you move from looking at savings accounts with fixed bonuses or fixed rate bonds to trying to understand all the terminology and implications of other options available, which is why I was asking questions about the Virgin Money Bond and why I find stocks and shares ISAs intimidating.

jimjames

ihr wrote: »

Well, I imagine that would be why I said 'irrational'.


Seriously though, for someone with no background in finances/economics there's a heck of a lot to learn when you move from looking at savings accounts with fixed bonuses or fixed rate bonds to trying to understand all the terminology and implications of other options available, which is why I was asking questions about the Virgin Money Bond and why I find stocks and shares ISAs intimidating.

Part of the problem is that the documentation for things like the Virgin bond are designed to make them look simple and easy to buy yet the underlying situation is anything but simple often with catches you might miss.

S&S ISAs can be confusing, first you have to choose the provider and then which funds, potentially from a choice of 2600+ options. No wonder why it can be daunting and intimidating.

However making time to investigate is well worth it, fortunately I've build up my knowledge since first investing in 1996 and would recommend to anyone to look into it so they understand.

The fundamentals are that a S&S ISA shelters your investments from tax but is just a wrapper - you then need to put something inside the wrapper which is where the fund choice comes in. Despite the massive choice there are ways to reduce down the list, some people start with tracker funds which might not give stellar performance but will be guaranteed to track the market eg the FTSE100. You can get similar trackers for different markets and for a more balanced approach having a split of funds across diferent regions could be beneficial.

You can find more info here www.hl.co.uk but they aren't the cheapest place to buy trackers from. HL do have a Wealth150 recommendation list which again helps reduce the choice down but it can also be viewed as a marketing list as there are suggestions some funds pay to appear. Despite that it can be a useful starting point to selecting funds for your ISA.

Apologies for the basic terms but I'm assuming very little knowledge. Some of the fundamental terms you might see are:

Yield - similar to interest rate but based on the dividend paid out by companies divided by the share or fund price. So a dividend of 5p on a fund priced at £1 would have a yield of 5%.

Fund - a collection of shares managed by a fund manager. Can be for a specific region or theme eg FTSE100 tracker or technology fund. The performance of the fund depends on the price of the shares that it owns.

Bond - effectively an IOU issued by a company with a given interest rate for a fixed term. At the end of the term the company repays the capital but if the company goes bust you may lose your money. Bond funds hold bonds from different companies and can be held in a S&S ISA.

I'll try to think of any other terms but feel free to ask any other questions!

ihr

jimjames wrote: »

The fundamentals are that a S&S ISA shelters your investments from tax but is just a wrapper - you then need to put something inside the wrapper which is where the fund choice comes in. Despite the massive choice there are ways to reduce down the list, some people start with tracker funds which might not give stellar performance but will be guaranteed to track the market eg the FTSE100. You can get similar trackers for different markets and for a more balanced approach having a split of funds across diferent regions could be beneficial.

You can find more info here www.hl.co.uk but they aren't the cheapest place to buy trackers from. HL do have a Wealth150 recommendation list which again helps reduce the choice down but it can also be viewed as a marketing list as there are suggestions some funds pay to appear. Despite that it can be a useful starting point to selecting funds for your ISA.

Apologies for the basic terms but I'm assuming very little knowledge. Some of the fundamental terms you might see are:

Yield - similar to interest rate but based on the dividend paid out by companies divided by the share or fund price. So a dividend of 5p on a fund priced at £1 would have a yield of 5%.

Fund - a collection of shares managed by a fund manager. Can be for a specific region or theme eg FTSE100 tracker or technology fund. The performance of the fund depends on the price of the shares that it owns.

Bond - effectively an IOU issued by a company with a given interest rate for a fixed term. At the end of the term the company repays the capital but if the company goes bust you may lose your money. Bond funds hold bonds from different companies and can be held in a S&S ISA.

I'll try to think of any other terms but feel free to ask any other questions!

jimjames you are FANTASTIC.

I really appreciate this and thank you for starting with the simple terms. That is precisely the stage i am at right now.

My first question would be about equity. When FrostyJon referred to a S&S ISA above, he called it an equity ISA. I looked up some definitions of 'equity' and then i rather wished i hadn't. In the end I found:
'1. A stock or any other security representing an ownership interest.'
and that seemed to be the right definition for the context in which it is used. So an Equity ISA means a savings account where the money invested 'owns' something? Yes? No?

I'm also still a bit confused about yield. This is the bit were I admit to the fact that I actually inherited some investments some years ago. It was during a pretty traumatic time, and somehow it felt dirty to be given money when what I was feeling was grief. So I just ignored them, and slowly the stack of baffling statements have accrued. They include a lot of graphs, which generally tell me that lately things have not been as good as they were.
But how should i compare these investments. Would yield be the way to do it? The statements don't state yield, but presumably I can calculate it from the information given. But how would this relate to the 'big figure', the Fund value, which seems to go up and down?

jimjames

The main thing to think about for investments compared to savings accounts is the total return. This isn't relevant for savings as you always get your capital back and it is always what you put in.

With shares the aim is that you may get dividends (= yield) but you also get capital growth. The important measure is the total return which includes both the yield and the capital growth.

So for my example above with 5% yield on a £1 fund price, assume after 1 year that the fund price has risen to £1.05. The total return would be 10p, 5p from the dividend yield and 5p from the capital growth and you would say your return was 10%.

xylophone

inherited some investments
stack of baffling statements

The investments are?

the Fund value, which seems to go up and down?

Yes, depending on the investments held in the funds.

Linton

ihr wrote: »

jimjames you are FANTASTIC.

...
My first question would be about equity. When FrostyJon referred to a S&S ISA above, he called it an equity ISA. I looked up some definitions of 'equity' and then i rather wished i hadn't. In the end I found:
'1. A stock or any other security representing an ownership interest.'
and that seemed to be the right definition for the context in which it is used. So an Equity ISA means a savings account where the money invested 'owns' something? Yes? No?
......
.

Equity does mean that thing which you own. So if you have a share in a company you legally own 0.00001% or whatever of that company. In investing, the term "equity" normally means shares.

With a bond, you dont actually own a thing.

"Equity ISA" isnt a valid term. The normal term used is a Stocks and Shares ISA. "Stocks" is an old term that appears to have no clear meaning now. I have seen it used to refer to both shares and bonds. You can hold bonds in an S&S ISA.
One thing that an S&S ISA cant hold except for short term transactions is cash. So its not really a savings account, its more a repository for shares/bonds/funds etc.