FTSE100 3 year Investment Plan

rebecca1

If the Final level is higher than the Initial Index Level I will get back initial deposit plus a return of 13%


If the Final level is lower than the Initial Index Level I will get back deposit without any return


Is this too much of a risk - I'm not too well up on how the FTSE 100 has been doing or likely to do in the next 3 years.


No crystal balls out there I know but any advice offered?


Thanks


Rebecca

veryintrigued

rebecca1 wrote: »

If the Final level is higher than the Initial Index Level I will get back initial deposit plus a return of 13%


If the Final level is lower than the Initial Index Level I will get back deposit without any return


Is this too much of a risk - I'm not too well up on how the FTSE 100 has been doing or likely to do in the next 3 years.


No crystal balls out there I know but any advice offered?


Thanks


Rebecca

Who is this with Rebecca?

What sort of money are you putting in?

Its the equivalent of 4.33% gross per year - or nothing!!

Its a gamble!!
http://uk.finance.yahoo.com/echarts?s=%5EFTSE#symbol=^ftse;range=20061009,20131205;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

I have one of these gamble types with Soc Gen over seven years. If the FTSE 100 is within a certain tolerance (+/-) on an anniversary date I get 7% of the fund back each year. The tolerance increases year on year with the inital fund 'guaranteed' at the end of the 7 year term.

There is no way I would put anything significant in these types of 'funds'. Although they do provide me with some day to day excitement.

Note that if you're willing to not take advice there are companies who will share their commission with you.

i.e. I invested via moneyworld. They added an extra 2.5% to my fund by going with them.

Linton

With investing you are always taking some, possibly very small, risk, that is why investing gives better returns than bank savings. In this case in my view its too little return for the level of risk you are taking. The real risk in this case comes from inflation: in 3 years time a £100 would need to have risen by perhaps 7% to provide the same earning power.

If you say how much money you are wanting to invest we may be able to suggest other options.

WobblyDog

For me, 3 years would be too short a time scale to be investing in the FTSE 100, even in a scheme which guarantees to return your deposit.

I drip-feed money into a FTSE all-share tracker, but I'm not confident that it will give me a good return over any timescale shorter than 10 years.

The FTSE 100 has done quite well in the last 3 years, but what that means for the next 3 years I can only guess.

Marazan

Is the Initial Index Level the value of the FTSE 100 on the day you invest? So if the Index is up 30% over 3 years you'll get 13%, If it's down then you'll lose nothing but the opportunity cost - but the opportunity cost counts.

So, by comparison you can get a 2.5% 3 year ISA so on a lump sum payment in that you'll make a for all intents and purposes risk-free 7.6% tax free over 3 years. So in the investment vehicle you are considering you're only getting an extra 5.4% if the market goes up and you have effectively lost 7.6% on your money if it goes down.

dunstonh

This sounds like a deposit based structured product rather than a risk based one. Deposit ones tend to be poor value for money although nice cash cows for the bank.

bigadaj

Is there counter party risk in this as well?

The loss of dividends probably equates to teh interst earned, though many consider the index to be high with the potential for falls so a guarantee could be useful for many.

It has the potential to beat many deposit rates at least!

sabretoothtigger

Ive heard of worse ideas but you should just get a normal FTSE tracker. Buy every month for the next year, come back in five years.
Its not drastically risky but it should out weigh any benefits from this scheme

If you need the money back in 3 years for sure, maybe but might as well just take savings rates ?
13% is fairly appalling, in comparison APR of about 4% Shares can pay about that much in 'interest' anyway

opinions4u

4.16% is your AER. Or nothing. Toss a coin.

Split the difference find a 3 year term deposit for 2.08%!

DonM

The main issues to consider are couterparty risk (in which case you could potentially lose your full investment if the institution issuing the note fails - not who you buy it from), the fact that the FTSE is near its highs, you won't benefit from the dividends paid out, and the returns offered.

Personally, I think the returns being offered (about 4.16%pa) are pretty poor for a structured note. The last one I looked at (over 5 years) was paying 2.10% per quarter based on set criteria. Admittedly it's higher risk but there will be a middle ground somewhere.