Structured Products

HSVX

I was talking to my IFA about potential investment opportunities, and he suggested considering structured products.

I am only 21 years old, and about to start work in a good job; I should be able to save fairly significantly from the outset. I also already have a good amount of cash (12 months+ living expenses) currently sat in an ISA (I want to keep it in an ISA despite the low interest rates as I will likely be using all of my ISA allowance within a couple of years, so being able to transfer from existing cash ISAs to an S&S ISA in the future will be useful for me).

The difficulty I have is that I want to save for the long-term from now, but I have no idea where I will be in 5 years time. I'm not sure whether I will want to buy a house for example, which would require a 30% deposit (probably 150k+ by the time I can buy considering it is London) so this makes savings decisions especially difficult. I could just hoard cash in low-interest savings accounts, but I feel like if I do this I will never end up taking the plunge into investments and I don't want to lose the early years of compound growth).

The IFA suggested looking into structured products. This would allow me to take on risk and try and get some decent returns (within an ISA), but could also end up providing no return. I have looked into them and most also seemed to be linked to something very narrow, like paying ~4.5% interest per year over 6 years (no compound) as long as the FTSE 100 is higher at the 6 year point than it was when you took out the plan.

I'd just be interested to know what you guys think of structured products in general and specifically as an option for me, and if there are any other sensible alternatives? Or do I just go for it and start a S&S ISA and invest in passive funds from the go...

Thanks!

xylophone

Perhaps consider a SIPP with the likes of Charles Stanley using a passive investment strategy?

http://www.moneysavingexpert.com/savings/stocks-shares-isas

http://monevator.com/category/investing/passive-investing-investing/

Do you have the best current account for your needs? Have you looked at Santander 123 for example?

http://www.moneysavingexpert.com/banking/compare-best-bank-accounts

Caladan

Personally not a fan of structured products, as a low risk stock market investment will probably (disclaimer - probably) provide better returns over 6 years anyway, especially if the product is tied to the market regardless. The only upside is you can't lose money (unless you have to break it early, in which case god help you with those penalty charges).

To clarify your position though - Many structured products allow you to keep it in the ISA wrapper (at least they did back when I had some involvement in them, granted that's a few years back). If this isn't an option I'd think long and hard before going for a structured product as it looks like your finances are in good shape and if you can max out your ISA every year that tax free status is going to look very sweet.

Bastiat

Do you fully understand this structured product? Are you able to compute mathematically what the fair rate is for this product? If not steer clear of it.

jimjames

At your age and assuming you don't need access to the money in the near future, I'd just go straight to s&s ISA. Seems a bit pointless going for an expensive structured product.

dunstonh

The IFA suggested looking into structured products.

Unusual to see a structured product recommendation nowadays as there are so few providers left. The terms are not strong at the moment either.

The regulator set a guide that said no more than 25% of your investible assets should be in structured products and no more than 10% with any one market counterparty.

They can have their place but they only tend to be attractive at certain times in the economic cycle. (such as when the return rates get way above expectations. Many here will remember the double digit versions available many years ago).

Reaper

I can see where the IFA is coming from given your shortish time scale. Usually I tell DIY investors to to steer clear of structured products because they sound appealing to novices but have many catches in the small print. However as you are going via an IFA they can point out the pitfalls (well, I certainly hope they can).

You will be tied in for 6 years though so check you are happy with that given your uncertain plans.

HSVX

jimjames wrote: »

At your age and assuming you don't need access to the money in the near future, I'd just go straight to s&s ISA. Seems a bit pointless going for an expensive structured product.

This is the problem really, as I won't need the money necessarily, but I might decide I want to buy a house in 5 years time, and if I think like that then I should be avoiding equities, right? It's a bit frustrating because ideally I'd like to have my investments in 100% equities as I am perfectly willing to tolerate high risk in the long term.

I realise I am in a fortunate position being able to save/invest a very decent amount while I am this young, but it is very hard to know what to do with it. If I was 30, had a house sorted etc. then maxing out S&S investments would be a no brainer.

mvarrier

Probably sensible to max out the high interest current accounts, start putting some in passive funds in a S&S ISA (as you suggested) and I would also consider P2P lending.

tigerspill

I chose to put some cash into as SP investment last year. It was a five year term product. For me, I felt it was a reasonable option as part of my portfolio.
However, at the age of the OP, I am not so sure. I think is I was back at that age, I would be investing in a pension of some sort and S&S ISAs. This assumes that they are looking to hold these investments for the longer terms.
I wish I had really understood the benefits of long term compounding when I was much younger.

jimjames

The other downside I can see is fixed terms. If you're not sure when you want the money then trying it up for 5-6 years doesn't seem to make sense.

S&S isa values may vary but money is almost immediately available.