Structured Products

Porcupine

Worth pointing out you can build your own structured product - capital preservation but, unlike a bank product, you keep all the upside:
http://monevator.com/guaranteed-equity-bond/

Eco_Miser

HSVX wrote: »

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.

If you can postpone your decision to buy a house while/if the market is down, then you can invest at your risk level; if you need to buy a house when you decide you want to buy a house, then you face a considerable extra risk that your investment will be showing a loss at that point, so shouldn't invest.

princeofpounds

Typically the features of a structured product can be created more cheaply from a combination of basic investments (cash funds for example) and simple options. However, as an individual you typically don't have easy access nor the skills to build such a product.


One bank I used to visit occasionally had a 'high margin products' desk, which sold precisely these things to people and institutions who probably had no business buying them. They often aren't great value, precisely because consumers find it very hard to assess the value of these things properly, although I think abuses are much less common than they were 5-10 years ago.


I won't disparage the concepts of the products themselves, as there isn't much wrong with the underlying instruments, but I would be more cautious than normal unless you know how to value them properly.


If you don't know for sure what your goals are, then there is nothing wrong with accepting that you might have to chart a middle path until they clarify. Maybe you get there a bit earlier than you expect, maybe a bit later - the important thing is that you are making progress and you periodically update how you are progressing and adjust as necessary. That's how it often works in practice.

gadgetmind

dunstonh wrote: »

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

Many were constructed using a fixed rate bond with the coupon from that paying for a call option. With the rates on any investment grade bond now being so low, there isn't much left to fund the option.

grey_gym_sock

Eco_Miser wrote: »

If you can postpone your decision to buy a house while/if the market is down, then you can invest at your risk level; if you need to buy a house when you decide you want to buy a house, then you face a considerable extra risk that your investment will be showing a loss at that point, so shouldn't invest.

a good point. however, you might still want to risk investing a smaller proportion of your potential deposit. e.g. if you put 20% of the "deposit money" in shares, and shares crash by 50%, then you still have 90% of your deposit, in case you must buy at that point, which might be enough.

alternatively, or also, you could put some in corporate bonds (they can be held in a S&S ISA). this sector can fall in value, but not as dramatically as shares can fall, and meanwhile it pays more than cash - perhaps 3% or 4%, even for a relatively cautious fund holding only investment-grade corporate bonds.

i hold some individual corporate bonds, mostly paying around 4% or 5%, which is a bit riskier, but not much (or perhaps i'm fooling myself ).

p2p is a similar idea. i haven't looked into it properly - seems like it would be a lot more effort. also, you might not be able to get your money at so easily at short notice. a possibility, though.

i'm not a fan of structured products. partly because of the fixed terms, which are illogical for anything share-related - you ideally want to stay continuously invested in shares for as long as possible, in order to ride out the ups and downs, and benefit from the eventual upward trend. and because they still don't give you immediate access, except at the end of the term.