Does this endowment grow and not shrink?

Murmansk

A friend of mine has an endowment that's 24 years old and has about a year to run. It was originally with Abbey National or Abbey Life or some such bit of Abbey National and now it's with Royal London following various takeovers.

It was originally aiming to pay off a mortgage of £42,000 but since then the mortgage no longer exists and my friend has the policy in her sole name as a result of a divorce settlement. She still pays into it and will continue to do so.

The current value is about £30,000. My friend rings up to get the value every three months or so and finds it grows by about £700 each time - which sounds good!

What I'm wondering is, is it likely it could suddenly drop in value (given that it's presumably full of shares) or do these policies have some sort of mechanism where they grow but don't lose value? Maybe this is a naive question but we need to ask! Or maybe the bonuses each year are added and can't be taken away, but the basic value can drop as well as rise?

Here are some details of the policy if it's any help

Royal London ANL Managed - unit value £12,600
SM With Profit Life Series 3 - unit value £7,963

I think my friend is wondering whether she should "take the money and run" given what might happen to stock markets with Donald Trump, Brexit etc.

dunstonh

Annual bonuses cannot be taken away once added but the final bonus can be.
The managed fund does not have bonuses and the value will rise and fall on a daily basis.

i suspect your friend hasnt been getting values as much as they are suggesting. Markets fell 10% over Spring. She would have seen a fall in value in that time (and a subsequent increase with the recovery.

I think my friend is wondering whether she should "take the money and run" given what might happen to stock markets with Donald Trump, Brexit etc.

Why does she think that Brexit is a negative issue in respect of investing?

Murmansk

Thanks for that, makes things clearer

Re Brexit I think she was thinking that the markets don't like uncertainty

TrickyDicky101

Hi - where were the unit values that you quoted taken from because they sum closer to £20k than £30k?

dunstonh

Re Brexit I think she was thinking that the markets don't like uncertainty

They dont. However, it is Sterling that is suffering in that respect. And ironically, a fall in Sterling actually pushes global investments up. Most people invested in the days following the referendum outcome saw significant gains due to the fall in Sterling.

Brexit is a sideshow

Murmansk

TrickyDicky101 wrote: »

Hi - where were the unit values that you quoted taken from because they sum closer to £20k than £30k?

Yes, I noticed that, they were taken from a recent document. I can only assume they don't include accrued bonuses?

TrickyDicky101

The managed fund unit values won't have accrued bonuses, but the With Profits will. For the With Profits, the unit price will include annual bonuses but probably not any element of Terminal Bonus so that may well be the reason for the difference.

Murmansk

TrickyDicky101 wrote: »

The managed fund unit values won't have accrued bonuses, but the With Profits will. For the With Profits, the unit price will include annual bonuses but probably not any element of Terminal Bonus so that may well be the reason for the difference.

Ah, OK, so it would seem the terminal bonus is about £10,000 currently but, as has been said, it might not be paid! Also, the terminal bonus needs to be about £23,000 for the policy to produce the amount it was originally aiming to pay.

TrickyDicky101

Yes - the terminal bonus is highly dependent upon the performance of the underlying assets held within the With Profits fund. This will also depend on the proportion of equities held by the fund (as opposed to bonds or cash). If markets do well then the TB will likely be higher, if they drop then the TB is likely to decrease from where it is now.