Guaranteed Investment Bonds

Wurz

Looked at the link to Premier and I think dunstonh gives an easier read version. I haven't been given any real details of the NU product (IFA was/is going to visit to talk about it) but is Premier the better product for us cautious investors?

One part that I noticed with Premier is the note about "Capital Security" it says "Up to 50% capital security. See 'Investment Returns' below"

No doubt dunstonh can advise.......

dunstonh

No doubt dunstonh can advise.......

I can, but not on the board as it would breach board rules and FSA rules. I can "comment" though

A lot of GEBs have a level where capital security ceases to be offered. In the case of the premier one that would require the FTSE100 to drop by more than 50%. So, if the entry date was today and using the current FTSE100 level of 5767, that would mean the FTSE100 would have to drop to lower than 2883.5 for the capital security to end. If it was 2884 or higher, then your capital remains secure.

In the tech stocks crash, the FTSE100 dropped by 45% between best and worst point.

Currently the market is about 15% down on its high point. Its possible but whats the chance of the market going down another 50%?

If you are really paranoid about risk and want 100% then the premier option isnt for you. You really need to be careful when using a GEB as many do have a point where safety stops. For a calculated risk though, the premier option does offer value. And for those looking to fill the UK element of their portfolio, it can make sense.

Post when you have any info on the NU option. I can only see the Guaranteed fund in their portfolio bond as the guaranteed option (or their with profits fund).

Wurz

Thanks dunstonh. Will post when have any further news. Also, will use the "comment" word rather than "advise". I learn a little every day......

Wurz

Dunstonh,

No news from my IFA about NU, he was supposed to call me yesterday with a view to meeting & discussing. I did email him asking him to compare both NU & Premier products and let me know, plus I gave him the forums overall views on guaranteed E/I bonds.

Perhaps I've scared him off! Or he cannot recommend a suitable product for me. And all I'm looking for is a monthly income from £90-100k. Talking of monthly income, is this not available with the Premier investment?

kosial

Hello,

I hope you can help me a bit. I am one of those (un)lucky to be sold a Scottish Widows Guaranteed Investment Bond. As I was new to the UK (and I didn't know about this site) I was sold that easily.

Now, after investing 14k 4 years ago today my bond was worth roughly 15500.

I just wonder what to do now... wait another year until it matures or get the money now and do something else with them.

Any help? I'll be very grateful.

munk

I would hold fire on exiting until the establishment period is up in a years time. Perhaps also go 'defensive' within the bond - moving to less volatile holdings whilst the markets are in a downturn. Think bonds maybe... not UK bonds though :P Of course as always the best idea is to ask an IFA

cepheus

Coming back to the Premier Asset product, if/when your money is returned, do you continue to have it retained within the ISA package so you can reinvest somewhere else, or is the tax status lost?

I presume it isn't possible to put more than 2 years of ISA allowance into this product?

Arion

Last year, when I had a brief look at GEB's, I wrote this note in my 'savings and investments' spreadsheet:

Five years before I retire consider getting a GEB (gauranteed equity bond) like the one Nationwide do. It gaurantees 10% over the 5 years your funds are locked away, but can pay up to 70% of any gains made in the stock indices. WARNING: gains are subject to tax in the year the proceeds are paid out. So if I'm a higher rate tax payer and the bond matures in a year I am still working I'll pay 45% tax on the gains. So, it's best to purchase a GEB that matures when I'm retired.

dunstonh

Coming back to the Premier Asset product, if/when your money is returned, do you continue to have it retained within the ISA package so you can reinvest somewhere else, or is the tax status lost?

It can be transferred to another ISA or rolled over into the next tranche if you like those terms.

I presume it isn't possible to put more than 2 years of ISA allowance into this product?

I havent checked to see if it will accept transfers. It should be in the small print somewhere if it does. That is now available on their website. It is also possible to invest outside of the ISA wrapper.

meester

dunstonh wrote: »

I have advance notice of it so its not on their website yet. It will be shortly as issue 37. The website stops at issue 36. It is available from 15th Feb-7th April using an index price on 18th April.

http://www.premierassetmanagement.co.uk/Index1.html

I was trying to find the catch with this.

There isn't an obvious one, except that there is a chance that the index will not end a year higher than the value at April 2008. This seems quite a small chance over six years.

Here's the 20th April index values starting from 1984

1299
1680
1949
1786
2064
2187
2520
2638
2856
3098
3175
3857
4311
5954
6320
6241
5880
5243
3889
4569
4822
6081
6486
5788

The maturity dates WOULD have been:

1 year/16%
1 year/16%
2 years/32%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
1 year/16%
6 years/0
6 years/0
5 years/80%
4 years/64%
1 year/16%
1 year/16%
1 year/16%
1 year/16%

The last two bonds would not have matured yet (assuming the product was then available).

If you had invested £1000 in the FTSE 100 in April 20 1984, with yield assumed to be 3%, then you would have on April 20 2007 £8,793. If that money were invested in a product akin to this one, you would have made MORE money, £10,543. Years where the index fall really slaughter the return - the 6241 in 1999 was 6081 in 2005 - an extra 160 points would have doubled your money.

A regular investment strategy of £1k from each April 1984 to 2006 would yield £81,007 as of April 2007 using a hypothetical bond, versus £68,678 on the regular market.

So it would seem to be a better investment than the FTSE100 itself, in that the expected return is higher according to historical evidence, and the volatility is dramatically reduced.

Historical return would have been 10.16% compound versus 9.91%. Note that the mean annual return is actually slightly lower for the FTSE100 direct investment, due to the fact that a 20% rise then a 20% fall is a 4% overall loss. Standard deviation is 7.6% versus 14.56%. So much less volatile.