 |
|
|
|
|
|
|
Contact us | www.future-financial.co.uk | E-mail your comments | Archive | |
|
|
|
|
|
|
|
|
 |
Guaranteed products? During times of economic uncertainty investors may seek a safe home for their money.
While seeking security is a perfectly natural reaction, there are a number of reasons why it requires careful consideration. Market fluctuations are perfectly natural; the warning that the value of investments can go down as well as up and that you may get back less that you put in is very far from being a meaningless formula. In fact within almost all forms of investment, volatility will occur. Even investments with guarantees, such as ‘with profit’ plans, are affected by market downturns. The investment facts of life In fact this volatility can help, to some extent, because when investment values take a temporary dive, the number of shares (or ‘units’ in a collective investment) that you can purchase with a given sum of money will be greater than before. When prices bounce back as they usually do the value of your holding is therefore greater. Where you already hold investments that have fallen in value, there can be a temptation to sell them in order to minimise your losses. But in fact, all you really achieve is to lock in the loss and forego the opportunity for recovery. Of course in some cases this is the right thing to do, especially with an investment that will clearly never recover again. The problem is knowing which these are. In general, however, provided you are not likely to require access to your capital or an income from it in the short term, it can often be better to ride out the storm and await a recovery. What about guaranteed products? There are an increasing number of so called ‘guaranteed’ investment products that appear to offer certainty over the return of your capital as well as (in some cases) the prospect of significant upside potential. They do not always, however, offer the degree of security they may appear to. Some are backed by special financial instruments that depend on the viability of third parties in various parts of the world, rather than the company issuing the investment … and you can be sure that there is some small print somewhere that distances the product provider from the effects of any failure by the ‘counterparty’. As events in 2008 demonstrated, it is not always safe to rely on guarantees provided by foreign institutions and even some UK ones can look shaky, although the Financial Services Compensation Scheme can often provide a degree of protection in the latter case. Can you really have your cake and eat it? Even if the guarantees do work and in today’s market it is to be hoped that they are more reliable than previously they are invariably balanced by some significant restriction on the potential for gain. In many cases, of course, this is perfectly reasonable and something that, if approached with an open mind and a full understanding of the balance of upside potential limits and downside risk protection, investors can accept. There is no such thing as a free lunch! What is not acceptable is any suggestion that investments are guaranteed when this is not in fact so. This has apparently been the case for some investments that might have appeared to be in cash, while they were actually invested largely in financial instruments known as derivatives, which are far less secure. Key Points: > Seeking protection is natural in volatile markets > Not everything is what it seems > Professional advice is essential |
|
|
 |
|
|
|
©futurefinancial This publication represents our understanding of law and Inland Revenue practice as at the date of publication. It does not provide individual tailored investment advice and is for guidance only. Rules may vary for Scotland and Northern Ireland. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of land and buildings is generally a matter of a valuer’s opinion rather than fact. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Your home may be repossessed if you do not keep up repayments on your mortgage. Loans are subject to status and written details are available on request. Always seek independent advice from a qualified financial adviser. Think carefully before securing other debts against your home. Fees for mortgage advice maybe charged and for details of these please contact us. The Financial Services Authority does not regulate all the activities undertaken by the company, including taxation advice and overseas mortgages. |
|