Q. I have taken financial advice from various sources over the years. At present, having now paid off my mortgage, I have £50,000 to invest over the next 5 years until I retire at age 60.
The Bank have advised that I take out a Guaranteed Growth Bond, and even Saga have one of these products and have sent me their own leaflets. From what I can gather, I will benefit from any stock market growth in the next 5 years, but if the stock market falls, then my money is safe.
I am not sure which one to choose, or even if this is a sensible route. What would you advise?
A. Yes, we have noticed that many new ‘Guaranteed Bonds’ have been launched recently. Let’s face it, they appeal to our very human feelings of greed for growth, but fear of loss.
They all vary slightly as to what you will get if the market does this or that, and in our view they are excellent – for the product provider.
Without going into too much detail here, we believe that if you are scared of loss to that extent, you should not invest in the stock market. That is what true asset allocation is all about, having the right amount of money in the right place to suit your risk profile.
Please see the link below, and although from 2007, the points are made well. One of the things the salespeople dont tell you and is covered in this article, is that you do not benefit from the dividends on your investment, only the growth. This can mean you could miss out on around 30% of overall returns in the example here. Who benefits from them? Yes, the product provider.
So our advice is to keep things simple, and find a trusted adviser who will help you define a proper investment strategy for life.
Article – Why You Should Avoid Guaranteed Equity Bonds
