Structured Investment and Derivatives

[rd409]

Hi all,
I am not sure if I am in the correct section, but I was looking at some attractive returns on Structured Investments and am looking to invest some money out of the ltd account. Is this allowed? What should I take into consideration before starting apart from the risk involved.
The returns are quite attractive as compared to the standard business bonds and saving accounts. The typical being around 5% for each year the index is above the start mark for 6 years. So out of 6 even if the FTSE is higher for 3 yrs, I make 15% so that is around 2.5% every year which is way more than what I get in my business bonds anyway.

[IR35 Avoider]

I would never invest in a structured product.

In investing, your return is what the market gives, less the costs taken by middlemen. Therefore to maximise returns your only option is to minimise costs. With structured products, you can't know the true cost. The cost they quote you, in accordance with investment regulatuions, is bollocks. In addition to that cost, the products have a built-in profit for the counterparty that only the derivatives expert who designed the product can calculate. That built-in profit is not revealed anywere.

What helps fool people into buying products like these is that they don't see the risk. A 5% return would great if it's offered by a government-guaranteed bank account, it's absolutely lousy if it's what your (lucky) mate earned in a year betting on the horses. It very much matters how much risk is taken to get a defined return.

Since risk and return go together, the unnecessary hidden costs in getting you a (say) 5% return must drive up the risk. The argument that it doesn't matter what they are because the investor gets "what's written on the tin" is bollocks, because the risk has to be there to cover both your returns and the costs.

More costs always means a worse deal, that's why you need to know what they are. And with structured products, you can't.

[DimPrawn]

WHS

Yes it's the risk you have to look at.

Are the products covered by the financial services authority to the tune of £85K like a bank account? Can the company offering the product do a runner or go bankrupt and if so do you get all your money back by law?

If not, 5% looks like a pretty poor return and someone in the middle is getting very rich and the risk is all yours.

[BlasterBates]

Wouldn't touch a structured investment. They're designed to make money for the bank not the punter. In the end they pay a poor rate compared to proper investment fund. Usually the way they work is they offer a high rate, provided that etc. The conditions are usually set that you make sod all. If you want a safe investment then go for a Halifax 5 year investment or something like that. In fact during the crash a lot of people lost everything in their structured investments because the bank issuing them went bankrupt, think Lehmans. This wouldn't happen with a FTSE investment fund. If you invest in a FTSE fund, the money in it belongs to you not the bank, so even if the bank goes bankrupt, you still have your fund. Funds are protected by regulations, unlike structured derivatives which is just a contract with a bank.

You can't invest in shares risk free, this is not possible, so if you want a high return go for it but not in a structured investment. If you invest over time, i.e. hold money back for a crash, then pile in after a crash , then you can't go far wrong.

[moorfield]

I would never invest in a structured product.

I have been working for a structured products trading desk recently implementing some new "products" on their systems for them. No one in the organisation I work for appears to know how to price these "products" save for two people, neither are FSA approved persons, both are French, just out of PhDs, and have neither social skills nor girlfriends.

Just an observation from the inside. I am not a financial adviser etc etc ...

[rd409]

Time for investing money in structured products? We are having another crash in the the markets. What say?

[lje]

I don't have any structured products - and I am not intending to buy any as I don't think they are good value for money.

Having said that there are plenty out there which do have the £85k coverage. For example, there is one from YBS which has the normal coverage of any account with YBS and which is guaranteed to give back at least what you put in - even if markets drop. For a certain type of investor these products will be quite attractive.

[max]

Time for investing money in structured products? We are having another crash in the the markets. What say?

why not...if the structured product pays on market downside...or has capital protection.

I'm sorry to say this, if someone was to say what you said...they'd be an eejit.