"GOOD RETURNS - GUARANTEED"
In the September edition of ASSET Magazine, it was great to see a positive but balanced article about protected investments by Donal Curtin (Managing Director of Economics New Zealand). He questions "can high returns and low risks really coexist?" and goes on in the article to say:
"While traditional equity unit trust managers may not agree, the capital protected equity products are a good way to provide index-style exposure to equities for more conservative investors. The downside protection is well suited for more defensive risk profiles, while upside performance is likely to be comparable to buying an index fund (and may be just as tax-effective under present arrangements)."
The article also raises a number of very valid points which it's worth commenting on:
- When these products are put together, falling interest rates can result in less attractive terms being locked in (lower participation in the growth of the sharemarket or a longer term e.g. some stretch out as far as 12 years). However, there is one other factor which can counter-balance this. The more stable the markets are, the better terms we will receive when locking in a new investment. It's very difficult to take a view on the combined effects of interest rates and volatility, so it pays to exercise the old rule of "dollar cost averaging" - spread clients' money over a few different issues of protected investments to even out the effect of different rates of growth being locked in.
- Products are not always available on a continuous basis - quite true and this is difficult in a market like New Zealand where protected investments are still gathering speed. We need to encourage a good healthy market here where a number of providers regularly bring products to the market. At Liontamer we will aim to minimise the gaps between issues.
- Finally, the article pointed out credit risk and how it's important to consider how credit ratings can change when you lock-in for long periods - especially as these investments now span over a decade in some cases. To quote "it's worth remembering that the BNZ went from blue-chip in 1984 to basket case in 1990". We support the sentiment - always stop to consider the length of the investment and the creditworthiness of the counterparty. At Liontamer we use Morgan Stanley, one of the world's largest financial institutions with an S&P rating of A+.
DISCOUNTED SUBSCRIPTION TO ASSET MAGAZINE
Liontamer special offer $85 + GST for the year - saving of $12
As we noted above, there are many excellent articles produced every month by ASSET magazine - if you are missing out on these, we've arranged a special discounted subscription. The magazine will be sent to you as a hard copy on a monthly basis. The stories are exclusive and don't appear on the Good Returns website. If you'd like to subscribe, it only takes a few moments online. Click on the link below to go directly to the Liontamer special offer of $85 + GST for your annual subscription.
http://www.goodreturns.co.nz/books/product_info.php?products_id=178
