|
|
| • EXCH RATES |
|
Baht/$ 33.70/73 (Bid/Ask)
|
GOLD |
12,850
- 500
|
|
NET Worth
ANDREW WOOD
One of the basic lessons to be learned in all areas of life is never to put all your eggs in one basket. As far back as the Spartans and Romans, downfalls were witnessed because too much risk was resting on single factors.
The folly of ignoring sound and strategic advice from professionals can be far-reaching. Acting on the spur of the moment without conducting due diligence on the pedigree of a security offered and not hedging your bets by spreading the risks via a multi-directional strategy can be disastrous.
Investors looking for safe knotholes when bears are prevalent should be mindful of stumbling into gift horse stable traps in their haste to escape the beast. The bait may be tempting, but even gift horses can bite fiercely on the unwary hands and deposits of hapless venturers.
Take for example guaranteed equity income and capital savings bonds (GEICs): GEICs come in many hues and attractive packages. However, as with trackers and index-linked bonds and PIPs (Protected Income Plans), the devil is in the details hidden in the small print.
There are broadly similar attractions of claims that capital and growth are guaranteed. These claims are often complex and when the small print is carefully perused there are conditions that need to be met. These will include no access to the investment for fixed terms no matter what happens in marketplaces around the world. The investment is often locked in and cannot be changed even in market conditions that scream for a change of direction.
Thus the underlying investment is fixed and locked in no matter what happens in the future. For example, some years ago there was a notable preference for GEICs invested in bank equities. With the recent drastic reduction in bank equity values, if you hold one of these investments you are between a rock and a hard place. If you decide to get out because the loss is high you will suffer major penalties for the exit. If you stay put you may well lose even more as the value of bank shares declines even further. It could be worse if the banks you are invested in actually go to the wall.
One upside is the fact that performance is tempered. Where bear markets prevail, this means that losses may be less than index changes. Having said that, this has the opposite effect in bull markets where growth is restricted because of the complex calculations involved in the pricing of such funds.
Some investors are cut by the double-edged sword of bank loans against investments. These tied loan-to-investment vehicles represent an even more dangerous situation for any investor. The bank becomes the investor and lends the funds to you as the ultimate beneficiary. In theory, when the investment matures the bank receives the benefits and passes on any excess to you as the initiator of the investment chain transaction. If the investment goes down in value the bank will be standing at your doorstep asking for the difference in the funds it lent you and the reduced value of the investment maturity funds.
This can be exacerbated if the bank lends you funds in one currency and the investment is structured in a different currency. You then have the risk of currency fluctuation as well. Because the investment and the loan are fixed, you are unable to manage the currency within trading bands and ensure that you do not lose out.
Whether GEICs, trackers, index bonds and other similar investments have capital guarantees or protected benefits attached to them, they all fall under the same market trader's sobriquet of "Principal Bonds" for their inherent nature of hidden high risk and traditional low returns.
As investors are locked in for years, it's hardly surprising that many jump out before the investments mature. Quite often savings values are crashing around them as they were perhaps index-benchmarked in an inappropriate month. Quite frankly, if your bank manager or onshore broker won't jump off the cliff into the index, GEIC or tracker bond abyss with their own money, then there is a very good reason for it.
The answers to the puzzle are closer to home than many realise in the form of offshore personal portfolio bonds for individuals, family units and trusts. Not only can they be structured to generate good growth from the very wide choice of investments available, they are equally transparent in regard to negating exposure to hidden risk traps.
Talk to your independent professional financial adviser and he will ensure that he sources the best possible and most appropriate vehicle to suit your individual needs. He will also be able to manage the investments within your bond rather than you having to helplessly watch as they sink into the abyss while you are powerless to take positive action.
Questions to the author can be directed to Barclay Spencer International on 0-2653-1971 or e-mail to info@barclayspencer.com
Prev
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Next
