There are a number of products on the market which guarantee the original value of your capital and periodically lock in any growth, but still offer exposure to the growth potential of shares.
They are popular with clients who are looking to achieve potentially higher returns than leaving the money in the bank, but who do not want to risk the original value of their investment.
As mentioned, these types of products normally lock in any increase in value of the investment every few years.
In the event that the fund subsequently falls in value below the new "locked in level" (or the original level) the provider will make up the shortfall going forward.
The graph below shows how this type of product might work in practise (with 3 year lock-ins) The red line shows the locked in value of the fund, with the grey line showing the actual performance of the investment over the period.
There is a cost associated with these guarantees of course and it's usually around 0.6% to 1.0% of the fund value per year. Many clients feel this is a satisfactory trade off for the extra peace of mind
Some of these types of products also include income guarantees as well,
with the potential for guaranteed increases in income if fund performance is good.
Income guarantees are an obvious attraction to clients who are looking
to draw a guaranteed income from their investments but would still like
the potential for investment growth.
Footpath Financial Limited is a firm of Independent Financial Advisers who are authorised to advise on and bring about deals in investments. Based in Farnham and Crowthorne we serve the Guildford, Hindhead, Alton, Farnborough and Basingstoke areas. We are Authorised Representatives of the Financial Planning Partnership, who are authorised and regulated by the Financial Services Authority.
