Holding Cash But Reluctant to Enter the Markets?
It’s difficult to recall a time in recent memory where there has been so much volatility in the markets. Multi-asset fund managers are hard at work battling inflation, interest rates rises and the ongoing impacts of the Ukraine war. The markets all over the world have reacted over the last few months and the UK markets are no different. The old adage of “time in the market, not timing the market” holds true – most Advisers would advise their clients not to come out of the markets now, for the simple reason of missing the benefits of the bounce back.
There are, however, some clients who are holding cash and are reluctant to enter the market at this time. The good news is that the investment industry is nothing if not innovative - there are specialist investments available that offer both capital protection and the chance to receive a known return at a set date in the future. The return is normally based on the FTSE 100 or some other specified indices rising over the investment term. These are known as “structured products” or “kick-out plans”. The level of risk determines the rate that the investor receives.
To put this in plain English, there is a cash-based deposit plan available that will pay 20%, provided the FTSE 100 is above its starting level on the 3rd anniversary (November 2025). But what’s the risk I hear you ask. These plans are deposit-based plans offered by a UK bank and are therefore covered by the Financial Services Compensation Scheme (up to £85,000). If the bank goes bust, you’d have to make a claim to the FSCS, as you would with any other deposit that you hold. There is a further risk of course - if the FTSE 100 is lower at maturity, then you will only receive your money back with no interest after 3 years. In essence, you’re betting your interest rate.
There are investment versions of these plans which have a similar structure but different risk profile but will potentially pay 9.5% per annum (subject to Capital Gain Tax), but that’s for another day or a discussion with your Adviser.
These investments need to be considered within an overall portfolio and this article is not designed or intended to provide advice and should not be construed as such. If you would like to know more then please contact your Adviser at KDW where we will be happy to discuss the numerous options available.