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Is this a warning?

AsleepInYorkshire
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Is this a warning?

#206595

Postby AsleepInYorkshire » March 9th, 2019, 9:40 am

Sorry if I've got the wrong board. Not entirely sure.

https://www.bbc.co.uk/news/uk-england-47454328

I hasten to add I am not suggesting that anyone caught up in this firm was or is foolish. It does seem to suggest though that there's always an inherent risk with investment planning.

I would suggest, quite humbly given the personal pain some are experiencing, that the first rule of any investment strategy has to be one of capital preservation?

AiY

SalvorHardin
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Re: Is this a warning?

#206617

Postby SalvorHardin » March 9th, 2019, 11:10 am

AsleepInYorkshire wrote:I would suggest, quite humbly given the personal pain some are experiencing, that the first rule of any investment strategy has to be one of capital preservation?

What about "don't put all your eggs in one basket" ? That's what causes the greatest distress in cases like this.

Capital preservation at all costs restricts you to Treasury bills, gilts and cash (deposited with only the top-rated institutions). Or index-linked gilts if you favour real capital preservation over nominal capital preservation (most people target nominal capital due to money illusion).

A major reason why people get caught in these schemes is because they don't know the risk-free rate of return (the rate on treasury bills and gilts). Then they target a particular income which leads them to chase a yield on their capital that is way in excess of the risk-free rate of return.

UncleEbenezer
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Re: Is this a warning?

#207314

Postby UncleEbenezer » March 13th, 2019, 2:01 am

SalvorHardin wrote:Capital preservation at all costs

is not really a useful concept. Neither is it helpful to eliminate the middle ground most investors are in between capital preservation and gambling everything.

Methinks the point of this story was the marketing, that made it look risk-free to punters who haven't made the leap from saver to investor. Consumers like those who got bailed out in 2008/9, at the expense of those of us who had foregone Icesave's market-beating interest rate in favour of something underwritten by government (and which survived anyway).

Dod101
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Re: Is this a warning?

#207319

Postby Dod101 » March 13th, 2019, 6:53 am

It seems to be one of those situations where the FCA would be better not to be involved because to an unsophisticated punter/investor if something has their approval then all is well. I do not know why people should be protected against themselves. It is no more complicated than the old story 'If something looks too good to be true.....' That seems to me to be the first rule of investment planning. If you make the first rule capital preservation that rules out most investments.

Dod

Charlottesquare
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Re: Is this a warning?

#207686

Postby Charlottesquare » March 14th, 2019, 2:53 pm

Dod101 wrote:It seems to be one of those situations where the FCA would be better not to be involved because to an unsophisticated punter/investor if something has their approval then all is well. I do not know why people should be protected against themselves. It is no more complicated than the old story 'If something looks too good to be true.....' That seems to me to be the first rule of investment planning. If you make the first rule capital preservation that rules out most investments.

Dod


I slightly agree, however a working life dealing with smaller clients re their tax and accounts has led me pretty firmly to the belief that a lot of otherwise reasonably intelligent individuals are financially semi literate .

I have a brother in law with an IFA charging quite a lot of money (relative to the funds) to manage some investments yet despite his being professionally qualified to the nth degree in his own field (very impressive long list of professional qualifications) he cannot see that effectively paying this individual 1% of the asset value every year is over the long term having a fairly significant impact on his investments- he does though get a very nice investment report every six moths that he frankly does not understand.The catch is that I am strictly disbarred from offering him any investment advice.

My son is another, smart, high earning but he understands software development not investment, with him it is a slow painful process trying to subtly steer him to where he ought to go (First time house buyer ISA and pension scheme, I am getting there but only because I see him every day and can keep nagging)

The fact is the average member of the UK public does not understand very much- I recently attended a Club meeting where I failed to convince other members that the dividends companies paid did not off themselves directly link with the current market price, they continued to argue that if we bought Investment Trusts initially say yielding 4% and the share price dropped the Club's income would also drop, they in effect viewed dividends like bank interest.

The catch with boards such as these is they are a self selecting sample of individuals whose presence here in effect indicates their interest in their finances, my professional experience is that with the large majority of the UK population at large their ignorance re financial maters is staggering, and that, at the end of the day, is why these sorts of things happen.

(Next rant will be why the UK population cannot see past residential property as an investment medium)

scotia
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Re: Is this a warning?

#207756

Postby scotia » March 14th, 2019, 9:40 pm

Charlottesquare wrote: my professional experience is that with the large majority of the UK population at large their ignorance re financial maters is staggering, and that, at the end of the day, is why these sorts of things happen

I agree with your general sentiments concerning the financial ignorance of the general public, but I'm even more astonished by that of the Banking community, including the Governor of the Bank of England, who had apparently no idea what was going on with worthless bonds being sold, repackaged, and resold to one another, with each transaction apparently adding value! Until finally the edifice collapsed, Lehman Brothers went bust and our major Banks required handouts from the public purse.
So "if it looks too good to be true - " seems to trap more than unwary personal investors. However for them we don't have to foot the bill, and they personally will take the pain. So possibly the lesson will have been learned. But for the Investment Banks?


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