Another week, another warning it seems.
In the financial world nothing sounds better than an investment with the words ‘guaranteed’ or ‘protected’ attached to it.
And usually there’s nothing more misleading than an investment with the words ‘guaranteed or ‘protected’ attached to it.
ASIC has taken note in a recent report, highlighting several concerns with ‘capital guaranteed’ or ‘capital protected’ products.
The suggestion from those marketing these products is investors will be able to enjoy good returns and be protected from losing money.
The capital guaranteed or protected product’s investment structure can be one, or a combination of, asset classes such as shares and fixed interest, or maybe even commodities and currencies.
So essentially, assets without any guaranteed protection of capital or return can make up the structure of the product, yet the product suggests security.
Of course, all clarification on the conditions of the ‘guarantee’ or ‘protection’ are somewhere in the fine print of the product disclosure statement (PDS).
And ASIC noted, “Retail investors often do not read or understand the full PDS, tending to rely on shorter and more engaging marketing materials instead.”
Meaning investors miss several realities about their ‘guaranteed’ investment.
Despite the marketing, many investors find out later that investment returns aren’t guaranteed, there are significant break fees if not held until maturity and capital protection is conditional on varying factors.
With some of these products being offered by banks and being compared to term deposits, it’s easy to see why investors breeze past the PDS and receive a rude shock later.
As ASIC warned, “Some investors may consider structured products to be equivalent, or a near equivalent, to cash or deposit accounts, when the risks of structured products are usually considerably higher.”
It’s understandable investors want to eliminate risk and guarantee return, but it’s just not possible.
Only those in denial believe returns can be guaranteed, while those who think they can eliminate risk are usually left burying jam jars of money in their backyard.
The realists understand and embrace diversification.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Wondering who to trust with your financial affairs? We ‘re one of six fiduciary financial planners in Australia.
