Investing with lower risk to save capital

Last week was the annual conference of the Personal Finance Society in Birmingham, which saw 1500 of the country’s financial planners meet to learn about the latest legislation and to discuss the latest issues.

One of the keynote speakers, Stephanie Flanders – former economics editor for the BBC – talked about the investment opportunities from investing in shares.

We are a cautious nation and are naturally careful when taking risk by investing in shares. Stephanie highlighted that the UK stock market, as measured by the FTSE 100 index, has provided positive returns in 21 of the last 28 years. This should be comforting to potential investors who are investing for the medium or long term and who are looking for potential growth far in excess of that available from bank deposit accounts.

The key word here is “potential”, as higher returns are by no means guaranteed by taking extra risk. This is especially the case if money is only invested for the short term.

For those investors who see the potential in the UK stock market, but still don’t like the idea of a capital loss, there are investment solutions available that guarantee your original investment. These are called “structured deposit products” and the original capital is guaranteed by the provider and ultimately by the UK Government up to £85,000 under the depositor protection scheme.

To pay for the guarantees offered by the provider, the investor has to give up some of the profit normally associated with investing in shares. One of the more popular of these types of schemes is offered by Investec. Their structured deposit offers a return based on the FTSE 100. If, at the end of years 3, 4, 5 or 6 the five-day average closing level of the FTSE 100 is higher than the Initial Index Level, the plan will mature with a fixed payment equal to 4.75 per cent gross per annum. If, at the end of year six, the FTSE is still lower than the starting point, then the original capital is returned to the investor in full.

While the returns on this type of investment are likely to be considerably lower than investing directly in the FTSE, it is a lower-risk way to try and obtain a return above that offered by the banks.

Careful advice should be taken before investing.

David Hill is a Chartered Financial Planner and Trust & Estate Practitioner at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email or see