Bond Matured Over 3 Years Makes Loss

[SarahBell]

Someone I know was advised on a 3 year bond that 3 yrs ago was making an return of 26%.

They've just had it cashed back and it made a loss. Luckily it was a capital guarantee one so they've just lost three years worth of interest (If they'd kept it in a normal account)

[neil324]

They could have got around 7% on cash deposit bonds then also.

[Mrs Bear]

Someone I know was advised on a 3 year bond that 3 yrs ago was making an return of 26%.

They've just had it cashed back and it made a loss. Luckily it was a capital guarantee one so they've just lost three years worth of interest (If they'd kept it in a normal account)

26%?? I'd have thought that alone would have set alarm bells ringing.

Shades of Bernie Madoff.

[ChumpusRex]

26%?? I'd have thought that alone would have set alarm bells ringing.

Shades of Bernie Madoff.

That's because it wasn't a bond.

This was, almost certainly, a complex structured derivative which are frequently advertised to retail investors. They seem to offer 'stock market based' returns - which could be huge - supposedly without the risk. On the face of it, they look quite promising - but the expensive fees are well hidden and will be completely invisible to most investors.

[Sour Mash]

That's because it wasn't a bond.

This was, almost certainly, a complex structured derivative which are frequently advertised to retail investors. They seem to offer 'stock market based' returns - which could be huge - supposedly without the risk. On the face of it, they look quite promising - but the expensive fees are well hidden and will be completely invisible to most investors.

It's almost as if our super-genius bankers are making products designed to confuse and rip off the general investor. Surely these avatars of probity and integrity upon whom the fate of our society rests would never do such a thing

Wasn't there a story floating around the financial blogs some time back about a derivative offered by a major institution that was guaranteed to lose money ... though that was only obvious if you could decode the complex documentation around it? The idea was that most investors would just snap it up at a time when the market was booming without bothering to find out what they were buying.

[ken_ichikawa]

Wasn't there a story floating around the financial blogs some time back about a derivative offered by a major institution that was guaranteed to lose money ... though that was only obvious if you could decode the complex documentation around it? The idea was that most investors would just snap it up at a time when the market was booming without bothering to find out what they were buying.

That would be all of them then

[Democorruptcy]

Someone I know was advised on a 3 year bond that 3 yrs ago was making an return of 26%.

They've just had it cashed back and it made a loss. Luckily it was a capital guarantee one so they've just lost three years worth of interest (If they'd kept it in a normal account)

When they get the cash tell them to hold each note up against a light to make sure there is the line in.

[Panda]

In Jan 2008......

http://www.investments.co.uk/news/2008/Jan/Nationwide-and-Barclays-launch-new-range-of-investments.html

It was possible to get a one year fix at 6.5% to 7%, wage inflation was up to around 4.8%, the base rate was i think 5.5%.

I bet you could have got a three year fix at 6.5% per annum, so compounded at least a 20% return over three years.

So, why o why risk when cash on long term deposit with the Nationwide is a 99% safe bet?

http://moneyfacts.co.uk/news/savings/fixed-rate-savings-best-in-6-yrs/

Edited December 9, 2010 by Panda