Capital-protected investments

Sim · 30-04-2008, 06:21 PM

Quote:

Experts say capital protection comes at a cost: most of your money is used for a low return/high-security investment to provide the capital guarantee. A much smaller amount of the money is invested to give you a return.

While your capital is protected, you could still make a loss. As a spokesperson from the Australian Securities and Investments Commission (ASIC) says, "If you just protect your capital and make no additional return, you could actually go backwards once inflation is taken into account."

These investments can also be very complex and hard to understand. According to ASIC, more complicated products are typically more risky than simpler ones.

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AsxBroker · 01-05-2008, 08:44 AM

Just like having money sitting in a bank account earning no interest.
Guaranteed (by the bank) but your losing to inflation

I imagine anyone in the Macquarie ALPS5 series has a bad taste in their mouth now...(and for the next 6 years)

Rob G. · 02-05-2008, 05:08 PM

Exactly ... in fact even worse if your opportunity cost is higher.

My experience has been that when you have paid to take a put option over your portfolio then you tend to hold the loss position for far too long - smug in the knowledge that you "can't lose".

BUT ... if you had jumped ship copping a small loss and moving into a better rising investment months earlier ... that is your opportunity cost.

The psychology seems to be the very opposite of having a stop-loss to make you more nimble and objective with your investments.

I believe as a tool they have their uses, but I think people do not consider the suitabiltiy to their investing style and objectives.

For instance, you might be legally required to have some non-recourse feature as part of borrowing if you are a SMSF.

Or alternatively you may be required to hold a given parcel of securities for a period of time and the market is looking shaky.

Horses for courses, but do your homework.

Cheers,

Rob

aln1001 · 19-06-2008, 09:08 AM

Wow, thanks for the information. although now I'm not so excited about reflexion. My financial advisor seemed very positive and said that it was a good time now because the dollar is level with US and so there is bound to be a drop in the next 7 years. I was going to go in before the end of this financial year and benefit from the tax deduction of the fees. Has anyone actually had success with reflexion? or am I being too chicken?