When To Take Money From An Investment Bond

[exeter]

Morning all! I have a dilema and would interested to hear what you would do in my position.

In July 2007 I retired and invested £25000 in a Distribution Bond and we all know what happened soon after that, today the bond is worth a shade under £24000. There are exit penalties for the first 5 years, so in july 2012 there will none, currently they are set at £20.41 per £1000. I want to take out £20,000 which would not attract the exit penalty or perhaps wait until July and cash in the lot. The money is required for a retirement visa and the balance as a fall back in case I need hospital treatment, I am 66. The bond is in the UK with Standard Life.

So the question is, bearing in mind what is happening in the Euroland and a Greek Election due on the 17th of June, would you make a move now or wait until the 5 year exit ends which will be mid July?

[PattayaPhom]

The markets the past 10 days have been so unpredictable its anybodys guess...The UK has the advantage of not being in the Euro but over 40% of exports are to the Eurozone so there is an indirect affect on the UK...if this is all the money you have and are relying on this, take it now and pay the penalties, you will still walk away with 23,500..wait a few months you may get a lot less...

[exeter]

That is one option. the first one. the shares are rising a little today as well. Option two What will likely happen on or after 17th June?. ( Greek Election) Option 3 wait for July 9th save £420 in exit fees.

[PattayaPhom]

Id rather pay 420 quid in fees than maybe loose 70% of your fund over the next month...its anyones call...if you can afford to loose it then take a chance but if its the only real capitol you have take the money and run

[fletchsmile]

How long can you afford to wait until you need the money?

How much risk can you afford to take i.e how much more loss could you suffer if you had to?

Also what exactly are they invested in and how? / how are returns generated? unit linked? / with profits etc etc?

Without knowing these as a bare minimum it's difficult to call.

These bonds as you can see are designed to maximise commision charges and the time they can continue to charge you, on behalf of the financial advisors and product providers, with their penalties and lock-ins. Not unlike their distant cousins the offshore portfolio bonds (OPBs) sold by IFAs in Thailand as their main product. Any returns you would have made in the difficult last few years are eaten up by charges, with the only winners being the product providers and financial advisors that sold them to you

Ideally you want to be liquidating the money in less volatile times, as even when you inform them in writing you wish to withdraw the money, you're subject to market fluctuations before they finally execute the trade. Hence the question how long can you wait and other Q's above.

I'd put money on the markets being higher at year-end (tho still risky and no guarantees), but really wouldn't like to say which direction they will go between now and July. Markets have lost quite a bit in value and in my opinion look cheap for longer term holding, and possibly year-end (though still risky), but in the next couple of months could go significantly down or possibly up - although I think in the next 2 months downside risk is higher than upside risk in my personal view.

Depending on the bond type, another option to consider may be selling the investments within the bond, and converting them to cash within the bond, and then withdrawing after the penalty expires. No doubt if this is possible there'll be another transaction fee or switching fee for doing so, but it's an option worth exploring

Really not enough info to help you out much... but hopefully a few ideas

[exeter]

A few ideas thank you, Its Distribution Bond so I expect that the are invested in blue chip companies that produce dividends, which seem to be eaten up by the providers fees! Its not my only means of cash but its the one I want relenquish, the footsie is up tonight by 1.6% so tomorrow I expect it ( the bond price) will be up, calling the Greek eletion is the difficult one and how are they going to accept the austerity package or leave the Euro, the dont want to do either thats the problem. 7 weeks to no exit charges thats the gamble.

[AyG]

Remember that you probably don't have to cash in all your investment. The bond is almost certainly written as a number of individual units, and you can choose to cash in just some of these to meet your immediate needs. The rest can be left invested and (one hopes) to grow over time.

[fletchsmile]

Duplicate

[fletchsmile]

Remember that you probably don't have to cash in all your investment. The bond is almost certainly written as a number of individual units, and you can choose to cash in just some of these to meet your immediate needs. The rest can be left invested and (one hopes) to grow over time.

Yes it may well be written so he can withdraw up to about 75%. This is common in OPBs too. The 25% is left in to ensure the fees are covered and to protect the sellers of the products. Over time the money goes as the fees are paid, and returns on 1/4 of your initial investment need say 8% just to cover 2% fees if charged on original amount.

Exeter,

My father actually had some of these bonds when he passed away, including one with Standard Life, as well as Liverpool Victoria, Prudential etc. I really didn't like them as they were poor value for money and intransparent, not to mention difficult to do anything with and my mum didn't understand how they worked. We just waited for a stable market period and sold them all as soon as possible. I knew I could find better investment homes for the money, and have done. In our case we just wanted shut as soon as possible, and knew every day left with them, was just more hassle, and a day missed in putting the funds to better use. It wasn't nice to take losses on the bond, and get back less than my parents had put in, particularly as my mum needs this money and needs reasonable returns on it. It was a relief to be done with them though, have peace of mind, and in our case re-invest in products for my mum that have done better since.

So can understand why you've earmarked this as the one you want to sell. There's also the emotional relief of getting rid of a crap product, and you'll probably feel better once you've got rid of it. Peace of mind is worth a lot. So even if you "lose" a thousand quid say in market timing compared to what you "might have got" if there's a small rally. Given the record track they've - turned 25k into 24k into 5 years, it's worth remembering that's where the bulk of your performance has gone and any small gains won't mean much anyway, it's still been a crap product regardless of what happens in the last few months. You're not going to get say another 6k in that time so you look back and say after 5 years you got 30k on 25k which is "not too bad". Total return after 5 years will still be poor whether 24k or 25k

I don't see any significant market rally on the cards - at least not until Q4, and there's plenty of things could go wrong to the downside

If July is your time frame. Taking 20k now (no fees) and the rest in July (no fees) would at least give you peace of mind that it's all done and dusted and you can move on with life. Leopards don't change their spots and crap products rarely turn good in such a short time frame. The big decisions have already passed really, and this is just a smaller one with a little bit of timing which pales into significance on what has gone before...

FWIW If you'd have asked in early April, I'd have said go with the old adage of "sell in May and go away", as markets had had a good run. Unfortunately the good run has disappeared now. The second part of the adage (less often quoted) is to come back again on St.Leger's day which is the horse race in mid-September. Historically and statistically there's some merit in this, and unless you're waiting for a September (I said Q4) pick up at the earliest.....then there's not much chance of a significant pick up soon

[exeter]

Flechsmile, you are thinking what I am so what I have decided to do is next tuesday, I will request £20,000 into my account and on the 10th July I will exit completely and put the rmainder in an ISA until I see something better.

Thanks for all your help. Then I have another one of these products from L and G to dispose of, I will wait until after the July date and then whip it out. So a safe haven for about £25000, maybe a bit of risk?

[yoshiwara]

Suggestion: If you haven't opened up a stocks and shares ISA for 2012-2013 say through your bank you should do so for the full amount of 11,200. Buy blue chip good dividend payers such as Vodaphone, BP, Shell. This will lock you into a tax free 5/6% dividend, assuming prices are as is. Put the balance into a one year bond, either bank or building society.

[exeter]

Suggestion: If you haven't opened up a stocks and shares ISA for 2012-2013 say through your bank you should do so for the full amount of 11,200. Buy blue chip good dividend payers such as Vodaphone, BP, Shell. This will lock you into a tax free 5/6% dividend, assuming prices are as is. Put the balance into a one year bond, either bank or building society.

Vodaphone I think are trading at about £1.75 which might make that attractive in July but I will need some money for hospital Insurance ( self Insured- soon be to old, if not already) . I will look into Vodaphone, BP and Shell are nearer to £5 a share I expect, so Vodaphone look a better return.

[yoshiwara]

Suggestion: If you haven't opened up a stocks and shares ISA for 2012-2013 say through your bank you should do so for the full amount of 11,200. Buy blue chip good dividend payers such as Vodaphone, BP, Shell. This will lock you into a tax free 5/6% dividend, assuming prices are as is. Put the balance into a one year bond, either bank or building society.

Vodaphone I think are trading at about £1.75 which might make that attractive in July but I will need some money for hospital Insurance ( self Insured- soon be to old, if not already) . I will look into Vodaphone, BP and Shell are nearer to £5 a share I expect, so Vodaphone look a better return.

I believe BP is currently about 407p and Shell RDSB trading at 2000-2100p. I don't think it matters too much if the 3 shares are trading at different price levels. Both Shell and BP are down 20% from recent peaks. Have a look at the article below from CityWire. It lists some of the shares which some of the investment trusts buy into for dividend exposure. It is the shares we are interested in to buy rather the investment trusts themselves. Also look at the comments for some critical observations: http://tinyurl.com/d7o2lxj