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03/06/2005: "Updated index for: Low risk products"

Product safety claims don't hold water
Stuart Fowler's September 2004 FT article was prompted by Prudential's new smoothed investment bond - 'son of with-profits' - and looks at why most so-called low-risk products disappoint. Reasons include: charges that overwhelm the modest returns earned on low risk products; option-like strategies that offer little benefit after option costs; real risks that are much higher than both sellers and buyers realise.

With-profits for the Sandler Suite: no way
This and several articles in the 'With-profits' index deal with the misrepresentation of the risks of with-profits funds, relative to both cash savings and equity investing. This arises because 'smoothing' cannot do all that it is cracked up to do.

Other related items:
The means by which equity risk is usually dampened to create a less volatile path for a fund is by combining equities with 'fixed income' investments - as in 'managed funds', for instance. The issues this raises, for long term outcomes in real terms and for the short term path when fixed income markets move in tandem with equities, are explored in the 'Accountants v actuaries' index.

Recognising which risk matters most, path volatility or future wealth outcomes after inflation, is vital to selecting the right risk free asset to manage overall portfolio risk. For individuals with real wealth targets (such as to provide a pension), index linked gilts are the true risk free asset, not non-inflation indexed bonds. This common error in investment planning is covered in the 'Money illusion' index.