# With Profits Bonds



## federbanger (28 Sep 2006)

I am wondering how do these products work as I was thinking of investing in one. I assume that like most investments products the company in question just puts the money it into the standard big companies and lets them go up or down as they do but returns the dividend that they get to you.

One of the main reason that I asking this question is that I read that Caledonian Life has taken 100 million for it with-profits bond which mean it must be somewhat of a successful product. They say they give out an annual bonus of 3.5% at the moment but don't say where it comes from. It also offers additional bonus should the fund performance be higher than expected.


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## ClubMan (28 Sep 2006)

Wikipedia - With-profits policy.

Bear in mind that _WP_ funds are very opaque with respect to charges,  potential/likely returns and ongoing valuations. 

Why exactly do you think that a _WP _fund is the right investment for your specific circumstances right now? What other savings/investments/debts do you have at the moment? What is your general personal situation?


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## jpd (29 Sep 2006)

Wondered when this would come up - the report on Indo site gave it glowing report - it looks great from mgt charges view point but as Clubman says it is very opaque on almost everything else. The broker must be doing a bomb, it's selling so well!


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## ClubMan (29 Sep 2006)

With *any *_WP _fund charges are not always what they seem. They may quote an annual management charge but other less transparent charges (actual or potential) must also be considered.


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## federbanger (29 Sep 2006)

Clubman, in response to your question, I would not be laden down with any big debts and would be a person with an SSIA so with it finishing up soon, I suppose I would like to keep up the good habit of saving and was looking around at the options.

I don't know enough about the charges and they may well catch you out on technicalities (don't they all??), but it was a 0.5% fee and none after 5 years so from that point of view it looked good value. As well with it being so popular, I thought that they must be doing something right.

I have looked at the definition on Wikipedi and it is excellent but I would love to know people experience that they have come across when there is a downturn in the stock market, how do the WP fair then (as they are heavily invested). If they fall in line with the market then you cannot complain but if it is double the loss then their is no point in going into something like this.


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## ClubMan (29 Sep 2006)

federbanger said:


> I don't know enough about the charges and they may well catch you out on technicalities (don't they all??), but it was a 0.5% fee and none after 5 years so from that point of view it looked good value.


Check very carefully for other actual or potential charges and catches. As I say it's often very difficult to ascertain precisely what the charges are on _WP _products.  


> As well with it being so popular, I thought that they must be doing something right.


 Perhaps but I would not assume this and even if they are it does not necessarily make it the most appropriate product/investment for you.


> I have looked at the definition on Wikipedi and it is excellent but I would love to know people experience that they have come across when there is a downturn in the stock market, how do the WP fair then (as they are heavily invested). If they fall in line with the market then you cannot complain but if it is double the loss then their is no point in going into something like this.


 Unfortunately I know first hand how awkward/opaque _WP _funds can be. I was (and still am to a small extent with some of my pension investments) an _Equitable Life _customer.  _WP _funds simply attempt to smooth returns but the actual returns that they can deliver are dependent on underlying asset (usually stock market) performance. Well that bit is simple - the rest (e.g. charges) is less so. Ultimately they can never pay out more on average than the underlying asset performance. The _EL _situation was particularly bad due to the impact of the whole _GAR _debacle but ultimately I got back my money plus a bit on a 5 year bond and am still in the red on some pension _WP _investments, there's a 10% _MVA _to switch out before maturity and returns are in line with deposit accounts for the past few years! I would never totally rule _WP _out again for myself or others but like tracker bonds (for similar reasons of lack of transparency etc.) they would never be top of my list of preferred investments and I personally would be very, very careful about using them or recommending them to others.


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## DrMoriarty (29 Sep 2006)

Agree 100%. About 14 years ago, on poor advice, I took out a substantial WPB product from the (now defunct) Scottish Provident. I still thank <insert-your-deity-here> that I qualified for a fat demutualisation payoff, because otherwise it would have been an absolute pup.


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## F. Kruger (2 Oct 2006)

Doc

Did you cash it in early or did you let it run it's course to maturity?


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