Capital guaranteed products give a poor return

Many consumers were cajoled into buying capital guaranteed products. They were told verbally that these products have the potential to achieve a specified return.

After a few months, they found that the value of their investment has decreased. Why is this happening? They had approached the people who sold the product to them, but did not get any clear explanation.

Here is the simple truth.

A capital guaranteed product, locked in for 5 years, can earn a total return of about 16% over 5 years (my estimate). Structuring does not increase the yield. It only increases the expenses.

The total expenses, including sales charge, advertising cost, legal fees and annual fees, will take away 10% (my estimate). This leaves the investor with a total return of 6% over 5 years, or about 1% per year.

The value dropped during the initial years, due to the high sales charge (representing about 5% of your invested sum).

These investors have found, after waiting for 5 years, that they got back a miserable return. If they have taken some risk in the structured product, they might have got back a slightly better return (but nothing to cheer about).

If the money was invested in the stock market, the investor would have earned 50% over the past 5 years. If it was invested in capital guaranteed government bonds, the investor would have at least earned 16%.

I am very sad to see so many people receive a miserable return on their investment in structured products during the past years.