Which groups of investors are least suited to buying a structured investment product?
In our experience, most of them, but new research from financial services agency Clarendon has found two in particular that should steer clear of these products.
‘Overconfident’ and ‘nervous’ investors are the two investor types least suited to structured investment products, according to Clarendon.
Nervous investors are those who are risk averse but likely to make investments regardless of this attitude.
Overconfident investors are more likely to make risk investments despite not having the assets available to cover any emergencies.
Structured investment products aim to combine stock market returns with the security of capital if the investment is held to maturity. Investors effectively transfer capital risk for counterparty risk, which is often difficult to accurately quantify.
They use a range of financial instruments, including derivatives, to provide this combination of capital protection and investment market exposure.
The findings from Clarendon are interesting because more cautious investors tend to be the prime target for many who sell structured products – particularly the banks.
Understanding capacity for risk and loss is essential before making a suitable investment decision; those without the capacity to deal with a financial emergency should never tie their money up in a five or six year term structured product.
Do speak to us before making an investment decision. You can call our team of experienced and independent advisers on 01483 274566, email us at hello@icl-ifa.co.uk or complete our online enquiry form here.
