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Higher return from lower expectations

I was very surprised by the comments of the normally excellent Julian Gibbs (Money Marketing, November 20). He is completely mistaken to say that "in reality it is most unlikely that any of the major world stockmarkets will be lower in five-and-a-half years".

He should know that it is only because there is a very high probability that at least one of these markets will be lower at the end of the period that such apparent returns can be offered.

These bonds are primarily invested in cash, the remainder is placed in suitable options and other derivatives. The market is calling the probability of one of these markets falling to be at least 20 per cent. Because of this, a return better than gilts can be offered to the investor. You should be aware that the Institute of Actuaries has advised potential clients to beware of these products.

Buying such bonds is more akin to gambling than investing.

Jonathan Goold

NZI Life Ireland,

Galway

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