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Julian Gibbs

Despite criticism from some national newspapers, with-profits bonds are by far and away the best investment for most cautious investors, especially when interest rates are low.

In times of volatile stockmarkets, the best with-profits bonds will continue to pay out bonuses above the rate of building society and bank deposits and, provided they are held for at least five years, should provide good terminal bonuses too.

Choosing a with-profits bond is very important.

A high free-asset ratio is vital. In a recent independent survey, Liverpool Victoria and Royal London came out top. In another independent survey by Cazalet Financial Consulting, with other factors being taken into account as well as free-asset ratios, these two companies were rated 10 out of 10. In both surveys, Equitable Life – even before it stopped trading – was the lowest rated company of all.

My favourite with-profits bond is from Liverpool Victoria. It is the biggest friendly society and has shown the best returns of all over the past five years – 11.9 per cent a year after basic-rate tax. While I do not expect returns from any with-profits bond to be as high in the next five years because of volatile stockmarkets and falling interest rates, I still believe the Liverpool Victoria with-profits bond will outperform most investments of all kinds and with a much lower downside risk. Another benefit, which I believe is unique to Liverpool Victoria, is that it guarantees not to apply any penalties on withdrawals in the event of the bondholder needing long-term care or suffering from a terminal illness.

While some companies are paying higher commission than Liverpool Victoria, the best advice is to invest in bonds which give the investor best value for money.

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