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Take stock

The FTSE 100 index fell by over 200 points on July 26, its biggest fall in five years, and with the stockmarket highly volatile ever since, the cautious and the elderly should consider guaranteed equity bonds.

These are suitable for conservative investors as they are likely to be much more attractive than cash and they do protect investors’ capital.

They effectively provide investors with a stockmarket investment but with the comfort that they will not lose the capital.

Great care needs to be taken in choosing guaranteed equity bonds as, in some cases, outside an Isa, profits are taxed as income and some as capital gains.

The three products I like at the moment are the Skandia protected portfolio investment average return plan, Legal & General growth investment plan plus nine and the Barclays five-year protected FTSE plan issue S2.

All the gains on these are taxed as capital gains, with profits of up to 9,200 now available without paying capital gains tax.

They vary in terms from three to six years and are linked to the FTSE 100 index, except for Skandia which is linked to a portfolio of five individually managed funds.

The advantage of linking returns to portfolio funds rather than the FTSE 100 include active management, a spread of investment risk and the benefit of reinvested dividends.

The disadvantage of all these plans is that they must be held to maturity or the investors risk losing some of their capital. They are quite a good compromise for the investor who does not want to ride out the stockmarket.

World stockmarkets are likely to give investors a rough ride for some time but it is historically far more profitable over the longer term to remain in it rather than out of it.


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