Money Insider: Low rates drive savers to take risks with investments

this week RBS launched two new managed funds aimed at those fed up with the paltry returns they can get at the moment through traditional savings accounts. The new funds are available for investments from as little as £1,000 and one is labeled Cautious Managed and the other Balanced Managed.

With cash savings accounts offering such poor returns for the last two years, it is no surprise to learn from the underlying RBS research that more than 1.2 million people who have never previously invested in equity-based products may now be tempted to do so. Let's face it, anyone checking their savings account statements should be thinking hard about what they can do in order to try to obtain a better return on their savings. But while people are free to do what they wish with their savings, I think it's essential that they seek guidance from an independent financial adviser who can explain in layman's terms the potential risks they face in their pursuit of better returns.

Equity-based investments are in the main medium to long-term products and consumers, particularly novice investors unsued to the fluctuations of the stock market, need to fully understand that their capital may not be 100 per cent guaranteed. Unfortunately there is always the danger that novice investors plump for a fund because of the reassuring description they see on the tin.

To highlight the fact that a product name shouldn't be the reason to invest in a particular fund, in a recent FSA consultation document, the regulator reminds financial advisers not to rely on the name of the fund as proof of a particular risk profile, but requires advisers to look at the investment strategy (and understand it).

While I'm not endorsing the new RBS products, I like the fact that the volatility of these funds will be managed on a daily basis, and that the volatility will be maintained within a narrow band – a maximum of 10 per cent for the Cautious fund while the Managed fund is between 10 per cent to 15 per cent.

However, it is worrying that the volatility of funds within funds with the same label, such as Cautious or Balanced, can vary so widely and is another area that advisers and the regulator need to look at more closely.

With adverse headlines relating to non cash investments from the likes of Barclays and Norwich & Peterborough Building Society in recent months, there will undoubtedly be some fear among cash savers who will always be prepared to accept a much lower return in the knowledge that their cash is safe.

Although cautious and managed investments have the potential to provide superior returns when compared with a cash savings account, the element of risk is the crucial piece of information that an adviser should fully understand and be able to communicate clearly to his client. Investors, by the same token, need to understand when it may be worth taking and risk and when they should stick with safer, albeit potentially lower, returns.

Lloyds TSB offers hope to would-be home movers

There has quite rightly been a focus on the plight of first-time buyers in the UK and the hurdles they have to face, not only in having to raise a massive 10 per cent to 20 per cent deposit, but also finding a bank or building society that will approve their application for finance.

However it's not just the wannabe home owners who are finding the going tough – people in a similar position who were lucky enough to get on the property ladder three or four years ago are now trapped in their current home because a fall in property values means the equity in their home is very small and in some cases is in a negative position.

Many of these people have done nothing wrong – they have kept up their mortgage payments as per their contract with their lender, it's just that economic factors outside of their control, ie falling house prices, have gone against them. Lloyds TSB has recognised the plight of these people they call "second steppers" and has launched an equity support initiative to help.

Under the terms of the scheme, existing customers are able to move to a more expensive property as long as they pay the difference from their own funds. For example someone with a £110,000 property and a £130,000 mortgage (loan to value 118 per cent) could move to a property costing £120,000 if they are in a position to pay the additional £10,000.

This will help some move to a larger property to accommodate a growing family. By injecting the extra £10,000 in this example, both the borrower and the lender are in a stronger position as the loan to value is cut to 108 per cent.

Similarly if a borrower with little or negative equity wants to relocate to another property for work purposes, they will now be able to do so under the Lloyds equity support scheme. While this isn't going to unlock the bottleneck in the housing market, it is the sort of forward thinking that we need to see more of to get the property market moving during 2011.

Andrew Hagger is an analyst at Moneynet.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
In this photo illustration, the Twitter logo and hashtag '#Ring!' is displayed on a mobile device as the company announced its initial public offering and debut on the New York Stock Exchange on November 7, 2013 in London, England. Twitter went public on the NYSE opening at USD 26 per share, valuing the company's worth at an estimated USD 18 billion.
news

Arts and Entertainment
Martin Freeman and Benedict Cumberbatch as John Watson and Sherlock Holmes in Sherlock
tv

Co-creator Mark Gatiss dropped some very intriguing hints ahead of the BBC drama's return next year

News
people

London 'needs affordable housing'

Arts and Entertainment
music Band accidentally drops four-letter description at concert
News
news
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines